Negligence: Pure economic loss Flashcards
A solicitor’s client inherited a nearly new sportscar under his uncle’s will. The car was valued at £100,000.
The man collected the car from his uncle’s house and began driving it to his home. While driving on a motorway one of the front wheels came off, causing the car to overturn.
The man suffered personal injuries and £50,000 in lost income while he was recuperating from his injuries. The car was damaged beyond repair.
An expert’s report obtained on behalf of the client states that the car’s wheel became detached due to a manufacturing defect.
What advice should the solicitor give to the client about the potential damages that could be recovered from the car’s manufacturer in negligence?
A- The client can claim for his personal injuries only.
B- The client can claim for his personal injuries, his lost income and the cost of the car.
C- The client will not be able to claim for any of his losses because they are caused by acquiring a defective item of property.
D- The client should claim for his personal injuries and his lost income.
E- The client will not be able to claim for any of his losses because they are categorised as pure economic loss.
The correct answer is D. The client can claim for his personal injuries and his consequential economic losses i.e. his lost income. He is unable to claim for the cost of the defective car in negligence. This is because economic loss caused by acquiring a defective item of property is categorised as pure economic loss (Murphy v Brentwood DC [1990]).
A is wrong because the client can claim for his economic losses that are connected to his personal injury.
B is wrong because the cost of the car is pure economic loss and falls within the general rule that such losses are not recoverable in negligence.
C is wrong because it only explains why the cost of the car is not recoverable. The client can claim for his personal injuries and consequential economic loss.
E is wrong because only the car is categorised as pure economic loss.
Which of the following options best describes liability in tort for negligent statements?
A-There can never be liability for negligent statements because the harm suffered is pure economic loss.
B-There can be liability for negligent statements if the claimant and defendant are in a ‘special relationship’.
C-There will be liability for negligent statements unless the defendant has excluded their liability.
D-There can be liability for negligent statements as long as the claimant and defendant were in a contractual relationship.
E-There can be liability for negligent statements and the defendant is unable to exclude their liability.
B is the correct answer because liability for negligent statements depends upon the existence of a ‘special relationship’ involving an assumption of responsibility by the defendant and reasonable reliance by the claimant (Hedley Byrne v Heller [1964]).
A is wrong because, while there generally is no liability for pure economic loss in negligence, there is an exception under Hedley Byrne v Heller.
C is wrong because liability will not always exist. It is correct, however, that liability can be excluded. E is therefore wrong.
D is wrong because the parties do not have to be in a contractual relationship for a ‘special relationship’ to exist.
Last month, a woman purchased a new teapot. The woman is a self-employed maths tutor who runs online tutoring sessions from her home. Last week, five minutes after starting an online tutoring session, the woman poured herself a cup of tea from her new teapot. Unfortunately, the handle of the teapot broke off, causing the woman to drop the teapot onto her table. Some of the hot tea splashed onto her laptop and the laptop stopped working. She was using the laptop to conduct the online tutoring session and, therefore, she was unable to continue the session. As a result, she incurred a loss of income in relation to that incomplete tutoring session.
The woman discovered that the retailer from whom she purchased the teapot has ceased trading. She has since contacted the manufacturer of the teapot. The manufacturer has admitted that the model of teapot purchased by the woman does contain a design defect which makes the teapot handle liable to break off.
The woman took her laptop to a computer repair shop. The shop took two days to repair her laptop, during which time she could not conduct any online tutoring sessions. As a result, she had to cancel the 14 sessions she had previously organised.
Yesterday, the woman purchased a replacement teapot.
Which losses incurred by the woman will be recoverable if she brings a negligence claim against the manufacturer of the teapot?
A-The cost of the replacement teapot, the laptop repair cost, the lost income from the incomplete tutoring session and the lost income from the 14 cancelled tutoring sessions.
B-The laptop repair cost, the lost income from the incomplete tutoring session and the lost income from the 14 cancelled tutoring sessions.
C-The cost of the replacement teapot and the laptop repair cost
D-The laptop repair cost and the lost income from the incomplete tutoring session.
E-The cost of the replacement teapot, the laptop repair cost and the lost income from the incomplete tutoring session.
Option B is correct because the only loss incurred by the woman which is not recoverable in negligence is the cost of replacing the defective product itself (in this case the teapot). The cost of replacing or repairing a defective product is treated in law as pure economic loss caused by acquiring a defective item of property. This pure economic loss is not recoverable in negligence (Murphy v Brentwood DC [1990] 2 All ER 908). By contrast, the cost of replacing or repairing other property belonging to the claimant (in this case the laptop) is recoverable in negligence. Moreover, economic loss which is a consequence of damage to the claimant’s other property is treated in law as consequential economic loss and is recoverable in negligence. In this case the lost income (from the incomplete tutoring session and the 14 cancelled tutoring sessions) is a consequence of the damage to the woman’s laptop and hence is recoverable in negligence.
Option A is wrong because the cost of the replacement teapot is pure economic loss and, as explained above in relation to Option B, this pure economic loss is not recoverable in negligence. However, it is recoverable in contract. The woman’s claim in contract would need to be against the retailer who sold her the teapot, but that retailer has ceased trading.
Options C, D and E are wrong because they do not reflect the correct legal position, which is set out above in relation to Option B.
The bread ovens in a bakery stop working one day because the power cable that supplies electricity to the bakery is negligently cut by a road repair company. The power cable is owned by the local electricity company. When the power cable is cut, 1,000 loaves of bread are in the bakery’s ovens and they are all ruined. The loaves cost £200 to make and the profit lost on the loaves is £2,000. The power cable is not mended for two days and the loss of profit due to the bread ovens being out of action for this time period is £12,000. The bakery brings a claim in negligence against the road repair company.
Which of the following answers is correct?
A-The bakery’s claim is unlikely to be successful because the damaged power cable does not belong to them.
B-The bakery’s claim is unlikely to be successful because their losses are purely economic.
C-The bakery’s claim is likely to be successful, but they will only be awarded damages for the £200 cost of the ruined loaves.
D-The bakery’s claim is likely to be successful, but they will only be awarded damages for the £200 cost of the ruined loaves and the £2,000 loss of profit on them.
E-The bakery’s claim is likely to be successful and they will be awarded damages for all their losses.
Option D is correct because the damaged loaves constitute property damage and the loss of profit on them is consequential economic loss (Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27).
Option A is wrong because the bakery has suffered property damage caused by the negligence of the road repair company.
Option B is wrong because the damage is not purely economic. The damaged loaves constitute property damage and the loss of profit on them is consequential economic loss.
Option C is wrong because the bakery will also be able to claim for the economic loss that is consequential on the damaged loaves.
Option E is wrong because the £12,000 loss of profit whilst the power cable was out of action is pure economic loss and so cannot be claimed.
A surveyor prepares a written valuation report for a plot of land for his brother as a favour. The brother wants to buy the land for development jointly with a work colleague. The surveyor’s report confirms the land would be a good development site and recommends his brother and work colleague proceed with the purchase. Unfortunately, the surveyor failed to carry out proper enquiries and did not discover that the land is contaminated and so worthless for development.
Which of the following persons is most likely to be owed a duty of care in negligence by the surveyor?
A-The brother, who already knew the land was contaminated but decided, nonetheless, to follow the surveyor’s recommendation and buy it.
B-The brother’s girlfriend who did not see the written report but who agreed to contribute to the purchase price when the brother told her of the surveyor’s recommendation.
C-The brother’s bank who saw a copy of the report before agreeing to lend the brother money to complete the purchase. The surveyor did not know his brother would show the report to the bank.
D-The work colleague, to whom the report was also addressed.
E-The brother’s cleaner who saw a copy of the report lying on a table and on reading it decided to buy a plot of land on the same site as an investment.
Option D is the correct answer because applying the test for duty in negligent misstatement cases (from Hedley Byrne v Heller [1964] AC 465 and Caparo Industries v Dickman [1990] 2 AC 605) the surveyor assumed responsibility for the work colleague as he knew the purpose for which the work colleague required the report, the report was addressed to the work colleague, and the surveyor knew the work colleague was likely to rely on the report. The work colleague did rely on the report to their detriment and that reliance was reasonable in the circumstances.
Options B, C and E are wrong because the surveyor was not aware of the bank, girlfriend or cleaner when preparing the report and so would not have assumed responsibility for them.
Option A is wrong because although the surveyor might have assumed responsibility for his brother, his brother’s reliance on the report was not reasonable given he already knew the land was contaminated.
A client chooses a building firm to build an extension. During the build, the extension is inspected by the local authority to check that it meets safety regulations. After the extension is complete, and the builders have been paid, the client discovers that the walls of the extension are collapsing because they were not constructed properly, and it will cost a lot to put it right. The client contacts the building firm only to find they have gone out of business. The client obtains evidence that the local authority was negligent when it inspected the extension.
Can the client bring a claim in tort for the cost of repairing the extension?
A-Yes, because the building firm were negligent.
B-No, because the extension was inspected.
C-No, because the loss is a pure economic loss.
D-No, because the building firm have gone out of business.
E-Yes, because the local authority was negligent.
Option C is correct because the damage that the client has suffered is pure economic loss due to the fact that it has been caused by the client acquiring a defective item of property, the extension. As no duty of care is owed in respect of pure economic loss in these circumstances, the loss is not recoverable.
Option A is wrong because even though the building firm may have been negligent as they have gone out of business they cannot be sued. Had they still been in business, the client may have been able to sue them in contract.
Option B is wrong because the local authority were negligent when they inspected the extension for failing to spot it was not constructed properly. However, damages cannot be recovered from them because the client has suffered pure economic loss.
Option D is wrong because the loss is a pure economic one that cannot be pursued in tort. The claim against the building firm would have been in contract had they not gone out of business.
Option E is wrong because even though the local authority were negligent and this negligence caused the loss, damages cannot be recovered from them because the client has suffered pure economic loss.
A client has consulted a solicitor about problems they are having with a new computerised record system. The client provides employers with security checks on prospective new employees. It does this using the computerised record system to search for information about credit records, county court judgments, and criminal convictions.
The record system was purchased from a retail company specialising in the supply of computer systems comprising both hardware and software. The client has encountered a fault in the computer hardware. The client did initially complain to the retail company. However, they have received no reply and it seems that this company may have ceased trading.
The hardware was manufactured by another large and reputable company. This company has accepted that there is a fault in the hardware. It has offered to supply the replacement parts at a discount.
The client has asked for advice on whether they should accept this offer, or whether, in fact, they could sue the manufacturer for the full cost of a new system.
Which of the following statements best explains whether the client should accept the offer by the manufacturer rather than suing the manufacturer for the full cost of a new system?
A-Yes, because, while the manufacturer has admitted liability, the client should avoid incurring unnecessary legal costs.
B-No, because the manufacturer owes the client an established duty of care and it has admitted that it is in breach of that duty.
C-Yes, because the client has suffered pure economic loss and the manufacturer does not owe them a duty of care. If they sue the manufacturer their claim is bound to fail.
D-No, because the client can sue the manufacturer in contract for the full cost of a replacement system.
E-No, because a duty of care is owed as there is a ‘special relationship’ between the client and the manufacturer, and the manufacturer has admitted that it is in breach of that duty.
Option C is correct – this is an example of economic loss caused by acquiring a defective item of property. The client’s loss is categorised as pure economic loss and is caught by the general rule that there is no duty of care owed for this type of loss. As there is no exception that would apply, the client should accept the offer that has been made by the manufacturer.
Option A is wrong because, while it is generally correct that any unnecessary legal costs should be avoided, this is not the reason why the offer should be accepted as the client’s claim is bound to fail in any event. The manufacturer may have admitted that it was at fault, but it will not be liable because a duty of care is not owed to the client.
Option B is wrong because the manufacturer’s duty of care only encompasses physical damage, personal injury and any consequential economic loss. It does not apply to pure economic loss.
Option D is wrong because the client’s contract is with the retail company and not the manufacturer. The client does not, therefore, have a claim against the manufacturer in contract.
Option E is wrong because there is nothing on the facts to suggest that a special relationship involving an assumption of responsibility by the manufacturer to the client would apply
A solicitor is instructed by a client who wishes to bring a claim in negligence for substantial losses arising from an investment they have made in commercial properties. The client had asked a friend, who is an estate agent, to advise on suitable purchases. The client had no knowledge of the risks involved in buying commercial properties and had made it clear that they would be relying on their friend’s skill and judgment. The client’s friend recommended buying two shops near to residential areas with the stated aim that the shops would become fast food restaurants. The client bought the shops on the basis of the friend’s recommendation. The client later discovered that the shops would not get planning permission to serve hot food and has suffered a substantial loss of income from the shops as a result. The client now wishes to recoup these losses from their friend.
Which of the following statements best explains whether the client is owed a duty of care by their former friend?
A-No, because there can never be a duty of care in respect of negligent advice given in a social situation.
B-No, because the client has suffered pure economic loss
C-Yes, because the former friend had assumed a responsibility to the client and the former friend did not exclude their liability by way of a disclaimer.
D-Yes, because the former friend had assumed a responsibility to the client and it was reasonable for the client to rely on the former friend for advice.
E-Yes, because it was reasonable for the client to rely on the former friend for advice and the former friend did not exclude their liability by way of a disclaimer.
Option D is correct as it correctly states the two parts of the test for a duty of care to be owed for negligent statements.
Option A is wrong because, while it is generally true that there is no duty of care in respect of advice given in a social situation, there are exceptions (as per Chaudhry v Prabhakar [1989] 1 WLR 29).
Option B is wrong because, while it is true that there is generally no duty of care for pure economic loss, there are exceptions – in particular for negligent statements (as per Hedley Byrne v Heller & Partners Ltd [1964] AC 465).
Option C is wrong as, while an assumption of responsibility is one element of when a ‘special relationship’ may give rise to a duty of care for negligent statements, it must also be reasonable for the claimant to rely on the defendant for advice. Also, the fact that there may or may not have been a disclaimer of liability is not relevant to whether a duty of care was owed.
Option E is wrong for similar reasons to option D, the difference being that there must also be an assumption of responsibility by the defendant to the claimant.
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