Negligence: Pure Economic Loss

Question 1

What is pure economic loss?

Answer 1

Financial loss where** claimant has not suffered personal injury or property damage**

(Consequential economic loss is where financial loss is consequential on injury suffered)

Question 2

What is the general rule regarding pure economic loss caused by a negligent act?

Answer 2

Cannot claim for pure economic loss arising from a negligent act (Spartan Steel)

Question 3

PEL caused by negligent act - Spartan Steel v Martin

Answer 3

M digging road outside S factory - negligently severed cable leading to power cut. As result of power cut, steel damaged & had to be disposed of.

S tried to claim for
1. Ruined steel
2. Profit they would have made on that ruined steel
3. Profit they would have made on steel that could have made in the following 14 hours when had no power

Were allowed to claim for (1) the ruined steel because it was property damage and (2) profits on ruined steel because it was consequential economic loss

But could not claim for (3) profits on steel they weren’t able to do because PEL
(Denning: should have taken responsibility, eg. power cut could be for any number of reasons, better to get insurance)

Question 4

What is the general rule regarding PEL and negligence?

Answer 4

General rule: there is no duty of care owed

Question 5

What is the exception to the general rule on duty of care & PEL?

Answer 5

Pure economic loss arising from a negligent misstatement - a duty of care can be owed if there is

1. An assumption of responsibility by the defendant
2. Reliance by the claimant on that advice is reasonable

Question 6

When will a duty of care be owed for pure economic loss resulting from a negligent misstatement?

Answer 6

1. An assumption of responsibility by the defendant
   - four part test:
   a. Defendant knows the specific purpose for which the claimant is going to use the advice

b. Defendant knows the advice will be communicated to the claimant specifically

c. Defendant knows or ought to have known that the claimant was likely to act on that advice without independent enquiry (ie. asking for a second opinion)

d. Claimant acts on the advice to their detriment

and

2. Reliance by the claimant on the advice is reasonable
   (ie. was it reasonable in the circumstances for the claimant to have relied on that advice)

Question 7

What is the four part test for identifying whether there has been an assumption of responsibility by the defendant in a PEL claim arising from negligent misstatement?

Answer 7

a. Defendant knows the specific purpose for which the claimant is going to use the advice

b. Defendant knows the advice will be communicated to the claimant specifically

c. Defendant knows or ought to have known that the claimant likely to act on that advice without independent enquiry

d. Claimant acts on that advice to their detriment

Question 8

Will there be a duty of care owed for PEL where the ‘negligent misstatement’ is a job reference?

Answer 8

Yes, where the reference is given to a third party & the claimant suffers a loss because the reference is eg. not true

(Spring v Guardian)

Question 9

Can parties to a contract exclude liability for economic loss?

Answer 9

Business 2 Business: yes, if it is reasonable to do so (s2(2) UCTA)

Business 2 Consumer: yes, so long as it is not unfair - if it is unfair, it will not be binding

Question 10

Is economic loss caused by acquiring a defective item of property a recoverable loss in negligence?

Answer 10

No - it is categorised as pure economic loss

(eg. as a result of manufacturing defect, car it totalled. Can’t claim damages for cost of replacing the car)