Negligence: Pure economic loss Flashcards
Duty to not cause pure economic loss
As a general rule, a defendant does not owe any duty of care to a claimant not to cause pure economic loss. In other words, as a general rule, where a claimant suffers damage which is classed as pure economic loss, that loss is not recoverable
Economic loss caused by acquiring a defective product
Economic loss unconnected to the personal injury to the claimant or physical damage to the claimant’s property
Economic loss unconnected to physical damage to the claimant’s person or property can be either:
* economic loss caused by damage to the property of a third party; or
* economic loss caused where there is no physical damage.
Economic loss caused by damage to the property of a third party
If a defendant negligently damages the claimant’s property and causes the claimant loss, there is a sufficiently close relationship between the claimant and the defendant. The defendant owes the claimant a duty of care and the claimant can recover their loss from the defendant. This is not a situation of pure economic loss.
If the defendant negligently damages property belonging to a third party and causes
the claimant loss, there is not a sufficiently close relationship between the claimant and the defendant. The defendant does not owe the claimant a duty of care and the claimant cannot recover their loss from the defendant. This is a situation of pure economic loss.
Economic loss caused where there is no personal injury to the claimant or physical damage to the claimant’s property
Economic loss where there is no physical damage caused by actions: Economic loss caused by negligent actions where there is no physical damage falls within the general rule that there is no duty of care for pure economic loss
Economic loss where there is no physical damage caused by a negligent statement: No duty of care is owed but there is an exception. The exception to the general rule arises in cases where the court is able to find that there is, in fact, an especially close relationship between the claimant and the defendant.
Hedley Byrne established that a duty is owed if there is a special relationship between the defendant and the claimant. The two elements to a special relationship under Hedley Byrne are:
(a) an assumption of responsibility by the defendant;
(b) reasonable reliance by the claimant
The case of Caparo laid down the four criteria to be satisfied for a defendant to have assumed a responsibility towards a claimant:
* The defendant knew the purpose for which the advice was required.
* The defendant knew that the advice would be communicated to the claimant (either specifically or as a member of an ascertainable class).
* The defendant knew that the claimant was likely to act on the advice without independent inquiry.
* The advice was acted on by the claimant to its detriment.
Is there a special relationship between the defendant and the claimant?
* Did the defendant assume a responsibility towards the claimant?
∘ Did the defendant know the purpose for which the advice was required?
∘ Did the defendant know that the advice would be communicated to the claimant (either specifically or as a member of an ascertainable class)?
∘ Did the defendant know that the claimant was likely to act on the advice without independent inquiry?
∘ Was the advice acted on by the claimant to its detriment?
* Was it reasonable for the claimant to rely on the defendant for advice?
Economic loss caused where there is no physical damage: extension of the special relationship
Pure economic loss: breach of duty and causation of damage
In those situations where a duty of care is owed not to cause pure economic loss, it is necessary to go on to consider the other elements of a claim in negligence: breach of duty and causation of damage. It is also necessary to consider possible defences.
The defence which is most relevant is the exclusion of liability
Exclusion of liability
There are two important requirements which any defendant needs to satisfy before they will be able to rely on an exclusion notice. These are:
* Reasonable steps must have been taken to bring the exclusion notice to the claimant’s attention before the tort was committed.
* The wording of the notice must cover the loss suffered by the claimant.
The ability of a defendant to exclude liability is further limited by the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015.
In what circumstances is UCTA available?
For UCTA 1977 to be applicable, the defendant must be acting in the course of business. For CRA 2015 to be applicable, the defendant must be acting as a trader (ie for purposes relating to that person’s trade, business, craft or profession) and the claimant must be acting as a consumer (ie for purposes that are wholly or mainly outside the individual’s trade, business, craft or profession)
What can the defendant not exclude liability for?
The defendant cannot exclude liability for death or personal injury resulting from negligence. This is under s 2(1) of UCTA 1977 and s 65(1) of CRA 2015. With regard to any other type of loss or damage, the defendant can exclude or restrict his liability only if the exclusion satisfies the requirements of reasonableness under s 2(2) of UCTA 1977 or fairness under s 62 of
CRA 201
