Negligence: Pure Economic Loss Flashcards
what is pure economic loss?
monetary loss which has not been caused by personal injury or damage to another property
what is consequential economic loss?
a financial loss that is a direct result of personal injury or damage in negligence
what is the position regarding pure and consequential economic loss?
Pure > generally, pure economic loss is not recoverable. D does not owe C a duty of care not to cause pure economic loss.
Consequential > is recoverable. If D a duty of care is proven, then D is liable for any consequential loss which follows from that.
what is the position regarding duty of care and pure economic loss?
Generally, D does not owe C a duty of care not to cause pure economic loss. This is because there is not a ‘sufficiently close relationship between C and D. Therefore, the claim falls at the first hurdle.
However, this is a limited duty situation and not a no duty situation. If there is a ‘sufficiently close relationship’, courts may allow C to recover for pure economic loss in limited circumstances
give an example of consequential economic loss
Consequential Economic Loss
o David negligently builds a bonfire which destroys the shed belonging to his neighbour. Fred has to pay £500 for a new shed and has to pay £5 p/w to store his lawnmower in a local garage for three weeks. Fred has spent a total of £515.
o Fred has incurred this loss as a result of the physical damage to the shed. The monetary loss follows from the physical damage. This is called consequential economic loss.
what is the position regarding economic loss caused by acquiring a defective item of property?
if the damage C has suffered is economic loss caused by acquiring a defective item of property, this will be classed as pure economic loss and is not recoverable i.e. a DVD player is faulty. C cannot sue in negligence for the cost of this as this is pure economic loss.
However, if the defective item of property has caused personal injury or physical damage, then the courts are much more likely to find a sufficiently close relationship. However, they will still not be able to claim for the pure economic loss i.e. a faulty DVD player causes property damage. C could sue for the cost to repair the property, but not the cost of the DVD player.
When dealing with this type of situation, it is important to check is it pure economic loss and not consequential loss and whether the original purchaser could sue for breach of contract instead
give an example in relation to defective item of property
Example 1:
o Annie buys a DVD player for her son. It does not work as it is faulty.
o James was not the purchaser so he does not have a contract with the retailer. The contract was between the purchaser (Annie) and the retailer.
o Therefore, James could not sue for breach of contract and would need to sue the retailer in negligence.
o However, he has suffered pure economic loss and there is not a sufficiently close relationship between James and the retailer.
o Therefore, his negligence claim would fail.
Example 2:
o Maria buys herself a hairdryer from the retailer ‘Super Cheap Ltd.’
o Super Cheap Ltd goes out of business.
o The hairdryer is faulty and does not work.
o Maria finds out that Electrics Co. manufactured the hairdryer.
o Maria would not be able to sue Electrics Co. for breach of contract because the contract was not between Electrics Co. and her, but between her and Super Cheap Ltd.
o She would therefore need to sue Electrics Co. in negligence. However, the loss is purely economic and there is no sufficiently close relationship between Maria and Electrics Co. and she has suffered pure economic loss.
o Therefore, she will lose her claim and cannot recover her loss.
what is the position regarding economic loss caused by damage to the property of a third party? Give an example.
- If D’s negligence has resulted in physical damage to a third party which has caused C to suffer a monetary loss, this is pure economic loss and cannot be recovered by C. However, if there is an consequential loss this is recoverable.
o Tony agrees to lend Dale a suit
o Tony’s suit is destroyed a day before by Sam starting a negligent fire
o Dale then has to spend £100 to hire a suit
o There is physical damage to property but it is a third party’s property (i.e. Tony’s suit).
o Tony would be able to sue Sam in negligence for the loss of the damage caused to the suit
o However, Dale would not be able to recover the £100 spent on a hire suit from Sam. Dale has only suffered a monetary loss as a result from damage to a third party’s property. This is pure economic loss and not recoverable.
what is the general rule in regard to negligent statements?
no duty of care is owed for pure economic loss as a result of a negligent statement, but there is an exception to this.
what is the exception to the general position regarding negligent statements?
There will be a duty of care between D and C for a negligent statement where the ‘special relationship’ test is satisfied
in other words, the general position is that there is no duty of care owed between C and D for pure economic loss caused by a negligent statement. However, if there is a special relationship between C & D, the court may impose a duty of care. The claimant would still need to prove breach and causation. Subject to C providing breach and causation as well, this means D could be liable for pure economic loss resulting from a negligent statement
what is the criteria for the ‘special relationship’ test?
o Did the defendant assume a responsibility towards the claimant?
o Did the defendant know the purpose for which the advice was required?
o Did the defendant know that the advice would be communicated to the claimant, (either specifically or as a member of an ascertainable class)?
o Did the defendant know that the claimant was likely to act on the advice without independent inquiry?
o Was the advice acted on by the claimant to its detriment?
o Was it reasonable for the claimant to rely on the defendant for advice?
what is the position regarding negligent statements and social situations?
In social situations there is not a DOC between two friends and so it would not normally be reasonable for C to rely on D’s advice. However, if D has more knowledge and skill and C makes it clear they intend to rely on this advice then there will be a DOC for a negligent statement which causes pure economic loss.
re: negligent statements
what is the position regarding negligent statements to a third party? Give an example
Where D gives a negligent statement (i.e. a job reference) to to a third party which results in C suffering loss (i.e. not getting the job), it will be established that D did assume responsibility over C and thus a duty of care was owed so D may be liable for the pure economic loss.
what is the position regarding delivery of negligent professional services?
Give an example.
if D has assumed a responsibility over C and D has negligently provided professional services in some way which has caused pure economic loss to C, they will be liable
example:
o A client instructed D, a solicitor, the draft a new will.
o The client died before D drafted the new will. D had acted negligently.
o Therefore, the old will took effect.
o C would have been a beneficiary under the new will, but the solicitor’s negligence caused him to lose his prospective inheritance.
o C sued D for pure economic loss suffered as a result of D’s negligence.
o It was held D did owe C a DOC. There was a sufficiently close relationship between them as D could clearly foresee that if the will were not drafted before the client died, potential beneficiaries would not be able to claim their inheritance. Therefore, D assumed a responsibility to the potential beneficiaries.
what is the principle in Henderson?
if D and C have a contract, C can still bring a negligence claim for pure economic loss caused by negligent professional services so long as the duty in tort was consistent with the contractual duty i.e. in tort C is required to take reasonable care and under contract D is under a duty to take reasonable care
