Negligence: Pure Economic Loss Caused By Negligent Misstatements And Acts

Question 1

Negligent misstatements / acts

Answer 1

Despite the fact that no duty of care is generally owed (to avoid causing another to suffer a purely economic loss), where the economic loss is caused by a negligent misstatement, rather than a negligent act, liability may be imposed.

• Recovery of damages for pure economic loss arising from negligent acts (eg physical damage to property causing financial repercussions) is generally limited as floodgates are a concern.
• However, the courts are more willing to allow recovery of damages for pure economic loss caused by negligent misstatements albeit on a restricted basis, where a special relationship exists, therefore so does a duty of care.

Question 2

Consequential economic loss vs pure economic loss

Answer 2

Consequential economic loss - financial loss directly resulting from personal injury or physcial damage to property

Pure economic loss - financial damage suffered as the result of the negligent act/misstatement of another party which is not accompanied by any personal injury or physical damage to property

Consequential economic loss is generally recoverable in tort law as it stems from physical damage in negligence. Pure economic loss is generally only recoverable if a duty of care is established.

Question 3

Duty of care

Answer 3

A duty of care owed by the D to the claimant must be established. This DoC has a restricted nature - it is not automatically assumed and arises in specific circumstances.

In the case Hadley Byrne and Co Ltd v Heller and Partners Ltd, it was established that a D owes a duty of care to the C in the making of a statement (eg advice) only if there’s a ‘special relationship’ between them. The elements for this are:
- the D who made the statement possesses some special skill/expertise related to the statement
- knows it is highly likely that the C will rely on the statement/should have forseen their reliance (voluntary assumption of reliability)
- the C reasonably relies upon it, thereby incurring financial loss

Question 4

Spartan Steel and Alloys Ltd v Martin

Answer 4

General liability/DoC

Recovery of damages for pure economic loss was not permitted as a ‘matter of policy so as to limit the liability of the D’ - Lord Denning

Question 5

Hedley Byrne and Co Ltd v Heller and Partners Ltd

Answer 5

Negligent misstatement - special relationship

Negligent misstatement may give rise to an action for damaged for economic loss

Question 6

Chaudhry v Prabhakar

Answer 6

Special relationship

The C believed the D was knowledgeable any cars, therefore relied on his advice

Question 7

Caparo v Dickman

Answer 7

Special relationship

The D had no knowledge of C’s reliance nor existence.

Question 8

JEB Fasteners v Bloom

Answer 8

Special relationship

C’s reliance wasn’t reasonable as they knew the financial state of the company, so could not claim reliance.

Question 9

Smith v Bush

Answer 9

Third parties

Extended the DoC for negligent misstatement to third parties who are not parties to a contract nor recipients of advice.

Question 10

Patchett v SPATA

Answer 10

Special relationship

There was not sufficient proximity between the parties to give rise to a DoC

Question 11

Pure economic loss caused by negligent misstatements/acts plan

Answer 11

Despite the fact that no duty of care is generally owed (to avoid causing another to suffer a purely economic loss), where the economic loss is caused by a negligent misstatement, rather than a negligent act, liability may be imposed. - Spartan Steel and Alloys Ltd v Martin

• Recovery of damages for pure economic loss arising from negligent acts (eg physical damage to property causing financial repercussions) is generally limited as floodgates are a concern.
• However, the courts are more willing to allow recovery of damages for pure economic loss caused by negligent misstatements albeit on a restricted basis, where a special relationship exists, therefore so does a duty of care.

Consequential v pure economic loss:
- Consequential - financial loss directly resulting from personal injury or physcial damage to property
- Pure - financial damage suffered as the result of the negligent act/misstatement of another party which is not accompanied by any personal injury or physical damage to property

Consequential economic loss is generally recoverable in tort law as it stems from physical damage in negligence. Pure economic loss is generally only recoverable if a duty of care is established.

Apply…..

Special relationship:
- A duty of care owed by the D to the claimant must be established. This DoC has a restricted nature - it is not automatically assumed and arises in specific circumstances.

In the case Hadley Byrne and Co Ltd v Heller and Partners Ltd, it was established that a D owes a duty of care to the C in the making of a statement (eg advice) only if there’s a ‘special relationship’ between them. The elements for this are:
- the D who made the statement possesses some special skill/expertise related to the statement - Chaudhry v Prabhakar
- knows it is highly likely that the C will rely on the statement/should have forseen their reliance (voluntary assumption of reliability) - Caparo v Dickman, Patchett v SPATA
- the C reasonably relies upon it, thereby incurring financial loss - JEB Fasteners v Bloom, Smith v Bush

Apply……

Conclusion - if a special relationship exists for negligent misstatement, the claimant will generally be able to take actions to claim damages for pure economic loss incurred.