Pure Economic Loss Flashcards
Which of the following is correct in relation to losses recoverable in the tort of negligence?
(a)
Pure economic loss is generally recoverable, whilst physical damage and consequential economic loss are not.
(b)
Physical damage and consequential economic loss are generally recoverable, whilst pure economic loss is not.
(c)
Pure and consequential economic loss are generally recoverable, whilst physical damage is not.
(d)
Physical damage, pure and consequential economic loss are generally recoverable.
(e)
Physical damage is generally recoverable, whilst pure and consequential economic loss are not.
(b) Physical damage and consequential economic loss are generally recoverable, whilst pure economic loss is not.
Sebastian runs a restaurant. He engages Tank Specialities Ltd to supply and install a fish tank to store his lobsters in. The tank needs an electric pump to circulate the seawater for the purpose of oxygenation. Tank Specialities Ltd subcontracts the manufacture of the pumps to Motor Ltd. The pumps fail on a Monday morning when the restaurant is closed and 20 lobsters die from lack of oxygen. The lobsters cannot be used on Tuesday. Tank Specialities Ltd is insolvent. Sebastian sues Motor Ltd for the cost of replacing the pumps, for the value of the lost lobsters and for the loss of profit on the intended sale of the lost lobsters.
Which of the following is correct?
(a)
Sebastian can recover damages from Motor Ltd for all three heads of loss i.e. the cost of replacing the pumps, the value of the lost lobsters and the loss of profit on the lost lobsters.
(b)
Sebastian can only recover damages for the cost of replacing the pumps from Motor Ltd.
(c)
Sebastian cannot recover damages from Motor Ltd for any of the heads of loss claimed i.e. the value of the lobsters, the loss of profit on the lost lobsters and for the cost of replacing the pumps.
(d)
Sebastian can recover damages from Motor Ltd for the value of the lost lobsters and for the loss of profits on the intended sale of those lobsters. He cannot recover the cost of replacing the pumps.
(e)
Sebastian can recover damages from Motor Ltd for the value of the lost lobsters but cannot recover damages for the loss of profit on the lost lobsters or for the cost of replacing the pumps.
(d) Sebastian can recover damages from Motor Ltd for the value of the lost lobsters and for the loss of profits on the intended sale of those lobsters. He cannot recover the cost of replacing the pumps.
The cost of replacing the pumps is pure economic loss (the cost of replacing a defective product). The general rule is that there is no duty of care owed for pure economic loss and none of the exceptions to this general rule apply. The damaged lobsters will be classified as property damage and a duty of care would therefore be owed in respect of this loss. The loss of profit on the intended sale of the damaged lobsters would be consequential economic loss and a duty of care would therefore be owed in respect of this loss. Sebastian can only recover for the physical damage to the lobsters and for financial loss suffered as a consequence of that physical damage.
Lisa uses her Dad’s vacuum cleaner for her cleaning business. It explodes, injuring Lisa and breaking her client’s vase. Lisa sues the manufacturing company of the vacuum cleaner for her losses (i.e. for the cost of replacing the vacuum cleaner and vase, and for her injuries). Which of the following is correct?
(a)
Lisa cannot sue the manufacturing company for any losses as it was not her vacuum cleaner.
(b)
Lisa may be able to recover damages for her personal injuries and for property damage to the vase.
(c)
Lisa may be able to recover damages for the cost of replacing the vacuum cleaner only.
(d)
Lisa may be able to recover damages for her personal injuries and for the cost of replacing the vacuum cleaner.
(e)
Lisa may be able to recover damages for her personal injuries only.
(e) Lisa may be able to recover damages for her personal injuries only.
Lisa would not be able to recover damages for the property damage to the vase as it was not her property. Her client would have to sue the manufacturing company instead. Lisa would not be able to recover damages for the cost of replacing the defective vacuum cleaner. The cost of repairing/replacing a defective item is classified as pure economic loss and is not recoverable. Lisa’s dad would have to sue the manufacturing company in the law of contract. Lisa can try and recover damages for her personal injuries. The manufacturing company could owe Lisa a duty of care not to cause her personal injury when using their product.
Which of the following statements is correct?
(a)
A duty of care will not be owed for pure economic loss caused by a negligent statement but might be owed if caused by a negligent act.
(b)
A duty of care will not be owed for pure economic loss caused by a negligent statement or by a negligent act.
(c)
A duty of care will be owed for pure economic loss caused by a negligent statement and by a negligent act.
(d)
A duty of care will not be owed for pure economic loss caused by a negligent act but might be owed if caused by a negligent statement.
(e)
A duty of care will be owed for pure economic loss caused by a negligent statement and might be owed for pure economic loss caused by a negligent act.
(d) A duty of care will not be owed for pure economic loss caused by a negligent act but might be owed if caused by a negligent statement.
An employer provides a disparaging, yet accurate reference for an ex-employee. The ex-employee cannot find a job as a result.
Which of the following is correct in relation to whether the employer owed the employee a duty of care?
(a)
The employer owed the ex-employee a duty of care to provide an accurate reference.
(b)
The employer does not owe the ex-employee a duty of care because they have only suffered pure economic loss.
(c) The employer owed the ex-employee a duty of care to provide a reference.
(d)
The employer did not owe the ex-employee a duty of care to provide an accurate reference.
(e)
The employer owed the person requesting the reference a duty of care to provide an accurate reference, but not the ex-employee.
(a) The employer owed the ex-employee a duty of care to provide an accurate reference.
This precedent for duty of care was established in Spring v Guardian Assurance Plc & Others [1995] 2 AC 296. A referee owes a duty of care to the subject of the reference to provide an accurate reference. It appears the employer has done this.
Whist alive, Naghina’s deceased grandmother had told her that she would inherit £50,000. However, Naghina is told by the solicitors dealing with her grandmother’s will, that the will is invalid and that her grandmother’s previous will (which left everything to Naghina’s sister) would have to be followed instead. This is because Naghina’s grandmother failed to sign the most recent will. The solicitor’s copy was filed without checking the signature was present.
Which of the following is correct?
(a) Naghina will not be owed a duty of care by the solicitors as she has suffered pure economic loss which is not recoverable.
(b) Naghina will be owed a duty of care by the solicitors for the consequential economic loss she has suffered as a direct result of the negligently filed will.
(c)
Naghina will not be owed a duty of care by the solicitors for the consequential economic loss she has suffered because she was not their client.
(d)
Naghina will be owed a duty of care by the solicitors for the pure economic loss she has suffered as a result of the negligently filed will.
(e)
Naghina will not be owed a duty of care by the solicitors for the pure economic loss she has suffered because she was not their client.
(d) Naghina will be owed a duty of care by the solicitors for the pure economic loss she has suffered as a result of the negligently filed will.
Although Naghina has suffered pure economic loss (economic loss not flowing from damage to person or property) and the general rule is that this is not recoverable, there are exceptions to this general rule. Naghina’s loss falls into one of these exceptions.
There is well established precedent that solicitors drawing up a will owe a duty of care to the testator’s beneficiaries who should be allowed to sue the solicitor for the loss of an intended legacy. Naghina will therefore be owed a duty of care by her deceased grandmother’s solicitors for the loss of £50,000.
A friend of Trevor’s provides him with a survey report for a house Trevor wants to buy. Trevor reads the report and buys the house. His friend failed to spot structural movement in the floorboards. The value of the house decreases by £100,000.
Which one of the following is correct?
(a)
Trevor has suffered consequential economic loss caused by a negligent misstatement.
(b)
Trevor has suffered pure economic loss caused by a negligent misstatement.
(c)
Trevor has suffered property damage caused by a negligent misstatement.
(d)
Trevor has suffered property damage and pure economic loss, both of which were caused by a negligent misstatement.
(e)
Trevor has suffered pure economic loss but has no claim in negligence as the survey was provided by his friend.
(b) Trevor has suffered pure economic loss caused by a negligent misstatement.
Trevor has suffered financial loss as a result of his friend’s negligent survey. This will be categorised as pure economic loss because the house will be considered a defective product (when Trevor bought the house it was inherently defective). The decrease in value of the home does not flow from property damage or personal injury and is also therefore pure economic loss.
Which case authority gave guidelines for the criteria to apply when determining whether the defendant assumed responsibility for the correctness of their statement to the claimant? What were these guidelines?
(a)
Banca Nazionale del Lavoro v Playboy Club & Others.
Guidelines: the defendant communicated advice to the claimant or knew it would be; the defendant knew the purpose for which the claimant would use the advice; the defendant knew or reasonably believed the claimant would rely on the advice; and the claimant acted on the advice to their detriment.
(b)
Hedley Byrne v Heller.
Guidelines: reasonable reliance by the claimant on the defendant’s advice; voluntary assumption of responsibility by the defendant for the advice; and a special relationship of trust and confidence between the defendant and the claimant.
(c)
Caparo Industries plc v Dickman and others.
Guidelines: reasonable reliance by the claimant on the defendant’s advice; voluntary assumption of responsibility by the defendant for the advice; and a special relationship of trust and confidence between the defendant and the claimant.
(d)
Hedley Byrne v Heller.
Guidelines: the defendant communicated advice to the claimant or knew it would be; the defendant knew the purpose for which the claimant would use the advice; the defendant knew or reasonably believed the claimant would rely on the advice; and the claimant acted on the advice to their detriment.
(e)
Caparo Industries plc v Dickman and others.
Guidelines: the defendant communicated advice to the claimant or knew it would be; the defendant knew the purpose for which the claimant would use the advice; the defendant knew or reasonably believed the claimant would rely on the advice; and the claimant acted on the advice to their detriment.
(e) Caparo Industries plc v Dickman and others. Guidelines: the defendant communicated advice to the claimant or knew it would be; the defendant knew the purpose for which the claimant would use the advice; the defendant knew or reasonably believed the claimant would rely on the advice; and the claimant acted on the advice to their detriment.
In Caparo Industries plc v Dickman and others, the claimant investor relied on an audit report prepared by the defendant for the shareholders. The defendant did not owe the claimant a duty of care as the report was not prepared for the claimant or for purpose of investing. The House of Lords set out the above guidelines which should be applied when determining whether the defendant assumed responsibility for the correctness of their statement to the claimant.
If a claimant suffers pure economic loss as a result of relying on a negligent statement, and the statement contained a disclaimer: ‘this advice is provided without responsibility’, which statute or statutes might the disclaimer be subject to?
(a)
The Consumer Rights Act 2015 or the Unfair Contract Terms Act 1977.
(b)
The Consumer Rights Act 2015.
(c) The Consumer Rights Act 2016 and the Unfair Contracts Terms Act 1975.
(d)
The Unfair Contract Terms Act 1977.
(e)
The Customer Rights Act 2015 and the Unfair Contracts Terms and Disclaimers Act 1977.
(a) The Consumer Rights Act 2015 or the Unfair Contract Terms Act 1977.
The Consumer Rights Act 2015 (CRA 2015) regulates disclaimers between traders and consumers so will be relevant where the claimant is a consumer and the defendant a trader. The Unfair Contract Terms Act 1977 (UCTA 1977) regulates disclaimers in contracts between businesses, so will be relevant where both parties are acting in the course of business.
What is the general rule as to recovery of pure economic loss?
It will not be recoverable
What is the definition of pure economic loss?
Arises where there has been no damage to C’s property of injury to their person
Examples:
1. If C has suffered no physical damage to person or property, then loss will be pure economic loss eg where C has made bad investment, missed contractual opportunity or lost inheritance
2. If C suffers economic loss as result of damage to property in which they have no proprietary interest, loss will be pure economic loss
3. Not possible to claim for cost of repairing inherently defective item which has been categorised as pure economic loss. If C’s claim is that their property is not up to standard they expected, their claim will not generally succeed in tort - they have always had property subject to defect - insurance damages may be available in contractual claim.
What are the three exceptions to pure economic loss?
- Pure economic loss caused by negligent statements
- Wills: solicitor owes duty to beneficiary in order to receive practical justice - extends to other cos offering will-making services
- Reference: duty of care owed to subject of reference to give provide accurate reference
What are the three tests in relation to pure economic loss caused by negligent misstatement?
- Reasonable reliance
- Assumption of responsibility
- Special relationship of trust and confidence between parties
not all three tests have to be satisfied - can be one or combination
What are the elements for reasonable reliance test?
- C relied on D’s advice - question of fact
- It was reasonable for C to rely on D’s advice
(a) Special skill or knowledge held by D: D need some special expertise in order for there to be special relationship ie D needs to be in better position than C to know facts
(b) Special skill or knowledge held by C: if C has relevant skill or knowledge in relation to advice, then courts may find that it is not fair, just or reasonable for C to have relied on D’s advice
(c) General context in which advice is given: generally no DOC will exist where advice is given in social situation bc there is no assumption of responsibility - not always the case
(d) Other relevant factors eg nature of advice, potential risk to C if advice wrong and availability ad practicality of second opinion - D knew or ought to have known that C was relying on advice - question of fact
What are the elements for test of assumption of responsibility?
- D must communicate the advice to C (as an identifiable individual or as a member of an identifiable class) or know that it will be communicated to them;
- D must know the purpose for which C will use this advice;
- D must know, or reasonably believe, that C will rely on this advice without independent enquiry; and
- C must have acted upon that advice to their detriment.
