Pure Economic Loss Flashcards
What is ‘Pure economic loss’
It is important to first understand that as a general rule, where a claimant suffers damage which is
classed as pure economic loss, that loss is not recoverable.
However, in the case of ‘consequential economic loss’ = money loss which flows from the pysical dmage to property/person is recoverable. here is no consequent
Economic loss caused by acquiring a defective item of property
- The damage they have suffered is economic loss caused by acquiring a defective item of property;
- this damage is classed as pure economic loss;
- no duty of care is owed in respect of pure economic loss
Another exapme is work that wasn’t propooerly done which resulted int the product being sold below market value (?) - C acquired something that was less valuabel thna the price paid for it. - Therefore cannot sue for cost of repair…
However, where a claimant has suffered personal injury or damage to property that is caused by acquiring a defective item of property, the law is much more ready to accept that there is a sufficiently close relationship between claimant and defendant for a duty of care to arise.
Economic loss unconnected to 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
- 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 physical damage can be either:
* caused by negligent actions; or
* caused by negligent statements - potentialt for unlimtied liablity.
The exception is Negligent statements: special relationships. This is in cases where the court is able to find that there is,
in fact, an especially close relationship between the claimant and the defendant. eg “asumed responsibility towards C” ( Hedley Byrne v Heller & Partners Ltd [1964])
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.
Cases which followed Caparo have applied this test to determine liability.
Economic loss caused where there is no physical damage can be either:
- caused by negligent actions; or
- caused by negligent statements - potential for unlimited liability.
The exception is Negligent statements: special relationships. This is in cases where the court is able to find that there is,
in fact, an especially close relationship between the claimant and the defendant. eg “assumed responsibility towards C” ( Hedley Byrne v Heller & Partners Ltd [1964])
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.
Cases which followed Caparo have applied this test to determine liability.
The general rule is that, usually, no duty of care will be owed in respect of advice given in a
social situation because there is no assumption of responsibility. This is confirmed in the case
of Chaudhry v Prabhakar [1989]
A checklist of the overall test derived from both Hedley Byrne and Caparo is as follows:
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?
Defence: 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.
Where UCTA 1977 or CRA 2015 apply:
* it is not possible for the defendant to exclude liability for death or personal injury;
* it is possible for the defendant to disclaim liability for negligent acts causing other damage,
provided the disclaimer is reasonable under the 1977 Act or fair under the 2015 Act.
The House of Lords listed a number of factors which should be taken into account in deciding
the question of reasonableness:
* Were the parties of equal bargaining power?
* In the case of advice, would it have been reasonably practicable to obtain the advice
from an alternative source taking into account considerations of cost and time?
* How difficult is the task being undertaken for which liability is being excluded?
* What are the practical consequences, taking into account the sums of money at stake and
the ability of the parties to bear the loss involved, particularly in the light of insurance?
