Pure Economic Loss

Question 1

What is consequential economic loss?

Answer 1

Economic loss consequent on physical damage eg a lost salary because of a broken leg

Question 2

What is pure economic loss?

Answer 2

Economic loss that arises where there has been no damage to the claimant’s property or injury to their person

Question 3

Is pure economic loss generally recoverable?

Answer 3

Generally no

Question 4

What three situation of economic loss could be characterised as pure economic loss?

Answer 4

• economic loss not flowing from damage to person or property
• loss arising from damage to the property of another
• defective items

Question 5

What is economic loss not flowing from damage to person or property?

Answer 5

Will be when the claimant has suffered no physical damage to their person or property

Eg claimant makes bad investment, missed a contractual opportunity or lost an inheritance

Question 6

When will there be pure economic loss arising from damage to the property of another?

Answer 6

When the claimant suffers economic loss as a result of damage to property in which they have no proprietary interest

Question 7

When will there be pure economic loss as a result of defective items?

Answer 7

When the loss sought is the cost of repairing an inherently defective item.

Correct claim for this should be in contract

Question 8

What are the exceptions are there to the general rule the pure economic loss is not recoverable?

Answer 8

The law distinguishes between economic loss caused by a negligent act and negligent statements.

Three exceptions which flow from negligent statements are:

• pure economic loss caused by negligent statements
• Wills
• references

Question 9

When will there be claim for pure economic loss in relation to Wills?

Answer 9

When solicitor has instructions from testator to change Will in favour of beneficiary.

Testator dies before solicitor has time to change the Will.

Beneficiary suffers loss as a result.

Beneficiary can recover that loss even though it is purely economic.

Question 10

What duties of care are owed in relation to references?

Answer 10

• duty of care to the person requesting a reference
• duty of care owed to the subject of the reference to provide an accurate reference with reasonable skill and care given

Question 11

What three tests are used to determine if a duty of care should be imposed in relation to pure economic loss caused by negligent misstatements?

Answer 11

• reasonable reliance
• assumption of responsibility
• special relationship of trust and confidence between the parties

Question 12

What is the interaction between the three tests used to determine if a duty of care should be imposed in relation to pure economic loss caused by negligent misstatements?

Answer 12

Not all the tests have to be satisfied for a duty of care to be found, either one is capable of establishing the duty of care.

The tests are closely linked and may overlap.

All trying to establish a proximate relationship between the parties and to establish that it is fair, just and reasonable to impose a duty

Question 13

What requirements make up the reasonable reliance test which can be used to determine if a duty of care should be imposed in relation to pure economic loss caused by negligent misstatements?

Answer 13

• the claimant relied on the defendant’s advice (question of fact)
• it was reasonable for the claimant to rely on the defendant’s advice
• the defendant knew or ought to have known that the claimant was relying on their advice (question of fact)

Question 14

In relation to the reliance test, what factors should be considered in determining if it was reasonable for the claimant to rely on the defendant’s advice?

Answer 14

• special skill or knowledge held by the defendant
• special skill or knowledge held by the claimant
• general context in which advice is given
• other relevant factors

Question 15

In relation to determining if it was reasonable for the claimant to rely on the defendant’s advice, what amounts to special skill or knowledge held by the defendant?

Answer 15

D needs to have some special expertise or knowledge in order for there to be a special relationship ie the defendant needs to be in a better position than the claimant to know the facts.

There is unlikely to be a special relationship if the parties are on equal footing

Question 16

In relation to determining if it was reasonable for the claimant to rely on the defendant’s advice, what is the relevance of any special skill or knowledge held by the claimant?

Answer 16

• if the claimant has equal knowledge or skill to the defendant, the courts are likely to find parity between the parties and are less likely to decide that it was reasonable for the claimant to rely on the defendant’s advice
• if the claimant does not have the same knowledge or skill as the defendant, the courts are likely to find disparity between the parties and are more likely to decide that it was reasonable for the claimant to rely on the defendant’s advice

Question 17

In relation to determining if it was reasonable for the claimant to rely on the defendant’s advice, what is the relevance of the general context in which advice is given in?

Answer 17

No duty of care will be owed where the advice was given in a social situation because there is no assumption of responsibility.

This is not always the case, and where there is sufficient assumption of responsibility a duty will be imposed.

Question 18

What are the elements of the assumption of responsibility test for a duty of care being imposed in relation to pure economic loss caused by negligent misstatements?

Answer 18

There should be a relationship equivalent to contract ie but for the absence of consideration there would be a contract

Should consider:

• did the defendant hold themselves out as having the relevant expertise
• were the consequences serious if the advice was incorrect
• did the defendant know that the claimant was relying on the advice

Question 19

In Caparo, what four requirements did the House of Lords lay down for the defendant to have assumed responsibility towards a claimant?

Answer 19

• D must communicate the advice to the claimant (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 the claimant will use this advice
• D must know or reasonably believe, that the claimant will rely on this advice without independent enquiry
• the claimant must have acted upon that advice to their detriment

Question 20

What are the elements of the special relationship of trust and confidence test for a duty of care being imposed in relation to pure economic loss caused by negligent misstatements?

Answer 20

Special relationship will arise where the party seeking advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for them to do that and where the other gave the advice when they knew or ought to have known that the enquirer was relying on them

Question 21

What effect will disclaimers have on the assumption of responsibility in relation to pure economic loss caused by negligent misstatements?

Answer 21

Disclaimers can operate to negate the assumption of responsibility by making it clear that no responsibility was assumed

Question 22

What will any disclaimer against assuming responsibility be subject to?

Answer 22

Will be subject to the Unfair Contract Terms Act and Consumer Rights Act

Question 23

When will a disclaimer not be upheld under Unfair Contract Terms Act and Consumer Rights Act?

Answer 23

When it is unreasonable

Question 24

What factors should be taken into account in deciding if a disclaimer is unreasonable so not valid?

Answer 24

• were the parties of equal bargaining power?
• would it have been reasonably practicable to obtain advice from an alternative source considering cost and time?
• How difficult was the task being undertaken by the defendant?
• 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 light of insurance?