Pure Economic Loss Flashcards
What is pure economic loss?
Economic loss that arises where there has been no damage to the claimant’s property or injury to their person.
Examples:
- economic loss not flowing from damage to person or property (eg bad investment, missed contract opportunity, lost an inheritance)
- loss arising from damage to the property of another (no damage to own property)
- defective items (not possible to claim the cost or repairing an inherently defective item)
Is there a duty of care for pure economic loss/is it recoverable?
As a general rule, no.
Exceptions:
- pure economic loss caused by negligent statement
- negligently drafted wills - owe a duty of care to the beneficiaries
- negligent references (job) - duty of care both to person requesting reference and duty of care owed to subject of reference to provide accurate reference
What types of losses are generally recoverable?
- Personal injury/property damage
- Consequential economic loss
Generally not: pure economic loss
Special rules for psychiatric damage.
Will a duty of care for pure economic loss be owed for a negligent act?
No. But it may be for a negligent statement.
What are the three tests (Hedley Byrne) for if a duty of care arises where negligent advice resulted in pure economic loss
- Reasonably reliance
- Assumption of responsibility
- Special relationship of trust and confidence between the parties.
Not all three tests have to be met, only one. However, requirements for the tests overlap so often more than one will be met.
- What is the reasonable reliance test
(a) The claimant relied on the defendant’s advice. (questions of fact)
(b) It was reasonable for the claimant to rely on the defendant’s advice
- special skill or knowledge held by defendant (unlikely relationship of reliance if on equal footing)
- special skill or knowledge held by claimant (not fair to have relied on defendant’s advice if expert)
- General context in which advice is given
- Other relevant general factors
(c) The defendant knew or ought to have known that the claimant was relying on their advice. (question of fact)
- Voluntary Assumption of responsibility
Was the relationship equivalent to contract, ie was there an assumption of responsibility which, but for the absence of consideration, there would have been a contract.
Caparo v Dickman:
- Defendant communicated advice to claimant (as an identifiable individual or as a member of an identifiable class) or knew it would be communicated to them;
- Defendant knew the purpose for which the claimant would use this advice
- Defendant knew or reasonably believed, claimant would rely on this advice without independent enquiry, and
- Claimant acted upon that advice to their detriment
Emphasises purpose of the advice - why was the advice given? What was the advice supposed to protect against and is the loss connected to this?
- Special relationship of trust and confidence
A special relationship arises where the party seeking advice was trusting the other to exercise such a degree of care as the circumstances required, where is was reasonable for them to do that, and there the other gave the advice when they knew or ought to have known that the enquirer was relying on them.
Will a disclaimer of responsibility protect against pure economic loss caused by negligent statement?
It will be subject to UCTA 1977 and CRA 2015 - whether the disclaimer is reasonable.
Factors to be taken into account when deciding if a disclaimer is reasonable:
- Were the parties of equal bargaining power?
- Would it have been reasonably practicable to obtain advice from an alternative 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?
