Pure economic loss

Question 1

What are the different types of loss in negligence?

Answer 1

Personal injury/property damage

Consequential economic loss

Pure economic loss

Psychiatric damage

Question 2

What is the definition of pure economic loss?

Answer 2

Pure economic loss arises where there has been no damage to the claimant’s property or injury to their person.

• if the claimant has suffered no physical damage to their person or property, then their loss will be pure economic loss.
• if a claimant suffers economic loss as a result of damage to property in which they have no proprietary interest, loss will be pure economic loss.
• it is not possible to claim for the cost of repairing an inherently defective item which has been categorised as pure economic loss.

Question 3

What is the general rule for pure economic loss?

Answer 3

No duty of care is owed in respect of pure economic loss.

Question 4

What are the exceptions to the general rule in relation to pure economic loss?

Answer 4

The court has distinguished between pure economic loss caused by a negligent statement and pure economic loss caused by a negligent act:

1. Pure economic loss caused by negligent statements
2. Wills
3. References

Question 5

What is the purpose of the Hedley Byrne tests?

Answer 5

They are all trying to establish a proximate relationship between the parties and that it is fair, just and reasonable to impose a duty.

Question 6

What are the three Hedley Byrne tests?

Answer 6

1. Reasonable reliance
2. Assumption of responsibility
3. A special relationship of trust and confidence between the parties.

Question 7

What is the reasonable reliance test?

Answer 7

(a) The claimant relied on the defendant’s advice

(b) It was reasonable for the claimant to rely on the defendant’s advice:

Special skill or knowledge held by the defendant – defendant needs to be a better position than the claimant to know the facts.

Special skill or knowledge held by the claimant – if the claimant has relevant skill or knowledge in relation to the advice, the court may find it is not fair, just or reasonable for them to have relied on the defendant’s advice. Opposite applies to where the claimant has no skill or knowledge.

General context in which advice is given – no duty of care will be owed where advice is given in a social situation. However, not always the case if the defendant has particular knowledge and holds themselves out as giving considered advice and claimant makes it clear they are relying on their advice.

Other relevant general factors – nature of advice, potential risk to claimant and availability and practicality of second opinion

(c) The defendant knew or ought to have known that the claimant was relying on their advice

Question 8

What is the assumption of responsibility test?

Answer 8

This is based upon `but for the absence of consideration’ there would have been a contract.

Criteria set out in Caparo:

1. Defendant communicated advice to claimants or knew it would be communicated to them;
2. Defendant knew the purpose for which the claimant would use this advice (cannot rely on the advice for an alternative purpose);
3. Defendant knew, or reasonably believed, claimant would rely on this advice without independent enquiry; and
4. Claimant acted upon that advice to their detriment.

Question 9

What is the special relationship of trust and confidence between the parties?

Answer 9

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 it was reasonable for them to do that, and the other gave the advice when they knew or ought to have known that the enquirer was relying on them.

Question 10

What is the law in relation to disclaimers?

Answer 10

“without responsibility” – held to make it clear the defendant does not accept responsibility

Any attempt to rely on a disclaimer of responsibility in the course of business will be subject to UCTA 1977

If the disclaimer is unreasonable, it will be invalid.

Question 11

What needs to be considered when determining if a disclaimer is reasonable?

Answer 11

1. Were the parties of equal bargaining power?
2. Would it have been reasonably practicable to obtain advice from an alternative source considering cost and time?
3. How difficult was the task being undertaken by the defendant?
4. 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?