Pure Economic Loss

Question 1

What is pure economic loss?

Answer 1

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

Question 2

What are the categories of pure economic loss?

Answer 2

1. Economic loss not flowing from damage to person or property; 2. Loss arising from damage to property of another; 3. Defective items.

Question 3

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

Answer 3

An example is when a claimant has made a bad investment, missed a contractual opportunity, or lost an inheritance.

Question 4

What is pure economic loss arising from damage to property of another?

Answer 4

If a claimant suffers economic loss as a result of damage to property in which they have no proprietary interest, then the loss will be categorised as pure economic loss.

Question 5

What is the key case for loss arising from damage to property of another?

Answer 5

Weller & Co v Foot & Mouth Disease Research Institute [1965] 3 All ER 560.

Question 6

What was the outcome of Weller & Co v Foot & Mouth Disease Research Institute?

Answer 6

The claim was unsuccessful as it was for pure economic loss; the claimant suffered no damage to their own property.

Question 7

What is the rule regarding defective items and pure economic loss?

Answer 7

It is not possible to claim for the cost of repairing an inherently defective item which has been categorised as pure economic loss.

Question 8

What is an example involving defective items?

Answer 8

A consumer cannot sue for the cost of repairing a defective vacuum cleaner, but can recover damages for personal injury and property damage caused by it.

Question 9

What is the key case regarding defective products and pure economic loss?

Answer 9

Murphy v Brentwood District Council [1990] 2 All ER 908.

Question 10

What was the outcome of Murphy v Brentwood District Council?

Answer 10

The loss suffered was pure economic loss and not recoverable; the house itself was always inherently defective.

Question 11

What is the general rule for pure economic loss?

Answer 11

The general rule is that no duty of care is owed in respect of pure economic loss.

Question 12

What is the key case illustrating the general rule for pure economic loss?

Answer 12

Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27.

Question 13

What types of loss are recognized in general negligence?

Answer 13

Physical damage, consequential economic loss, pure economic loss, and psychiatric harm.

Question 14

What are the exceptions to the general rule for pure economic loss?

Answer 14

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

Question 15

What is the significance of Hedley Byrne v Heller?

Answer 15

It established that a duty of care may be owed for pure economic loss caused by negligent statements.

Question 16

What are the three key concepts/tests for establishing a duty of care?

Answer 16

1. Reasonable reliance; 2. Assumption of responsibility; 3. Special relationship of trust and confidence.

Question 17

What is the first test for reasonable reliance?

Answer 17

The claimant relied on the defendant’s advice, which is a question of fact.

Question 18

What factors are considered when assessing reasonable reliance?

Answer 18

1. Special skill or knowledge held by the defendant; 2. Special skill or knowledge held by the claimant; 3. General context in which advice is given.

Question 19

What is an example case illustrating special skill or knowledge held by the defendant?

Answer 19

Esso Petroleum Co Ltd v Mardon [1976] QB 801.

Question 20

What is an example case illustrating special skill or knowledge held by the claimant?

Answer 20

Stevenson v Nationwide Building Society [1984] 272 EG 663.

Question 21

What was the outcome of Nationwide Building Society [1984] 272 EG 663?

Answer 21

The claimant’s action failed because he should have been aware of the need to obtain an independent structural survey, rather than relying on the defendant’s valuation report.

Question 22

What was the ruling in Yianni v Edwin Evans [1982] QB 438 regarding a first-time buyer?

Answer 22

It was held that it was reasonable for the claimant to rely on the building society valuation survey rather than a full structural survey, as the claimant was a first-time buyer purchasing a modestly valued house.

Question 23

What determines if a claimant can reasonably rely on a defendant’s advice?

Answer 23

If the claimant has equal knowledge or skill to the defendant, courts are less likely to find it reasonable for the claimant to rely on the defendant’s advice. Conversely, if the claimant lacks the same knowledge or skill, reliance is more likely to be deemed reasonable.

Question 24

What is the general rule regarding advice given in a social situation?

Answer 24

Generally, no duty of care will be owed in social situations due to the lack of assumption of responsibility.

Question 25

What was significant about Chaudhry v Prabhakar and Another [1989] 1 WLR 29?

Answer 25

The court indicated that a duty could exist even in a social setting if the defendant had more knowledge than the claimant and assumed responsibility for the advice given.

Question 26

What did the Court of Appeal find in Lejonvarn v Burgess [2017] EWCA Civ 254?

Answer 26

The court found a duty of care to exercise reasonable skill and care owed between friends for professional services provided free of charge, based on assumption of responsibility.

Question 27

What factors might the court consider when determining duty of care?

Answer 27

Factors include the nature of the advice, potential risk to the claimant, and the availability and practicality of a second opinion.

Question 28

What is the final requirement for establishing reasonable reliance?

Answer 28

The defendant must have known or ought to have known that the claimant was relying on their advice.

Question 29

What is the concept of assumption of responsibility in Hedley Byrne?

Answer 29

It applies to relationships equivalent to contract, where there is an assumption of responsibility in circumstances where a contract would exist but for the absence of consideration.

Question 30

What was the outcome of Henderson v Merrett Syndicates Ltd [1995] 2 AC 145?

Answer 30

The House of Lords found that the defendant had assumed responsibility for the claimants’ financial affairs and was liable for damages due to negligent performance.

Question 31

What did the Court of Appeal find in Lejonvarn v Burgess regarding professional services?

Answer 31

The court found that the defendant architect owed a duty to exercise reasonable skill and care for work done, despite the absence of a formal contract.

Question 32

What are the four criteria for establishing an assumption of responsibility according to Caparo v Dickman?

Answer 32

1. The defendant must communicate the advice to the claimant or know it will be communicated. 2. The defendant must know the purpose for which the advice will be used. 3. The defendant must know or believe the claimant will rely on the advice without independent enquiry. 4. The claimant must have acted upon the advice to their detriment.

Question 33

What was the main issue in the Caparo case?

Answer 33

The issue was whether the auditors owed a duty of care to the shareholders of Fidelity and/or potential investors.

Question 34

What was the House of Lords’ decision in Caparo?

Answer 34

The House of Lords held that no duty was owed by the defendants to the claimants in their capacity as investors.

Question 35

Why did the House of Lords decide that no duty was owed in Caparo?

Answer 35

It was not reasonable for Caparo to have relied on the accounts for the purpose of investing, as the audit was intended to assist shareholders in exercising their rights of control.

Question 36

What was the significance of the Caparo criteria?

Answer 36

The Caparo criteria can be regarded as criteria for establishing the defendant’s voluntary assumption of responsibility.

Question 37

What was the outcome of Banca Nazionale del Lavoro v Playboy Club?

Answer 37

A wholly undisclosed principal could not rely on Caparo principles to recover damages for losses suffered due to a negligent credit reference.

Question 38

What did the Supreme Court hold in Manchester Building Society v Grant Thornton?

Answer 38

The Supreme Court held that the scope of the duty of care assumed by a professional adviser was governed by the purpose of the duty.

Question 39

What are the three tests from Hedley Byrne for establishing a duty of care?

Answer 39

1. Reasonable reliance by the claimant. 2. Assumption of responsibility by the defendant. 3. Special relationship of trust and confidence between the parties.

Question 40

What should be considered regarding disclaimers in negligent misstatement cases?

Answer 40

The validity of disclaimers must be considered, especially under UCTA 1977 and CRA 2015.

Question 41

What was the outcome in Smith v Eric S. Bush regarding disclaimers?

Answer 41

The disclaimer was deemed unreasonable, as the parties were not of equal bargaining power and the claimant could not reasonably obtain an independent survey.

Question 42

What factors determine the reasonableness of a disclaimer?

Answer 42

1. Equal bargaining power. 2. Practicability of obtaining alternative advice. 3. Difficulty of the task. 4. Practical consequences of the loss.

Question 43

What is the general rule regarding duty of care and pure economic loss?

Answer 43

The general rule is that no duty of care will be owed in respect of pure economic loss.

Question 44

What are the exceptions to the general rule on duty of care?

Answer 44

Exceptions include pure economic loss caused by a negligent statement, satisfying the Hedley Byrne v Heller criteria.

Question 45

What is the relationship between the three tests for duty of care?

Answer 45

The three tests often overlap, and a claimant need only satisfy one for a duty of care to be owed.

Question 46

How do UCTA 1977 and CRA 2015 affect disclaimers?

Answer 46

Disclaimers purporting to exclude liability for economic loss are only valid if fair and reasonable in all circumstances.

Question 47

What was the main issue in the Caparo case?

Answer 47

The issue was whether the auditors owed a duty of care to the shareholders of Fidelity and/or potential investors.

Question 48

What was the House of Lords’ decision in Caparo?

Answer 48

The House of Lords held that no duty was owed by the defendants to the claimants in their capacity as investors.

Question 49

Why did the House of Lords decide that no duty was owed in Caparo?

Answer 49

It was not reasonable for Caparo to have relied on the accounts for the purpose of investing, as the audit was intended to assist shareholders in exercising their rights of control.

Question 50

What was the significance of the Caparo criteria?

Answer 50

The Caparo criteria can be regarded as criteria for establishing the defendant’s voluntary assumption of responsibility.

Question 51

What was the outcome of Banca Nazionale del Lavoro v Playboy Club?

Answer 51

A wholly undisclosed principal could not rely on Caparo principles to recover damages for losses suffered due to a negligent credit reference.

Question 52

What did the Supreme Court hold in Manchester Building Society v Grant Thornton?

Answer 52

The Supreme Court held that the scope of the duty of care assumed by a professional adviser was governed by the purpose of the duty.

Question 53

What are the three tests from Hedley Byrne for establishing a duty of care?

Answer 53

1. Reasonable reliance by the claimant. 2. Assumption of responsibility by the defendant. 3. Special relationship of trust and confidence between the parties.

Question 54

What should be considered regarding disclaimers in negligent misstatement cases?

Answer 54

The validity of disclaimers must be considered, especially under UCTA 1977 and CRA 2015.

Question 55

What was the outcome in Smith v Eric S. Bush regarding disclaimers?

Answer 55

The disclaimer was deemed unreasonable, as the parties were not of equal bargaining power and the claimant could not reasonably obtain an independent survey.

Question 56

What factors determine the reasonableness of a disclaimer?

Answer 56

1. Equal bargaining power. 2. Practicability of obtaining alternative advice. 3. Difficulty of the task. 4. Practical consequences of the loss.

Question 57

What is the general rule regarding duty of care and pure economic loss?

Answer 57

The general rule is that no duty of care will be owed in respect of pure economic loss.

Question 58

What are the exceptions to the general rule on duty of care?

Answer 58

Exceptions include pure economic loss caused by a negligent statement, satisfying the Hedley Byrne v Heller criteria.

Question 59

What is the relationship between the three tests for duty of care?

Answer 59

The three tests often overlap, and a claimant need only satisfy one for a duty of care to be owed.

Question 60

How do UCTA 1977 and CRA 2015 affect disclaimers?

Answer 60

Disclaimers purporting to exclude liability for economic loss are only valid if fair and reasonable in all circumstances.