Pure economic loss Flashcards
Courts reluctant for PEL actions
Because of policy concerns for allowing liability in thise area
* Floodgates
* Crushing liability
* Fradulent claims
* Interefere with rules of contract through tort.
PEL definition
Economic loss that arises where there has been no damage to the claimant’s property or injury to their person
General rule if loss is PEL
It will not be recoverable.
PEL Definition
Arises where there has been no damage to the claimant’s property or injury to the person.
* Defective items
* Loss arising from damage to another’s property
* Economic loss not flowing from damage to person or property
Economic loss not flowing from damage to person or property
Were a claimant has made a bad investment
Missed a contractual opportunity.
Lost an inheritance.
Loss arising from damage to the property of anaother
Loss caused by damage to that which they have no proprietary interest.
Weller & Co v Foot & Mouth Disease Reasearch Institute 1965
Weller & Co v Foot & Mouth Disease Reasearch Institute 1965 - FACTS
- Agricultural auction claimed for loss of profits.
- Defendants had released Foot and both virus and infected local cattle
- Auction ban
Weller & Co v Foot & Mouth Disease Reasearch Institute 1965 - HELD
- Unsuccessful as for PEL
- Loss flowed from damage to cattle owned by farmers.
- Would have succeed had it been CEL
Defective items
- Not poss to claim for cost of repairing inherently defective item categorized as PEL
Murphy v Brentwood District Council 1990
Murphy v Brentwood District Council 1990 - FACTS
- Claimant bought a house that developed structural defects due to inadequate foundations.
- Foundations approved by the Council
- Claimant sold for £35k = less
Murphy v Brentwood District Council 1990 - HELD
- Loss was PEL = not recoverable
- Always had been inherently defective.
General Rule for PEL
- No DoC owed in respect to PEL
Spartan Steel & Alloys Ltd V Martin & Co (Contractors) 1973
Spartan Steel & Alloys Ltd V Martin & Co (Contractors) 1973
General Rule
No DoC owed in respect to PEL
Spartan Steel & Alloys Ltd V Martin & Co (Contractors) 1973
- Steel alloys = a process req continuous power
- Neg damaged cable - shut off for 14 hrs
- Metal processed was ruined
- Suffered loss of profit
- 4 further melts of profit
- Damaged electricity cable
Spartan Steel: Damaged Metal
- HoC: Damaged Metal
- ToL: Phys damage (property)
- DoC: Owed in respect to the property damage = recoverable
Spartan Steel: Loss of profit on damaged metal
- HoC: Loss of profit on damaged metal
- ToL: CEL
- DoC: Owed re: CEL = Recoverable
Spartan Steel: loss of profit for four further melts
- ToL: PEL
Loss resulted from damage to the Electric Cable - No DoC owed - fnot recoverable
Would have been recovereable had they owned cable
Exceptions to general rule for PEL
- PEL caused by negligent misstatements
- Wills
- References
Can PEL be caused by a negligent act
No only by a negligent misstatement.
Pure economic loss caused by negligent statement
- Might find a DoC owed.
Hedley Byrne v Heller 1964 - could be liability for careless statements. - Negligent statements normally result in PEL
Hedley Byrne v Heller 1964
- Could be liability for careless statements
Perrett v Collins 1998
Negligent statements cause physical harm then the usual DoC rules apply to the question of duty
Wills
- Relationship between the solicitor and testator
- But any negligence impacts the beneficiary
- Solicitor owes a duty to the beneficiary to achieve practical justice.
White v Jones
White v Jones 1995
- Solicitors owed a DoC to beneficiaries
- Sue the solicitor for any loss
- Sister argued with father, but made up with him.
- Alteration to Will was not made - solicitor could foresee the loss and had undertaken a responsibility.
Esterhuizen v Allied Dunbar Assurance plc 1998
DoC owed to beneficiaries extends beyond solicitors to other companies offering will making services
References
Spring v Guardian Assurance plc & Others 1995
Spring v Guardian Assurance plc & Others 1995
- Defendants gave disparaging job reference about claimant. Unable to gain employment as a result.
- Sued for negligence.
- Owed a DoC to referee to provide an accurate ref.
- Assumed a responsibility to referee.
C
Spring v Guardian Assurance plc & Others 1995 - FACTS
- Advertising agency asked to buy space for Easipower Ltd.
- Approached bank for credit ref - bank assured claimant. £17k
- Relied on this advice, but not creditworthy
- Sued bank for negligent advice.
disclaimer
Spring v Guardian Assurance plc & Others 1995 - HELD
- Had it not been disclaimer
- Bank would have owed a DoC to claimant
or PEL - Disclaimers must now be viewed in light of the UCTA and CRA
Hedley Byrne: Three key concepts
Three key tests were discussed when est a DoC
* Reasonable reliance
* Assumption of responsibility
* Special relationship of trust and confidence.
Not all three have to be satisfied
Can be based on either / or.
Trying to establish a proximate relationship; and whether it is fair, just and reasonable
Do all three tests need to be satisfied to find a DoC for PEL via negligent misstatement
- Either / or - not all three
- Trying to enjoy est a proximate relationship
- Est if fair just and reasonable to impose a duty.
Hedley Byrne: Reasonable Reliance Test
- Claimant relied on defendant’s advice. Fact.
- Reasonable for claimant to rely on advice.
- Ought to have known claimant was relying on advice. Fact.
When considering whether it was reasonable for cliamant to rely on defendant’s advice, consider teh
- Special skill or knowledge held by the defendant / claimant
- General context in which advice is given
- Other relevant general factors.
Special skill or knowledge held by the defendant
- Defendant needs some special expertise
- Unlikely to be a special relationship if the parties are on equal footing.
Esso Petroleum Co Ltd Mardon 1976
Employee of Esso was to assess potential output of stations.
Advised claimant a petrol station would sell around 200,000.
Claimant relied on advice.
Petrol station sold only 75,000.
Assumed responsibility based on his expertise
Special skill or knowledge held by cliamant
Courts may fair it is not fair, just or reasonable for the claimant to have relied on the defendant’s advice.
Stevenson v Nationwide Building Society 1984
- Claimant was an estate agent and insurance broker
- PEL by relying on negligent survey.
- Estate agent should have been more aware of a need to get and independent valuation.
Yianni v Edwin vans 1982
- First time buyer relied on building society valuation, although told not to.
- Held it was reasonable, first time buyer and modest value.
General context in which is advice is given
No DoC will be owed where the advice was given in social situation because there is no assumption of responsibility.
Not always the case
Chaudhry v Prabhakar and Another 1989
- Defendant advise close friend on what second hand car
- Must not have been in an accident
- Not a mechanic, said he bought it off a friend, car was unroadworthy and worthless
Turned out car had been in an accident - Obiter: Would have found duty.
Lejonvarb v Burgess 2017
CoA found a DoC to exercise reasonable skill and cares between friends for professional services provided free of charge on the basis of assumption of responsibility.
Other relevant general factors to consider when
- Nature of advice
- Potential risk to claimant
- Availability
- Practicality of a second opinion
Voluntary assumption of responsibility
- Used to est a DoC in Hedley Byrne
- Voluntary assumption of responsibility for correctness of their statement.
Relationships are “equivalent to contact”
Henderson v Merrett Syndicates Ltd 1995
- Claimants financial affairs managed by defendant.
- HoL found defendant had assumed resp to perform professional services.
- Liable for damages PEL
- Reasonably relied on advice. Assumed responsibility.
Lejonvarn v Burgess 2017
- Defendant supplied professional circumstances to a friend for landscaping
- Clients in a professional sense if not contractual.
- Assumption of responsibility.
Establishing what is required for an “assumption of resp”
Courts have been vague.
Caparo lays out criteria.
Caparo Industries Test for assumed responsibility
Defendant must:
* communicate advice to claimant & know it will be communicated.
* know the purpose for which claimant will use
* know or reasonably believe, claimant will rely without independent enquiry.
* have acted upon advice to their detriment.
Caparo Ind plc v Dickman and others 199-
Did auditors of public company (Fidelity) owe DoC to shareholders.
* Faulty audit
* No DoC held
* Purpose of audit not for investors
* Investors = class of person of indeterminate size.
Banca Nazionale del Lavoro v Playboy Club & Others 2018
- 4 Caparo criteria: Est voluntary assumption of responsibility/
- Could not rely to recover losses suffered by negligent credit reference
- Wasn’t identifiable or known what credit ref was soucht.
Manchester Building Society v Grant Thornton UK 2021
- Reinforced Caparo Principle
- Focus on purpose of evidence.
- Auditors asked to advise claimant building society as to whether could use hedge accounting for business model
- Implemented business model - exposed to regulatory capital demands
Advise was incorrect = PEL
Loss suffered related to purpose fell within scope of DoC
SC held that scope of DoC assumed by professional advisor was governed …
- Governed by the purpose of the duty
- Why was the advice given?
- Does the loss fall within scope of purpose / DoC
Special relationship of trust and confidence between the parties
- Trusting advice
- Degree of care as the circumstances required.
- Reasonable and ought to have known enquirer was relying on the advice.
- Test overlaps with reasonable care.
Disclaimers
- Hedley Byrne - clear that they did not accept responsibility.
- UCTA 1977 and CRA 2015
Smith v Eric S Bush - rely on disclaimer subject UCTA 1977
Smith v Eric S Bush
- Reliance on a disclaimer subject UCTA 1977 s 2(2) = invalid
- Surveyor owed duty for PEL for neg survey. FT buyer. Modest value.
- Reliance was reasonable, forseeable to rely and loss
HoL: Factors to take into account when deciding if a disclaimer is reasonable
- Equal bargaining power?
- Reasonably practicable to obtain alternate advice - cost & time?
- Difficulty of task?
- Practical consequences - insurance?
