Pure economic loss Flashcards
What is pure economic loss?
Loss that arises where there has been no damage to the C’s property or injury to their person.
What are the three categories of pure economic loss and provide examples?
- Economic loss not flowing from damage to person or property e.g. where the C has made a bad investment or lost an inheritance
- Loss arising from damage to the property of another e.g. lost profits arising from damage to cattle owned by local farmers as seen in Weller & Co v Foot and Mouth Disease Research Institute (1965)
- Defective items-it is not possible to claim for the cost of repairing an inherently defective item as seen in Murphy v Brentwood District Council (1990)
What is the general rule for pure economic loss, refer to the case of Spartan Steel v Martin & Co Ltd (1973)?
No duty of care is owed in respect of pure economic loss.
Spartan Steel v Martin & Co Ltd (1973)
FACTS: C manufactured steel alloys and D negligently damaged the cable that supplied electricity to the C’s factory, meaning the power at the factory had to be shut off. The metal being processed at the time was ruined and the C was unable to sell the same, consequently suffering a loss of profit.
In addition, the C claimed they could have made profit from processing four further melts during the shut-down.
HELD: physical damage to the damaged metal and loss of profit on the damaged metal was recoverable but the loss of profit on the four further melts was pure economic loss and not recoverable.
What are the three exceptions to the general rule for pure economic loss?
- Pure economic loss caused by negligent statements as seen in Hedley Byrne v Heller (1964).
- Wills-a solicitor owes a duty to the beneficiary in order to achieve practical justice as seen in White v Jones (1995).
- References-a duty of care is owed to the subject of the reference to provide an accurate reference as seen in Spring v Guardian Assurance Plc (1995).
What is the test for determining whether a duty of care is owed for pure economic loss caused by a negligent statement, refer to Hedley Byrne v Heller (1964)?
Hedley Byrne v Heller (1964): D’s bank assured the C that a company was creditworthy but it later transpired they were not and the C sued the bank on the grounds it provided negligent advice but the advice contained a disclaimer saying it was prepared ‘without responsibility’ therefore no duty was found.
Reasonable reliance test:
a) The C relied on the D’s advice
b) It was reasonable for the C to rely on the D’s advice
c) The D knew or ought to have known that the C was relying on their advice
What factors should be considered when assessing the reasonableness of the reliance by the C on the D’s advice?
-Special skill or knowledge held by the D: Esso Petroleum Co Ltd v Mardon (1976)-a duty of care was owed given the expertise of the D’s employee.
-Special skill or knowledge held by the C: Yianni v Edwin Evans (1981)-a first time buyer claim succeeded as he did not have equal skill or knowledge of the D.
-General context in which advice is given: Chaudhry v Prabhakar (1989)-a duty was found as the D held himself to be knowledgeable on cars and essentially lied to his close friend
-Other relevant general factors including nature of advice, consequences of advice and availability and practicability of a second opinion
What is the criteria for determining whether the D owes a duty of care to a third party who relied on advice prepared for a different person/purpose?
Caparo v Dickman (1990) criteria. 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?
- D communicated advice to C or knew it would be communicated to them
- D knew the purpose for which the C would use this advice
- D knew, or reasonably believed, C would rely on this advice without independent enquiry
- C acted upon that advice to their detriment
When does a special relationship of trust and confidence between the parties 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.
What factors should be taken into account when deciding if a disclaimer is reasonable?
Smith v Bush (1989): disclaimers will be subject to UCTA 1977.
- 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 D?
- What are the practical consequences, taking into account money, insurance and ability of the parties to bear the loss involved?
