Pure Economic Loss

Question 1

Provide the origins of Pure Economic Loss.

Answer 1

• Common law developed a distinct approach to negligently inflicted economic loss, rooted in basic negligence principles but additional considerations

Question 2

What are the two forms of economic loss?

Answer 2

• Consequential: EL secondary to damage
• Pure: EL is the only damage suffered
• Tort of negligence distinguishes them both using DUTY OF CARE as control device

Question 3

What can we learn from the case of Spartal Steel & Alloys v Martin and Co?

Answer 3

• Defendants negligently cut an electricity cable supplying power to claimant’s factory
• Owners claimed under three heads of damage (damage to steel, loss of profit that could have been made, anticipated lost profit on steel to be processed)
• COA allowed recovery for A and B but NOT C (anticipated profit - PLE)

Question 4

What are the other key takeaways from Spartal Steel?

Answer 4

• Duty of care ONLY owed in respect of FINANCIAL LOSSES relating to PHYSICAL DAMAGE caused by the defendant’s NEGLIGENCE
• Must be direct result of damage to the property
• Lord Denning’s policy considerations

Question 5

What about PEL in policy considerations?

Answer 5

• Typical rule: one cannot claim for PEL is driven by policy
• Could allow recovery for evert instance (floodgates principle)
• Endless list of people would then sue and difficulty to survive (crushing liability)

Question 6

What about PEL resulting from defective products?

Answer 6

• Default in product does not constitute physical damage but is classed as PEL {Junior Books & Muirhead case}
• Requirement for there to be a sufficient interest in damaged property to bring a claim {Leigh & Sullivan case}

Question 7

What about PEL resulting from defective premises/buildings?

Answer 7

• Now viewed that PEL as opposed to consequential in most circumstances {Anns, but then overulled by Murphy case}
• Any internal defects viewed as PEL, there must be external effects for a claim to be brought
• Very limited protection afforded to purchasers of defective premises who do not have a contractual relationship with the builder

Question 8

An exception to the general rule is found in Hedley Byrne & Co v Heller & Partners [1963] case. What can we learn from the case?

Answer 8

• Overruled Candler case, creating exception that PEL caused by negligent statements
• HOL ruled that no liability could arise because of the disclaimer BUT CONSIDERED position if no such clause existed
• Found Obiter that duty of care could arise in situations were advice was given
• 3 criteria: fiduciary relationship, voluntary assumption of responsibility, reasonable reliance

Question 9

When is a Duty owed?

Answer 9

• Hedley criteria strongly suggest that a duty will only be owed in a business context
• Mutual Life case: you have to hold yourself out as having expertise in matter
• Duty to give honest answer not same as having duty to reliance advice

Question 10

To whom is a duty owed?

Answer 10

• Common to arise where 3rd parties are involved
• Smith v Eric Bush: valuers and purchasers restricted to private purchasers buying a “modest home”
• General approach to duty of care (Caparo) still applied, but with additional considerations due to nature of loss suffered

Question 11

What about PEL in special/fiduciary relationships? What can we learn from the case of Esso Petrolum v Mardon? [1976]

Answer 11

• Relationship with “trust and confidence”
• Employee working for D provided advice for C which C relied on (purchased petrol station)
• Sold far less tan predicted by D’s employee + advice deemed negligent
• COA held C can bring claim for EL suffered as a special relationship had been created

Question 12

What about voluntary assumption of responsibility with PEL?

Answer 12

• Where special relationship exists: logical to assume that there has been an assumption of responsibility
• Where there such an assumption, D is enormously fact sensitive
• Intentions of parties and purpose of which is communicated is often critical

Question 13

What can we learn from the case of Banca Nazionale del Lavoro v Playboy [2018]?

Answer 13

• C wanted club and hired 3rd party to determine whether customer was god for money
• B requested credit reference, but at no point was D aware of 3rd party + D provided a negligence reference
• Claim was unsuccessful (no assumption of responsibility by D towards C)

Question 14

What about reasonable reliance with PEL?

Answer 14

• Difficult to separate assumption of responsibility and reasonable reliance - they are interconnected concepts that ultimately allow a court to reason whether there is sufficient proximity in given context
• Relevant cases: Caparo v Dickman, Smith v Eric Bush, Patchett v Swimming Pool Trades

Question 15

What can we learn from the case of White v Jones?

Answer 15

• Service provided (loss not from misstatement but from negligent performance, extending Hedley exception)
• Problem: potential conflict of interest if duty owed to testator AND beneficiaries
• Court held: interests of beneficiaries and testator identical in this case