Pure economic loss Flashcards
Spartan Steel - General rule for pure economic loss
General rule - no liability for pure economic loss
Cables disrupted, power shut off in factory.
3 alleged heads of damage:
- Metal in furnace at the time, being turned into ingots. This was destroyed and was consequential on physical damage, so claim allowed.
- Profit on those melts in progress - again, consequential to the physical damage done on those ingots.
- Profit on further planned melts. This was pure economic loss - no connection to any physical harm suffered, so no liability for PEL.
Reasons for general rule from Spartan Steel?
- Limits liability of defendant
- Parliamentary intent
- No gap in the law: Spartan Steel could insure themselves but they chose not to.
- Floodgates: Limiting liability to physical damage creates a limit - the harm stops somewhere. Financial losses may end up out of proportion to the original act.
- Distributive justice - bad luck exists, society must share this rather than make one defendant liable.
- Physical damage more deserving, those who suffer economic damage must deal with it.
Dissent: Argued that all types of loss were foreseeable and direct, only difference is the first figure represents ingots in the furnace, but what does that fortuitous fact have to do with legal principle?
When do we see exceptions to the general rule of no liability for PEL?
Where there is an assumption of responsibility - either through a negligent misstatement or through negligent service.
Negligent misstatement - Hedley Byrne v Heller
Hedley were going to advertise for their client in TV and newspaper, but first wanted to check with their bank if the client were reliable for their money.
Bank said that they are considered good and will be able to pay them back.
Client unable to pay them back, goes into liquidation - pure economic loss.
Held: There is liability - if you answer without qualification.
Relationship sufficiently proximate, clear that the info would be relied upon for a contract.
However, on facts a disclaimer was given which discharged the duty. You cannot assume a responsibility if at the same time you declare that you are not.
Criteria going forward for a duty to arise from Hedley Byrne: An assumption of responsibility
- Negligent misstatement (or service)
- Reasonable reliance
- Detriment or loss suffered
Negligent misstatement criteria:
Info or advice which is:
1. Inaccurate
2. Without reasonable degree of care or skill
3. Caused C financial loss
4. Within province of D’s knowledge
5. D undertook to provide
for C, foreseeing that C would rely on it
Levonjarn v Burgess - An implied assumption (gardening)
Ms L offered gardening and landscaping for free to neighbours to advertise her services.
B unsatisfied, she took too long and cost them financially.
Court held that there was an assumption of responsibility from Ms L which creates a duty. However, no breach or causation established.
Playboy v Banca Nazionale (third parties)
Burlington ask Banca Nazionale for a financial reference, on behalf of Playboy.
BN say he appears financially stable, but turns out he isn’t.
Playboy try to sue Banca Nazionale, as there was a neg mistatement, Playboy relied upon, to their detriment.
Held that there could not be an assumption of responsibility where you do not know who the information is being requested on behalf of. You cannot assume responsibility for someone you don’t know is in the picture.
Spring v Guardian - duty to provide correct references?
Bad, inaccurate references provided.
Held they assumed responsibility as they had a duty to provide an accurate reference. In reality there may not have been any positive act to assume responsibility, but it seems the court can find an assumption where they wish, where they think a duty should be owed.
Negligent services and implied assumptions - Henderson v Merrett
Merrett was a syndicate, with direct and indirect ‘secret’ members. All of them rely on underwriting services provided by Lloyds Bank.
Loss of money - is there a duty to the ‘secret’ members following Banca Nazionale?
Assumption of responsibility principle extended to cover provision of services agreed to under a contract.
Look at the quality of the relationship between the parties, and the wording of their agreements, the nature of their conduct between each other, and work out on these facts if one party has assumed or undertaken a responsibility
Negligent services: White v Jones
Mr B writes his daughters out of his will then wants to change it back, writes to his solicitors. Solicitor on holiday and doesn’t deal with it until 3 months later, by which point he is debt and the original will change is still in place.
Because assumption of responsibility made to father, and daughter would reasonably foreseeably be harmed by negligence, liability found
Assumption of responsibility extended outside of just negligent misstatement to include negligent services.
Express assumption of responsibility: Williams v Natural Life Health Foods.
X and Y decide to open up a franchise due to info which was provided in a leaflet provided to them by the managing director of the company. Incorrect turnover, profit calculations in the leaflet.
Held, no personal dealings between C and D or interaction which could give rise to an assumption - it was just a leaflet to give them some info, which cannot amount to an assumption.
No reasonable reliance, and no assumption.
Express assumption 2: Calvert v William Hill
Man was a huge gambler - calls William Hill and requests them to block him from using them. They assure him they have a strong exclusion policy, but no one does the paper work.
He continues to gamble, and then sues saying there had been an assumption of responsibility to block him. The court held there was an assumption through the phone convo he had, and thus they had a duty of care to not cause him any PEL, which was breached when they failed to block him.
However, causation not found since he was such a profound gambler he would have gambled regardless.
Where have courts refused to find an implied assumption? Robinson v Jones and housebuilders
Robinson buys a home - contract says it is to be completed in a ‘workmanlike’ way.
House in bad condition, needs to be fixed for 34k and the contractual clause is time-barred.
DISTINCTION HERE between professional work which requires advising or exercise of skill, and housebuilding.
No assumption for housebuilding - not every contractual party assumes responsibilities.
Smith v Eric S Bush - Negligent services - surveyors and quality issues
Surveyors negligently failed to spot quality issues in a house, buyers relied on this.
This was reasonable reliance, and so they were liable for their negligent services as they realised that the purchaser was relying on them to exercise skill and judgement, and that it was reasonable and fair for them to do so.
Steel v NRAM - reasonable reliance on other party?
Solicitors (D) acting for the borrower, misrepresented to the lender (C) that the borrower was repaying entire loan when really they were only paying part.
C discharges entire loan by mistake without checking how much was being paid.
Held no assumption since the solicitors don’t owe a duty of care to the third party in a commercial context, and it was not reasonable for a commercial lender like C to rely on D’s statement without checking first.
Caparo
Negligent shareholders report produced by auditors, relied upon by outside investors who sued.
No duty of care owed by the auditors to Caparo, since the report was not made for potential investors, and the auditors would need knowledge of who the report would be communicated to and how it would be used, in order to assume responsibility.
Customs & Excise Commissioners v Barclays Bank - failure to comply with a freezing order
Barclays were required by law to comply with a freezing order on money, they failed and criminals moved the money.
Customs sued Barclays, saying they had a duty to not let the money out of their sight.
Held that tort will not create a separate duty of care where a legal duty already exists. There was no assumption on Hedley grounds - no real relation between them just a legal obligation which cannot be a positive assumption
So they considered Caparo factors and it was not fair, just and reasonable to impose liability.
D & F Estates - What type of damage to property is recoverable?
Plastering work done poorly, costs undertaken to address this.
This was a pure economic loss, no liability.
Held that liability only arises if the defect remains hidden until it causes personal injury or damage to property other than the structure itself.
If the defect is discovered and needs to be fixed, this is a pure economic loss.
Murphy v Brentwood - PEL in building work?
Structural problems in building, owners sell the house. New owners try to sue the builder, no contractual relation.
Again, no liability for PEL.
If defect becomes apparent before any injury or damage has been sustained, it is PEL.
Why do we not have such liability for defective premises?
Indeterminate liability
Parliamentary intent
Consistency with other PEL cases - property is an item with a prescribed value and is thus an economic loss.
Inconsistency with contracts which are time-barred.
Possible exceptions to defects in property being PEL?
Danger to neighbours - where steps need to be taken to remove danger which may cause liability to a third party (Lord Bridge in Murphy)
Complex Structures - Damage to one element of a structure caused by defects in another may give rise to liability (D&F estates)
Defective Premises Act
S1: Duty owed by those building/working for provision of a dwelling to do the work in a workmanlike or professional manner, with proper materials and so that the dwelling will be fit for habitation when completed.
Targett v Torfaen - defects which cause injury?
Duty owed to tenant where there is a defect (even if the tenant knows about it) which causes physical injury. Only exception is if it would have been reasonable for C to avoid/fix the danger.
