Pure Economic Loss

Question 1

What kind of cases concern only pure economic loss?

Answer 1

Negligent misstatement 
Negligent performance of services 
Negligent supply of goods / services 
Relational economic loss deriving from personal injury / property damage 
Liability of public authorities

Question 2

Necessary ingredients to bring a claim for misrepresentions

Answer 2

Reasonable foreseeability

Additional factors presented from which courts can infer necessary proximity of relationship - Caparo or assumption of responsibility and reliance

Question 3

Can parties protect themselves from

claims in respect of negligent misrepresentations?

Answer 3

Yes - by disclaimers

HB&H, liable but had disclaimer
Formerly, could be effective if communicated to purchaser but now under unfair contract terms test, Mia be fair and reasonable

Question 4

What is pure economic loss?

Answer 4

Distinct from cases where there is loss which derives from property damage / personal injury. ( DERIVATIVE LOSS)

Law generally does not like pure economic loss but in some circumstances, will grant

Question 5

Is there a general test to take care to prevent economic loss?

Answer 5

Voluntary assumption of responsibility & reliance on defendants expertise and no exclusion in contract
(Henderson v Merrett)

Used by analogy in other areas e.g. Negligently prepared reference.

Question 6

Is this general test for pure economic loss really generally applicable?

Answer 6

Thomson says yes

But in Customs & Excise Commissioners v Barclays, it was held that H V M did not provide a generally applicable test. It was only useful if there had been an assumption of responsibility - if not, return to Caparo

BCCI v Pricewaterhouse - mutually supportive approaches

Question 7

Can liability arise from defective performance of contact?

Answer 7

Yes, if certain requisites for proximity were satisfied e.g. Contextual nexus, reliance on contractor’s skill and experience and knowledge of this (see JB v Veitchi)

And…

1) Parties need to be connected by contracts existing at time of defender’s careless acts. (D&F estates ltd v church commissioners for England - plasterwork defective, but contract between plasterers and contractors not there @ time loss caused)
2) Knowledge of pursuer’s identity (to stop indeterminate liability)
3) Terms don’t preclude liability

Question 8

What about damages for defective products and buildings?

Answer 8

Derivative economic loss
Via contract if no physical harm or damage to property

JB basis? No

• no contractual nexus at time of negligence
• no knowledge of identity

HB&H? No
- no assumption of resp / reliance

Question 9

Who can claim for derivative economic loss?

Answer 9

Only for the actual person harmed or owner of the damaged property (Reavis v Clan Line Steamers)

Question 10

Why is economic loss different from other loss?

Answer 10

Opening of the floodgates is a major issue

• indeterminate number of claimants
• claims of indeterminate size

Question 11

What is the ‘pocket approach’?

Answer 11

Case law has developed a complex, uncertain and analogous pattern of decisions. (Stapleton)

Question 12

What issues do we have with pure economic loss?

Answer 12

• don’t want to impose indeterminate liability
• evidential burdens of causation and remoteness
• insurance for pure economic loss is difficult and costly to obtain
• financial loss perceived as being less damaging and worthy of protection than physical injury and damage to property and moral values
• inevitability of economic loss in free market economy, intentional infliction of harm by competition not forbidden

Question 13

Stapleton’s issues with pure economic loss?

Answer 13

• only developed in last 40 years, therefore unclear how far we should extend the law
• whole point is to help those with no prospect of contractual negotiation and protection by contract law
• law should not help those who don’t bother to help themselves I.e. Free riding
• Don’t want to duplicate protection

Question 14

What are the pockets in pure economic loss? (Stapleton)

Answer 14

Hedley Byrne focused too much on negligent words ie how loss inflicted rather what loss was. Set up pocket rather than applying rule across boards

Aliakmon - parties at whose risk cargo was under contract of sale, but not yet the owner. Important development, shouldn’t protect those who don’t protect themselves

Question 15

Legal policy concerns in pure economic loss?

Answer 15

Floodgates
Can’t have protection for loss available elsewhere ie could have protected yourself via contact
Don’t want to invade parliamentary territory
Don’t want recognition of duty circumvent contractual bargain etc.

Question 16

Hedley Byrne v Heller

Answer 16

Asked defendants’ bankers whether E was a respectably constituted company. E’s bankers replied that it was. On reliance of the statement, the plaintiffs entered into contract with E. Plaintiffs then suffered loss.

Plaintiffs had to show that defendants owed them special DoC. Not only contractual, also equivalent to contract. Where voluntarily assumed responsibility for the accuracy of statement and knew or ought to know that pursuer would rely.

Question 17

Caparo v Dickman

Answer 17

Negligent auditing, made company look like in better financial position than actually was.

Foreseeable that shareholders would rely on report & buy more shares and investors would invest.

BUT failed on proximity. Did not owe doc to shareholders or potential shareholders because not proximate and not fair, just and reasonable

Question 18

How does Caparo apply to surveyors cases?

Answer 18

A wants to purchase house from B, before giving loan, bank must obtain valuation from surveyor.
A has to pay fee (proximate)
A relies on report commissioned for bank. House has faulty foundations.

Who can he sue?

• Not seller as no guarantee in sale for soundness of property
• not surveyor in contract as no contract between them
• surveyor owes DoC to A, if surveyor knows that report will be used by A and relied upon by him to purchase house.

Not party who later bought, as not paid price to surveyor nor did surveyor have knowledge of this pursuer at the time

Question 19

Henderson v Merrett

Answer 19

Names alleged that they had suffered loss as result of negligence of agents

DoC owed by management agents and members to the names

DoC arises when defendant has voluntarily assumed responsibility for economic interests of the plaintiff with the knowledge that plaintiff is relying on the defendant’s expertise

Assumption of responsibility (absence of exemption clause highlights)

Reliance on professional expertise

Terms of contract do not negative delictual liability

Question 20

Bank of Scotland v Fuller Peiser

Answer 20

Concerned with reasonableness of exclusion clause. Purchaser of hotel & surveyor. Both parties of equal bargaining power and could equally bear loss therefore UCTA compliant

Question 21

Customs v Excise Commissioners

Answer 21

Bank did not owe duty of reasonable care to ensure that those who owed VAT did not remove funds from their accounts. Not fair, jus and and reasonable because no assumption of responsibility.

Henderson v Merrett did not provide a single touchstone for the existence of a duty of care. Useful where assumption of responsibility but if not, fell back to Caparo - fairness and policy.

Question 22

Junior Books v Veitchi

Answer 22

Pursuers entered into contract with main contractor for building works. Contractor then contracted 3rd party to do the flooring. No contact between v and JB. Floor laid seriously defective

Factors from which proximity could be inferred. 
Subcontractors 
Specialists chosen
Knew what required in request
Sole responsibility 
Reliant on skill and experience
Knew they were reliant 
Quasi-contractual relationship 
V must have known that if did work badly, defects would need to be fixed, cause loss

Question 23

Anns v Merton

Answer 23

Local council approved building works, after built found that foundations crap. Owed DoC.

1) Sufficient relationship of proximity
2) Considerations which would negative or reduce.

Murphy v Brentwood overrules

Question 24

Murphy v Brentwood

Answer 24

Defective foundations again. Neither local authority not builder owes DoC in respective of defective construction of property

Question 25

Dynamo v Holland

Answer 25

Defender damaged electricity cable belonging to factory. Pursuer sued for damages for loss of profits while factory closed.
Defender owed DoC to electricity board not to damage its property but did not owe DoC to pursuer in respect of pure economic loss.

Question 26

Coleridge v Miller Construction

Answer 26

Power cut physically damaged glass made in factory. Rest for DoC is same for economic loss and physical damage. Not reasonably foreseeable.

Question 27

Aliakmon

Answer 27

Contract of sale made where ownership retained in hands of seller but risk passed to buyer. Damage eventuated. No physical damage as didn’t own, no title to sue. No - don’t help those who don’t help themselves.

Question 28

Marc Rich v Bishop Rock Marine

Answer 28

Not fair to impose DoC on classification societies so they had unlimited liability in negligence to shipowners. Proximity and FJ&R

Question 29

BT Plc v Thomson & sons

Answer 29

BT took out insurance over contractors, but only those chosen by developer. Not domestic contractors. Not fair, just and reasonable that JT should owe Bt a duty, only nominated.

Question 30

Strathford

Answer 30

F contracted with H (architects) for design of car showroom. Engineer was subcontractor. Tenant obliged to relocate parts of business when huge damage realised. No, no contractual nexus between tenant and architects as has contacted with owners only.

Question 31

Norwich Union v Covell Matthews

Answer 31

Owners of land entered into lease with company tenant. Building on site. Roof leaked causing damage to pursuers’ property. Different from above in that owner had title to sue unlike tenant. Their own property so sufficient proximity