Pure economic loss

Question 1

Negligence operates as a means to compensate a C for foreseeable losses caused by a Ds breach of duty of care

Answer 1

Donoghue v Stevenson

Question 2

What is pure economic loss?

Answer 2

Pure economic loss is loss C has suffered as a result of Ds negligence, which is not derived from physical injury, death or property damage.
Exists where
- Failure to receive expected future profit or financial benefit
- Result from acquisition of defective property
- Property damage sustained by a third party

Question 3

*Spartan Steel v Martin [1973]

Answer 3

TWO TYPES: 1) Economic loss consequential On physical damage √ 2) Pure economic loss x

D accidentally cut the electric supply cable near
a metal factory
Three claims:
1) Harm caused to metal that was in the melting furnace
2) Loss of profits they would have made from materials in the furnace 

3) Loss of profits from not operating for several hours. 

HELD
The first two were recoverable as it was consequential economic loss from physical damage.
Third was purely financial detriment of not operating and not recoverable.

Reasoning:
Lord Denning: What are the policy reasons for treating pure economic loss differently? 

1) People should put up with disruption in the power supply 

2) Many people will have been affected by the power cut and the court would face a huge 
number of claims that are difficult to verify and quantify. 

3) Power cut is the type of loss that should be borne by the whole community.

Question 4

Dutton

Answer 4

Pure economic losses arises where a product is not as good as expected

Question 5

Murphy

Answer 5

ILLUSTRATION OF THE UNCERTAINTY

House was built on inadequate foundations leading to cracked walls
Council had approved the construction plans

Held HOL
The loss was pure economic loss
The building had never existed without the defective foundations and had been flawed from the start
IN ORDER TO CLAIM IN A DEFECTIVE HOUSE SITUATION IN NEGLIGENCE IT IS REQUIRED TO SHOW THE HOUSE CAUSED DAMAGE TO SOME PROPERTY or other

 Failure of a product doesn’t count as physical damage
 Allowing the claim would’ve been a transmissible warranty of quality (this is a matter of contract law and statute, imposing a duty would undermine and go beyond statutory duty of Defective Premises Act)

Question 6

House was built on inadequate foundations leading to cracked walls
Council had approved the construction plans

Held HOL
The loss was pure economic loss
The building had never existed without the defective foundations and had been flawed from the start
IN ORDER TO CLAIM IN A DEFECTIVE HOUSE SITUATION IN NEGLIGENCE IT IS REQUIRED TO SHOW THE HOUSE CAUSED DAMAGE TO SOME PROPERTY or other

 Failure of a product doesn’t count as physical damage
 Allowing the claim would’ve been a transmissible warranty of quality (this is a matter of contract law and statute, imposing a duty would undermine and go beyond statutory duty of Defective Premises Act)

Answer 6

Murphy

Question 7

Murphy

Answer 7

softens murphy approach:

It would have to be established whether it would be reasonable to move to another place to avoid a risk of damage

Question 8

softens murphy approach:

It would have to be established whether it would be reasonable to move to another place to avoid a risk of damage

Answer 8

Murphy

Question 9

*Hedley Byrne

Answer 9

Cases in which C has suffered pure economic loss due to a negligent statement allow for an exception of the reluctance of the law to recognize a duty of care

C must show:
1) D assumed responsibility towards him
2) C reasonably relied upon this assumption of responsibility
 No fair just and reasonable requirement

Question 10

Cases in which C has suffered pure economic loss due to a negligent statement allow for an exception of the reluctance of the law to recognize a duty of care

C must show:
1) D assumed responsibility towards him
2) C reasonably relied upon this assumption of responsibility
 No fair just and reasonable requirement

Answer 10

*Hedley Byrne

Question 11

Calvert

Answer 11

Gaming case

express assumption of responsibility

Question 12

Henderson:

Answer 12

Assumption implied from relationship
I) D needs to hold himself out as having some kind of special skill or knowledge
II) D must have led C to believe that he was going to exercise this to Cs benefit

Question 13

Assumption implied from relationship
I) D needs to hold himself out as having some kind of special skill or knowledge
II) D must have led C to believe that he was going to exercise this to Cs benefit

Answer 13

Henderson:

Question 14

No requirement for communication for implied assumption of responsibility to be found

No contact between daughters of a client and solicitor who negligently failed to change the clients will

• Duty of care recognized by analogy
• And because you took responsibility you are liable to anyone

Answer 14

*White v Jones

Question 15

*White v Jones

Answer 15

No requirement for communication for implied assumption of responsibility to be found

No contact between daughters of a client and solicitor who negligently failed to change the clients will

• Duty of care recognized by analogy
• And because you took responsibility you are liable to anyone

Question 16

Is there a requirement of voluntary assumption of responsibility

Answer 16

USED TO BE YES
Hedley Byrne
Where normally the court would have found duty of care because of an implied assumption of responsibility they could not as reference was given explicitly “without responsibility”
BUT
Smith v Eric Bush
Clause excluding liability fail foul for Unfair Contract Terms Act 1977
BUT
Customs and Excise Commissioners v Barclays Bank
- Dicta suggests need for a voluntary assumption

Question 17

White and Jones

Answer 17

Reliance typically shows in chance of conduct but reliance might be assumed based on the fact that people generally rely on solicitors to do their work competently and professionally

Question 18

Reliance typically shows in chance of conduct but reliance might be assumed based on the fact that people generally rely on solicitors to do their work competently and professionally

Answer 18

White and Jones

Question 19

*Caparo

Answer 19

1) prox 2) fore 3) f,j,r

Caparo test must be applied with narrow interpretations of concepts of “proximity” “fair just and reasonable” because intention of tort that it is difficult to recover purely economic loss
PROXIMITY:
1) Statement intended for C
2) C relied on it for the purpose for which it was intended for him to
relied on

Question 20

1) prox 2) fore 3) f,j,r

Caparo test must be applied with narrow interpretations of concepts of “proximity” “fair just and reasonable” because intention of tort that it is difficult to recover purely economic loss
PROXIMITY:
1) Statement intended for C
2) C relied on it for the purpose for which it was intended for him to
relied on

Answer 20

*Caparo

Question 21

An Informer v A chief Constable

Answer 21

Proximity: informer police √
Foreseeability: √
Fair just and reasonable = x
Police did not owe duty to protect Cs economic welfare
IDEA:
Police need to be free to investigate in a way they think is the best without being subject to potential negligent liability

Question 22

Proximity: informer police √
Foreseeability: √
Fair just and reasonable = x
Police did not owe duty to protect Cs economic welfare
IDEA:
Police need to be free to investigate in a way they think is the best without being subject to potential negligent liability

Answer 22

An Informer v A chief Constable

Question 23

*Customs and Excise Commissioners v Barclays Bank

Answer 23

1st apply Hedley Byrne 
If you conclude 1 assumption of responsibility 2 reasonable reliance 
	Duty of care 
	Next stage: negligence
If no assumption of responsibility
Caparo:
1)	Reasonably foreseeable damage 
2)	Sufficient proximity
3)	Is it fair just and reasomanle 
LORD HOFFMANN: it is important to apply Hedley Byrne only where it fits, and not force it as we have got the Caparo test -> this allows for a more nuanced application of Hedley byrne

Question 24

1st apply Hedley Byrne 
If you conclude 1 assumption of responsibility 2 reasonable reliance 
	Duty of care 
	Next stage: negligence
If no assumption of responsibility
Caparo:
1)	Reasonably foreseeable damage 
2)	Sufficient proximity
3)	Is it fair just and reasomanle 
LORD HOFFMANN: it is important to apply Hedley Byrne only where it fits, and not force it as we have got the Caparo test -> this allows for a more nuanced application of Hedley byrne

Answer 24

*Customs and Excise Commissioners v Barclays Bank