Pure Economic Loss Flashcards
Why are courts reluctant to allow pure economic loss actions?
Policy reasons:
- floodgates opening
- imposing crushing liability on the defendant
- possibility of fraudulent claims
In addition, some judges are reluctant to interfere with the rules of contract by imposing liability in tort instead.
What are 4 types of loss in negligence? Which are likely to be recoverable?
1) Personal injury/property damage
- likely to be recovered
2) Consequential economic loss
- likely to be recovered
3) Pure economic loss.
- NOT likely to be recovered
4) Psychiatric damage.
- NOT likely to be recovered
Define pure economic loss
Economic loss that arises where there has been no damage to the claimant’s property or injury to their person
- this includes if a claimant suffers losses as a result of damage to another persons property (Weller & Co v Foot & Mouth Disease Research Institute)
- this includes cost of repairing the defective item (Muirhead v Industrial Tank Specialities Ltd)
What is the general duty of care rule associated with pure economic loss?
No duty of care is owed in respect of pure economic loss (Spartan Steel & Alloys Ltd v Martin& Co (Contractors) Ltd)
What are the exceptions to the general rule for PEL?
- Pure economic loss caused by negligent misstatements
- Wills
- References
Explain the ‘PEL caused by negligent misstatements’ exception.
- Where the pure economic loss was caused by a negligent statement (also known as a negligent misstatement), the courts are more likely to find it an exception.
- Hedley Byrne v Heller
Explain the ‘Wills’ exception.
- There is a relationship between the solicitor and the testator. If there is negligence in relation to a will the person who suffers the loss is not the testator but the beneficiary.
- The courts have found a duty of care owed by the solicitor to the beneficiary
- Ross v Caunters
- White v Jones
- The duty of care owed to beneficiaries extends beyond solicitors to other companies offering will-making services (Esterhuizen v Allied Dunbar Assurance plc)
Explain the ‘References’ exception.
- The House of Lords held that there could be a duty of care owed to the subject of the reference to provide an accurate reference.
- Due to the concept of assumption of responsibility.
- by giving a reference, the company assumed a responsibility to the claimant to exercise reasonable skill and care in the preparation of the reference. It is very difficult to get a job without a reference.
- Spring v Guardian Assurance plc & Others
What are the 3 key concepts from Hedley Byrne when establishing a duty of care from negligent statements? Are all 3 needed?
- Reasonable Reliance
- reasonable reliance test - Assumption of responsibility
- the defendant is liable because they assumed responsibility for the correctness of their statement - Special relationship of trust and confidence between the parties
- Reliance and assumption of responsibility form part of what makes a special relationship.
- overlap
- a relationship that would be FJR to impose a duty of care
- if specific advice was given for a specific purpose then there might be a special relationship (Caparo v Dickman)
- not all 3 are needed
What is the reasonable reliance test?
- The claimant relied on the defendant’s advice.
- Did the claimant actually rely on the defendant’s advice?
- This reliance essentially helps create proximity between the two parties. It also helps establish the fairness of imposing a duty in this situation. - It was reasonable for the claimant to rely on the defendant’s advice.
- Defendant knew/ought to have known the claimant was relying on his advice.
- If the defendant knew the claimant was relying on his advice, then he can foresee pure economic loss if he is not careful in giving advice.
What factors are under consideration when judging whether it was reasonable for the claimant to rely on the defendants advice?
- Special skill or knowledge held by the defendant
- defendant needs to be in a better position than the claimant to know the facts (Esso Petroleum Co Ltd v Mardon) - Special skill or knowledge held by the claimant
- if the claimant has a relevant skill/ knowledge, it is not for FJR for the claimant to rely on the defendant’s advice - General context in which advice is given
- courts will consider whether they were in a formal or informal setting
- even if they were friends / social setting - Other relevant general factors
- nature of advice
- potential risk
- availability and practicality of a second opinion
What happens where the person who relies on the defendant’s statement is a third party?
Rules in Hedley Byrne + the below:
1) The defendant mustcommunicatethe advice to the third-party claimant
2) The defendantmust know the purpose for which the claimant will use this advice
3) The defendantmust know that the claimant will relyon this advice without independent enquiry
4) Theclaimant has acted uponthat advice to his detriment, such that it must be reasonable to expect the defendant to protect the claimant from that loss.
Can a disclaimer be used to limit liability?
In the course of business - subject to UCTA 1977 (Smith v Eric S. Bush)
For consumers : CRA 2015
