Pure economic loss Flashcards
What is pure economic loss?
Economic loss that arises where there has been no damage to the claimant’s property or injury to their person.
Why are courts reluctant to allow pure economic loss actions?
Policy concerns - for example, the courts have concerns about the floodgates opening, imposing crushing liability on the defendant and the possibility of fraudulent claims. In addition, some judges are reluctant to interfere with the rules of contract by imposing liability in tort instead.
What’s the general rule for whether pure economic loss is recoverable?
As a general rule, if the loss is in the first two categories, it is recoverable, but if the loss lies in the third category, it will not be recoverable. (see exceptions though…)
When can loss can be categorised as pure economic loss?
- Economic loss not flowing from damage to person or property - no physical damage to their person or property, then their loss will be pure economic loss.
- Loss arising from damage to property of another
- Defective items
Key case for ‘loss arising from damage to property of another’?
Weller & Co v Foot & Mouth Disease Research Institute [1965]:
- C agricultural auction house - loss of profits. D negligently released disease.
Unsuccessful as pure economic loss.
Key case regarding defective products being categorised as pure economic loss?
Murphy v Brentwood District Council [1990]:
C bought a house which subsequently developed structural defects because of inadequate foundations. - foundations approved by council.
‘dangerous defect manifested itself before any actual damage has occurred’. Faulty foundations had caused no loss or damage, other than financial loss (pure economic loss).
What’s the general rule for pure economic loss? What’s the case authority?
The general rule is that no duty of care is owed in respect of pure economic loss.
Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973]: manufactured steel alloys; employee damaged cable. There were three loss’:
- Damaged metal - physical damage
- Loss of profit on damaged metal - consequential economic loss
- Loss of profit on the four further melts - pure economic loss
Judgment demonstrated policy concerned.
What are the two main ways in which pure economic loss can be caused?
- negligent act - court will not recognise duty of care
2. negligent statement - exceptions apply…
What are the three exceptions that apply to pure economic loss caused by negligent statements?
- Pure economic loss caused by negligent misstatements
- Wills
- References
Case examples for pure economic loss caused by negligent misstatements?
Hedley Byrne v Heller [1964]: HoL decided that in certain circumstances concerning two party relationships there could be liability for careless statements.
Case examples for pure economic loss re. wills?
Y Ross v Caunters [1980]: solicitor had given negligent information about the witnessing of X’s will. X relied on this and, as a result, the claimant beneficiary was unable to inherit under the will.
Y White v Jones [1995]: alteration to father’s will was not made before he died. The daughters sued the solicitors and the court found in their favour.
Case examples for pure economic loss re. references?
Spring v Guardian Assurance plc & Others [1995]: Ds gave a very disparaging job reference about the C. Although there was no doubt that a referee owed a duty of care to the person requesting a reference (Hedley Byrne), it was previously questionable whether a duty of care was also owed to the subject of the reference - held duty to provide accurate reference.
Facts of key case Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]?
Facts: C advertising agency was asked to buy advertising space for Easipower Ltd. D bank assured the claimant in writing that Easipower was creditworthy. Relying on this advice, the claimant bought advertising space worth £17,000 for Easipower. It transpired that Easipower was not creditworthy.
Held: Had it not been for the disclaimer, the bank would have owed a duty of care and would have been liable.
Three key concepts discussed in Hedley Byrne re. duty?
- Reasonable Reliance
- Assumption of responsibility
- Special relationship of trust and confidence between the parties
(these all OVERLAP)
What’s the process for 1. Reasonable Reliance?
- The claimant relied on the defendant’s advice - question of fact
- It was reasonable for the claimant to rely on the defendant’s advice. - proximity
- Defendant knew/ought to have known the claimant was relying on his advice. - question of fact; F,J&R.
What are the various factors judges consider when looking at whether it was ‘reasonable for the C to rely on the D’s advice’ (4)?
a. Special skill or knowledge held by the defendant
b. Special skill or knowledge held by the claimant
c. General context in which advice is given
d. Other relevant general factors
- Special skill or knowledge held by the defendant: case and context?
Y Esso Petroleum Co Ltd v Mardon [1976]: employee of Esso misadvised C re. value of petrol station. C relied on this advice and entered into lease.
- Special skill or knowledge held by the claimant: case and context?
N Stevenson v Nationwide Building Society [1984]: C estate agent and insurance broker: negligent survey re. value of property. Should have been aware of disclaimer - should have used independent survey.
N James McNaughton Paper Group Ltd v Hicks Anderson [1991]: advice given by auditors in respect of a company take-over - not reasonable for them to have relied solely on the draft accounts prepared by the defendants.
Y Yianni v Edwin Evans [1982]: first-time buyer relied on a building society valuation survey - reasonable for the claimant to rely on this.
- General context in which advice is given: case and context?
Y Chaudhry v Prabhakar and Another [1989]: D gave advice to C who was his friend re. finding car. D found car; crumpled bonnet, did not ask questions. Told C good condition. Lied about who the seller was and whether it had been in an accident. Car was unroadworthy. D had duty to inquire.
Lejonvarn v Burgess [2017]: duty of care to exercise reasonable skill and care owing between friends for professional services provided free of charge, on the basis of assumption of responsibility.
- Other relevant general factors: case and context?
“Nature of the advice, the potential risk, and the availability and practicality of a second opinion.”
However - courts may find a duty of care for pure economic loss in the absence of any reliance by the claimant on the defendant’s advice. See White v Jones [1995].
What’s meant by the second concept re. duty of care in Hedley Byrne, voluntary assumption of responsibility by D?
The defendant may be found liable because they assumed responsibility for the correctness of their statement.
Courts may look at some of the factors already discussed under reasonable reliance, for example did the defendant hold himself out as having the relevant expertise, were the consequences serious if the advice was incorrect and did the defendant know that the claimant was relying on the advice?
Case law for voluntary assumption of responsibility? (4)
N Williams v Natural Life Health Foods Ltd [1998]: C took franchise set up by 2nd D: no duty.
N Customs and Excise Commissioners v Barclays Bank [2007]: Barclays notified of freezing injunction for customer. Authorised payments negligently. Court held no voluntarily assumed responsibility: obliged by law.
Y Henderson v Merrett Syndicates Ltd [1995]: D assumed responsibility for C’s financial affairs - duty found.
Y Lejonvarn v Burgess [2017]: D supplied landscaping services to neighbours (friends) free of charge. No contract, but assumed professional responsibility.
Have the courts been clear re. what’s needed to show assumption of responsibility?
No - see Caparo: and Customs and Excise Commissioners (Lord Hoffman made it clear that ‘assumption of responsibility’ is not a test).
What’s the concept of the 3rd limb of the Hedley Byrne test; special relationship?
Essentially, the three tests overlap. Reliance and assumption of responsibility form part of what makes a special relationship.
