Pure Economic Loss- Duty of Care

Question 1

What is Economic Loss?

Answer 1

This is where you lose money as a result of Ds actions

Question 2

What are the two types of economic loss?

Answer 2

1) Consequential Economic Loss

2) Pure Economic Loss

Question 3

What is consequential economic loss?

Answer 3

suffering financial damage as result of Ds negligence which resulted from harm. This could be personal or property.

This is recoverable- so you can make a claim under normal negligence rules

Question 4

What is pure economic loss?

Answer 4

This is financial damage suffered as a result of D’s negligence NOT accompanied by physical harm (personal or property)- this is losing money from Ds action where there is no harm

This is not recoverable and there is not duty owed for PEL

Key case: 
Spartan Steel v Martin Ltd 1973
The contractor (d) accidentally cut of the power line to factory- factory had no power for 14 hours. This led to lost profit on all the steel that could have been processed (PEL) and they were in the process of melting steel which got damaged (CEL). Court said pure economic loss from lost profit was not recoverable whereas profit from damaged streel was.

Question 5

So if pure economic loss is not recoverable, what the exception?

Answer 5

Negligent misstatement

Question 6

What’s Negligent misstatement?

Answer 6

This is found where D negligently provides inaccurate advice or information and then the claimant suffers an economic loss as a result

Key case: Hedley Byrne v Heller 1964

Question 7

What principle arose from Hedley Byrne?

Answer 7

HL Obiter said:

A duty for PEL can arise if:
o A special (or ‘fiduciary’) relationship of trust and confidence exists between the parties;
o D has voluntarily assumed the risk;
o C has relied on the advice/information by D; and
o such reliance was reasonable in the circumstances.

Question 8

Explain the first requirement of PEL duty:

Answer 8

1) Special relationship of trust and confidence between C and D

This would usually be business/professional relationships
Esso Petroleum v Mardon [1976]- C planning to lease petrol station and bought it relying on negligent expert opinion issued by Esso

However, there is a narrow exception
Chaudhury v Prabhaker [1989]- C buys a car relying on her friend’s opinion as he claimed to be very knowledgeable about cars. The car was useless, and she sued. Court said there was a duty here because D specifically said he knew about cars and C relied on this advice.

Question 9

Explain the second requirement of PEL Duty

Answer 9

2) D voluntarily assumed responsibility

Henderson v Merrett Syndicates Ltd [1995]- C were investors and hired D to manage their investments. They sued D because his management was negligent and led to big losses. Court held there was duty and D would have assumed responsibility by agreeing to manage their investments.

Customs v Barclays Bank [2006]- Customs sued Barclays for not freezing accounts sooner and allowing payments go- Court said Barclays didn’t voluntarily assume risk so claim failed. It needs to be voluntary

Question 10

Explain the last two requirements for PEL duty

Answer 10

3) C has to reasonably rely on the advice
4) There has to be reasonable reliance

Key cases:
Caparo v Dickman [1990]- Landmark case- Caparo buys shares in response to companies good looking accounts. caper made loss. Courts said this info wasn’t for people to buy shares but a legal requirement. Caparo’s claim failed because:
i. This info wasn’t required by C for a purpose known to D,
ii. The info wasn’t communicated from D to C
iii. D didn’t know C will act on this advice

Smith v Eric Bush [1990]- C bought a house based on surveyors inspection. Survey conducted negligently and C found at the issue later and sued. Court said there was a duty here because the surveyor would have been aware that the house buyers would rely on this info

Question 11

How has the Hedley Byrne exception been extended?

Answer 11

Its been extended to:

1) Will cases

White v Jones [1995]- Solicitor badly drafted a will and failed to update it despite testator telling him twice. When he died, the beneficiaries who were supposed to be included were not. There was a duty of care here.

2) Reference Letters

Spring v Guardian Assurance [1995]- D wrote a bad reference about C. C didn’t get job and sued. HL said D had a duty to C.

3) Professional services

Customs v Barclays [2006]- Customs suing Barclays based on their service rather than a statement.