Pure Economic Loss in Negligence

Question 1

What is meant by pure economic loss?

Answer 1

Economic or financial loss which is not caused by physical injury or damage

Question 2

What is an exception of the pure economic loss rule?

Answer 2

A claimant who suffers a financial loss as a result of acting on a negligent mistreatment will be able to claim for the loss if they can establish a ‘special relationship’ with the D who gave the advice.

Question 3

Spartan Steel v Martin and Co. ltd (1973)

Answer 3

An electrical power cable outside the claimant’s factory was negligently cut by the Ds workmen. This led to a loss of power for several hours to the factory which made steel alloys. A ‘melt’ in the furnace at the time of the power cut had to be destroyed to stop it from solidifying and wrecking the furnace. There were three parts to the claim:
1. For the damage to the melts on the production line and the furnace - this could be claimed as it was physical damage
2. For the loss of profit on those melts - this could be claimed as it amounted to consequential economic loss from the physical damage
3. For the loss of the profit while the factory was out of action - claim should not be allowed as it amounted to pure economic loss. This was financial loss which was not caused by physical damage to the claimant

Question 4

Hedley Byrne v Heller

Answer 4

Hedley Byrne are a advertising company, they created a campaign for Easipower. Easipower went into liquidation without paying for the campaign. In this case, a claim could be made for a negligent misstatement if a special relationship between the parties could be proved. There was a special relationship but the reference contained a disclaimer of liability. Hedley Byrne could not succeed.

Question 5

Caparo v Dickman special relationship

Question 6

Chaudhry v Prabhakar