Tort Law - Pure Economic Loss Flashcards
Define what is “pure” economic loss?
Loss which is not consequential/derivative to some physical harm caused by negligence (whether harm to person or property). This is “pure” economic loss which is generally NOT recoverable.
What are two common exceptions to the no-recovery rule for pure economic loss?
- Assumption of responsibility cases (Hedley Byrne & Heller; Henderson v Merritt Syndicates; Spring v Guardian Assurance)
—-> special relationship where D assumes responsibility for C.
—–> C trusted D’s negligent misstatement or negligent performance of a service, and suffered loss
- White & Jones (intended beneficiary under a will that was negligently not enacted by the solicitor), this is another “negligent service” case which was largely decided on policy reasons, e.g. daughters - like many common people - would not be able to kick-start their lives if they were not included in their dad’s will.
What were the fact patterns of Hedley Byrne, Henderson v Merritt and Spring v Guardian Assurance which gave rise to an assumption of responsibility by D?
Aside from pure economic loss, what is a key tort doctrine from Henderson v Merritt?
NEGLIGENT MISSTATEMENT
- re. a company’s financial soundness by a bank.
- employment reference
—-> Hedley Byrne was about to do some work for a company. They asked the bank (Heller) for an assurance - twice - that the company was solvent. The company then went insolvent and could not pay Hedley Byrne.
—-> Mr. Spring was written a damning and poor employment reference when he left his employer. This was a negligent misstatement because the employer was thinking of the wrong worker, and Mr Spring was competent, but this negative reference stopped him from getting other jobs. In writing him a reference as his EMPLOYER, the company assumed responsibility to exercise reasonable care and skill in preparation of the reference. (This could also be considered a “service” rendered case because of the employment relationship).
- NEGLIGENTLY PERFORMED SERVICE
- mismanagement of a fund which sustained heavy insurance losses (Henderson v Merritt).
The other key doctrine from Henderson v Merritt is CONCURRENT LIABILITY IN TORT AND CONTRACT!
Lisa uses her Dad’s vacuum cleaner for her cleaning business. It explodes, injuring Lisa and breaking her client’s vase. Lisa sues the manufacturing company of the vacuum cleaner for her losses (i.e. for the cost of replacing the vacuum cleaner and vase, and for her injuries).
What is recoverable?
Lisa can only validly sue for personal injuries (manufacturing company owes her a DOC not to get injured when using her product).
As the other 2 items do not belong to her, Lisa cannot sue as they are pure economic loss.
Her dad would sue for property damage to his vacuum and the client would sue for property damage to her vase.
Give some examples of CONSEQUENTIAL economic loss.
For example: Lost earnings during period of one’s leg being broken - this is CONSEQUENTIAL economic loss.
For example: Metal ore held in negligently installed furnace that was damaged and unusable; the physical damage done to the company’s furnaces (Spartan Steel);
Damage due to electricity cable (incl. loss of profits due to factory being on shutdown) were not recoverable because the company did not owe the electricity cables - so the harm was not derivative based on negligent damage to their OWN products.
For example: Loss of potential career earnings when a talented marksman cannot compete in shoot competition due to negligence which leaves him with limited mobility in his right arm - this is CONSEQUENTIAL economic loss.
Give some examples of common PURE economic loss fact patterns
Common Types:
- Loss of income due to family’s primary earner dying
- Loss of income from a bad investment
- Loss of a missed contractual opportunity
- Loss of income due to damage in another’s property (in which C has no interest).
- DEFECTIVE PRODUCTS
(where there is no damage to property, e.g. poorly installed flooring does not damage to home - the proper avenue is to sue in contract law). Very high bar to be successful, e.g. bespoke instructions for specialist flooring given to a specialist constructor (Junior Books); but this case was decided on its facts and another case failed, e.g. negligently installed water pumps - the cost of which was not recoverable as it was pure economic loss (Miurhead v Industrial Tank Specialists). - DEFECTIVE SERVICES
Cost of repair due to TP’s failure to check. Local authority failed to check the foundations of C’s bought home when it was under construction, causing a subsidence payment of £40,000 to fall on C - this was not recoverable as the defect caused no damage to person or property (Murphy v Brentwood)); the proper route is a contractual claim against the builder.
For example (Spartan Steel Ltd case): (1) smelted ore currently in a furnace that had to be discarded; (2) damage to furnace which was negligently used or installed - these are CONSEQUENTIAL economic losses. They could NOT recover the loss of profits / electricity due to the factory being closed for 15 hours, because the electricity cable did NOT belong to them - instead, the electricity company.
What are the 3 conditions required to make out a Hedley Byrne & Heller-style exceptional claim to claim “pure” economic loss?
- Special or Fiduciary relationship of trust & confidence between the parties
- Voluntary assumption of responsibility
- Reasonable reliance
If a negligent misstatement results in physical harm (e.g. specialist telling someone that an aircraft is in good condition for flying), what rules of tort law apply?
Normal rules of tort law / DOC, as this is not pure economic loss.
Why was there a duty of care owed to the intended beneficiaries in White v Jones?
The solicitor could reasonably foresee that, if the alteration was not made before the father died, that the intended beneficiaries (daughters) would suffer a loss. D had a responsibility to the daughters as everything was agreed - he just had to execute the alteration, but failed to do so.
In assumption of responsibility cases, can a another party ever “reasonably rely” on a negligent misstatement made to someone else?
Yes, in very exceptional cases, such as:
(Smith v Eric Bush).
Mrs Smith paid for more her house (a loss) because of a negligent property survey. The survey was ordered by, and directed to, her mortgagee bank - not herself directly. In practice, would-be homeowners would rely on the banks’ survey and not order another one with their own money. In this case, it was reasonable for Mrs Smith to rely on the negligent misstatement, as Eric Bush would have reasonably foreseen that Mrs Smith would rely on the negligent survey.
What circumstances did the court consider regarding the DISCLAIMER in the case of Smith v Eric Bush?
How was this different to Hedley Byrne & Heller?
In Both cases, there was a disclaimer on the facts that a person other than the bank could not rely on the negligent misstatement: one was a statement of a company’s solvency (HB&H) and one was a property survey that gave a negligently high price (Smith v Eric Bush).
The disclaimer FAILED because it was subject to UCTA 1977 (note that Hedley Byrne pre-dated this Act), and the claimant Mrs Smith succeeded.
In determining whether a disclaimer is reasonable, you must consider:
- are the parties of equal bargaining power?
- would it have been reasonably practicable to obtain advice from an alternative source re. cost and time?
- how difficult was the task undertaken by the D?
- what are the practical consequences re. the ability of the parties to bear the loss, and the sums of money at stake, in light of insurance?
Where there is no reliance on the statement, can you claim pure economic loss?
No, you cannot claim.
EG: Where C bought a company, and D negligently prepared the company accounts. On the facts, C relied on other information, not the incorrectly prepared numbers, when buying the company (JEB Fasteners).
How do we assess whether a voluntary assumption of responsibility WAS ACTUALLY UNDERTAKEN?
Give relevant and key case examples.
Communication of advice from D to C.
D must know the PURPOSE of the advice given to C and how C will use it.
D knows or reasonably believes that C will rely on this advice without making other independent enquiries.
Caparo v Dickman: C bought shares in a public company and suffered pure economic loss when they performed poorly. D had negligently prepared the company accounts but it WAS FOR THE PURPOSE OF AN AUDIT to help the shareholders of the public company. The information was not for use by investors. It would be unreasonable for D to have assumed responsibility to an unlimited / indeterminate class of investors.
Banca Nazionale v Playboy Club: A wholly undisclosed principal could not rely on a negligent credit reference because the agent was unidentifiable and the purpose for which the credit reference was sought could not been known.
