Tort - Pure Economic Loss (3)

Question 1

What is pure economic loss?

Answer 1

Pure Economic Loss: In general, a claimant in negligence can recover ‘consequential economic loss’ but not ‘pure economic loss’. This is provided duty, breach and causation are satisfied.

(1) Consequential Economic Loss: Economic losses arising from physical damage or injury, i.e. loss of earnings following a car crash.
Example: If loss of earning (even future) is tied to an established physical harm done to the claimant themself, then it is recoverable.

(2) Pure Economic Loss: Economic loss incurred without physical damage to the claimant or their property (Weller v Foot and Mouth). Also:
Defective Items: Economic loss associated with the cost of a defective item of property itself (Murphy v Brentwood). Consequential damage from the defect would be recoverable.
Third-Party Harm: Economic loss incurred following a harm done to a third-party (Spartan v Martin).

Question 2

What are the exceptions to the rule for pure economic loss?

Answer 2

Exception to General Rule: Pure Economic Loss is generally irrecoverable because there is no duty of care between claimant and defendant.
Special Relationship: Where a claimant can establish a ‘special relationship’ between themselves and the tortfeasor, they may be able to recover pure economic losses.
In Practice: In practice, this is used in relation to statements and advice negligently provided by an individual to another.

Question 3

When does a special relationship arise?

Answer 3

Special Relationship: A special relationship will arise where: a) a defendant voluntarily assumes responsibility for the claimant; and b) the claimant relies on this advice (Hedley v Heller).
Third Parties: The relationship extends to advice provided to third parties which causes loss to a claimant, provided the elements are still made out (Spring v Guardian Assurance).

Voluntarily Assumption of Responsibility
Voluntary Assumption of Responsibility: The defendant must have known: a) the purpose for which their statement/advice was being offered; b) that it would be communicated to the claimant or a class within which the claimant fell; and c) believed the claimant would act on the advice without independent inquiry (Caparo v Dickman).
Knowledge of Purpose: The defendant must have known the purpose for which the claimant would use their advice (Banco v Playboy).
Knowledge of Communication: The defendant must have knowingly and actively communicated their advice to the claimant, or a class within which the claimant fell (James McNaughton v Hicks).
Belief in Reliance: The defendant must have reasonably believed the claimant would act upon their advice without independent inquiry - must be more than a belief in the possibility (Sutradhar v NERC).

Actual Reliance
Actual Reliance: The claimant must have actually relied on the advice.
In Practice: This means the advice must have played a substantial role in inducing the claimant into the situation which caused their pure economic loss (Jeb v Marks).
Objective Test: ‘But for’ the advice, would the claimant have entered into the situation that caused their loss? (Customs v Barclays applying Barnett v Chelsea).

Objective Reasonableness
Objective Reasonableness: To seek damages, it must have been objectively reasonable for the claimant to rely on the statement.
In Practice: It would be reasonable to rely on the advice of someone who was professionally qualified to provide it, or had at least indicated that they were (Smith v Bush).

Business Context
Business Context: The advice must have occurred in a business context (Howard Marine v Ogden).
Exception: Advice given in social settings may be sufficient provided all other elements of the test are made out (Chaudhry v Prabhakar).

Question 4

After a special relationship made out what is he next step?

Answer 4

Further Elements: Provided a special relation is made out, a claimant must then make out the other elements of negligence (much of this is covered already).