Pure Economic Loss - Lecture 5 - Tort Law

What is the generalised advice for determining the type of loss occurred? (exam tip)

In a negligence PQ, we must identify the type of loss has occurred, since there are different rules for psychiatric harm, pure economic loss and whether the defendants act was a positive act or merely failing to confer a benefit and failing to take steps to protect the defendent.

What is pure economic loss? And why must we distinguish that from consequential economic loss?

All or significant type of harm the claimant suffered was a loss of money - we must distinguish economic loss from consequential economic loss where the claimant suffers consequential economic loss when it comes to harm initially done to their body or property (such as being injured in a road accident which prevents you from working and receiving earnings which is a consequential economic loss).

The reason why this distinction matters is because damage is not recoverable with pure economic loss whatsoever.

Spartan Steel v Martin & Co provides a distinction between pure economic loss and consequential economic loss. What is the context, outcome and reasoning for the judgement?

Context of the case → Defendant negligently cut through the power supply cable which connected the claimants electric furnices to the electric supply, defendant admitted negligence but there was a question as to what damages could be covered with 3 types suffered.

What was the 3 types of loss suffered? →

1. material in the furnices had been damaged due to the temperature suddenly dropping, product odixiising and couldnt be used

2. profit they lost on that material and werent able to make it into products for sale

3. power took a while to be restored, in that time they would have operated the furnices to make more product

Outcome of the case → Court of Appeal stated the 1st one was recoverable as physical damage, 2nd was covered as consequential economic loss and the 3rd heading of damage was not recoverable as it was an example of purely economic loss.

Why did the judges in Spartan Steel v Martin & Co come to the ruling they did? (Lord Denning)

Lord Denning made 3 general points why economic loss was not allowed -

1. undesirable to allow this type of claim as people should put up with financial loss and work harder the next day

2. the problem with allowing claims for purely economic loss is the difficulty to identify when these claims are genuine, making ascertatins about what aamount of profit they made

3. this type of loss should be borne by the community, dealing with their own losses and it is disproportionate to make the road contracter

Armstead v Royal & Sun Alliance Insurance Co Ltd provides a distinction between pure economic loss and consequential economic loss. What is the issue, context and outcome of Armstead v Royal & Sun Alliance Insurance Co Ltd?

Context of the case → It explores the scope of consequential economic loss - claimant had been involved in a road accident, she wasnt able to obtain a car which she paid both, both instances not being her fault and the car she bought afterward had been destroyed from another car accident, so she had brought a claim for causing her damage due to losing the car - the defendant states that this isnt a case of consequential economic loss is economic loss which is a consequence to YOUR property and A did not own the car, she was merely hiring.

Issue of the case →

1. There was a question whether hiring a car could be regarded as a consequential loss situation and the court said that it could be regarded as your property?

2. Another point was as a result of the car being damaged, claimant was liable to pay a higher charge reflecting on the car being repaid, could this contractual liability be apart of the damages A/claimant claimed under the defendant be valid?

Outcome of the case → You have right to possession as the hirer of the car applies and consequential economic loss can apply to property you hired.

• The court said it could be recovered as it was a reasonably foreseeable kind of harm - foreseeability DOESNT require that the defendant knew that the car was a hired car, doesnt require precise factual knowledge of the situation and a reasonable person would guess and suspect this as reasonable, it was reasonably foreseeable that there would be contractual liability to any damages caused.

McFarlane Case provides a distinction between pure economic loss and consequential economic loss. What is the context and outcome?

Context → This was regarding a man have a vacestomy and the wife subsequently becomes pregnant.

Was it pure economic loss or consequential economic loss?→ Her claim for costs of bringing up an extra child was rejected and the father having to deal with his liability, and it was purely economic loss but the wifes' liability to bring up an extra child following from giving birth, her claim could be argued and regarded as consequential economic loss as her loss followed on from falling pregnant and given birth, but the court didnt accept this analysis as they regarded as pure economic loss.

Outcome → None of the claims succeeded.

Donoghue v Stevenson discusses pure economic loss in relation to defective products. What is the context and importance?

Context of the case → Donoghue case is the woman drinking a beer with a decomposed snail and it had consequentially led to her illness

Importance of the case → If a product simply doesnt prove as valuable as you hoped, the loss that you face would be purely economic loss

Murphy v Brentwood DC discusses pure economic loss in relation to defective products. What is the context, outcome and importance?

Importance of the case → Murphy case is a leading case on deciding whether a property is a physical loss or purely economic loss.

Context of the case → M bought the property and over the course of buying the house, M noticed the cracks appearing on the walls as the foundations werent completed properly and were negligently falling short on quality, these were signed off and approved by the local authority. It was agreed that if the builder wasnt liable to the damage, the local authority couldnt be liable - even if the local authority was D, it was a question whether the builder could be liable to the claimant such circumstances which caused the cracking of the walls - the question was whether there was physical damage or purely financial/economic loss. the HOL found that it was purely financial loss, since cracks on the wall is the product manifesting its defectiveness, if the product is simply worth less than what C expected, that it is economic loss and cannot be covered by negligence.

Outcome of the case → The HOL considered whether the problems could be considered if the cracking caused damage in other parts of the area, such as the area was damaged and the property wasnt ssimply defective (damage to furnature by the cracking of the wall would give rise to physical damage, but simply cracking of the wall IS purely economic loss - damage to the rest of the house caused by the faculty radiator was recoverable as physical damage, but just a damaged radiator is pure economic loss).

Why was Murphy v Brentwood DC concluded the way it did?

Reason for this outcome →

• They denied negligence as it would lead to a transmissable warranty of quality as anyone who came to owe the house and discovered the structural claims would be able to make a claim against the property builder which would contradict the statutory entitlements such as Defective Premises Act where the substandard work renders the property inhabitable.

  • This is a contrast to Murphy case as the damage was uninhabitable, but they could easily be adjusted.

• We cannot allow the law of tort to circumvent the statuory entitlements under the Defective Premises Act 1972 and the law of contract where people are expected to have surveyors to check the land and property, not the law of negligence to intrude in the following.

Hedley Byrne v Heller & Partners outlines the assumption of responsibility necessary for proving economic loss, what are the necessary components to prove it?

This test is when the defendant has assumed respoonsibility and the claimant has relied on this assumption of responsibility and there are two components of the test for 'assumption of responsibility.’

The necessary components of assumption of responsibility are -

1. It is assumed expressly OR implied

2. reasonable reliance

In what cases does Hedley Byrne v Heller & Partners relate to - what ACTIONS could amount to ‘assumption of responsibility’?

Hedley Byrne applies to various components such as-

1. not only statements,

2. negligently provided services (henderson v merrett syndicates),

3. negligent failures to act (white v jones)

Williams v Natural Life Health Foods expands on the ‘EXPRESS assumption of responsibility’ requirement stipulated in Hedley Byrne v Heller & Partner, what is the context and outcome? (EXPRESS, NOT IMPLIED)

Context of the case → Williams v Natural Life Health Foods was regarding a company which they alleged made misrepresentations to him and the director who signed the letters signed to the claimant, The company was liquidated, the question was whether the claimant could have a claim against the director and assume responsibility to the claimant.

Outcome of the case → The court concluded no and the asssumption of responsibility was by the company, the director personally didnt owe a duty of care to C.

Calvert v William Hill Credit Ltd expands on the ‘EXPRESS assumption of responsibility’ requirement stipulated in Hedley Byrne v Heller & Partner, what is the context and outcome? (EXPRESS, NOT IMPLIED)

Context of the case → Calvert v William case was regarding a claimant who had a gambling addiction, C had a telephone betting account with E and C lost a lot of money by betting. C in a moment of clarity called the bank telling him to close his acount, not wanting it easy for him to get access to placing these large bets. D/the bank agreed to do so and failed to do it.

Outcome of the case → There was a duty of care by D undertaking responsibility to close the account.

What is meant by IMPLIED assumption of responsibility as per Hedley Byrne v Heller & Partners?

This implied assumption arises in a relationship (Such as a professional person offering advice to their client - such as a doctor, accountant and the carefulness in which they are providing the advice)

The general principle that a person will be held to assume responsibility if they held out to have some special skill/knowledge that they will exercise for the benefit of the claimant

Henderson v Merrit Syndicates expands on the ‘IMPLIED assumption of responsibility’ requirement stipulated in Hedley Byrne v Heller & Partner, what is the context and outcome? (IMPLIED, NOT EXPRESS)

Context of the case → This is a case regarding managers operating in the insurance market, the claimant was an investor in the synidcate.

Outcome of the case → It was held in the case that an assumption of responsibility arose from the professional relationship.

Spring v Guardian Assurance expands on the ‘IMPLIED assumption of responsibility’ requirement stipulated in Hedley Byrne v Heller & Partner, what is the context, issue and outcome? (IMPLIED, NOT EXPRESS)

Context of the case → It was a case as holding yourself as special knowledge, exercising for the benefit of the claimant - S was an employee at the assurance and wanted to get a job somewhere else in the financial services and legislation required that his current employer had to provide him a satisfactory reference to get a new job and the reference was a bad one, losing the job.

Issue of the case → Was there an assumption of responsibility against his employer and recipient of the reference?

Outcome of the case → The assurance company didnt have special skills or expertise in writing references but this didnt matter, the special knowledge of S's work place performance was something assurance implicitly knew and the special knowledge would inform the reference they made about S.

What are the TWO contoversies regarding assumption of responsibility as per Hedley Byrne v Heller & Partner?

• it is necessary for there to contact between the defendant and claimant? - This was addressed in White v Jones which concerned a claim against a solicitor, it wasnt a claim against the soliictor by the client, it was the claimant's father and the father had a falling out with the client and as a result, he wanted to cut them out of his will with the assistance of his solicitor who excluded him from his wealth and later the family reconiled, and the father decided to put the claimants/daughters back in his will to inherit from his will and the solicitor failed to negligently update the will and the only valid will was the first version of the will where the daughters were excluded from the will - does the solicitor hold a duty of care towards the daughter and is there is an assumption of responsiblity? The court said it wasnt essential in this situation for their to be contact between the defendant and claimant for an assumption of responsibility to arise - the solicitors' duty of care towards the father could be extended like an umbrella to protect the daughters from the solicitors negligence

• is it necessary for the assumption to be voluntary? / must it be voluntary? - It had to be voluntary as per the Hedley Byrne case as the advertising agents were planning to incur finance on one of their clients, they asked the bank if they were going to repay them if they incurred the payment for them and the bank stated yes that they should be able to repay, it was an incorrect statement but the bank added a disclaimer that it was a 'satetment given without responsibility', which excluded an assumption of responsibility and hence they had no duty of care

  • In Smith v Bush, they imposed liability in spite of the defendant excluding responsibility, claimant purchased a house and needed a mortgage to complete the sale, the mortgager instructured the surveyor to assess the amount they werre purposing to lend to the purchaser, the surveyors report given to the mortgage provider included a exlcuded any responsibility of the purchaser relying on the report despite the claimant purchasing the house based on the report and the house actually suffered from major structural problems - the HOL outlined there was a duty in these circumstances, refering to UCTA.

  • Though there is a reversion back to voluntary nature, asusmption of responsibility being a volunatry assumption, SO there is a requirement of voluntariness in the assumption of responsibility though it is a controversial point.

Steel v NRAM Ltd outlines how we address reasonable reliance (2nd component of assumption of responsibility test in Hedley Byrne v Heller & Partner), what is the context, issue and context?

Context of the case → It involves a claim against a solicitor, the solicitors client borrowed money from NRAM and loan was secured across several properties owed by the client, the client wished to sell one property, the defendant/solicitor negligently asked NRAM to release its security rights over all 4 property instead of surrendering its rights over one of those buildings, mistakenly doing it to all 4 and NRAM agrees to do so and the client fails to repay the debt and NRAM having surrendered its rights, it couldnt have any recourse to recover the debt

Issue of the case → does the solicitor owe a duty ot care to NRAM?

Outcome of the case → NRAMs reliance on the statement was not reasonable reliance, what you needed to ask whether it waa reasonable for NRAM to rely provided they look at their documentation as to whst security it had on the land and identifying it had those buildings as secuirty and should have replied to the solicitor that they cannot release all 4.

Caparo Industries v Dickman as a case to help address assumption of responsibility in Hedley Byrne v Heller & Partner, and the context, outcome and importance?

Context of the case → Caparo was a case regarding a hsotile takeover by Caparo of another company, the company had an account prepared for it by D. Caprao decided to take over the company in two stages -

• buy the first batch of shares, being aware of the audative account which had been organised by D and Caparo knew this

  • bought a second batch of shares making it the massive shareholder and owner of the company, the companies directors had been fraudulant and it was representative of the actual position of the company, C brings a claim in negligence and the auditors aught to have detected the frauds and it was negligent approved by the auditors/D and was there a duty of care held by the audtors? No, in respects to -

• no duty was owed in the first batch as C wasnt the ceo yet and was a shareholder, if someone makes a statement that wasnt made for you, youc annot establish a duty on a sttament that wasnt made for you

  • in regards to the second batch, the auditors accounts are shown to shareholders to determine how the company should be run, whether to retain the services or change it - they arent provided for the purpiose of the shareholder disposing of their shares or adding to their shares, there wasnt proximity since the statenment was being relied on for a oourpose which was not INTENDED

Outcome and importance of the case → duty of care will arise when you rely on a statement that it was intended for you and intended that you rely on it - if it wasnt intended for you or it was intended for you, but you rely on it for a non-intended purpose, a duty or assumption of responsibility will not arise.

Customs and Excise Commissioners v Barclays Bank plc provides us guidance on which test you use first, either Hedley Byrne v Heller (test for assumption of responsibility for economic loss), or Caparo ‘three-step’ approach to determining duty of care? Context, issue and outcome?

Context of the case → The bank held an account for a company that owed a lot of tax and customs and exercise obtained an injunction which prohinbited barcalys from allowing withdraws from the account. The bank negligently failed to apply the freezing order even though they were notified about it and allowing the company to withdraw all the money from the account, leading the business to be liquidated so they didnt pay the tax liability.

Issue → Was there a duty of care held by braclays towards HMRC?

Outcome → There was no duty of care owed in respect of pure economic loss.

• You should first apply the hedley burn test - reasonable reliance taken place by the claimant. If the criteria is satisfied, then a duty is owed. If you conclude that the criertia is not satisifed, you csan go to consider whether the broader considerations set in the caprao case to find if a duty exists. You dont always need to establish proximity, fair just reason such as the Caparo approach.

Steel v NRAM Ltd provides us guidance on which test you use first, either Hedley Byrne v Heller (test for assumption of responsibility for economic loss), or Caparo ‘three-step’ approach to determining duty of care? JUDGE’S COMMENTARY ON GUIDANCE, CRITICISMS AND LECTURER STANCE

Judge commentary → Lord wilson argued that due to the decisions in Robinson, there was no 2nd stage to consider, we needed to deal with it under the Hedley burn assumption of responsibility approach - Steine also affirms this as the only test for pure economic loss.

Criticisms of the Judge’s commentary → There is some disagreement as lord wilson's words was merely a dictum, Lord Wilson mentions in passing Smith v Bush that a duty is imposed despite a disclaimer of responsibility made by the surveyor and Lord Wilson didnt indicate that Smith v Buch was wrongly decided, since this is problematic that we cannot explain this case by assumption of responsibility, this case pushing aside the principle and we cannot assume an assumption of responsibility here

• Lecturer’s stance on Lord Wilson’s commentary → The lecturer suggests that we must firsly use the hedley burn assumption of responsibility criteria, if this criteria is no satisifed, then there is STILL scope for a claiment to go on to establish a method approved in the robinson case on duty such as pointing towards an existing category of duty, or fair just ans reasonable to extend the category (reference to caparo approach)