Pure economic loss

Pure economic loss

This arises when:

1. An economic loss arises when there has been no damage to C’s property or person (ie a bad investment, lost contractual opportunity or inheritance)

2. The loss arises from damage to property which C has no proprietary interest in

3. Defective items

Pure economic loss: general rule

There is no duty of care for pure economic loss, and no exception if it is caused by a negligent act

Pure economic loss: general rule - precedent

Spartan Steel v Martin & Co [1973]

Exceptions

1. Pure economic loss caused by a negligent misstatement

2. Wills

3. References

Negligent misstatements

Where a negligent statement causes pure economic loss, there may be a duty of care owed

If the statement has also caused physical harm, the normal duty of care rules apply

Wills

A solicitor and other will-making entities owe a duty of care to the beneficiaries of a will for pure economic loss relating to inheritance

If the will provider can foresee, that the beneficiaries might suffer a loss due to their negligence, they have assumed a responsibility towards those beneficiaries

References

Referees owe a duty of care to the subject of the reference to provide an accurate reference

By agreeing to provide a reference, they have assumed responsibility to take reasonable care and skill when preparing the reference

Negligent misstatements: 3 tests

For a duty of care to be found in these cases, at least on of the following tests must be satisfied

1. Reasonable reliance

2. Assumption of responsibility

3. Special relationship of trust and confidence between parties

They are designed to establish a proximate relationship between parties and that it would be fair, just and reasonably to impose a duty

These tests often overlap

Reasonable reliance

To establish reasonable reliance, C must prove that:

• They relied on D’s advice

• It was reasonable of them to rely of D’s advice

• D knew or ought to have known that C would rely on their advice

Reasonable reliance: C reasonably relying on advice

Factors to consider include:

• D’s special skills or knowledge

• C’s special skills or knowledge (D needs to be in a better position than C)

• General context which advice is given in (eg business or social)

• Other relevant general factors

Assumption of responsibility

Where D voluntarily assumes responsibility for the correctness of their statement

It is determined by considering whether, but for the lack of consideration, would the relationship be equivalent to a contract?

Assumption of responsibility: criteria

1. D communicated advice to C

2. D knew the purpose which C would use the advice

3. D knew or reasonably believed that C would rely on this advice

4. C acted on advice to their detriment

Assumption of responsibility: criteria - precedent

Caparo v Dickman [1990]

Special relationship of trust and confidence

This will arise where

• The asking party trusts the other to exercise the required degree of care as required when providing the advice

• Where it is reasonable for the asking party to rely on the advice given

• The other party knew, or should have known, the asking party would rely on them

Structure of a pure economic loss claim

• Loss

• Duty of care - general rule or if an exception:

  • Reasonable reliance

  • Assumption of responsibility

  • Special relationship of trust and confidence

• Follow usual negligence claim steps

Disclaimers

Where the advising party has taken positive steps against assuming responsibility for their statement, they may not owe a duty of care

If relying on a disclaimer, it must comply with UCTA 177

For consumer contracts, the CRA 2015 covers disclaimers

Disclaimers: considerations

Factors to consider when determining if a disclaimer is reasonable:

• If the parties of equal bargaining power?

• Whether it would have been reasonably feasible to obtain advice from an alternate source

• The difficulty of the task undertaken by D

• The practical consequences - considering the loss, the parties financial circumstances and insurance