Negligence and duty of care: economic loss

Overview

Pure economic loss = losses caused by physical injury/property damage / strict on PEL cases, generally cannot recover damages

Lord B quote on the strictness of PEL

Lord Bingham: ‘the outcomes of the leading cases are in every or almost every instance sensible and justice’

Establishing non-liability for PEL - C v S 1875

Cattle v Stockton 1875 / C contractor, leaky pipe flooded from S’s land and ruined C’s work / court ruled C couldn’t sue - not the landowner, not the direct victim / can’t claim for PEL

Establishing non-liability for PEL - SS v M 1973

Spartan Steel v Martin 1973 / S operated factory, M contracts work on road outside - negligently severed electric cable supplying factory while digging / court ruled S could claim money for physical damage + consequential losses, but emphasised how PEL is not recoverable

Establishing non-liability for PEL - Link to Caparo

Caparo v Dickman 1990 / PEL claim - for PEL, duty requires a ‘special relationship’ (foreseeability, proximity, fair, just and reasonable to impose liability)

Establishing non-liability for PEL - M v B 1991

Murphy v Brentwood 1991 / M sued Brentwood CC after discovering structural defects in the house - M had to sell at a significant loss / Lords ruled in B’s favour - PEL didn’t include any physical injury or property damage, just financial consequence of owning a defective asset

Exceptions to non-liability - A v RSAI 2024

Armstead v Royal & Sun Alliance Insurance 2024 / A involved in collision while driving hire car, agreed to pay for repairs and loss of use (for time being repaired) / R refused insurance - PEL / SC ruled A could claim damages as the loss of use wasn’t PEL - reasonable + direct consequence

Justifying non-liability - Spartan Steel (Lord D quote), FB, SR, contract (H v M)

Spartan Steel v Martin 1973 - Lord Denning: ‘if claims for economic loss were permitted… there would be no end of claims’ / fair burden objection, self-reliance objective, contract objection (e.g. Henderson v Merritt 1994 - contract law for PEL)

Expanding on non-liability - HB v H 1963

Hedley Byrne v Heller 1963 / HB advert company, asked H for financial reference for a client - H provided positive reference wrongfully / Lords ruled H’s disclaimer was effective, so not liable / but duty of care can exist in these circumstances (special relationship, assumption of responsibility) = Hedley Byrne principle

Criticisms of the Hedley Byrne principle

McBride and Bagshaw 2024: ‘Hedley Byrne is very much a cuckoo in the nest of tort law’ / argues it’s more suited to a contract law response to breach

Expanding Hedley Byrne - S v GA 1995

Spring v Guardian Assurance 1995 / ex-employers owe a duty of care when making references, extended Hedley Byrne to positive actions - not just advice

Expanding Hedley Byrne - S v EB 1990

Smith v Eric Bush 1990 / S obtained mortgage with a bank, bank got report from EB and S paid bank / S purchased house that needed repairs (report missed out) but report contained disclaimer to not be fully accurate / EB liable to S / expanded HB - established liability for proximate 3rd parties

Expanding Hedley Byrne - W v J 1995

White v Jones 1995 / W disinherited daughters in will, reconciled, decided to change it / J was slow - W died before signing new will, daughters received nothing / Lords ruled there was a special relationship - J had duty of care (HB extended beyond client to intended beneficiaries)

Expanding Hedley Byrne - U v B 2025

URS v bDW 2025 / BDW constructed 2 high rise buildings using URS designs / design defect - repaired the building, sued URS for cost of repairs / SC ruled BDW could claim damages - expanded HB to ‘voluntary’ losses

Limiting Hedley Byrne - C&E v B 2006

Customs & Excise Cmmr v Barclays 2006 / court rejected claim - relationship lacked necessary proximity for a duty of care, supports how the Caparo tests limits HB principle

Limiting Hedley Byrne - B v PBC 2018

BNL v Playboy Club 2018 / player sought to gamble at P, P requested BNL credit - BNL provided positive reference - but player scammed club for £800,000 / SC ruled no duty of care - club was anonymous, unknown to BNL = no awareness of reliance, no special relationship

Limiting Hedley Byrne - S v N 2018

Steel v NRAM 2018 / SC ruled no duty of care - not reasonable for NRAM (commercial lender) to rely solely on Steel’s statement without verification (stricter for companies)

Further reading - Robert Stevens

Stevens argues should be PEL when it’s a consequence of another right being infringed on / ‘there is no ‘exclusionary rule’ for economic loss’ (against the blanket ban)

Further reading - Rabin (contrasting Stevens)

Rabin contrasts Stevens - courts reluctant to grant PEL due to policy concerns