Pure Economic Loss

What is Economic Loss

Definition (AO1)

Economic loss is classed as a financial loss rather than losses resulting from phyical loss such as personal injury or damage to injury.

Types of financial loss include:

• Loss of profits

• Loss of income

• Loss of financial benefit

• Loss in value of items

General Rule:

Consequential loss is recoverable but Pure economic loss is not

Consequential Loss

Definition (AO1)

Where the D’s negligence has caused the physical loss, i.e. damage to property or personal injury to the C, that consequentially leads to money loss for the C.

Example:

• Where a worker losses wages because he has been injured by D’s negligence

• Taxi driver loses fares because his taxi has been damaged by D’s negligence.

Pure Economic Loss (PEL)

Definition (AO1)

Known as “stand-alone” economic loss where there is no physical loss / it does not result from physical loss.
(The C has not suffered any Physical loss, but instead has lost money which is classed as pure economic loss.)

Example:

Where D’s negligence causes a traffic jam that closes the road which prevents any customers getting to C’s shop. The shop owner has suffered a loss of profit as a result.

Difference between Consequential and PEL

Case (AO3)

(Spartan Steel)

D was carrying out road works when he negligently severed the electricity cable that supplied power to the C’s smelting works which damaged the metal C was working with.

C suffered 3 losses:

1. Damage to metal - Physical loss (Property Damage)

2. Loss of profit - Consequential loss (Damage to metal)

3. Additional loss of profit - PEL - 3 further melts were planned but could not be carried out due to electricity being off. - (Could not recover)

Pure Economic Loss cause by a negligent act

Rule (AO1)

No damages for PEL when caused by a negligent act

• Not fair just and reasonable as claims may be inflated or false

(Reason due to floodgates & crushing liability)

Pure Economic Loss cause by a negligent act

Case (AO3)

(Weller v Foot and Mouth disease Research Institute)

D’s negligence caused an escape of the foot and mouth virus. To prevent the disease from spreading, authorities banned the movement of animals, which damaged the business of Cs who were livestock auctioneers

Claim failed as Cs suffered no physical loss.

Liability for PEL caused by a negligent misstatement

Definition (AO1)

D can be liable for consequential AND PEL as a result of a negligent misstatemnt.

“A D may be liable for PEL, if he makes a statement to someone to whom he owes a DOC to but due to his negligence, the statement is inaccurate and it causes the C a reasonable foreseeable PEL.”

The statement can be written or verbal and can be in any form that converys information to the C - (i.e. A report, reference, professional advice, a survey, a set of accounts, a map.)

Liability for PEL caused by a negligent misstatement

Case (AO3)

(Hedley Byrne v Heller and Partners)

Advertising agents and bank case

Outcome - not liable due to exclusion clause.

Case developed the law that there must be a special relationship between the parties.

PEL Special Relationship

Definition (AO1)

The features of a special relationship is ‘the person giving the advice owes a DOC to the C’. - This establishes proximity

All criteria must be proved:

1. D possesses a skill or expertise

2. D voluntarily assumes responsibilities for his statements i.e. D is aware:

   • To whom advice being given (directly)

   • purpose for which advice being given

   • advice (highly) likely to be acted upon (without further independent inquiry)

3. Claimant (reasonably) acted/relied on advice

4. C suffered detriment (loss) by relying on D’s advice.

Defendant posses a skill or expertise

Definition (AO1)

D posess relevant skill or expertise that the C relies upon.

i.e. Accountants, surveyors, lawyers, bankers etc.

Note - D does not need to be an expert, merely “put out” their knowledge.

Consider Social situations - Was it at a party, was there alcohol, was it a social function. - Generally only a duty of care in such situations if D has held himself out as being in the business of giving such advice. (Mutual Life v Evatt)

Defendant posses a skill or expertise

Case (AO3)

(Lennon v MPC)

C relied upon information about benefit entitlement from the clerk in the personal department to give him the right info. C was given incorrect info and lost out financially. C could claim for PEL.

(Chaudhry v Prabhakar)

D was seen as possessing the required skills or expertise (even though they weren’t), because they “put out” that they had expertise

D voluntarily assumes responsibility for his statements

Definition (AO1)

The D is effectively saying to the C that he is pepared for the C to rlay on any advice and that D will take full responsibility for it.

(D is accepting a connection / proximity / relationship)

D voluntarily assumes responsibility for his statements

Case (AO3)

(Patchett)

C wanted to engage a reputable contractor to build a swimming pool and so used a trade association website where he picked a firm.

The website stated that any ready should make further enquiries and should obtain D’s info pack which would make their position clear.

D was not liable as they never intended to take responsibility for the contractors.

D voluntarily assumes responsibility for his statements - D is aware to WHOM advice is being given

Definition (AO1)

“D will normally only be liable if he knows or should know when making a statemtn, the identity of the particular person or class of persons who will rely on the statement”

Consider - Is it a general statement for anyone? i.e. leaflet

OR

Aimed at known people i.e. subscribers.

D voluntarily assumes responsibility for his statements - D is aware to WHOM advice is being given

Case (AO3)

(Caparo v Dickman)

D prepared a set of annual accounts for a company. C, one of the shareholders, relying on the accounts, took over the company. Company was not worth as much as the accounts suggested and C sued for negligent misstatement.

Held that D was not liable as accounts were not prepared for the purpose of an individual shareholder to use in his own interests, but for the shareholders to use in the interests of the company as a whole. And so C was not a ‘known user’.

D voluntarily assumes responsibility for his statements - D is aware the PURPOSE for which advice is given

Definition (AO1)

D will only be liable if he knows or should know the purpose for which the statement has been made and for what it will be used.

D voluntarily assumes responsibility for his statements - D is aware the PURPOSE for which advice is given

Case (AO3)

(Reeman)

C bought a boat based on the strength of the seaworthiness certificate issued by one of D’s inspectors which had been negligently prepared.

The claim for PEL due to negligent misstatment failed because the certificatee had been produced for the purpose of complying with the regulations designed to promote safety at sea, not for the purpose of putting commercial value on the boat.

D voluntarily assumes responsibility for his statements - D is awar that the advice is likely to be RELIED on

Definition (AO1)

Depends on facts of the case.

Look at business or social setting

C did (reasonably) rely on the advice

Considerations (AO2)

• Is D retired - more experienced but may have out of date knowledge

• More experienced D - More reasonable & D has more reason to ought to have known

• Experienced C - may have capacity to do further research and so may think that C will not act upon D’s word.

C did (reasonably) rely on the advice

Case (AO3)

(Smith v Eric S. Bush)

• Held it would be reasonable for the C (buyer) to rely on the property survey given that the D knew that the survey would be passed to the C.

• There was no unkown liability as both the indenty of the C and the amount of any loss were known in advance.

C suffered a loss as a result of that advice (Causation)

Normal causation rules apply - Fact and Law

PEL exam structure as a whole

1. DOC - PEL

2. Breach

3. Causation

4. Defences