Understanding Pure Economic Loss: Key Cases and Principles

School

City University of Hong Kong**We aren't endorsed by this school

Course

LAW TORT

Subject

Law

Date

Dec 10, 2024

Pages

Uploaded by AgentOtterMaster3596

Pure economic LossDefinition -Consequential economic loss: upon physical damagePersonal injury or property damage caused by physical damage Recoverable (as part of physical damage) -A pure economic lossA purely financial loss, independent from and not consequential upon any physical damage suffered by P Must be in negligently inflicted pure economic loss Conarken Group Ltd v Network Rail Infrastructure Ltd [2011] 2 CLC 1-D caused physical damage to Network Rail’s railway lines-Disruptions in service resulted-D liable in tort for the physical damage and economic loss arising -P claimed for 1) cost of repairing the infrastructure and consequential costs relating to the damage; 2) P’s contractual liability to third parties who lose a future profits due to the damage Property damage, directly and foreseeably from physical damage to property, directly and foreseeably flowing from physical damage to property General exclusionary principle Spartan Steel and Alloys Ltd v Martin & Co Ltd [1973] QB 27-D were responsible for digging up road outside the P’s smelting factory-As a result of their negligence when carrying out this task, they inadvertently severed a power supply under the road resulting in a loss of power to P’s factory-P suffered a number of forms of damages, including loss of profits as a consequence of the factory being non- operational for the period while it was without power, physical damage to the metal which was in the process of being smelted at the time the power was lost -P claimed: 1) the reduction in the value of the removed meltt; 2) the profit lossmade from the moved melt; 3) the profit loss during 14.5 hoursThe last claim rejected due to lack of proximity and policy consideration

Pure economic loss caused by negligent misstatement Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465-P were advertising agents placing contracts on behalf of a client on credit terms-P would be personally liable should the client default-To protect themselves, P asked their bankers obtain a credit reference from D-The reference was given gratis and was favourable, contained an exclusion clause to the effect that the information was given ‘without responsibility on the part of this Bank or its officials’ -P relied upon this reference and subsequently suffered financial loss when the client went into liquidation -Hedley Byrne Principle (a special relationship of trust and confidence betweenP and D)The information was supplied by D with special knowledge or skillP relied on the information and suffered Pure Economic LossSuch reliance was reasonable in the circumstancesD knew or ought to have known P’s reliance and assumed responsibility (objective test)Smith v Eric S Bush [1990] 1 AC 831-D was a surveyor who was employed by Abbey National to assess the value ofa property which was to be purchased by P-P had paid Abbey National for D’s work to be carried out-D’s report stated that the property was not in need of any essential repairs, which was incorrect, it turned out that the property had suffered structural damage-P bought the property in reliance on this report but part of the chimney collapsed and broke through the roof into the property’s loft-P and D did not have contract between themselves, but P paid the survey fee for the valuation -There is an exemption clause which specifically exempted D from liability for his reportOwed duty of care to the purchasers Caparo Industries plc v Dickman [1990] 2 AC 605-Caparo had bought shares in the company of which the report was about as part of a takeover-P were already shareholders of the company, however, relying upon the annual

accounts certified by the directors and auditors of the company, the bought more shares and eventually acquired company-They later found out that the statements about the company, D’s profitability were untrue and suffered loss-Consequently, the plaintiffs sued the directors alleging fraudulent misrepresentation and against the auditors for alleged negligenceThe report was not prepared for the specific investor or a shareholder for a specific purposeDid not owe a duty to large public -The information or advice was either given on a business occasion or in the course of business activites-No need be part of core business Spring v Guardian Assurance plc [1994] UKHL 7-P was dismissed from his job as a company sales representative for the first D-Upon seeking employment with another company, he received an unfavourable reference from the first D and the new employer refused to appoint him-At trial, the judge held that the defendants had been under a duty of care to theP and the reference given had been a negligent misstatement An employer who provides a reference in respect of an employee to a prospective new employer owes a duty of care to the employee in respect of preparation of the referenceIf the employer breaches this duty, then they are liable in damages for the economic loss suffered by the employee as a result -Unlikely to impose Doc in a social context Chaudry v Prabhakar [1989] 1 WLR 29-P was seeking to purchase a car and asked D, her friend, to assist her on the basis that he claimed to the knowledgeable on the subject-She purchased a car on the recommendation of D-The car had visible damage, but D did not enquire about the cause of this to the seller, simply informed the P that he was sure it had not been in any accidents-It later transpired that the car was badly unroadworthy due to damage caused in a serious previous accidentHeld that there is Doc as D was aware that P had relied on his advice, and he held himself out as being knowledgeable about cars

Pure Economic loss caused by negligent service (Trilogy)Henderson v Merrett Syndicates Ltd [1995] 2 AC 145-Henderson (members of Lloyd’s syndicates) sue Merrett Syndicates (managers)-P alleged that D negligently managed their syndicates, which exposed them to unreasonable financial loss-The relationship between P and D were governed by the agency agreements, terms of which implied that due care and skill needed to be exercised by the agents when managing P’s affairsHave duty of care Hedley Bryne principal extends to negligent performance of servicesReasonable reliance + (implied/ objective) assumption of responsibilityD knew that they were in complete control over the success or otherwise of P’s investmentConcurrent liabilitySpring v Guardian Assurance plc [1995] 2 AC 296-P was dismissed from his job as a company sales representative for the first D-Upon seeking employment with another company, he received an unfavourable reference from the first D and the new employer refused to appoint him-At trial, the judge held that the defendants had been under a duty of care to theP and the reference given had been a negligent misstatement An employer who provides a reference in respect of an employee to a prospective new employer owes a duty of care to the employee in respect of preparation of the referenceIf the employer breaches this duty, then they are liable in damages for the economic loss suffered by the employee as a result Hedly Byrne principle: it can apply where P entrusted the conduct of this affairs to D and depended on D to exercise his best efforts on P’s behalfAssumption+ dependenceWhite v Jones [1995] 2 AC 207-Mr White wished to change his will so as to leave 9000 euros for the benefit ofhis two daughters, who he had chosen to exclude at the point of his will’s initial drafting

-His solicitor was D, who received his request but took a seizable time to actually implement it-In the time period, Mr White passed away and the will remained unchanged-Mr White’s daughters, P, sue D for contending the amount of time it took for him to fulfil the request amounted to professional negligence and attempting to claim the amount that they would have received had the will been alteredHave Doc, the loss suffered is reasonably foreseeableHedly Byrne principal: assumption of responsibility for the task (not for legal liability) + awareness of P’s economic well- being dependent upon the proper discharge of his serviceNot a must for reliance to establish special relationship required by HB principle in negligent service casesLord Goff: the need to do justice, the only persons who might have valid claim have suffered no loss, but the only person who has suffered loss has no claim (vulnerability)Lord Browne: as it is a novel category, by analogy+ incremental analogyFailure to enforce a court order Customs and Excise Commissioners v Barclays Bank plc [2007]1 AC 18-P ordered D to put a freezing injunction on the accounts of one of their customers-To prevent the withdrawal of money which had been legally seized for tax evasion-However, D did not exercise a reasonable Doc for this request-The criminal got his money outNo liability, no DocNo ‘voluntary’ assumption of responsibility as D had no choice but to comply with the order’Caparo test: policy concernsA radical innovation with implication, D’s excessive and wide exposure to liability, in general, no common law duty deriving from a court order/ statutory dutyCaparo test predominatesThe assumption of responsibility test may be dominant in an akin- to- contractrelationship (not exclusive of but supplementary)It should not preclude the court from checking its conclusion by considering the fairness, justice and reasonableness or by adopting an incremental approach

Pure Economic Loss caused by defective property -Have different scenarios1)Defective product causing personal injury or damage to ‘other property’-A complex structure D & F Estates Ltd v Church Corms for England [1989] AC 177-P had to pay to re-plaster a flat that they had leased upon discovering that D, the owner, had had faulty plastering done-P sued D for the cost of plasteringThe liability of a builder for defective structure can only arise if the defect remains hidden until the defective structure causes personal injury or damage to property other than the structure itselfNo liability as it does not cause damage to ‘other property’2)Defective product frustrating the owner’s expectation and thus having less value Murphy v Brentwood District Council [1991] 1 AC 398-D, a local authority had negligently approved plans for the footing of a house -P purchased the property, but afterwards it began to subside as a result of defects in the footings-P was unable to afford the required repairs, and was forced to sell the property in a cheaper price (loss)-He also sue for the health and safety risk which the defects had caused to himself and his family during the time they lived at the propertyNo physical damage, but pure economic losssHedley Byrne principle is required to attract duty of careNo Doc: no reliance by P, no assumption of responsibility by DWhy a restrictive approach?-The link between negligence and physical damage depends largely on the lawsof nature, which limits the type of relationship giving rise to a tort claim while the link between negligence and PEL are primarily human in creation, which may give rise to claims within a broad network of economic links-‘In principle, economic activity does not have to regard to the interests of others and is justifiably by the actor having regard to his own interests alone’ (per Hobhourse L.J. in Perrett v Collins [1999] PNLR 77)

-The parties may have a greater opportunity to use contracts todetermine the level of risk to be taken and the degree of protection from loss required-To avoid ‘liability in an indeterminate amount for an indeterminate time to an indeterminate class’ (per Cardozo CJ) – a higher degree of proximity required + reviewed by the court for the fairness, justice and reasonableness and policy consideration