Recognizes that too broad duty of care in relation to purely economic losses would undermine contract law. Courts said because of special expertise required= we infer that responsibility has been assumed. That there was a relationship of proximity, That it is fair, just and reasonable to impose a duty of care. A typical example will be where there is a commercial relationship between the parties and the advice was given in a business context. A pure economic loss occurs when the plaintiff (the injured party) suffers a financial loss due to the negligence of the defendant (the negligent party) and this loss was not the result of a personal injury or damage to property. do not have a uniform legal definition: financial loss, pecuniary loss, economic loss, pure economic loss etc – the law about the recovery of such losses, in contract or in tort, can be tricky and confusing, as the examples in the report show. Common categories of pure economic loss are expenditure, loss of profit, profitability or loss of some other form of financial gain. Spartan Steel v Alloys ltd v Martin & Co 1973, Conarken Group ltd v Network Rail Infrastructure ltd 2011, Lord Cooke, ‘An impossible Distinction’ 1991, Winnipeg Condominium Corporation No36 v Bird Construction 1995, Robinson v PE Jones (Contractors) ltd 2011, Williams v Natural Life Health Foods 1998, Test most obviously satisfied in relation to professional Ds. Learn how your comment data is processed. Click to share on Twitter (Opens in new window), Click to share on LinkedIn (Opens in new window), Click to share on Tumblr (Opens in new window), Click to share on Facebook (Opens in new window), Click to share on YouTube (Opens in new window), Click to email this to a friend (Opens in new window), Click to share on Pinterest (Opens in new window). Hoffman- the Hedley Byrne test shouldn’t be distorted, you shouldn’t try to force factual situations to fit into it= make it lose its usefulness. E.g. "Pure economic loss" has been defined as "a diminution of worth incurred without any physical injury to any asset of the plaintiff." To help paint a picture of what pure economic loss might look like, here are a few examples. This is because a duty of care must be consistent with an assumption of responsibility. Recovery for pure economic loss in English law, arising from negligence, has traditionally been limited. A negligent misstatement is where one party carelessly makes a statement to another person to whom they owe a duty of care. For instance, if someone’s car is destroyed as a result of another driver’s negligent driving, the cost of replacing the car is classed as financial or economic loss. PURE ECONOMIC LOSS The common law has reluctance in permitting recovery in tort for reasonably foreseeable PURE economic loss caused by negligence i.e. v. Fatehi 1984) The law of negligence is the most important and best known part of the whole subject of tort law. b) Where the claimant's pure economic loss was sustained as a result of defective property. The recoverability of pure economic loss in tort largely depends on which category of pure economic loss the loss falls in – but more on that in a moment. Another difficult case- white and jones – a duty of care was owed by analogy in Hedley Byrne- essentially Goff saying that the facts don’t fit but its close enough. Voluntariness is what you’re looking for. First batch- the C’s weren’t the people intended to be targeted by the statements. It is seen more as expressing an opinion rather than giving advice. Sets out the distinction between consequential and purely economic loss, Temperature in the furnaces dropped suddenly and damaged materials that were in there at the time the electricity went out, Loss of profit on the material that was in the furnace. These kinds of losses can be dealt with through the negligence. B may make a claim for the damaged property. bad investment advice which makes you lose money. Position before this case was very difficult- two sets of HoL authority that tell you that a different test is the one to apply- neither Caparo nor Hedley overruled to say that assumption of responsibility is the true test. Merrett- CoA said Hedley Byrne wasn’t about whether responsibility was assumed or should it be deemed responsibility was assumed. Generally no duty of care is owed to avoid causing another to suffer a loss which is purely economic. Pure economic loss = a loss that is solely and purely economic C’s less well off than they otherwise would’ve been if the D had acted carefully. Pure economic loss occurs when the economic loss occurs without preceding physical or property damage, for example, the negligence of one person causes another to miss a business opportunity. Contrastposition between statute and contracts. In this situation it was to the shareholders= first batch of shares C’s weren’t shareholders, so weren’t entitled to sue in respect of the first batch of shares. The physical injury is caused to the deceased, not the family. The following are illustrative examples of a pure risk. Consequential economic loss is an economic loss that follows physical harm (not being able to go to your job, having to pay hospital bills etc). The claimant must not just show reliance, they must also prove it was reasonable to rely on such a statement. Contractlaw- if you buy a building as a matter of default in English law there’s no warranty of satisfaction of quality. Reliance in the context of negligent misstatements requires that the claimant relied on the information the defendant provided, or the words spoken, due to the particular nature of the statement and the relevant knowledge and experience of the defendant. the court extended Hedley Byrne liability to proximate third parties. Copyright © Inbrief, All Rights Reserved. Pure risk is a type of risk that cannot be controlled and has two outcomes: complete loss or no loss at all. But the other requirement= you must rely on the statement only for the purpose in which it was made, audited accounts allow shareholders to make decisions about the way in which the company was being run, the purpose of those accounts wasn’t to enable shareholders to make investment decisions by buying more shares- in this situation no duty of care was owed. direct result of a bad investment loss of business due to competitors Australia went even further and said here duty of care owed in relation to any damage. Examples of pure economic loss include: Loss of income suffered by a family whose principal earner dies in an accident. As for the second batch of shares by that stage the C’s were shareholders. So please don't treat it as legal advice or rely on the information. The total social cost of accidents caused by product failure, therefore, includes both pure economic loss M wouldn’t have had contractual rights against the builder from whom he bought the house, courts didn’t want to provide a remedy in tort which the law of contract refused him, This case not concerned by problems outlined by Denning but. The claimant must prove their claim on the balance of probabilities to succeed. (I agree). The test unlike the Caparo test doesn’t have a section of whether something is fair, just or reasonably to apply. Examples of pure economic loss include the following: Loss of income suffered by a family whose principal earner dies in an accident. Second batch- the purpose for which the accounts were relied on wasn’t the purpose for which the communication had been made in the first place. What you should be asking is whether the C had behaved unreasonably in doing what they did. Negligently inflicted economic loss . The comparative study of the pure economic loss rule reveals that the recognition and significance attributed to such rule and to the notion of "economic loss" varies considerably across Western legal systems. Economic profit (or loss) is the difference between the revenue received from the sale of an output and the costs of all inputs, including opportunity costs. So it seems to exclude those considerations of policy. d) Where the pure economic loss was caused by the defendant's omission. An application of the general principle: is a kind of particular loss too remote to be recoverable? If you spot anything that looks incorrect, please drop us an email, and we'll get it sorted! This is the kind of test lord Hoffman were thinking about, to keep the AoR coherent you mustn’t force factual relationships into it.- Caparo provides residual backup to not stretch aor test. In White v Jones, we shouldn’t read too much into the fact that this strand of policy questions isn’t formally put into the Hedley test- doesn’t meant the courts won’t think of the same kinds of factors. There are exceptions, for instance, if there is a commercial contract that allows a party to claim damages for financial loss. Where a person is asked for advice in a business context, they have three options: As a general rule, if a person decides to choose the last option they will be considered to have voluntarily assumed responsibility. For example, if A borrows an item from B and this item is damaged due to the defendant's negligence. Didn’t use same reasoning as Lord Denning in Spartan Steel. This term is used to differentiate between speculative risks that are taken for a chance of a gain and risks that are inherent in a situation but are never positive. CoA: that didn’t matter because the lorry driver should have anticipated that if they cause damage to a commercial asset then the owner of that asset would be deprived of the income generated. Decision in smith v eric bush shows there being liability where there was no voluntary assumption of responsibility. These damages, taken together and in the absence of personal injury or property damage, constitute pure economic loss. Who should bear the loss? Consequential economic loss is the economic loss that proximately results from failure of the goods to function as warranted, loss of goodwill, loss of business reputation, and other loss proximately resulting from a defective product beyond direct economic loss. Is it necessary for responsibility to be assumed that D and C have physical contact? Floodgate argument: risk of the courts being confronted with multitude of claims which are difficult to determine/calculate. By the late 1990s we have an odd looking concept of duty of care for pure economic loss. The court found that the relationship between the parties was, At the time this case was decided, courts/authors tended to assume this duty would arise only for negligently given statements, but as a result of. Legal examples of consequential economic loss include: Lost profits; Loss of goodwill The claimants suffered three harms: Damage to the furnaces and steel in use at the time; economic loss of the profit of selling the steel; and economic loss due to the halting of its manufacturing. economic loss rule states that a plaintiff cannot recover damages for a pure financial loss. a) Purchase of a defective car b) Loss of expected profit c) Loss of future earnings due to negligently inflicted physical injury d) Loss of expectation of a legacy in a will Question 2 Why is the law of negligence reluctant to impose a duty of care for pure economic loss? www.inbrief.co.uk is wholly owned by Claims.co.uk Ltd. We are the UK's leading legal information website offering free information about the law, legal process and getting advice. 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