#17351 - Pure Economic Loss - GDL Tort Law

Three categories of economic lass:

• Actual: e.g. the cost of a new car when involved in a crash

  • Recoverable

• Consequential: e.g. the lost earning while recovering from a crash

  • Recoverable

• Pure: e.g. lost employment for those caught in the tailback resulting from a crash.

  • Generally not recoverable.

  • Cattle v Stockton Waterworks Co (1875) – plaintiff contracted with owner of land to build tunnel under road. Defective waterpipe leaked onto road obstructing the works reducing contractor’s profit. Held could not claim in PEL.

  • Spartan Steel v Martin [1973] - Defendants negligently cut a power cable that supplied power to the claimant’s factory. The factory shut down. Metal that was being processed at the time of the power cut was damaged (368), and there was a loss of profit on it of 400. The Claimants couldn’t process any more metal while the power was off which they claim led to a loss of 1,700.

    • Held they could claim the first 768 as actual/consequential loss, but not the 1,700 as PEL.

  • Murphy v Brentwood District Council [1991] - Lord Oliver: There is a duty of care to avoid harm to person or property but not for pure economic loss.

Courts unwilling to impose liability for PEL as there is no duty of care:

• NB there is such a duty of care in Canadian law.

• Potential floodgates opening, imposing crushing liability on the defendant

• Lord Denning in Spartan Steel highlights the possibility of fraudulent claims.

• In addition, some judges are reluctant to interfere with the rules of contract, particularly the rule of privity (a contract cannot confer rights or impose obligations upon any person who is not a party to the contract), by imposing liability in tort instead.

• Matthews, Morgan and O’Cinneide see three strands:

  • 1) ‘floodgates’ argument - the fear of ‘liability for an indeterminate amount to an indeterminate class’

  • 2) necessary to maintain the doctrinal integrity of private law (e.g. the view that negligence law should not circumvent the rule in contract law that third party beneficiaries may not sue on a contract).

  • 3) economic loss is intrinsically less serious than other forms of damage, and therefore there is less pressing need to permit recovery for this form of loss.

Exception : Negligent Misstatement

• Established in Hedley Byrne v Heller [1964] overruling previous case law.

  • Hedley Byrne wanted to check the creditworthiness of a potential client and asked the clients bank for a report. The free report, headed “without responsibility on the part of this bank” which went on to state that Easipower was “considered good for its ordinary business engagements”. Client later went into liquidation causing financial loss to Hedley.

    • House of Lords held unanimously that a duty to take care would have arisen in these circumstances had it not been prevented from doing so by the disclaimer.

• Lunney & Oliphant this is the ‘one major … exception to the common law’s general exclusion of liability in negligence for pure economic loss’.

The law was given a restatement last year:

• Playboy Club v Lavoro [2018] - Playboy club would ask a third party to check the credit rating of any potential customers they had concerns about. One customer yet to open account with bank was confirmed as sound. Eventually cheques bounced and PC lost out.

  • SC Held no duty of care as there was no assumption of responsibility. The defendants didn’t know the purpose of the enquiry and they didn’t know that what they said would be passed on to a third party.

  • Lord Sumption: fundamental to this way of analysing the duty that the defendant is assuming a responsibility to an identifiable person(s)

• NRAM v Steel [2018] - The solicitor mistakenly sent an email stating that the whole loan was being repaid, lender removed security against the house from Land Registry. SC said that it was not reasonable for the lender to rely on what the opposing party’s solicitor was saying.

  • Lord Wilson JSC: there are a few cases where the court didn’t use this ‘assumption of responsibility’ criteria. Rather they used broader notions of what is fair. Thus these don’t appear to be entirely consistent.

  • Must also establish causation, this will be done only by showing: reasonable reliance and reasonably foreseeable reliance.

In summary, there must be:

• 1) A voluntary assumption of responsibility by the defendant

• 2) Reasonable reliance on the defendant’s statement

• 3) D knew or it was reasonably foreseeable that C would rely on D’s statement

1) A voluntary assumption of responsibility by the defendant

• Likely affected if D claimed to be an expert

• Esso Petroleum v Mardon [1976] – tenancy agreement with Esso. Mardon relied on Esso’s estimate sales figures. These were grossly overestimated due to planning permission changes. Made a loss of 5,800. Entitled to damages.

• Lennon v MPC [2004] – Claimant was transferred to NI. He asked and was incorrectly told that his housing allowance would not be affected by taking time off work between his transfer.

  • Held the officer had assumed responsibility to the claimant for the advice and was responsible and had access to special knowledge.

2) Reasonable reliance on the defendants statement

• Likely affected by the purpose of the statement/context it was given in.

• Howard Marine and Dredging v Ogden [1978] – Ogden hired dredging barges from Howard. Asked what their capacity was an employee stated it was 1600 tons having seen this in Lloyd’s Register. Exceptionally the register was wrong and the capacity was 1050 tons.

  • Held there was negligent misrepresentation. Negligence in tort is the failure to exercise the level of care which a situation demands.

  • Lord Denning: the context is important – if asking me a q as I cross the street the answer is less likely to be reliable than if you ask me at the end of a long buisness meeting.

• Caparo v Dickman [1990] – Accountants made statements about company being run in an economic manner, when it wasn’t. These were made for the purpose of shareholders not for investors.

  • Therefore, there was no duty of care to investors.

• James McNaughton Paper v Hicks [1991] – C wanting to take over smaller paper group, who asked their accounts to produce draft accounts so JMPG could decide if they want to buy MK. These were...