Economic loss

• What is economic loss?

  Is the financial loss ("damage to the wallet") rather than physical loss, there are two types.
• Consequential economic loss


  financial loss as a result of physical injury, physical loss arising from D's negligence
• Pure Economic Loss


  Financial loss that results from a negligent act but no physical loss
• Spartan Steel v Martin

  D carrying out roadworks when it negligently served an electricity cable to C's smelting works. This interrupted a batch of ingots being produced by the world in a special melt procedure; and further planned melts has to be shelved. The power failure meant thag the ingots in the melt were prematurely cooled, thus damaging the metal and ruining the consignment.

  D could recover damages for:

  Damage to the metal (physical loss-damage to property)

  Loss of profits relating to the damages metal which could not now be sold (consequential loss-economic loss and a consequence of the physical loss)

  D could not recover damages for:

  Loss of profits on "melts" planned for the period during the power loss (pure economic loss)
• Lord Denning on pure economic loss

  Open the "floodgates" to an unpredictable amount of liability
• The rule for economic loss caused by negligent acts

  Consequential economic loss will be recoverable

  Pure economic loss is NOT recoverable
• Network Rail Infrastructure v Conarkin Group

  Owing to D's negligence (dropping rubble on the train lines) C was unable to operate rail lines for 5 days and had to pay compensation to train companies:C's loss was recoverable as it was consequential economic loss, arising from physical damage to the railway
• Cattle v Stockton Waterworks

  Where C suffered an economic loss but no physical loss when the tunnel it was building for a fixed price for X was negligently flooded by D, and C's resulting expenses could not be passed on to X as the tunnel was for a fixed price. C's claim did NOT succeed
• Weller v Foot and Mouth Disease Research Institute

  C's were livestock auctioneers who suffered pure economic loss when, as a result of D's negligence in allowing the foot and mouth virus to spread, there was a ban on the movement of animals: C's claim was refused as it was not based on any physical loss
• White v Jones 1995

  The C's suffered a pure economic loss when a solicitor's negligence meant that they could not benefit from a will

  Held: The HOL found in favour of C's and allowed them to claim for this pure economic loss because the parameters of the will meant that there was no "floodgates" problem: the solicitors had known the consequences of his negligence as its potential effect related to specific beneficiaries
• Negligent Misstatement


  Negligent statement of fact or opinion inducing reliance by another and resulting in him/her suffering loss.
• Hedley Bryne v Heller (1964)

  Was was a advertising agency, C was asked by the client to book advertising space but C bore the financial risk of doing so they asked D, the client's bank, for assurances about the clients ability to pay.

  D's reference was negligently prepared and so the client appeared to be in a stronger financial position that was actually the case, as a result, C booked the space but the client never paid for it. C sued D for economic loss it has suffered owing to D's negligent misstatement. Claim failed because of an exclusion clause it had included in the reference
• Elements of a special relationship

  D possesses skill or expertise

  D voluntarily assumes responsibility for any statements made

  D knows who will use the statement

  D knows for what purpose the statement will be used

  C relies on the statement and C's reliance is reasonable in the circumstance
• D possesses skill or expertise

  Professionals giving advice to clients and can extend beyond professional advice giving context to clerical officers and even to social setting
• Smith v Eric S Bush [1990] - D possesses skill or expertise case

  • Copy of survey report of Bush's company - relied on it - chimney in terrible state, almost collapsing - significant financial loss to her - contract included exclusion clause - limits the liability of the surveyor - it was in inducement for her to enter into the contract

  Claim was successful
• D voluntarily assumes responsibility for any statements made

  D has a choice where to give advice or to give advice with a disclaimer or not give any at all. D voluntarily assumes responsibility for this and is prepared for C to rely on the advice
• Law Society v KPMG - D voluntarily assumes responsibility for any statements made case

  D negligently prepared accounts for a solicitors firm knowing that the C (law society) would rely on these to asses the firms financial stability; the firm subsequently went bust and the law society has to pay the creditors out of its compensation fund D was liable to C- it assumed responsibility for the accuracy of its accounts both to the firm and the law society
• D knows who will use the statement

  D will generally only be liable if he/she has knowledge or the person or class of person who will rely on that statement
• D knows who will use the statement compare and contrast cases

  Caparo v Dickman

  Cf

  Morgan Crucible v Hill Samuel Bank
• D knows for what purpose the statement will be used

  Claims are successful when the advise giver knew the purpose to which their advice would be put (Law Society v KPMG) and unsuccessful claims were because the advice giver did not anticipate these purposes (Caparo v Dickman)
• C relies on the statement and C's reliance is reasonable in the circumstances

  The circumstances in which advice is given is important, the C will need to show that there was reliance on D's statement and C was acting reasonably in so doing.

  Use Smith v Eric S Bush
• Sometimes D makes a misstatement to a third party and the third party relies on it to C' detriment causing C economic loss

  Spring v Guardian Assurance, the HOL confirmed that a negligence reference by D to a prospective employer could enable C to claim economic loss of turned down for the job.
• Lejonvarn v Burgess


  An architect gave free advice to her neighbours on their garden design, they spent thousands of pounds, and the alleged advice had been negligent. The claim was denied as the advice given could it could not be established thag it should reasonably have been relied on in this way