Pure Economic Loss Flashcards
(13 cards)
What is the general rule for pure economic loss in negligence?
A. It is recoverable under the Consumer Protection Act
B. It is recoverable only in contract, never in tort
C. It is always recoverable if anyone suffers a financial loss
D. It is generally not recoverable absent physical injury or property damage
D. It is generally not recoverable absent physical injury or property damage.
Explanation: Courts bar claims for purely financial loss not consequent on damage to person or property (Spartan Steel)
Which principle allows recovery of economic loss for damage to adjacent property?
A. Pure economic loss rule
B. Caparo three-stage test
C. Remoteness test
D. Proprietary consequential economic loss exception
D. Proprietary consequential economic loss exception.
Explanation: Economic loss consequential on physical damage to property is recoverable (e.g. cost to repair and associated economic losses)
Which exception allows recovery for pure economic loss caused by a negligent misstatement?
A. Factory owners’ principle
B. Hedley Byrne “assumption of responsibility”
C. Voluntary assumption rule
D. Ex turpi causa
B. Hedley Byrne “assumption of responsibility.”
Explanation: A duty arises where the defendant voluntarily assumes responsibility and the claimant relies to their detriment
Which factor is NOT part of the Caparo test for pure economic loss?
A. Foreseeability of harm
B. Proximity of relationship
C. Whether the claimant is a consumer
D. Whether it is fair, just and reasonable to impose a duty
C. Whether the claimant is a consumer.
Explanation: Caparo considers foreseeability, proximity and that it be fair, just and reasonable—not the claimant’s consumer status
An accountant negligently overstates a client’s profits in a published report; investors rely and lose money. Which allows recovery?
A. Frustration
B. Ex turpi causa
C. Pure economic loss rule
D. Negligent misstatement exception (Hedley Byrne)
D. Negligent misstatement exception (Hedley Byrne).
Explanation: Where professional advice is negligently given and relied upon, a duty of care arises and losses are recoverable .
A chemical spill damages a factory’s machinery and halts production. The factory’s lost profits are:
A. Consequential economic loss—recoverable
B. Pure economic loss—nonrecoverable
C. Negligent misstatement loss
D. Excluded by the Economic Torts Act
A. Consequential economic loss—recoverable.
Explanation: Loss of profits flowing from physical damage is consequential loss on property damage and recoverable
An advisor negligently fails to warn of tax changes, causing client pure financial loss. The advisor had no contractual relationship. Client may claim under:
A. Contract
B. Negligent misstatement (Hedley Byrne)
C. Pure economic loss general rule
D. Proprietary loss rule
B. Negligent misstatement (Hedley Byrne).
Explanation: Even without contract, a special relationship can give rise to a duty of care for negligent advice
A developer builds on land based on a mistaken zoning opinion by local council. The developer’s lost anticipated profits are:
A. Recoverable as reliance damages
B. Barred as pure economic loss without physical damage
C. Recoverable under CPA
D. Recoverable under proprietary loss exception
B. Barred as pure economic loss without physical damage.
Explanation: Loss of profits from a legal misadvice does not fall under any exception unless physical damage or special assumption of responsibility
Which of these is a recognized structural exception to the pure economic loss rule?
A. Pure economic loss in contract only
B. Ex turpi causa bar
C. Loss of chance claims
D. Liabilities for negligent misstatements
D. Liabilities for negligent misstatements.
Explanation: Courts recognize a duty for negligent statements in certain relationships, distinct from general economic loss prohibition
Which requirement must be met for Hedley Byrne duty to arise?
A. A written disclaimer
B. Formal contract
C. Reasonable reliance by claimant
D. Physical proximity
C. Reasonable reliance by claimant.
Explanation: The claimant must demonstrate they relied on the defendant’s skill or judgment and such reliance was reasonable
In Spartan Steel, what was held regarding lost profit from electricity supply interruption?
A. Recoverable as consequential loss
B. Barred as pure economic loss
C. Recoverable under Hedley Byrne
D. Recoverable under public policy exception
B. Barred as pure economic loss.
Explanation: The court allowed recovery for physical damage and lost metal but barred purely financial loss from anticipated profits
Which best describes the “assumption of responsibility” test?
A. A duty arises when someone voluntarily undertakes to advise another, knowing it will be relied on
B. A duty to guarantee accuracy of all statements
C. A duty only if there is a written letter of reliance
D. A universal duty in all professional services
A. A duty arises when someone voluntarily undertakes to advise another, knowing it will be relied on.
Explanation: Liability for negligent misstatement hinges on the advisor’s assumed responsibility and the claimant’s reliance
ChatGPT said:
What is the primary policy rationale for the general bar on recovery of pure economic loss in negligence?
A. To prevent overlap with contract law remedies
B. To avoid indeterminate liability and “floodgates” of claims
C. To encourage parties to insure against all losses
D. To promote reliance on written contracts only
B. To avoid indeterminate liability and “floodgates” of claims.
Explanation: Courts limit pure economic loss in tort to prevent unlimited, unforeseeable chains of liability and protect defendants from indeterminate exposure
