Topic 7 - Pure economic loss

Question 1

What is pure economic loss?

Answer 1

Pure economic loss arises where there has been no damage to the claimant’s property or injury to their person.

Examples include bad investments or lost contractual opportunities.

Question 2

Name the four main categories of loss in negligence.

Answer 2

• Personal injury/property damage
• Consequential economic loss
• Pure economic loss
• Psychiatric damage

Question 3

What type of loss is recoverable under negligence?

Answer 3

Losses in the first two categories: personal injury and consequential economic loss are generally recoverable.

Pure economic loss, however, is not generally recoverable.

Question 4

What is an example of pure economic loss?

Answer 4

Economic loss not flowing from damage to person or property, such as making a bad investment.

Other examples include missed contractual opportunities or lost inheritances.

Question 5

What is the general rule regarding pure economic loss in tort of negligence?

Answer 5

No duty of care is owed in respect of pure economic loss.

This is illustrated by Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd.

Question 6

What is consequential economic loss?

Answer 6

Economic loss consequent on physical damage, such as lost salary due to an injury.

This differs from pure economic loss, which does not arise from any physical damage.

Question 7

What are the exceptions to the general rule regarding pure economic loss?

Answer 7

• Pure economic loss caused by negligent statements
• Wills
• References

Question 8

What is the significance of the case White v Jones [1995] 2 AC 207?

Answer 8

It established that solicitors owe a duty of care to beneficiaries concerning wills.

This allows beneficiaries to sue solicitors for negligence in will drafting.

Question 9

What must be proven to establish a duty of care for pure economic loss caused by a negligent statement?

Answer 9

Three tests: reasonable reliance, assumption of responsibility, special relationship of trust and confidence.

Not all tests need to be satisfied for a duty of care to be found.

Question 10

What does the term ‘disclaimer’ refer to in the context of Hedley Byrne v Heller?

Answer 10

A disclaimer is a statement that limits liability, indicating that the advice was given ‘without responsibility’.

Question 11

Is pure economic loss recoverable if caused by physical harm?

Answer 11

No, the usual duty of care rules apply if physical harm is caused.

This is illustrated by Perrett v Collins [1998] EWCA Civ 884.

Question 12

What type of loss did Murphy v Brentwood District Council [1990] 2 All ER 908 address?

Answer 12

It addressed pure economic loss due to defective property without any physical damage to persons or other property.

Question 13

What was the outcome of the claim in Weller & Co v Foot & Mouth Disease Research Institute?

Answer 13

The claim was unsuccessful as it was for pure economic loss without damage to the claimant’s own property.

Question 14

Fill in the blank: A _______ results from damage to property in which the claimant has no proprietary interest.

Answer 14

pure economic loss

Question 15

True or False: The courts are generally willing to allow claims for pure economic loss.

Answer 15

False

Question 16

What is the relationship between the solicitor and the testator in cases involving wills?

Answer 16

The solicitor owes a duty to the beneficiary, not the testator.

Question 17

What is the ruling in Spring v Guardian Assurance plc & Others [1995] 2 AC 296?

Answer 17

A duty of care is owed to the subject of a job reference to provide an accurate reference.

Question 18

What is a duty of care in relation to negligent advice?

Answer 18

A duty of care could arise in some situations where negligent advice resulted in pure economic loss.

This concept is crucial in legal contexts involving economic transactions and professional advice.

Question 19

What are the three key concepts/tests for establishing a duty of care?

Answer 19

• Reasonable Reliance
• Assumption of Responsibility
• Special Relationship of Trust and Confidence

Not all three tests have to be satisfied for a duty of care to be found.

Question 20

What does the reasonable reliance test require?

Answer 20

• The claimant relied on the defendant’s advice
• It was reasonable for the claimant to rely on the defendant’s advice
• The defendant knew or ought to have known that the claimant was relying on their advice

If the defendant knew the claimant was relying on their advice, they can foresee pure economic loss if they are negligent.

Question 21

What factors do courts consider when assessing the reasonableness of reliance?

Answer 21

• Special skill or knowledge held by the defendant
• Special skill or knowledge held by the claimant
• General context in which advice is given
• Other relevant general factors

These factors help determine if it’s fair, just, and reasonable for the claimant to rely on the advice.

Question 22

In what scenario is a defendant less likely to owe a duty of care based on special skill or knowledge?

Answer 22

When both parties are on equal footing regarding knowledge or skill.

The courts are likely to find parity and thus less likely to decide that reliance on advice was reasonable.

Question 23

What does the second requirement of reasonable reliance focus on?

Answer 23

Whether it was reasonable for the claimant to rely on the defendant’s advice.

Judges consider various factors in determining reasonableness.

Question 24

What is the significance of the case Yianni v Edwin Evans [1982] QB 438?

Answer 24

The court found it reasonable for a first-time buyer to rely on a building society’s valuation survey despite being told not to.

This illustrates how a lack of experience can affect the reasonableness of reliance.

Question 25

What is the role of general context in determining duty of care?

Answer 25

No duty of care is generally owed when advice is given in a social situation. ## Footnote However, exceptions exist, as seen in Chaudhry v Prabhakar.

Question 26

What is the second test for establishing a duty of care?

Answer 26

Voluntary assumption of responsibility. ## Footnote This applies to relationships equivalent to contract, where there is an assumption of responsibility without consideration.

Question 27

What are the four criteria established in Caparo v Dickman for assumption of responsibility?

Answer 27

* The defendant must communicate the advice to the claimant * The defendant must know the purpose for which the claimant will use the advice * The defendant must know or reasonably believe that the claimant will rely on this advice without independent enquiry * The claimant must have acted upon that advice to their detriment ## Footnote These criteria help determine if an assumption of responsibility exists.

Question 28

What was the outcome of Caparo Industries plc. v Dickman?

Answer 28

No duty was owed by the defendants to the claimants as investors because it was not reasonable for them to rely on the audited accounts for investment purposes. ## Footnote The audit was intended to assist existing shareholders, not potential investors.

Question 29

What did the Supreme Court confirm in Banca Nazionale del Lavoro v Playboy Club & Others regarding Caparo principles?

Answer 29

The four Caparo criteria could be regarded as criteria for establishing the defendant’s voluntary assumption of responsibility. ## Footnote This case emphasized the importance of identifiable claimants in assumptions of responsibility.

Question 30

What is the third test for establishing a duty of care?

Answer 30

Special relationship of trust and confidence. ## Footnote This arises when the party seeking advice trusts the other to exercise a degree of care, and it is reasonable to do so.

Question 31

How do the tests for establishing a duty of care overlap?

Answer 31

A special relationship can be found where there has been reasonable reliance and/or an assumption of responsibility. ## Footnote This indicates the interconnectedness of the tests in legal assessments.

Question 32

What are the three tests for establishing a duty of care in respect of pure economic loss caused by a negligent statement?

Answer 32

1. Reasonable reliance by the claimant 2. Assumption of responsibility by the defendant 3. Special relationship between the parties ## Footnote Not all three tests need to be satisfied for a duty to be owed, and they often overlap.

Question 33

What is the general rule regarding duty of care in tort law?

Answer 33

The general rule is that a duty of care is not owed for pure economic loss, except in certain circumstances as per Hedley Byrne criteria.

Question 34

List the factors involved in the reasonable reliance test.

Answer 34

1. The claimant relied on the defendant’s advice 2. Reasonableness of reliance based on defendant's skills and knowledge, context, and relevant factors 3. The defendant knew or ought to have known the claimant was relying on the advice ## Footnote Each factor must be considered to establish reasonable reliance.

Question 35

What must be established regarding assumption of responsibility in negligent misstatement claims?

Answer 35

There must be evidence of a voluntary assumption of responsibility by the defendant.

Question 36

What is a special relationship in the context of negligent misstatement claims?

Answer 36

A special relationship of trust and confidence must exist between the parties.

Question 37

True or False: A disclaimer can negate responsibility for negligent statements.

Answer 37

True

Question 38

What is the significance of the case Hedley Byrne in relation to disclaimers?

Answer 38

In Hedley Byrne, the words 'without responsibility' indicated that the defendant was not assuming responsibility for the advice given.

Question 39

How does UCTA 1977 relate to disclaimers in the context of negligent misstatements?

Answer 39

Under UCTA 1977, disclaimers in the course of business are subject to scrutiny and may be deemed unreasonable.

Question 40

What did the case Smith v Eric S. Bush establish regarding duty of care?

Answer 40

The defendant owed a duty of care for pure economic loss due to negligent survey, as the claimant was a first-time buyer and relied on the survey.

Question 41

What factors did the House of Lords consider when determining the reasonableness of a disclaimer in Smith v Eric S. Bush?

Answer 41

1. Equal bargaining power of the parties 2. Practicality of obtaining alternative advice 3. Difficulty of the task undertaken by the defendant 4. Practical consequences and ability to bear loss ## Footnote These factors help assess the validity of disclaimers.

Question 42

What conclusion was reached regarding the disclaimer in the case of Smith v Eric S. Bush?

Answer 42

The disclaimer was deemed unreasonable because the parties were not of equal bargaining power and the claimant could not reasonably obtain alternative advice.

Question 43

How does the Consumer Rights Act 2015 (CRA 2015) relate to disclaimers?

Answer 43

CRA 2015 regulates disclaimers between traders and consumers, similar to UCTA 1977, ensuring disclaimers are only valid if fair and reasonable.

Question 44

Fill in the blank: A disclaimer purporting to exclude liability for economic loss is valid only if it is ______.

Answer 44

[fair and reasonable in all circumstances]