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Liability for pure economic loss
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Liability for Pure Economic Loss People suing for compensation when they have purely suffered economic loss; this is
different than suing for physical/mental damage
o For example, someone crashing into a car is economic loss but it is not PURE
economic loss because there was damage that was caused that was the reason
for someone’s economic loss aka money to fix it.
We are looking for loss that is economic is nature that is not caused by property damage
or physical injury
Some examples of pure economic loss:
o Someone making a statement that is not accurate for whatever reason and
someone relied on it; this would fall under negligence statements – looking at
the law of negligence in pure economic loss
There is generally no liability in negligence for pure economic loss because generally
there is no duty of care to avoid causing that. This is outlined in:
o Murphy v Brentwood District Council [1991] 1 AC 398, 487, per Lord Oliver
o This is where the law currently stands and many other judges follow the same
idea as Lord Oliver
Spartan Steel and Alloys Ltd v Martin & Co Ltd [1973] QB 27
o This case helps illustrate what is a ‘pure economic loss’
o The D negligently cut an electricity cable that was on the street which caused a
disruption in the power supply to the C’s factory
o The Cs were bringing various claims for loss that they said was caused by the
power being cut
o The factory was being used to process metal – the C was suing for 368 pounds,
which was the value of the metal that was in the course of process when the
power was cut.
o C are saying as a result of the power cutting off, the metal lost its value/lost that
amount of its value
o C was also suing for 400 pounds of lost profit that would have been made from
the metal that was being processed when the power cut
o C was also suing for 1767 pounds profit that they would have made on further
metal that would have been processed during the time the power was shut off
o COA allowed for the first two reasons the C was suing for because the 368 was
awarded for actual property damage and the 400 pounds for economic loss they
suffered but it was not purely economic loss. It was economic loss caused by
property damage.
o The reason the courts did not allow compensation for the 1767 lost profit was
that it was not caused by property damage/ any damage to the C’s property
nothing to do with the wire that was cut.
From the C’s POV this was ‘purely economic loss’
But the judge in this case reiterated the general rule that there is no duty
of care for pure economic loss
, o Therefore, pure economic loss is loss that is economic but is not a result of
personal or property damage.
o Generally, pure economic loss is only actionable as a result of property damage
or personal injury directly from the D acts.
Is the general rule justifiable?
o Judges seem to be satisfied with the general rule that there is no DOC in this
area but there are other countries, like Canada, where generally there is a DOC
to avoid causing reasonably foreseeable pure economic loss
o There is a debate whether English law takes the right approach
o Lord Denning’s arguments in Sparton Steel about why English law is justifiable:
When a power supply is cut off, people don’t go running to their solicitor,
they don’t try to find out if it is anyone’s fault – they just put up with it
and then they try to work harder the next day to make up for the
economic loss.
However, this was based in 1991. This argument might not be
relevant today as we do see people running to their solicitors to
try to sue for any reason.
Also, there is a problem with the idea that you can simply just
work harder the next day to make up for the loss and therefore
should not be able to sue. This is because it is just not true in
many cases – for example, in theory, yes Sparton Steel could have
made its employees work harder the next day to make up for the
lost steel. But in reality, this might not happen like that because
the workers might argue that it is not their fault the power stream
cut off and therefore require to be paid extra.
Lord Denning’s justification might work in some cases but not
always because of the basic question that ‘why should you or
people working on your behalf have to work harder the next day
to make up for a loss that was caused by someone else’s
negligence’
Another reason he gave was that if you generally allow a larger scope for
DOC in pure economic loss, there will be a lot more claims and it could
result in claims being exaggerated or completely fraudulent
Insurance argument: The C would be able to predict the loss they could
suffer in cases like this and therefore are in a better position than the D
to obtain proper insurance.
Basically, don’t allow claims in this area because the C can take
out insurance for the loss and the C knows how much insurance
they might need in case a loss was to happen to them
Problem with this argument is why C should have to take out
insurance for a loss you MIGHT suffer caused by someone else’s
negligence. Also, you don’t have to worry about taking out
insurance for personal/property damage or economic loss caused
by damage because there is an assumed DOC there, so why would
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