Outcome B: Liability for Economic Loss and Negligent Misstatement
Economic Loss
- Sometimes a claimant may wish to seek damages for those losses which are not physical injuries or
physical losses but financial losses. These types of loss can usually only be seen on a balance sheet.
These are known as economic losses.
- Consequential economic loss: this is the economic loss that results from a physical injury such as your
loss of income if you lose both your legs and can no longer work. This type of economic loss is usually
recoverable.
- Pure economic loss: this is all other types of economic loss that do not arise from a physical injury. This
type of economic loss is not recoverable.
Negligent Misstatement
- Will take place where there is no contract between the parties, but where one party is trying to persuade
the other party to enter a contract.
- A statement is usually given orally by someone who has some sort of expert knowledge.
- The person who hears the statement will act on it but suffers financial loss as the statement turns out to be
incorrect.
- The person who loses money will want to take action in tort to recover their loss.
- If a person receives negligent advice, acts on that advice and loses money as a result then the person
should be able to use the ordinary law of negligence to claim for their loss.
- This applies to advice directly given by professionals such as solicitors, accountants and architects.
- Hedley Byrne v Heller and Partners 1964 - HoL decided that, in principle, a claim could be made for the
negligent misstatement if a special relationship could be proved. In this case, the reference contained a
disclaimer of liability, which meant that Hedley Byrne could not succeed.
- Claims may be made by those who have suffered financial loss as a result of relying on a statement,
however it has to be established that:
- The statement was made negligently
- That there is a special relationship between the parties. A special relationship is a legal device
approved by the courts that allows a person who receives advice or information to sue the person
giving the advice for any loss suffered as a result of acting on that advice.
- Caparo v Dickman 1990 - sets out the features of a special relationship which in effect means that the
person giving the advice owes a duty of care to the claimant.
- Special skill or expertise on the part of the person giving advice.
- The claimant relied (acted upon) the advice.
- The advice is communicated directly to the claimant.
- The person giving the advice knows that it is needed for a purpose and is used for that purpose.
- There is no disclaimer to act as a defence.
- If the claimant successfully proves the negligent misstatement they can claim damages for the loss
suffered.
- As the law on claiming negligent misstatement had been developed by cases that have come before the
courts it is complicated and unsettled.
- Chaudhry v Prabhakar 1988 - sets out that a special relationship can exist even if the advice was given in
a social relationship, rather than a business relationship.
- This decision seems to conflict with the general approach of the courts that advice given in an informal
setting which turns out to be negligent cannot be claimed for.
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