Problem question:
After being made redundant from his job at Alpha Chemicals, Christopher spent most of his time at home
playing video games. His mother, Frances, was annoyed about this. She visited a solicitor and made a will
leaving her entire £200,000 estate to Sunnydale University.
Soon after this, Christopher was offered a job with Beta Chemicals subject to satisfactory references. Alpha
Chemicals refused to provide a reference and, in consequence, Beta Chemicals decided not to employ him.
Christopher managed to secure a job interview at Gamma Chemicals, which was based in the nearby town of
Sunnydale. On the day of the interview the main road into Sunnydale was closed because Melanie had
carelessly crashed her car. Christopher missed the interview and the job was offered to someone else.
Impressed with Christopher’s efforts at attempting to secure a job, Frances decided to amend her will.
However, she did not wish to pay for a solicitor to do this for her and so consulted an online legal
encyclopaedia, Eastlaw, to see what the requirements are for a valid will. She signed a document leaving her
entire estate to Christopher. Alas, she did not get anyone to witness her signature because Eastlaw omitted to
mention that this is a requirement for a will to be effective.
Frances died in a skiing accident soon after signing this document and so, the earlier will still being valid,
Sunnydale University inherited £200,000 and Christopher inherited nothing. The University decided to put
this money towards to purchase a small block of flats on Affluentia Drive for sale at £500,000 to convert into
student accommodation. The University approached the Liver Building Society for a mortgage.
The Building Society instructed Dodge & Co. surveyors to conduct a valuation of the property for them.
Sunnydale paid a fee for this valuation to the Building Society. Dodge & Co valued the property at £500,000
and stated in their report that the University could obtain £24,000 in rental income per year from renting out
the flats to students. After seeing this report, Sunnydale University bought the flats for £500,000 with a
£300,000 mortgage from the Liver Building Society.
However, many students find Affluentia Drive to be a stuffy area that is too far away from Sunnydale’s bars.
As such, many of the flats remain unoccupied and Sunnydale University have only been able to generate
£12,000 per year in rental income from students. Furthermore Dodge & Co. failed to identify an irremediable
damp problem in the building, which means that the flats are only worth £450,000. Dodge & Co.’s valuation
report to the Building Society contained a clause purporting to exclude all liabilities arising out of the
valuation.
Introduction
The scenario raises questions of economic loss, the issues within the scenario are: Alpha Chemicals failing to
provide a reference; Melanie crashing her car; Eastlaw’s omission to include the requirement; Dodge & Co’s
valuation and report of income potential. There are two types of economic loss – consequential economic loss
is economic loss consequential of physical damage and is generally recoverable, however pure economic loss
is without damage to persons or other property and is generally irrecoverable (Spartan Steel). The rules on
pure economic loss in relation to a negligent misrepresentation derive from Hedley Byrne, and the principle
requires: a special relationship between Cl and D; a voluntary undertaking of responsibility by D; a statement
or representation made by D; reasonable reliance by Cl.
Christopher
Failure to provide a reference
Christopher has suffered pure economic loss as a result of Alpha Chemicals failing to provide a reference, as
this resulted in Christopher not being offered the job. In negligence, there is a general rule of no liability for
omissions, as it is nonfeasance (Smith), and so no duty can arise unless a special relationship is established. In
order for his economic loss claim to succeed, Christopher must prove that a duty existed through the Hedley
Byrne principles. This claim is likely to fail at the second requirement as Alpha Chemicals have not voluntarily
undertaken an assumption of responsibility, as they explicitly have decided against providing a reference. If
Alpha Chemicals had chosen to provide a reference, and had provided one negligently, which Christopher then
relied on, then Christopher would be able to claim for his pure economic loss under Spring, however on the
facts Christopher’s case can be distinguished. Therefore, Christopher’s claim against Alpha Chemicals is
unlikely to be successful.
