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MA Law Conversion - Tort - loss and harm Exam Essay/Notes Template
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MA Law Conversion - Tort - loss and harm Exam Essay/Notes Template - ULaw
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Tort Law – Unit 2.3Economic Loss and Psychiatric Harm
Pure Economic loss and psychiatric harm – both limited duty situations
PURE ECONOMIC LOSS:
As a general rule, where a claimant suffers damage which is classed as pure economic loss, that loss
is not recoverable.
Economic loss caused by acquiring a defective item of property -
▪ the damage they have suffered is economic loss caused by acquiring a defective item of property;
▪ this damage is classed as pure economic loss;
▪ no duty of care is owed in respect of pure economic loss.
Murphy v Brentwood – example
Economic Loss Unconnected to physical Damage to the claimant's person or property -
▪ economic loss caused by damage to the property of a third party; or
▪ economic loss caused where there is no physical damage.
Economic loss caused by damage to the property of a third party -
- Spartan Steel v Martin - Lord Denning said in the case; ‘I think the question of recovering
economic loss is one of policy. Whenever the courts draw a line to mark out the bounds of
“duty” they do it as a matter of policy so as to limit the responsibility of the defendant’.
▪ If you negligently damage my property and cause me loss, there is a sufficiently close relationship
between us. You owe me a duty of care and I can recover my loss from you. This is not a situation of
pure economic loss.
▪ If you negligently damage property belonging to a third party and cause me loss, there is not a
sufficiently close relationship between us. You do not owe me a duty of care and I cannot recover
my loss from you. This is a situation of pure economic loss.
Economic Loss caused where there is no physical damage -
▪ caused by negligent actions; or
▪ caused by negligent statements.
→ Economic loss caused where there is no physical damage: actions
- Weller & Co v Foot and Mouth Disease Research Institute [1966];
o The loss suffered by the claimant in this case was a loss of revenue which it would
have made from operating the cattle market.
o The cause of that loss was the closure of the cattle market.
o The action of the defendant which led to that loss was its negligence in allowing the
foot and mouth virus to escape.
o The claimant could not recover its loss from the defendant because the loss was not
caused by physical damage. It was caused by the forced closure of the cattle market.
It was therefore classified as pure economic loss and no duty of care was owed.
, → Economic loss caused where there is no physical damage: Statements
- In this kind of case there is very great potential for unlimited liability, because there is no
physical damage or negligent action to link the defendant to the potential claimant.
→ There is an exception to the general rule. - Negligent statements: special relationships
- arises in cases where the court is able to find that there is, in fact, an especially close
relationship between the claimant and the defendant. These cases may be described broadly
as situations in which the defendant has assumed a responsibility towards the claimant.
- Until 1964 the rule relating to pure economic loss caused by negligent statements was the
same as for any other pure economic loss: the claimant 176 Unit 2: Sub-unit 3 / Economic
Loss and Psychiatric Harm could not recover. This position altered dramatically with the case
of Hedley Byrne & Co Ltd v Heller & Partners Ltd.
o Hedley Byrne & Co Ltd v Heller & Partners Ltd.:
1. In the lower courts the claimant failed because it was held that no duty of
care was owed by the defendant to the claimant.
2. The claimant’s action did not succeed in the House of Lords.
3. The House of Lords found that whilst a duty of care was owed, the
defendant had used an effective disclaimer of liability which meant it
escaped liability to the claimant.
4. According to Hedley Byrne v Heller, a duty of care arises in a case of
negligent statements causing pure economic loss when there is a special
relationship between the persons giving and receiving the advice.
There are two elements to a special relationship under Hedley Byrne:
- an assumption of responsibility by the defendant;
- reasonable reliance by the claimant.
The law in this area was considered again by the House of Lords in the case of Caparo
Industries plc v Dickman [1990]:
- Caparo established that for a duty of care to arise in a novel situation the following
must be shown:
▪ It must be foreseeable that the defendant’s actions could cause harm to this
claimant.
▪ There must be a sufficiently proximate relationship between the claimant
and the defendant.
▪ It must be fair, just and reasonable to impose a duty on the defendant.
- From Caparo we can say that the following were the four criteria to be satisfied for a
defendant to have assumed a responsibility towards a claimant:
▪ The adviser knew the purpose for which the advice was required.
▪ The adviser knew that the advice would be communicated to the advisee
(either specifically or as a member of an ascertainable class).
▪ The adviser knew that the advisee was likely to act on the advice without
independent inquiry.
▪ The advice was acted on by the advisee to its detriment.
Cases which followed Caparo have applied this test to determine liability...
- James McNaughton Papers Group Ltd v Hicks Anderson & Co (a firm) [1991]
- Morgan Crucible Co plc v Hill Samuel Bank Ltd [1991]
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