Pure Economic Loss Framework
Relational PEL: Loss caused by damage to property of another
 Can generally not be recovered (Cattle v The Stockton Waterworks 1875)
o Can recover PEL consequent on physical damage (Spartan Steel 1973)
o Can recover PEL if there is a sufficiently close relationship in which one
person does is doing work for another. His D/C can include a duty to avoid
causing PEL consequential to defects in his work. Proximity extremely
close, just short of contract (Junior Books 1983)
 A builder owes no duty in respect to quality of work outside the
contractual and Hedley Byrne context (D&F Estates v Church
1989)
PEL caused by acquiring defective premises
 Murphy v Brentwood 1991 (overruled Anns v Merton): For pure economic loss
it is necessary to find something more than the mere foreseeability of
damage in order to establish the degree of “proximity” necessary to support
the action.
o Complex Structure theory rejected
Economic loss caused by reliance on negligent statements
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Hedley Byrne 1964: A negligent (but honest) misrepresentation may give
rise to an action even in the absence of a contract or a fiduciary relationship.
o Two strands have developed, the Capro strand and the Henderson
strand, reliance is an intrinsically necessary ingredient of both tests.
Both strands merge and should give same result (Merrett v Babb)
 Henderson strand will be looked at later (below)
o Requirements:
 The recipient is trusting the defendant to take care
 It is reasonable to trust the statement maker in such a way, and
 The statement maker ought to have known that the advice will
be relied upon
  See also, alternative analysis at end
Caparo v Dickman 1990: liability for economic loss due to negligent
misstatement confined to cases where 1) the statement or advice had been
given to a known recipient for a specific purpose of which the maker was
aware and 2) upon which the recipient had relied and acted to his detriment.
o 3 – stage test given
 Proximity and FJ&R provide limits
o No special relationship of auditors with shareholders or non-shareholders
contemplating investment
o Advice must be required for purpose explained to D, and D must know
that further independent advice wont be taken
o A professional in his personal capacity can also owe C a D/C if he
knew that C would rely on his skill it was fair and reasonable C should
do so (Merrett v Babb 2001)
Can disclaim responsibility, as was done in Hedley Byrne
o Disclaimer can fall foul of UCTA, where it is known is to be expected
that C will rely on the advice and has (indirectly) paid for it (Smith v
Bush 1990)
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Alternative strand from Hedley Byrne (developed as the Henderson
Strand): Voluntary undertaking of responsibility provides the necessary
proximity (means closeness to contract here)
o Present if special relationship (solicitor/client etc)
o Outside of these, need to look at facts to determine express or implied
undertaking of responsibility
o Usefulness of VAoR doubted by one judge in Smith v Bush, as done
party may try to do all in its power to not be liable. Above
requirements deemed better
o Reduced to ‘convenient phrase’ in Capro
o Used again in Merrett: That to determine whether D owed a duty of
care to C it was helpful to ask whether the defendant was to be taken
to have assumed responsibility to C to guard against the loss for which
damages were claimed.
 It is a help guide to as whether D is to be taken to have assumed
responsibility (not subjective) to C to guard against the loss caused
 Reaching for moon – may not always apply
Extended Hedley Byrne liability (extended beyond statements by Lord Goff)
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Hydley principles of assumption of responsibility coupled with reliance on
the assumption used to find duty of care in case of negligent preparation of
employee reference (Spring v Guardian Assurance 1995)
o Built upon in Henderson v Merret, evolved from having been
voluntarily assumed to have been held to be assumed.
 Available in contractual situations as well
 If case falls within the Hedley Byrne principle, there should be
no need to embark upon any further enquiry of whether it is
"fair, just and reasonable" to impose liability for PEL
o Further extended in White v Jones 1995, the assumption of
responsibility by the solicitor towards his client should be held in law
to extend to the intended beneficiary who (as the solicitor can
reasonably foresee) may, as a result of the solicitor's negligence, be
deprived of his intended legacy
 No true assumption by assumption ‘deemed’ to be extended
 No reliance required, foresight by D enough (in such cases)
o In determining whether there had in law been such an assumption an
objective test was to be applied, the primary focus being on things
done or said by the defendant or on his behalf and the question being
whether the plaintiff could reasonably have relied and had relied on
an assumption of personal responsibility by him (Williams v Natural
Life Health Foods 1998)