Objective Notes: W300 – Agreements, rights & responsibilities
UNIT 15 - MANUAL TWO
ECONOMIC LOSS
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Pure economic loss (PEL)
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All losses = econ since relate to financial consequences but dictionary
definition = relating to business or of paying costs so in Neg = loss of profit/
trade;
Damages normally relate to harm - physical injuries, repair/ replacement
costs, loss of earnings etc – so = financial losses arising from damage by
def’s Neg conduct but PEL = not arising from physical injury/ damage to
claimant;
Why there are special rules re recovery of PEL
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To constrain liab since PEL potentially limitless - without contact with/
knowledge of claimants, defs liab for losses, numbers/ extent innumerable,
financial liabs potentially colossal so floodgate concerns which rules
function to prevent;
To provide commercial uncertainty as unrestricted liab renders obtaining
insurance protection impossible because cover needed & if defs met damages
themselves, financial ruin would impair ability of commerce to function.
Unfair to defs, so claimants must take out their own insurance re PEL which
is economically viable as insurers’ risks limited only to claimants’ potential
losses & placing burden on defs would result in enormous premiums (even
assuming such cover is available) because of colossal potential liability –
anyone likely to be harmed economically.
Historical development & current position re Neg acts/ omissions
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Pre-1970s no liab for PEL but always was for econ losses directly from
physical harm to claimants & their property & irrespective of cause no liab
for PEL not consequential to claimant’s own property being damaged;
Where A suffers econ losses because B has damaged C’s property, courts
consistently held B has no liab to A & in Spartan Steel & Alloys Ltd v
Martin & Co (Contractors) Ltd [1973] some hazards must be accepted since
if such claims permitted no end to them so better to disallow PEL
independent of physical damage;
Losses spread over community rather than sole liab of def but where neg
conduct causes physical harm to persons/ property losses recoverable re
physical loss/ lost profits therefrom but not PEL independent of physical
damage;
Where claimant has no proprietary interest in damaged property, no claim
(Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986]);
Where PEL results from acquiring defective goods, no claim but Anns v
Merton LBC [1978] & Junior Brooks Ltd v Veitchi Ltd [1983] held PEL was
recoverable in certain circumstances but floodgate concerns resulted in D &
F Estates Ltd v Church Commissioners for England [1989] holding no action
arises for econ loss unrelated to actual/ apprehended physical damage &
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Objective Notes: W300 – Agreements, rights & responsibilities
Murphy v Brentwood DC [1990] overruled Anns - no liab for PEL arising
from Neg conduct/ omissions.
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Neg misstatements
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Oral/ written communication can result in ‘harm’, especially where untrue
embracing damage to individuals’ reputations (defamation), physical injury
through shock (psychiatric harm) & damage where claimant relies on words
& takes action based on them (false statements);
Pre-1964 no right of action where econ loss caused by Neg statements &
position was same as losses through neg acts/ omissions & where neither
fiduciary nor contractual relationships, false statements carelessly made not
actionable even if ‘victim’ acted on such to their detriment (Candler v Crane
Christmas & Co [1951]) so no common law no remedy for harm caused by
neg false statements.
Law following Hedley Byrne & Caparo
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Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]:
o As law treats neg words differently to neg acts, duty of care may arise
where there is special relationship - party seeking advice relies on
other party taking reasonable care & other party knew or ought to have
known enquirer was so relying on him, objective standard;
o Where def provides statement he’s accepted responsibility for it &
must exercise reasonable care in the circumstances & may be liab if
statement negligently given;
o Where, without contract, party with special skills undertakes to apply
that skill to assist another, he has duty of care, irrespective of that skill
being exercised by acts or words & where party so placed that others
will reasonably rely on his skills & he takes it on himself to provide
info to another who he knows/ should know will rely on it, duty arises,
irrelevant that he does so without specific charge – if he performs
service negligently, having agreed to do it, other party may be able to
recover any losses in Neg;
o Where relationship creates responsibility to those who rely on & act on
info provided, duty deemed voluntarily accepted/ undertaken =
relationship equivalent to contract but party not undertaking
responsibility where he declares that he is not, so disclaimer may avoid
liab;
Impact of Hedley Byrne = where special relationship between advisor/
advisee duty of care arises where neg statements cause econ loss but
claimant must show he relied on def’s skill/ judgment, def knew/ ought to
have known claimant so relying & in circumstances reasonable for
claimant to so rely;
Sufficiently special relationships exist where person possessing special skill
undertakes to exercise such skills to benefit another party relying on it &
holds themselves out as possessing such skills where it is foreseeable that
others will rely on them (Cornish v Midland Bank Plc [1985]) but where
party is friend & provides advice, duty does not exist unless special
circumstances pertain (Chaudry v Prabhakar [1989]).
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Objective Notes: W300 – Agreements, rights & responsibilities
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Caparo Industries Plc v Dickman [1990] –
o To establish duty of care, must be (1) reasonable foresight of harm; (2)
sufficient proximate relationship whereby advice required for purpose,
described specifically or generally, made known actually/ inferentially
to advisor at time of giving advice, advisor knows actually/
inferentially that advice will be communicated to advisee (either
individual or member of ascertainable class) to be used by him for the
purpose & without independent enquiry; & it is so used to advisee’s
detriment; & (3) fair, just & reasonable to impose duty;
o Duty not owed by auditors to public generally relying on accounts for
share dealing or to individual shareholders but to company/
shareholders as a body, for purposes of controlling company
o Proximity found where (1) statement communicated by def to
claimant but not necessary for def to know would be to a specific
individual provided he knew (a) would be communicated to a
particular group/ class & (b) claimant likely to be a member thereof;
(2) communication made specifically re particular transaction &
suffices if particular type of transaction; & (3) very likely that
claimant would rely on statement in deciding whether to make
transaction;
o Where neg action in preparing statements causes harm to 3rd parties
liab arises where special relationship exists between advisor/ subject
sufficient to create duty of care – employers’ references (Spring v
Guardian Assurance Plc [1994]), solicitors to prospective beneficiaries
(White v Jones [1995]).
Disclaimers & UCTA 19977
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In Hedley Byrne, despite liab being created in principle, Lords held general
exclusion stated sufficient to avoid liab but position altered by UCTA in
respect of torts where def acting in course of business (s.1(3)) & S.2(1)
prohibits exclusion re death/ injury, s.2(2) requires other exclusions/
limitations to be reasonable which, by s.11(3) re Neg requires that, in
respect of any such notice, reasonable/ fair to permit reliance on it having
regard to circumstances prevailing when liab arose or would have arisen but
for notice;
Examples of what is reasonable not provided but, in practice, considerations
are (1) when was claimant made aware of disclaimer – note reasonable if not
done before incident; (2) where/ how displayed & legibility; (3) was advice
provided free or at charge – where not free, disclaimer should be narrower; &
(4) what excluded/ limited – wider the disclaimer, more likely it’s
unreasonable;
Smith v Eric S Bush/ Harris v Wyre Forest District Council [1989] – where
reasonably foreseeable that negligent advice will cause party to suffer
damage & there is proximity between parties duty of care is imposed since
(1) proximity arose from surveyor’s knowledge that purchasers almost
inevitably rely on report & from fact that prospective purchaser pays his fee
& it’s fair/ reasonable to impose duty where advice given in professional
capacity since does not create indeterminate liab –limited to house value
(which can be insured against) & doesn’t create liab to indefinite class/ group
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Objective Notes: W300 – Agreements, rights & responsibilities
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– liab limited to purchaser, not subsequent purchasers; & (2) advice given in
course of business so UCTA disclaimer provisions applied &, in
circumstances, did not meet reasonableness requirements;
Reasonableness very much circumstance dependent & varies from case to
case – no exhaustive lists of factors in determining whether requirements
met but courts look at each party’s respective bargaining powers, whether
info could be obtained/ verified from another source, difficulty of task being
undertaken & practical consequences of disclaimer in light of Smith v Bush.
Deceit
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Def makes false statement by fact, words or conduct & knows it is or may be
false or is either reckless as to veracity or makes it without believing it to be
true, intends claimant/ class including claimant to act on it & claimant shows
did act on it & has thereby suffered damage;
Rep may be as to fact, law or opinion, where based on fact giving false
impression of facts, & may be oral, written or implied by conduct but silence
does not = grounds unless it withholds info rendering rep false & where def
not appear wilfully false in making statement but honestly if mistakenly
believed it to be true, not deceit (Derry v Peek [1889]);
Claimant must show (1) def intended him to act on rep & not relevant
whether rep was made directly to him –suffices if def knew would be passed
to claimant/ class of which claimant was member; (2) effective causation –
rep caused action he took so if it did not induce him to act, no liab even if
shown that def made false rep intending claimant to act on it; & (3) suffered
damage from relying/ acting on rep & damages not measured under Wagon
Mound reasonable foreseeable tests but under re Polemis – all losses directly
resulting from the statement.
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