NEGLIGENCE

Lecture 2 Pure Economic Loss

PURE ECONOMIC LOSS DEFINED

What is Pure Economic Loss?
Pure economic loss may be defined as financial
loss suffered by the claimant but unconcerned
with any physical injury to his or her person
or property. It is, essentially, a claim for loss of
future benefits that is usually remediable in
contract. Generally, in English law, there is no
liability for the causation of pure economic loss
by negligent acts see Elliott, Catherine;
Quinn, Frances (2007). Tort Law see also
Candler v Crane Christmas & Co [1951] 2
KB 164

REASONING
The term pure' suggests a loss unconnected and
standing apart from other losses such as personal
injury. It therefore cannot be as a consequence of
resulting in physical damage to a person or
property. Common categories of pure economic
loss are expenditure, loss of profit, profitability or
loss of some other form of financial benefit. There
is a need to determine whether a claim is
consequential or pure economic loss, as the latter
is usually not recoverable in law as damages.

REASONING
FLOOD GATES ISSUE

MAJOR CASE
Candler v Crane Christmas & Co[1951] 2 KB 164 in this case,
investor relied on the careless compilation of financial statement
causing economic loss. Court of Appeal held that although in this
situation, the accountant knew that the financial statement will be
relied upon any duty of care in the relation to advice by the
accountant was to the owners. There existed contractual
relationship between them and the defendant. (Vivienne Harpwood,
2000, pg79)
Denning LJ argued that the defendant not only owed the duty of
care to their employee or client and the defendant he also owed a
duty of care to any third parties to whom they themselves show the
financial statement. The accountant must consider that someone
will rely on the statement to invest money or take action to their
benefit. (Vivienne Harpwood, 2000, pg79)

RECAP
When it is fair, just and reasonable to impose
a duty of care on the defendant, consider:
the liability of a defendant for pure economic loss
suffered by the claimant.
the liability of a defendant for psychiatric injury
suffered by the claimant.

The issues are the type of damage to which a

breach of duty may give rise and the
category of plaintiff to whom a duty may be
owed. Recall Anns v Merton LBC [1978]
AC 728

MAJOR CASE
Anns v Merton LBC [1978] AC 728
FACTS:
P's flats had structural damage due to subsidence, Ps did not
sue builders (who they had contract with)
Ps claimed against D, local council, arguing D negligently
approved building plans & / or negligently failed to inspect
building works
ISSUE:
could Ps recover in tort?
HELD:
House of Lords: Ps could recover from D, despite no contract
between parties, because structural damage was material
damage to property

MAJOR CASE
Spartan Steel & Alloys Ltd. v Martin & Co. [1973] QB 27
FACTS:
plaintiffs (P) owned steel factory, electricity supplied by direct cable owned by third party (Electricity
Board)
Ds carelessness carried out road works & damaged cable, Electricity Board had to shut down power
supply to P's factory for 14.5hrs overnight to mend
factory worked 24hrs a day, when power stopped metal was being melt processed in furnace (which
required constant temperature & therefore power)
if P left mixture in furnace without power it could damage machinery, so P used alternative method to
process, producing less valuable material (physical damage: 368 & loss of profit: 400)
Ps also lost opportunity to load furnace further 4 times during power cut (losing profit: l 767)
ISSUE:
which losses could P recover?
HELD:
P could recover: damage to melt in furnace when power cut (368) & loss of profit on that melt (400),
as cost of physical damage to P's property (the melt) & consequential economic loss (the lost profit)
P not recover: loss of profit during whole period power cut, as pure economic loss caused by damage to
property of third party (cable belonged to Electricity Board)
Lord Denning:.. 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...

QUAERE
What damage did the defendant
cause to the claimants property?
Was not all the loss suffered purely
economic?
What is the element of principle or
policy that precludes recovery for
pure economic loss?

CHANGE IN POLICY
However, pure economic loss is
generally recoverable where the
defendant may be said
to have voluntarily assumed
responsibility to the claimant to use
reasonable care in its
undertaking.
The test is objective.

BASIS FOR CHANGE

Reasonable reliance by the claimant
on Ds skill
Actual or constructive knowledge by
D that claimant is so relying;
Voluntary assumption of
responsibility
Absence of reasonable care and skill
by D

SUMMARY