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Negligence leading to Economic Loss

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    Would Pure Economic Loss cover such things as negligent misstatement or are they classed as a separate category entirely?

    You'd be surprised how such a small problem can confuddle a girl

    Ta muchly..Rep is floating for help

    Dreama xxxx

    ps - This in in the context of evaluative comments on questions such as "Comment critically on the rules and reasons behind the law on pure economic loss?" etc.
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    (Original post by Dreama)


    Would Pure Economic Loss cover such things as negligent misstatement or are they classed as a separate category entirely?

    You'd be surprised how such a small problem can confuddle a girl

    Ta muchly..Rep is floating for help

    Dreama xxxx

    ps - This in in the context of evaluative comments on questions such as "Comment critically on the rules and reasons behind the law on pure economic loss?" etc.
    Dreama,

    Negligent misstatement is a class of pure economic loss.

    z
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    (Original post by Dreama)


    Would Pure Economic Loss cover such things as negligent misstatement or are they classed as a separate category entirely?

    You'd be surprised how such a small problem can confuddle a girl

    Ta muchly..Rep is floating for help

    Dreama xxxx

    ps - This in in the context of evaluative comments on questions such as "Comment critically on the rules and reasons behind the law on pure economic loss?" etc.
    Negligent mistatement is a class of pure economic loss. See Hedley Byrne.
    You also get pure economic loss through defective products - Murphy
    You then get pure economic loss as a result of negligent services - see Merrett Syndicates.

    Interestingly the line between pure and consequential may not be that easy to draw - see McFarlane, see Parkinson v Seacroft NHS trust etc...

    Some such as Bagshaw consider such loss sui Generis.

    A little off topic - but an interestic aside - raises the question - is the distinction entirely reliable, and clear - is it artificial?

    Hoep this helps a bit.
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    Thankyou both.

    I've woken early with a clear head and it's all slowly slotting into place.

    It seems *Pure* economic loss is very, very difficult to recover (as in Spartan Steel... it seems they'd compensate everything but!) whereas in contrast, loss arising from physical damage (to self or to property,) appears remarkably easier to recover

    Thanks again, (*hits rep buttons*)

    D xxxx
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    (Original post by Dreama)
    Thankyou both.

    I've woken early with a clear head and it's all slowly slotting into place.

    It seems *Pure* economic loss is very, very difficult to recover (as in Spartan Steel... it seems they'd compensate everything but!) whereas in contrast, loss arising from physical damage (to self or to property,) appears remarkably easier to recover

    Thanks again, (*hits rep buttons*)

    D xxxx
    Have a look at Stapleton's article - I think its called "Economic loss: Duty of care and a wider agenda" or something to that effect. Ther eis another one from her too... cant recall the name ... something about "menus"
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    Thanks xxx
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    Pure economic loss, from the authority in Donoghue that a duty of care arises when it is reasonably foreseeable by the defender that his careless acts or omissions would cause physical injury to the pursuer.

    The pursuer can recover damages for economic loss which derives from the pursuer’s injuries or physical damage to his property for example a loss of earnings while the pursuer is in hospital (derivative economic loss)

    Courts do not allow damages for negligent activity which results in pure economic loss (Saeed v. Waheed 1996)

    The courts seek to protect the defender from potentially indeterminate liability

    The courts have been willing to consider pure economic loss but only when additional factors to the reasonable foreseeability of pure economic loss are present. A sufficient degree of proximity must exist between the parties so it is fair, just and reasonable for a duty of care to be inferred

    Careless misrepresentation

    Hedley Byrne v. Heller, 1964
    HL held the defendants owed a duty of care if they had reason to believe that the plaintiffs would rely on the statement and had taken responsibility for the accuracy of the statement. The plaintiffs had to show that the defendants owed them a ‘special duty’ of care. It was averred that the relationship was ‘equivalent to contract’.

    Reasonable foreseeability of loss to the pursuer is not sufficient to establish a duty of care. Additional factors must exist including the defender’s knowledge of the identity of the pursuer, and defender’s knowledge that the information will be used and acted on by the plaintiffs in respect to a particular transaction.

    Limitations on Hedley Byrne liability were recognised in Caparo Industries v. Dickman, 1990 - the auditing of a company was carelessly carried out by an auditor showing the company in a better financial state than the truth was. It was reasonably foreseeable that (a) potential investors in reliance on the audit would invest in the company (b) that existing shareholders would purchase more shares in reliance to their loss. Although auditor had a contract with the company he did not have contract with the existing or potential shareholders. HL held the auditor did not have a duty of care to the shareholders to prevent them suffering economic loss as a result of careless audit. Their relationships were not sufficiently proximate and not fair, just and reasonable to impose a duty of care

    Liability arising from a defective performance of a contract

    Junior Books v. Veitchi Co., 1982 - HL held that in circumstances of sub-contracting C owes a duty of care to A not to perform his contract with B in a careless manner if it will cause economic loss to A. Pursuers entered into a contract with a firm of builders (the main contractors), the pursuer’s architects nominated a floor specialist to lay the floor in the factory, this specialist were the sub-contractor who did not have a contract with the employer. Floor was defective and had to be replaced by the pursuer, pursuers sought damages from the defenders for the cost of replacing the floor. Employer could have sued the main contractor under contract law but chose not to do so. Delictual claim was for pure economic loss.

    HL held there was sufficient proximity between the parties for a duty of care to arise.

    For a Junior Books duty of care to arise the pursuer A and defender C must be connected by a series of contracts A-B-C. In addition to reasonable foreseeability of loss as a result of his careless acts C must know the identity of the pursuer A, know that A has a contract with B, knows that A will suffer economic loss as a result of C’s careless performance of his contract with B. A’s reliance on C’s expertise is important, it provides evidence that C knows that his careless performance will cause A economic loss.

    Local authorities are under a duty to ensure that buildings conform to building regulations and bye-laws. In Anns v. Merton London Borough Council, 1978 the defendants approved the design of the foundations of a building. Foundations were found to be defective. HL held the local authority owed the owner a duty of care and damage could include the cost of repair.

    After Anns the courts refused to apply Lord Wilberforce’s two principles (see quote p.97 Joe Thomson’s textbook). Anns was overruled by Murphy v. Brentwood District Council, 1991 a builder laid foundations of a house in accordance with designs approved by the local authority. The foundations were defective. Owner sold house for less than market value and sued the local authority for the loss.

    HL held Anns was wrongly decided. Neither the local authority or a builder owes the owner of a house a duty of care in respect to pure economic loss arising from the defective construction of the property

    Non-liability for secondary economic loss

    This arises when the defendant has caused physical harm to A or A’s property and as a result B suffers economic loss (secondary economic loss)

    Reavis v. Clan Line Steamers, 1925 - black orchestra put together and administered by Mrs Reavis was depleted by an accident at sea caused by the negligence of the operating ferry firm. Orchestra was disbanded due to the death of members. Pursuer claimed the services of the orchestra had been assured by employment contracts and sought damages from the defenders due to the loss of profits suffered. Court held she was not entitled to recover. The defender did not owe Mrs Reavis a duty of care to prevent her suffering economic loss. If Mrs Reavis was injured she could have claimed derivative economic loss but she could not in respect of the death of others. Only the injured person or the owner of the property has the right to sue, third parties cannot sue in delict.

    Hill v. West Yorkshire Police, 1989 - mother of the last victim of the Yorkshire ripper brought an action against West Yorkshire Police on grounds that the police had been careless in their investigation of earlier murders and should have apprehended the killer before her daughter was killed. HL held that the police do not owe a duty of care to individual members of the public to identify and apprehend an unidentified criminal even if it is reasonably foreseeable that he may kill. The pursuer had no special distinctive risk.

    A duty of care will be imposed only when in the view of the court it would achieve more good than harm to do so.

    Hope that helps ?
Updated: June 2, 2005
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