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Pure Economic Loss Notes

GDL Law Notes > GDL Tort Law Notes

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A more recent version of these Pure Economic Loss notes – written by Cambridge/Bpp/College Of Law students – is available here.

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Revision: Tort

PURE ECONOMIC LOSS AND NEGLIGENT MISSTATEMENT Three categories of loss: 1) Physical damage: actual economic loss 2) Economic loss consequent on physical damage: consequential economic loss 3) Pure economic lossGenerally pure economic loss is not recoverable

Physical damage


Quantum - 'how much' -liability hearing decides if liable and then the quantum hearing decides how much


Loss of earnings / medical care + costs


Issues: o

Remoteness - are they too remote? Where does it stop?


Speculative economic loss - claiming for speculative future losses - can claim but high evidential burden

Economic loss consequent on physical damageLost profit on the thing that has been physically damaged - cost of repairing/replacing etc.Spartan Steel & Alloys Ltd v Martin & Co (Contractors Ltd): D negligently cut off power to plaintiff's factory ruining melts that were being processed - damaged metal was physical damage and so loss was recoverable - additionally the metal would have been sold at a profit - so loss of profit on damaged metal was also recoverable

Pure economic loss: Not recoverableLoss that arises where there has been no damage to the claimant's propertyPolicy reason: crushing liability - indeterminate number of claims from indeterminate number of peoplePeople are expected to take measures to protect themselves - insurance etc. (Spartan)

Purely financial loss


If the claimant has suffered no physical damage to his person/property then his loss will be pure economic loss e.g. where they have made a bad investment, missed a contractual opportunity etc. 1

Revision: Tort

PURE ECONOMIC LOSS AND NEGLIGENT MISSTATEMENT Spartan Steel: as a result of the electricity being cut off, the factory was not able to operate for some time - C claimed that during the period of shutdown they could have made further profit from processing further 'melts': this was held to be irrecoverable - purely financial and did not result from any damage to the plaintiff's property. Heads of Damage: o

Claimed for damaged melt: actual economic loss


Profit on the melt: consequential economic loss


Four potential melts that would have been made had the power not been turned off: NO - pure economic loss - potential melts have no relationship to the original damage - separate - one isn't reliant upon the other


Policy reasons - Lord Denning said he had to draw a line to avoid crushing material o

Duty to mitigate losses: should have had a furnace, back-up generator, could have worked harder etc.

Loss arising from damage to property of anotherIf suffers loss as a result of damage to property which the claimant has no proprietary interest then it will be classed as pure economic lossWeller & CO v Foot & Mouth Disease Research Institute: C was an agricultural auction house that brought a claim of profits vs. the institute: D had negligently released the foot and mouth virus and infected local cattle resulting in cattle movement ban and cancellation of local auctions - claim was unsuccessful - no damage to their own propertyCattle v Stockton Waterworks : same ratio - you have to have a proprietary interest in the damaged property

Defective items - generally dealt with in contract law - not tort


Can't claim for the cost of repairing an inherently defective item - because pure economic loss - contract law deals with defective goods per se

2 Revision: Tort



C's claim that his property is not up to the standard he hoped or expected then his claim will not succeed in tort - unless defective good causes damage - you can sue for the damage but not for the defect


Donnoghue v Stevenson - if she had discovered the snail before drinking the ginger beer or hadn't suffered any 'injury' from drinking it - then she would not have been able to recover tort from the manufacturer for the simple defect Expansion of liability o

At one point - courts seemed to blur distinction btw property defects - confusion btw contract claims and tort claims


Anns - example of one of these cases - defects in the house - cracks in the wall - should be dealt with in contract - but HL allowed it - DOC of local authorities to make sure that the foundations are adequate- suing for a pure economic loss


Dutton v Bognor Regis: House built on a rubbish tip - court allowed claim even though it is a defective product


Negligent misstatement cases - Batty v Metropolitan Property Realisations

and Dennis v

Charnwood Borough Council - courts became more willing to allow pure economic loss claims


High water mark - Junior Books v Veitchi Co. Ltd. - C contracted with main contractors but asked to use sub-contracted floorers - so wanted the defendants to do the flooring - but it was defective action vs. flooring sub-contractors for faulty flooring - HL allowed the claim -defendants knew they were being relied upon - reliance and special relationship - situation analogous to a contract - duty of care because there had been 'assumed responsibility' - Lord Roskill - relationship was 'almost as close a commercial it is possible to envisage short of privity of contract' o

Very difficult to justify case


Has never been overruled but distinguished - now regarded as relying on its own facts

Contraction of Liability


Muirhead v Industrial Tank Specialities Ltd: claim for damage to property (ie dead lobsters) was allowed but not for a defect in product ( faulty pumps) - did the right thing and sued the tank company in contract law and won- but they went bust so he didn't get any money - so sued the pump manufacturers in tort law (no contract with them) - tried to use Junior Books - but courts 3

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