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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.

The following is a more accessble plain text extract of the PDF sample above, taken from our GDL Tort Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

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

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

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Loss of earnings / medical care + costs

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Issues: o

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

o

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

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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

o

Profit on the melt: consequential economic loss

o

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

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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

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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

PURE ECONOMIC LOSS AND NEGLIGENT MISSTATEMENT

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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

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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

o

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

o

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

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Negligent misstatement cases - Batty v Metropolitan Property Realisations

and Dennis v

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

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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 relationship...as it is possible to envisage short of privity of contract' o

Very difficult to justify case

o

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

Contraction of Liability

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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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