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Economic Loss Notes

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This is an extract of our Economic Loss document, which we sell as part of our Tort Law Notes collection written by the top tier of Oxford students.

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Negligent Statements; Negligent Provision of Services; Negligent Damage to Property

A loss is categorised as 'pure economic loss' where it does not flow directly from personal injury to P or damage to P's property. The latter would instead be 'consequential economic loss'.

1. Negligent statements Hedley Byrne v Heller & Partners [1964] AC 465: Ps had booked advertising space, for which P was liable, on behalf of X. To ensure that X wouldn't fail to pay them, they asked D, X's bank, whether X would be able to pay and D said they were certain that X could pay but that this assurance included a disclaimer of responsibility on X's behalf. It turned out X was unable to pay so P sued D for negligent misrepresentation. HL held that P must fail due to the disclaimer, but would otherwise have been able to sue, since negligent misrepresentation causing economic loss can, in some cases, make D liable. A duty of care would arise in relation to statements where there is (1) a "special relationship" between the advisor and the advisee, such that the advisor could reasonably anticipate that the advisee will rely on his/her advice for a particular purpose; (2) A statement that was false/inaccurate/misleading; and (3) Advisee reasonably relied on statement & suffered detriment as a result. Lord Devlin: such relationships are 'equivalent to contract,' that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract.

2. Negligent provision of services Smith v Bush [1990] 1 AC 831: P had a contract with D for D to value his house. D inserted a clause that he would not be liable for his actions in the course of his work. D incorrectly valued the house, causing P loss. HL ruled that D had a duty of care to P and the disclaimer of liability was ineffective due to UCTA and did not shield D from liability. Lord Templeman: In this case, following Lord Devlin's guidelines in Hedly Byrne, this is a case "akin to contract". He follows the same lines as Lord Reid in Hedley since the valuer knows his advice will be relied on by the parties and can only escape tortious duty to use reasonable skill by a VALID term excluding it. Lord Griffiths: Conditions when the surveyor here can be held to have a duty in tort: "If the valuation is negligent, and is relied upon, damage in the form of economic loss to the purchaser is obviously foreseeable. The necessary proximity arises from the surveyor's knowledge that the overwhelming probability is that the purchaser will rely upon his

valuation...and the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee. It is just and reasonable that the duty should be imposed for the advice is given in a professional as opposed to a social context and liability for breach of the duty will be limited both as to its extent and amount." Liability is limited to the D and not subsequent buyers. He said the use of the concept of "assumption of responsibility" was "unlikely to be a helpful or realistic test in most cases". Caparo Industries v Dickman [1990] 2 AC 605: See week 1. Only those to whom the negligent advice was directed (shareholders, not potential investors) could claim in tort since it was only to them that D had a duty of care. HL also held that liability for economic loss due to negligent mis-statement was confined to cases where the statement or advice had been given to a known recipient for a specific purpose of which the maker was aware and upon which the recipient had relied and acted to his detriment. Lord Bridge: On questions of negligent misstatement, says that the necessary proximity between P and D can exist where (1) D is aware of the nature of the transaction that P is contemplating; (2) D communicated the information to P directly or knew that it would be communicated to P/class of which P was a member; (3) D ought reasonably to have realised that P would reasonably rely on that info; and (4) P did reasonably rely ont hat info. Spring v Guardian Assurance [1995] 2 AC 296: P was made redundant by D, who, through regulatory bodies, made false accusations that P was dishonest, which prevented P from obtaining employment. HL held that a duty to take care arises upon an assumption or undertaking of responsibility by the defendant towards the plaintiff, coupled with reliance by the plaintiff on the exercise by the defendant of due care and skill. Specifically, an employer who provides a reference in respect of one of his employees to a prospective future employer will ordinarily owe a duty of care to his employee in respect of the preparation of the reference. Lord Goff: the employee is relying on D to exercise due care (and their special knowledge of him) in making the reference and is generally made upon the request of the employee. Therefore the requirements are satisfied. Lord Woolf: The duty was to avoid making untrue statements negligently or expressing unfounded opinions even if honestly believed to be true or honestly held. He says that the harm is obviously reasonably foreseeable, while proximity is clear from the parties' relationship + neighbourhood test applies here. Re fair, just and reasonable, it has been recognised that where the relationship is "akin to a contract" (see Lord Devlin in Hedley i.e. where "but for the absence of consideration, there would be a contract") a duty can be imposed. In such a situation the social/professional context is irrelevant. Since there are no problems regarding policy, the duty can be imposed. NB All lords, except Lord Goff, simply applied Caparo, whereas he used the "assumption of responsibility" approach.

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