Pure economic loss copy PDF

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Pure economic loss. Definition. Financial loss which is not consequential upon either personal injury or property damage being suffered by C. The only loss suffered is the financial loss of which he complains. The most important question is “is there a duty of care owed for pure economic los ?!  English law has traditionally taken a restrictive view of recovery for pure economic loss  pure economic loss cases inevitably require a close attention to the facts — see, e.g.: Customs and Excise Commissioners v Barclays Bank plc [2007] 1 AC 181 (HL) [8] (per Lord Bingham): o “it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole. “ 

courts apply an incremental approach in this area, whereby they prefer to ‘hug the coastline’ of previously-decided, analogous cases — see, e.g.: An Informer v A Chief Constable [2012] EWCA Civ 197 (29 Feb 2012), where Toulson LJ stated that the claimant (a police informant) — was not able to cite any case reasonably analogous to the facts of the present case in which a duty of care to prevent purely economic loss has been recognised’ (and, ultimately, no duty of care was owed)

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4 distinct types of pure economic loss: negligent misstatement (also known as Hedley Byrne v Heller liability) negligent provision of services, giving rise to pure economic loss ‘the extended principle of Hedley Byrne’) relational economic loss (aka the ‘exclusionary rule defective buildings/products (this topic is non-examinable)

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Duty of care: Negligent misstatement: The scenario: statements made by the D, the statement maker, which are inaccurate, made without a reasonable/ proper degree of skill and care about their

accuracy, and which caused C financial loss – the statement that is made does not amount to a contractual warranty of its truth--> what C is suing for is that the statement was not made with reasonable skill and care.  o o o o

alternative causes of action also available: Derry v Peek (1889) 14 App Cas 337 : fraudulent misstatementmade recklessly or intentionally Misrepresentation Act 1967 Nocton v Lord Ashburton [1914] AC 932 (HL) Candler v Carne, Christmas & Co [1951] 2 KB 164 (CA)

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The general framework for the analysis of DoC: variety of tests, discussed in: Customs and Excise Commissioners v Barclays Bank plc [2007] 1 AC 181 (HL)

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reasonable foreseeability of economic loss required: Caparo Industries plc v Dickman [1990] 2 AC 605 (HL)

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three ‘tests’ applicable to duty of care in negligent misstatement cases:

the first test to apply is the assumption of responsibility. When the claimants do not know each other then apply the Caparo test. The incremental test is applied as a cross-check. It is not a stand alone test.

Critisism of the Law. Hoffman stresses the need to focus on the facts of the case.  only convenient labels — per Lord Hoffmann in Customs and Excise (para 35, 36): There is a tendency, which has been remarked upon by many judges, for phrases like ‘proximate’, ‘fair, just and reasonable’ and ‘assumption of responsibility’, to be used as slogans rather than practical guides to whether a duty should exist or not. These phrases are often illuminating but discrimination is needed to identify the factual situations in which they provide useful guidance. .... Because the question of whether a defendant has assumed responsibility is a legal inference to be drawn from his conduct against the background of all the circumstances of the case, it is by no means a simple question of fact. Questions of fairness and policy will enter into the decision and it may be more useful to try to identify these questions than simply to bandy terms like ‘assumption of responsibility’ and ‘fair, just and reasonable’. --> you have to have regard to the particular facts and circumstances 

in order to avoid the use of labels the courts have developed relevant basket of factors – to descend to the particulars of the case, and avoid the use of labels (overpage): will not all be relevant in all cases: these will indicate if it is more likely or less likely for a DoC to be owed. They are not determinative.

Different scenarios of negligent misstatement:

Scenario 1: the bi-partite situation of C recipient and loss sufferer and D statement-maker  simplest scenario, no Third party intervening Elements of Scenario; D makes statement directly to C , Statement is inaccurate, C relies on that statement to his detriment MLC Assurance Co Ltd v Evatt Mr. Evatt, C, had an insurance with MLC. Mr. Evatt wanted to invest in another company, that was related to MLC. An MLC officer told Mr. Evatt that the company, Palmer was financially stable. Mr. Evatt invested on this statement. Turned out the company was not financially safe and sound So Mr. Evatt suffered a bad economic loss. So he sued MLC for negligent mistatement. Held - No DoC was owed to him. He could not recover any of the losses. Important points FACTORS. a) if the information does not fall squarely within the expertise of the D then no DoC. b) The fact that no fee was charged by D or paid by C did not preclude a duty of care from arising. c) If there is a DoC the sole duty is to make the statement honestly and thruthfully and this was present in this case. Patchett v Swimming Pool and Allied Trades Assn (pool installer) : Held: no DoC was owed and thus they couldn’t recover anything from Sparta. Reasons: a) If they read the information back they would have known that the company was not a full member and hence would not be covered by the bond and warranty scheme. b) with a contract of this size one would expect the Cs to make further enquiries about the suitability of this contractor

Chaudhry v Prabhakar condition of car) HELD – D owed C a duty of care in bringing her a car. She previously explicitly said to him that his didn’t want a car involved in an accident. This one was involved in one. They were friends. He knew some things about cars.  1. 2. 3. 4.

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CA said yes. That he did owe a DoC. Reasons: Although close friends -it was a commercial context. This was not a social setting. C expressly requested for information, it was not voluntarily given by D. D knew that C would rely upon his information without making independent inquiry of a third opinion Payment – although the advice was given gratuitously and yet a DoC attached.

Harris v Evans [1998] 1 WLR 1285 (CA) (requirements to conduct a bungee jumping business)

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Facts: C, had a bungee jumping business. C contacted the health and safety executive to make sure that he had complied with the various safety requirements for a business like this. The business started and D, inspected the business and told C that he would need further certification for the business to comply with safety requirements. The local authority where C was carrying out his business, shut him down because he didn’t have that certification. The government got involved and provided a letter to C saying that the advice from D had not been in line with HSE policy. C sued D for negligent misstatement for the losses incurred by his business being shut down but also for the further expenses in which he was put trying to achieve this further safety certification  CA held: D did not owe a DoC to C. reasons: 1. D as an inspector under the health and safety at work act 1974, D owed a duty to protect the public. He could not owe a DoC to C as well that could potentially conflict with his duty to protect the public 2. The 1974 act provided certain remedies if inaccurate advice was given by one of its inspectors. It provide certain limited remedies and that was the extent that P intended to be available.

Scenario 2: the tri-partite situation of C, D and X: information is passed from the D to the 3rd party(x) and then X passes the information to the claimant.  The D has a relationship with X. then C also has a relationship with X. but D and c may not even know each other.  Is there a DoC owed by the D to the claiamant. Hedley Byrne & Co Ltd v Heller & Partners Ltd  hedley byrne, c, advertising agents placed advertising orders oF 100000 on Tv for Easipower.  Under the advertising terms C was to be personally liable for the costs.  C before putting the ads asked its bankers NPB for E’s financial stability.  NPB made inquiries of Heller (D) who were E’s bankers.  The bank replied Confidential. For your private use and without

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responsibility on the part of this bank or the manager. Respectably constituted company, considered good for its ordinary business engagements. Your figures are larger than we are accustomed to see.’) 

Then E went into liquidation. C left with a huge loss.

Important Points 1) Heller the D has not provided the information to Hedley Byrne(C] but to the bank. There is no direct dealing between C and D. 2) Heller(d) did not know anything about Hedley. They did not know that the information was requested for Hedley. They did not even know the party.

HELD – but for a disclaimer a DoC was owed. a) The disclaimer was valid and based on this Heller is not liable. b) If it was not the declaimer there would be a DoC. 2 FACTORS.

A) Given the credit reference was within the skill and expertise of that bank. B) The bank was in the best position to provide this information as they knew the financial information of the client.

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Hl Held: the letter from NPB included a disclaimer and it was effective. Also they said were it not for that disclaimer, a DoC would have been owed by heller to HB. Reasons: 1. Giving a credit reference was squarely within the skill and expertise of a bank. Heller was almost in a unique position to provide that info. Sole power by Heller to give that info renders HB vulnerable. 2. Accepted that Heller did not know the identity of HB, however heller knew that the info was requested for someone in a small and ascertainable class (clients of NPB) 3. Ascertainable class – HEDLEY[C] as one of NPB’s customers was one of a limited ascertainable class which was sufficient even though C was not specifically identified(it did not need to be)

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Smith v Eric S Bush (a firm); Harris v Wyre Forest DC [1990] 1 AC 831 (HL) (statement about valuation and condition of house)  Facts: C wanted to take out a mortgage to buy a house and had a principle agreement with Abbey the building society to provide her with a mortgage. Abbey then required that the house be valued for mortgage purposes. Abbey instructed Bush the surveying company, to carry out the valuation. The value of the house was £16500. she bought it for £18000 and a mortgage was provided. C paid Abbey around £40 for the valuation although she did not request the valuation. The chimney breast had been removed and there was also no support on the first floor- the valuer hadn't noticed this. 18 months after she bought the house, the chimney collapsed completely caused huge damage and devaluation to her house. C sued the valuer in negligence.  Hl held: yes a DoC was owed By the valuer to Mrs. Smith--> there was a direct DOC. Reasons: 1. 90% of borrowers rely upon the valuation obtained from their lender-> they don’t get their own survey done. Abbey knew that it was unlikely that C would get independent info. So D knew that she probably would not have gotten independent info. 2. This transaction was very significant for C( smith) and that was relevant 3. In this case unlike HB, did know the name of C because her name was on the request of valuation put forward by Abbey. 4. The fact that C had paid £40 for the valuation could not be ignored.

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Caparo Industries plc v Dickman [1990] 2 AC 605 (HL) (statement of company profits)  Facts: C a huge company had shares in Fidelity (X-another company). Touche ross (D) was the accounting firm that prepared the end of year financial statements on behalf of fidelity. These financial statements showed that fidelity had a profit of about £1.3mil and these statements are provided to all shareholders including caparo. caparo saw these statements and decided to take over fidelity as it thought it was a good candidate. Caparo then discovered that in the previous year fidelity had actually made a loss of around £400,000. caparo would not have

taken over had it known of this bad performance. Caparo sued TR for negligent misstatement. HL held: TR did not owe caparo a DoC. 1. They said that there was a mismatch of purpose (purpose for which it is provided and purpose for which it is relied upon) and that would bring down the DoC--> the statements were prepared in order to enable the shareholders to review the performance of the directors of the company. In this case they had been relied upon for a takeover bid and that was not the purpose for which the statements had been prepared. 2. Caparo was a big company and the HoL reasonably expected that independent advice would be obtained, not simply relying on end of year statements. 3. This transaction was not as important as the buying of the house had been to smith. Whereas caparo with that size, bought and sold companies all the time. Didn’t have the same importance. 4. The class of persons of whom caparo was one was not just the class of shareholders of fidelity but caparo was also in the class of the general public (as according to an act the statements had to be made available to the public). Anybody in the general public could have read these statements and invested. Since the public class is too large there is not to be a DoC. – The class was too large and indeterminate to justify a DoC. 5. No payment – in Smith Mrs smith paid a fee to defray the valuers expesnes in preparing the valuation. In Caparo as a sharereholder was entitled to be given company accounts prior to the AGM. Hence Caparo was a free rider,although not a lot of emphasis was placed on this point. o

Law Society v KPMG Peat Marwick [2000] 1 WLR 1921 (CA) (statement of solicitor firm’s accounts and financial activities)

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Williams v Natural Life Health Foods Ltd [1998] 2 All ER 577 (HL) (statement about health food store franchise profitability)

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Sebry v Companies House the Registrar of Companies (Rev 1) [2015] EWHC 115 (QB)

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Scenario 3: the 'victim' situation: claimant is not the person who receives the information and relies upon it. But a 3rd party receives the information and relies on the information on the detriment of the claimant.  illustrative cases: Spring v Guardian Assurance plc [1995] 2 AC 296 (HL) (reference o about ex-employee) : C was dismissed from his job at an insurance company following a take-over of the company by guardian. Under the regulatory rules that govern insurance selling, he would require some form of reference in order for him to sell insurance. He requested that reference from guardian

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and they provided a reference to a company which was thinking of engaging C and the reference contained numerous errors. According to the evidence it was so bad as to almost amount to the end of C's career in the insurance industry. The prospective employer relied upon this reference and did not employ Mr Spring. C sued D in negligent misstatement.  HL held: a DoC was owed by D to C in preparing the reference. reasons: 1. With respect to the employment reference, there was a limited class of persons who could be affected by the negligent preparation of the reference. 2. D has the most power and the best position-- an assumption of responsibility and a correlative reliance is much easier to establish. 3. Imposing a DoC on employers was not contrary to public policy.

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Harris v Evans, above (statement about requirements to conduct business) : local authority shut C's business down. So C is the victim because someone else relied upon the information to C's detriment. Even though he was a victim he was not owed a DoC

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McKie v Swindon College [2011] EWHC 469 (QB) (statement from one branch of employer to another; not the supply of a reference in the strict sense)

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Gatt v Barclays Bank plc [2013] EWHC 2 (QB) (a bad credit rating, re allegedly unauthorized borrowings)

Negligent provisions of services: 2.  Where the provision of services was negligently performed. Accorarding to the extended Hedley byrne principla D who provides professional services within the scope of his skill and expertise and who cause economic loss to C who relied on the reasonable careful performance of those services owes a DoC to C to avoid that economic loss  a different scenario — the extended principle of Hedley Byrne v Heller — per Lord Goff in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL): o Though Hedley Byrne was concerned with the provision of information and advice, the example given by Lord Devlin of the relationship between solicitor and client, and this and Lord Morris’s statements of principle, show that the principle extends beyond the provision of information and advice to include the performance of other services.  leading illustrative cases: o White v Jones [1995] 2 AC 207 (HL) (leading case):  Cs were two daughters. Mr.barett was an old man and had a falling out with his two daughters so he cut them out of his will. Then they made up and he wanted to put them back in his will. He made an appointment with his solicitor Jones (D), for the will to be prepared and signed. D was given instructions to give £9000 to each daughter in july but because he was busy and holidays… the appointment was made in September. On his holidays mr barett slipped, fell and died. These instructions given to D were never carried out because Mr. Barrett

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couldn’t execute the will. So the daughters didn’t get their money and sued D for professional negligence. Two non-clients were suing a solicitor. They were not clients! Can a solicitor owe a duty of care to someone who is not a client?! HL held: that D owed Cs a DoC. Reasons: 1. There was a lacuna in the law : the party who had the claim in negligence against D (taking too long) was MR.barett because he was the client but the person who has the loss are the Cs and didn’t have the claim unless a DoC was owed. To fix the lacuna in the law 2. This was surely an exceptional case. The problem is that the legal mistake that took place could never be fixed because Barret died.. 3. There was not prospect of indeterminate claims, this is a limited class (two disappointed beneficiaries). This wont give rise to unascertainable classes of Cs. 4. There was no conflict of duty on D's part. D owed a duty to Mr.B as his client, and if he was to owed a duty to the C's then these duties are aligned. 5. D was the sole repository of the ability to perform these services- mr b had engaged him, there was nothing the two daughters could do.

Customs and Excise Commrs v Barclays Bank plc [2007] 1 AC 181 (HL):  Academic point made: the reliance in barcalys bank would have to be detrimental reliance: HL meant that the C relied upon D because they could have done something differently/ sought advice elsewhere. But it is not reflected in the line of authority otherwise as in white the Cs wouldn’t be owed a DoC.

banking services have been particularly in the spotlight recently: CGL Group Ltd v Royal Bank of Scotland plc & National Westminster Bank plc (Rev 1) [2017] EWCA Civ 1073 (24 Jul 2017) Playboy Club London Ltd v Banca Nazionale del Lavoro SpA [2016] EWCA Civ 457, [2016] 1 WLR 3169 (on appeal to the SC, judgment currently reserved, expected later in 2017)

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the limits of this category yet to be determined, and are still being explored, e.g.: Vinton v Fladgate Fielder (a firm) [2...