Recognised harm and economic loss
Most losses that occur from tort can be categorised as an economic loss.
An example being if someone was to negligently crash and destroy someone else’s car in a road traffic accident, then the owner of the car destroyed is said to have suffered an economic loss.
The car would have inevitably cost some form of payment to purchase, and will therefore cost something to replace, whether this be monetary value or some form of part exchange scheme.
If a person is injured in an accident that results in them being unable to work due to their injuries or possibly has to take a lower paid job, or a role with far less benefits or bonus schemes, then these people would also be said to have suffered a form of economic loss.
In both the above examples, the economic loss has been suffered as a result of a physical impact and injury, whether to property or themselves.
The courts are far stricter when a claim occurs regarding ‘pure economic loss’, which is economic loss that has not been suffered from physical harm or damage.
Examples of pure economic loss
Let us take a manufacturing company as an example. If an electrical contractor negligently cuts through electric cables in the factory, resulting in the factory being ‘unusable’ for the purpose it is required , then a claim of pure economic loss would be for the potential earnings the company could have gained if the electric capable were not damaged and the factory was usable.
The courts are very restrictive in their approach to claims of pure economic loss, given that claims regarding, for example, potential earnings could be catastrophically unrealistic in line with the actual damage caused.
The courts would be faced with ridiculous claims and no proof to support the argument.
The development of claims for pure economic loss
In 1963 the House of Lords held that a claim for pure economic loss could be permitted if the loss was a result from things the defendant had said or information the defendant had provided.
The House of Lords furthered this by saying a person can make a claim for pure economic loss as a result of negligent misstatements providing there is a special relationship between the parties involved.
For a person to succeed in a claim for pure economic loss as a result of a negligent misstatement the following needs to be proven:
- A special relationship between the parties
- A voluntary assumption of responsibility by the party offering the advice
- Reliance on that advice by the party receiving it
- The reliance must be reasonable
A special relationship
The characteristics of a special relationship have been described by the courts as the claimant reasonably relying on what the defendant said and that they should have known or ought to have known that the claimant would have relied on such statements.
Where someone expresses an opinion in a social setting they are less likely to take these to be relied upon. It is seen more as expressing an opinion rather than giving advice.
If advice was given in a business context, the courts are more willing to take this to attract liability if the statements end up being negligent.
Voluntary assumption of responsibility
Where a person is asked for advice in a business context they have three options:
- Choose not to give advice- reducing the risk of any liability
- Give advice but caution that it should not be relied upon
- Give the advice without warning
As a general rule, if a person decides to choose the last option they will be considered to have voluntarily assumed responsibility.
Reliance in the context of negligent misstatements requires that the claimant relied on the information the defendant provided or the words he spoke due to the particular nature of the statement and the relevant knowledge and experience of the defendant.
The Claimant must not just show reliance, they must also prove it was reasonable to rely on such a statement.
Recovery for economic loss in ‘wills’ cases
In a case involving the negligent creation of wills, the courts have found problems involving the distinction between negligent acts and negligent statements.
Where a solicitor negligently prepares a will, depending on the exact circumstances of the case, the courts usually take the stance that a solicitor voluntarily assumes responsibility to his client and also assumes responsibility to the claimant as a beneficiary under the will.