Negligence – economic loss
Negligence – economic loss
If economic loss needs to be discussed, it can be included after you have considered damage.
- Claimant can recover damages for consequential economic (financial) loss which arises from
the physical damage – cost of hiring replacement car during repairs, loss of clothes or loss of
earnings.
- Claimant cannot claim for ‘pure economic loss’ – loss that is not linked to physical injury or
damage e.g., loss of profits to a business.
Pure economic loss, loss not linked to the physical injury or damage, usually cannot be claimed for.
This is due to policy reasons and the idea that ‘economic loss’ in the form of loss of profit is really an
issue of contract law rather than tort law.
Spartan Steal v Martin and Co. (Contractors) Ltd (1973)
- An electric cable was negligently cut outside the claimant’s factory, leading to a loss of
power for several hours.
- A ‘melt’ in a furnace had to be destroyed to stop it from solidifying and breaking the furnace,
during the power outage.
- Loss of profit on the melt can be claimed as consequential economic loss from the physical
damage.
- However, the loss of profits whilst the factory was out of action was not allowed as part of
the claim as this was ‘pure economic loss’, which was not caused by physical damage to the
claimant.
- The loss was better to be dealt with under insurance.
Weller v Foot and Mouth Disease Research Institute (1966)
- A foot and mouth disease was negligently allowed to spread on the claimant’s premises.
- The infected cattle which were then not able to be sold.
- The claimant was also an auctioneer and brought a claim for the profit that they would have
been able to make from the cattle.
- The claim was denied because pure economic loss (loss of profit not caused by physical
damage to the claimant), cannot be recovered.
Pure economic loss, loss not linked to physical injury or damage, usually cannot be claimed for.
However, the exception to this is where financial loss has resulted from the claimant acting on a
negligent misstatement. This can occur in two situations:
- Two-Party Liability – defendant gives advice to claimant and claimant suffers a loss from
relying on this advice.
- Third-Party Liability – defendant makes a statement to a third party. Third party passes this
onto the claimant. Claimant relies on this statement and suffers a loss.
Regardless of the situation the negligent misstatement occurs in, the claimant will need to establish
that:
- The statement was made negligently and there is a ‘special relationship’ between the
parties.
Hedley Byrne v Heller and Partners (1964)
- Hedley Byrne, an advertising company, was approached by Easipower to place adverts in
their magazines and newspapers.
Negligence – economic loss
If economic loss needs to be discussed, it can be included after you have considered damage.
- Claimant can recover damages for consequential economic (financial) loss which arises from
the physical damage – cost of hiring replacement car during repairs, loss of clothes or loss of
earnings.
- Claimant cannot claim for ‘pure economic loss’ – loss that is not linked to physical injury or
damage e.g., loss of profits to a business.
Pure economic loss, loss not linked to the physical injury or damage, usually cannot be claimed for.
This is due to policy reasons and the idea that ‘economic loss’ in the form of loss of profit is really an
issue of contract law rather than tort law.
Spartan Steal v Martin and Co. (Contractors) Ltd (1973)
- An electric cable was negligently cut outside the claimant’s factory, leading to a loss of
power for several hours.
- A ‘melt’ in a furnace had to be destroyed to stop it from solidifying and breaking the furnace,
during the power outage.
- Loss of profit on the melt can be claimed as consequential economic loss from the physical
damage.
- However, the loss of profits whilst the factory was out of action was not allowed as part of
the claim as this was ‘pure economic loss’, which was not caused by physical damage to the
claimant.
- The loss was better to be dealt with under insurance.
Weller v Foot and Mouth Disease Research Institute (1966)
- A foot and mouth disease was negligently allowed to spread on the claimant’s premises.
- The infected cattle which were then not able to be sold.
- The claimant was also an auctioneer and brought a claim for the profit that they would have
been able to make from the cattle.
- The claim was denied because pure economic loss (loss of profit not caused by physical
damage to the claimant), cannot be recovered.
Pure economic loss, loss not linked to physical injury or damage, usually cannot be claimed for.
However, the exception to this is where financial loss has resulted from the claimant acting on a
negligent misstatement. This can occur in two situations:
- Two-Party Liability – defendant gives advice to claimant and claimant suffers a loss from
relying on this advice.
- Third-Party Liability – defendant makes a statement to a third party. Third party passes this
onto the claimant. Claimant relies on this statement and suffers a loss.
Regardless of the situation the negligent misstatement occurs in, the claimant will need to establish
that:
- The statement was made negligently and there is a ‘special relationship’ between the
parties.
Hedley Byrne v Heller and Partners (1964)
- Hedley Byrne, an advertising company, was approached by Easipower to place adverts in
their magazines and newspapers.
