Outcome B: Liability for Economic Loss and Negligent Misstatement
Economic Loss
- Sometimes a claimant may wish to seek damages for those losses which are not physical injuries or
physical losses but financial losses. These types of loss can usually only be seen on a balance sheet.
These are known as economic losses.
- Consequential economic loss: this is the economic loss that results from a physical injury such as your
loss of income if you lose both your legs and can no longer work. This type of economic loss is usually
recoverable.
- Pure economic loss: this is all other types of economic loss that do not arise from a physical injury. This
type of economic loss is not recoverable.
Negligent Misstatement
- Will take place where there is no contract between the parties, but where one party is trying to persuade
the other party to enter a contract.
- A statement is usually given orally by someone who has some sort of expert knowledge.
- The person who hears the statement will act on it but suffers financial loss as the statement turns out to be
incorrect.
- The person who loses money will want to take action in tort to recover their loss.
- If a person receives negligent advice, acts on that advice and loses money as a result then the person
should be able to use the ordinary law of negligence to claim for their loss.
- This applies to advice directly given by professionals such as solicitors, accountants and architects.
- Hedley Byrne v Heller and Partners 1964 - HoL decided that, in principle, a claim could be made for the
negligent misstatement if a special relationship could be proved. In this case, the reference contained a
disclaimer of liability, which meant that Hedley Byrne could not succeed.
- Claims may be made by those who have suffered financial loss as a result of relying on a statement,
however it has to be established that:
- The statement was made negligently
- That there is a special relationship between the parties. A special relationship is a legal device
approved by the courts that allows a person who receives advice or information to sue the person
giving the advice for any loss suffered as a result of acting on that advice.
- Caparo v Dickman 1990 - sets out the features of a special relationship which in effect means that the
person giving the advice owes a duty of care to the claimant.
- Special skill or expertise on the part of the person giving advice.
- The claimant relied (acted upon) the advice.
- The advice is communicated directly to the claimant.
- The person giving the advice knows that it is needed for a purpose and is used for that purpose.
- There is no disclaimer to act as a defence.
- If the claimant successfully proves the negligent misstatement they can claim damages for the loss
suffered.
- As the law on claiming negligent misstatement had been developed by cases that have come before the
courts it is complicated and unsettled.
- Chaudhry v Prabhakar 1988 - sets out that a special relationship can exist even if the advice was given in
a social relationship, rather than a business relationship.
- This decision seems to conflict with the general approach of the courts that advice given in an informal
setting which turns out to be negligent cannot be claimed for.
Economic Loss
- Sometimes a claimant may wish to seek damages for those losses which are not physical injuries or
physical losses but financial losses. These types of loss can usually only be seen on a balance sheet.
These are known as economic losses.
- Consequential economic loss: this is the economic loss that results from a physical injury such as your
loss of income if you lose both your legs and can no longer work. This type of economic loss is usually
recoverable.
- Pure economic loss: this is all other types of economic loss that do not arise from a physical injury. This
type of economic loss is not recoverable.
Negligent Misstatement
- Will take place where there is no contract between the parties, but where one party is trying to persuade
the other party to enter a contract.
- A statement is usually given orally by someone who has some sort of expert knowledge.
- The person who hears the statement will act on it but suffers financial loss as the statement turns out to be
incorrect.
- The person who loses money will want to take action in tort to recover their loss.
- If a person receives negligent advice, acts on that advice and loses money as a result then the person
should be able to use the ordinary law of negligence to claim for their loss.
- This applies to advice directly given by professionals such as solicitors, accountants and architects.
- Hedley Byrne v Heller and Partners 1964 - HoL decided that, in principle, a claim could be made for the
negligent misstatement if a special relationship could be proved. In this case, the reference contained a
disclaimer of liability, which meant that Hedley Byrne could not succeed.
- Claims may be made by those who have suffered financial loss as a result of relying on a statement,
however it has to be established that:
- The statement was made negligently
- That there is a special relationship between the parties. A special relationship is a legal device
approved by the courts that allows a person who receives advice or information to sue the person
giving the advice for any loss suffered as a result of acting on that advice.
- Caparo v Dickman 1990 - sets out the features of a special relationship which in effect means that the
person giving the advice owes a duty of care to the claimant.
- Special skill or expertise on the part of the person giving advice.
- The claimant relied (acted upon) the advice.
- The advice is communicated directly to the claimant.
- The person giving the advice knows that it is needed for a purpose and is used for that purpose.
- There is no disclaimer to act as a defence.
- If the claimant successfully proves the negligent misstatement they can claim damages for the loss
suffered.
- As the law on claiming negligent misstatement had been developed by cases that have come before the
courts it is complicated and unsettled.
- Chaudhry v Prabhakar 1988 - sets out that a special relationship can exist even if the advice was given in
a social relationship, rather than a business relationship.
- This decision seems to conflict with the general approach of the courts that advice given in an informal
setting which turns out to be negligent cannot be claimed for.
