Pure Economic Loss (Essay)

Question: ‘The common law’s prejudice against recovery for economic loss
should be seen as a general reluctance to permit recovery rather than a hard and
fast doctrinal rule.’ (David Howarth.) Question 7 (2022 Zone-A)
Discuss.
Answer: "Pure economic loss" relates to the financial loss sustained by another
party's conduct that is unrelated to physical injury to the victim or their assets.
These kinds of economic losses often cannot be recovered, as was the case in
Spartan Steel v. Martin (1972). Even if the claimant's damages are described as
"pure economic loss," it doesn't mean they can't go to court and get
compensation. But to succeed with their claim for economic loss, the plaintiff
must show that the defendant owes them a certain kind of protection.
According to Lord Fraser in "The Mineral Transporter’’, the negligent party's

liability to individuals who suffered economic damage as a consequence of his
acts must be restricted by "some restriction or controlling system". Before 1964,
the ruling in Derry v. Peek was widely accepted as the law. This ruling held that
the defendant would not be willing to accept liability for careless statements,
even if he had lied or been irresponsible. In Hedley Byrne & Co. v. Heller &
Partners Ltd. (1964), the court established the basis for two key legal changes in
the law: a) the defendants had a responsibility to use reasonable care in providing
guidance and data, and b) this duty extended to losses that were purely economic
in nature.
Hedley Byrne ignored Derry v. Peek's precedent. From this perspective,
pure economic and consequential loss must be separated. The claimant may
recover economic loss from physical injuries, property damage, or other damages.
However, a claimant cannot recover pure economic loss that is not directly
related to property or bodily harm.
The common law rule (Spartan Steel v. Martin, 1972) establishes that a
defendant is not responsible for pure economic loss. Initially, Denning LJ
dissented in what became known as the Candler case, but the House of Lords in
Hedley Byrne ultimately accepted his dissenting view.
Usually, the courts are hesitant to compensate economic losses due to two main
reasons: contract and tort law combined, where economic losses are
compensated, and the "floodgates" argument or policy consideration, which
would commit the defendant to unknown financial obligations to an unknown
group. These reasons make it difficult for the courts to compensate for economic
losses.
But, in the Hedley Byrne case, the court agreed that negligent statements could
be linked to a duty of care to the court to impose pure economic loss, but it also
agreed that this duty could have some limits.
There must be some sort of special relationship between the parties because of
the defendant's skill and the trust that was placed in it. According to Lord Reed in
Hedley v. Byrne, a "special relationship" may only be said to exist if the statement
was made in a professional situation. In any business or professional relationship,
a claimant may be owed a duty if they reasonably seek professional guidance,
according to Howard Marine v. Ogden. If the words made in a strictly social
context have no legal value. A claim in a social context may only be upheld if it is
obvious that the claimant requires careful assistance, as shown by cases like
Chaudhry v. Prabhakar and Goodwill v. BPAS. Later, Francis v. Barclays Bank,
the case that followed, led to the court's ruling that an expert witness was
necessary to support a claim based on an expert opinion. A certified expert in the
topic is not required for the adviser in view of the Lennon v. MPC judgment.
For a successful claim for pure economic loss, the claimant's reliance is important,
as in Valse Holdings SA v. Merrill Lynch (2004). Caparo Industries plc v. Dickman
and Smith v. Eric S. Bush require that the reliance be reasonable.
The defendant will be held responsible when a lack of care is established. It seems
that a lot of economic advice is incorrect without being negligent. But still, the
defendant must be allowed to explain his lack of understanding and, if he has
been investigated, be evaluated according to his promises. In White v. Taylor
(2004), it was necessary to show that the claimant's loss resulted from a lack of
care and someone else who wasn't the target audience for the advice or
information might lose out. In this respect, the ruling by the House of Lords in
Smith v. Eric S. Bush (a firm) is similar to that of Caparo Industries v. Dickman.
Although both the Smith v. Erick Bush and Caparo Industries plc v. Dickman
judgments include "third parties," the purchaser's assumption of responsibility in
the first case eliminates the necessity for an indirect contractual relationship
between the parties. If the claim is sufficiently related to the auditors' report's
purpose, a duty may arise in a Caparo-type case.
In addition, one may place their reliance on the advice, but this does not prevent
others from incurring losses (Ministry of Housing v. Sharp; Spring v Guardian
Assurance Ltd.). In Hedley Byrne, the defendants were absolved of any
wrongdoing because the advice they offered was deemed to be "without
responsibility." With the passage of the Unfair Contract Terms Act in 1977, it has
taken on greater significance.
A different kind of example is the performance of services. The expanded Hedley

Byrne principle may find the defendant liable if they voluntarily assumption of
responsibility for the claimant's care. There is no need to rely on this assumption.
This issue was discovered in Henderson v. Merrett Syndicates Ltd. This
assumption covers the idea of liability for an act that was undertaken voluntarily.
According to White v. Jones's Lord Browne-Wilkinson, adopting these terms
should be interpreted as a voluntary assumption of responsibility for the task, and
not as an intention to assume legal liability to the plaintiff for its full performance.
In the 2022 case of Spire Property Development LLP v Withers LLP, the claim was
successful when the defendant assumed a duty of care towards the claimant
despite the lack of a contractual relationship between the parties. Williams v.
Natural Life Health Foods Ltd., Lord Steyn used this method to show that the
duty wasn't against the law because the defendant didn't do it on purpose. In
White v. Jones, the court ruled that a solicitor's fiduciary responsibility extends to
the person who would receive the client's property in the event of death. Like in
Precis plc v. William Mercer Ltd. (2005), the courts must look at all of the
important facts to decide if a legal responsibility has been assumed or not.
Gorham v. British Telecommunications Plc and Gibbons v. Nelsons both come to

the same conclusion reliance on a special relationship is not required for proof,
but it helps the claimant when it is present. Before determining who is at fault,
Lord Goff believes it is pointless to discuss whether or not there should be a duty
of care. This is what happened in Henderson and Barclays Bank plc (2007).
Another line of cases concerns defective property. Defective products are not
considered to damage under Enlist law and torts. The defective property will
almost certainly produce financial loss, but since a defect is not damaged, it does
not come from property damage. This kind of damage is not recoverable. In
situations like Ann and Junior Brooks' in Murphy, the House of Lords overturned
earlier decisions.
The vast majority of the currently-applicable precedents have been settled. There
was a transition period between 1964 and 1980, during which liability was
expanded. People's willingness to be heard has grown significantly during the
1990s. Although the historical reluctance to pay for economic loss has been
relaxed several times, it is reasonable to suggest that claims for pure economic
loss should be considered within a controlled framework.

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Question: ‘The common law’s prejudice against recovery for economic loss

According to Lord Fraser in "The Mineral Transporter’’, the negligent party's

A different kind of example is the performance of services. The expanded Hedley

Gorham v. British Telecommunications Plc and Gibbons v. Nelsons both come to

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