2.2.2 Economic Loss Lecture
What is ‘Pure’ Economic Loss?
The presiding rule is that pure economic loss is not recoverable; that is economic loss which cannot be directly traced back to harm to a person or property. There exist three primary exceptions to this rule, below.
Economic Loss Due to Physical Damage to the Claimant’s Property
Where economic loss stems from physical damage to a product or equipment, then it is recoverable. This can be seen in Spartan Steel v Martin  where the court held that lost profit, due to a disruption in power to a factor, was purely economic loss and not actionable. However economic loss that resulted in the same incident from ruined steel and damaged equipment was actionable.
Economic Loss Due to Negligence Causing a Claimant to Acquire Defective Goods or Property
Tort generally will not compensate for the economic loss of receiving a defective product. Some eccentric cases have ignored this rule, though they have since been overturned. Nonetheless, they represent an important, if temporary, exception (see Anns v Merton London Borough Council ; and Junior Books v Veitchi Co ).
The basis for these exceptions can be thought of as a type of ‘preventative compensation.’ The relevant cases where then overruled (see Murphy v Brentwood District Council ).
Economic Loss Due to Negligent Misstatement
Hedley Byrne v Heller and Partners Ltd  is the leading case for this type of claim. Four conditions must be met before it is possible to recover economic losses due to negligent misstatements:
- A special relationship must exist between the parties, such as where one party acts as an expert advisor (see Cornish v Midland Bank ; Chaudry v Prabhakar );
- The advising party needs to have voluntarily assumed the risk of misadvising (Cornish Bank; Hedley Byrne);
- There must be reliance on the advice by the defendant (which can exist even where both parties are ‘experts’, Esso Petroleum v Mardon ); and
- The reliance must be reasonable and foreseeable (Law Society v KPMG Peat Marwick ).
Other specific situations may arise under this exception:
- A claimant here does not have to be the individual who has commissioned the advice in the first place, although the claimant must be in the mind of the defendant (Smith v Eric S Bush ).
- It is rare that a widely disseminated statement will meet the threshold for negligent misstatement, particularly where the claimant uses the misstatement for a purpose other than that which it is designed for (Caparo).
- Silence may give rise to a negligent misstatement, however liability was not imposed in Banque Keyser Ullman (UK) Insurance Co v Skandia .
- Negligent misstatement can occur where the defendant is a public authority, however it should be assumed as a starting point that liability will not be conferred, Welton v North Cornwall District Council .
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