Tort Law - Economic Loss and Psychiatric Harm
N.B. the main issue for pure economic loss (PEL) and pure psychiatric harm
(PPH) scenarios is whether or not there is a duty. Deal with the rest more briefly
in the exam.
[STEP 1] C v D
The claimant (C) can consider suing the defendant (D) in the tort of negligence for
[INSERT C’s HARM CAUSED BY D’S ACT].
Negligence is defined as a breach by D of a legal duty of care owed to C that results in
actionable damage to C which is unintended by D.
[IF THIS ISN’T THE FIRST TIME INTRODUCING A NEGLIGENCE CLAIM IN AN
ANSWER] [INSERT C] can consider suing [INSERT D] in negligence (see definition
above).
Choose PEL or PPH route from below depending on which is relevant
[PURE ECONOMIC LOSS ROUTE]
[STEP 2] Duty of care for PEL?
Duty of care
[INSERT C’s] [INSERT HARM] is pure economic loss unconnected to physical injury or
property damage.
Generally, no duty of care is owed in tort where C suffers damage which is pure
economic loss (Murphy v Brentwood District Council). However,...
- In Murphy, C suffered pure economic loss caused by acquiring a defective item
of property (a house with defective footings), so no duty of care was owed by D.
The loss was not recoverable.
- A duty is not owed if financial loss is caused by actions rather than physical
damage (Weller & Co v Foot and Mouth Disease Research Institute).
- C could not recover its loss (lost profits) from D because the loss was not
caused by physical damage, but by the forced closure of the cattle market.
, - A claimant can recover consequential economic loss that stems from property
damage, but not loss caused by damage to the property of a third party (Spartan
Steel)
- Cs could not claim for the loss of profit due to damaged electricity cabling,
as this belonged to a third party (the electricity provider) and was classed
as pure economic loss
Exception:
However, in cases of negligent misstatement, there is an exception where the court
finds a special relationship exists between C and D and there is (as per Hedley Byrne).
- An assumption of responsibility by D towards C; and
- Reasonable reliance on D’s statement by C.
Assumption of responsibility
The four criteria required to establish assumption of responsibility are (as per Caparo):
- Did the adviser know the purpose for which the advice was required?
- Did the adviser know that the advice would be communicated to the advisee
(either specifically or as a member of an ascertainable class)?
- Did the adviser know that the advisee was likely to act on the advice without
independent inquiry?
- Was the advice acted on by the advisee to its detriment?
Reasonable reliance
Apply to facts
Extension of the special relationship principle:
The Hedley Byrne principle has been extended to the negligent provision of professional
services, providing there is an assumption of responsibility and clearly foreseeable
damage (no need for reliance) (White v Jones; Henderson v Merrett Syndicates).
- White - solicitor too slow to draft a will, breached duty of care to a prospective
beneficiary
- Henderson - extends liability to the general provision of professional services
Hedley Byrne was extended to negligent statements made to third parties rather than
the claimant, if the third party relies on it to the detriment of C (Spring v Guardian
Assurance plc).
, If the identity of a takeover bidder and the nature of the transaction is known, a special
relationship may be established (Morgan Crucible Co plc v Hill Samuel Bank Ltd).
Limitations of the Hedley Byrne principle:
Insufficient proximity of relationship between D and C means no duty of care is owed in
a PEL claim (James McNaughton Papers Group Ltd v Hicks Anderson & Co).
- Insufficient proximity (not special) between an accountant and takeover bidder
who relied on accountant’s draft accounts. Accountant did not know their
statement - the accounts - would be communicated to the bidder for that
transaction.
Generally, no duty will be owed in respect of advice given in a social situation because
there is no assumption of responsibility, unless D’s advice goes beyond social advice
and they have assumed responsibility (Chaudhry v Prabhakar). This is the case when:
- It is clear that C relied on the advice; and
- D had more experience or knowledge.
The duty to act in the public interest overrides the duty of care owed to C (Desmond v
Chief Constable of Nottinghamshire). If there is a conflict between a common law duty
and statute, statute prevails.
- The Chief Constable’s statutory duty to carry out CRB checks to protect
vulnerable young people in the public interest overrode their common law duty to
take reasonable care in responding to a request for information, so there was no
basis for a PEL claim.
Tort of deceit:
The tort of deceit provides a remedy where D’s actions are intentional and lead to
economic loss on behalf of C, separate from the tort of Negligence for loss caused by
carelessness.
C must prove that:
- D made a false statement of fact (by words or conduct).
- D made the statement knowing that it was false (or that it might be false). This
can be proved by showing that D:
- Knew the statement was false; or
- was reckless as to whether the statement was true or false; or
- made the statement without believing it to be true.
- D made the statement intending that the claimant (or a class of persons including
the claimant) would act on it.
N.B. the main issue for pure economic loss (PEL) and pure psychiatric harm
(PPH) scenarios is whether or not there is a duty. Deal with the rest more briefly
in the exam.
[STEP 1] C v D
The claimant (C) can consider suing the defendant (D) in the tort of negligence for
[INSERT C’s HARM CAUSED BY D’S ACT].
Negligence is defined as a breach by D of a legal duty of care owed to C that results in
actionable damage to C which is unintended by D.
[IF THIS ISN’T THE FIRST TIME INTRODUCING A NEGLIGENCE CLAIM IN AN
ANSWER] [INSERT C] can consider suing [INSERT D] in negligence (see definition
above).
Choose PEL or PPH route from below depending on which is relevant
[PURE ECONOMIC LOSS ROUTE]
[STEP 2] Duty of care for PEL?
Duty of care
[INSERT C’s] [INSERT HARM] is pure economic loss unconnected to physical injury or
property damage.
Generally, no duty of care is owed in tort where C suffers damage which is pure
economic loss (Murphy v Brentwood District Council). However,...
- In Murphy, C suffered pure economic loss caused by acquiring a defective item
of property (a house with defective footings), so no duty of care was owed by D.
The loss was not recoverable.
- A duty is not owed if financial loss is caused by actions rather than physical
damage (Weller & Co v Foot and Mouth Disease Research Institute).
- C could not recover its loss (lost profits) from D because the loss was not
caused by physical damage, but by the forced closure of the cattle market.
, - A claimant can recover consequential economic loss that stems from property
damage, but not loss caused by damage to the property of a third party (Spartan
Steel)
- Cs could not claim for the loss of profit due to damaged electricity cabling,
as this belonged to a third party (the electricity provider) and was classed
as pure economic loss
Exception:
However, in cases of negligent misstatement, there is an exception where the court
finds a special relationship exists between C and D and there is (as per Hedley Byrne).
- An assumption of responsibility by D towards C; and
- Reasonable reliance on D’s statement by C.
Assumption of responsibility
The four criteria required to establish assumption of responsibility are (as per Caparo):
- Did the adviser know the purpose for which the advice was required?
- Did the adviser know that the advice would be communicated to the advisee
(either specifically or as a member of an ascertainable class)?
- Did the adviser know that the advisee was likely to act on the advice without
independent inquiry?
- Was the advice acted on by the advisee to its detriment?
Reasonable reliance
Apply to facts
Extension of the special relationship principle:
The Hedley Byrne principle has been extended to the negligent provision of professional
services, providing there is an assumption of responsibility and clearly foreseeable
damage (no need for reliance) (White v Jones; Henderson v Merrett Syndicates).
- White - solicitor too slow to draft a will, breached duty of care to a prospective
beneficiary
- Henderson - extends liability to the general provision of professional services
Hedley Byrne was extended to negligent statements made to third parties rather than
the claimant, if the third party relies on it to the detriment of C (Spring v Guardian
Assurance plc).
, If the identity of a takeover bidder and the nature of the transaction is known, a special
relationship may be established (Morgan Crucible Co plc v Hill Samuel Bank Ltd).
Limitations of the Hedley Byrne principle:
Insufficient proximity of relationship between D and C means no duty of care is owed in
a PEL claim (James McNaughton Papers Group Ltd v Hicks Anderson & Co).
- Insufficient proximity (not special) between an accountant and takeover bidder
who relied on accountant’s draft accounts. Accountant did not know their
statement - the accounts - would be communicated to the bidder for that
transaction.
Generally, no duty will be owed in respect of advice given in a social situation because
there is no assumption of responsibility, unless D’s advice goes beyond social advice
and they have assumed responsibility (Chaudhry v Prabhakar). This is the case when:
- It is clear that C relied on the advice; and
- D had more experience or knowledge.
The duty to act in the public interest overrides the duty of care owed to C (Desmond v
Chief Constable of Nottinghamshire). If there is a conflict between a common law duty
and statute, statute prevails.
- The Chief Constable’s statutory duty to carry out CRB checks to protect
vulnerable young people in the public interest overrode their common law duty to
take reasonable care in responding to a request for information, so there was no
basis for a PEL claim.
Tort of deceit:
The tort of deceit provides a remedy where D’s actions are intentional and lead to
economic loss on behalf of C, separate from the tort of Negligence for loss caused by
carelessness.
C must prove that:
- D made a false statement of fact (by words or conduct).
- D made the statement knowing that it was false (or that it might be false). This
can be proved by showing that D:
- Knew the statement was false; or
- was reckless as to whether the statement was true or false; or
- made the statement without believing it to be true.
- D made the statement intending that the claimant (or a class of persons including
the claimant) would act on it.
