Muhammed Awais
P1 M1 - Pure Economic Loss and Negligent
Misstatement
The law doesn’t allow compensation for pure economic loss. Like psychiatric injury about when a duty of care
is owed, the court must believe this. There are a few examples of when someone may make a claim due to the
negligence of the defendant. The first reason for when people can claim is if there is direct result of damage to
the property or to someone. Secondly is if the reason is caused by negligent misstatement and lastly if it arises
from the circumstances the courts know that fall into the Hedley Byrne Principle. For this to be possible the
claimant will need to prove that the defendant was owed a duty of care and they must prove that there was a
breach of duty which had caused the loss to the claimant. A person can claim for physical injury, suffering and
for damage to goods. But a loss of funds isn’t claimable by law. For example, if something happens which
makes a company lose its profit. This is because if it was possible then it would open the floodgates then there
will be too many cases for the court and they may not be able to cope as the cases maybe useless. A case which
can be used to explain this is Weller & CO V Foot and Mouth Disease Institute 1966. In this case an auctioneer
firm was not allowed to make any cattle auctions. This was because the selling of the cattle was banned by the
institute. Due to the ban there was an outbreak of the foot and mouth disease. It had happened due to the
negligence of the defendants. They had tried to sue the defendants on the basis that they had lost profit due to
the ban by the institute. The court said that it was a case for pure economic loss and that the case will fail in the
law of tort. Another case which is among the same lines is Spartan Steel V Martin (1972), in this case the
defendant was a company who couldn’t do the work they did for a day this was because the electricity was cut
off for 14 hours straight. The electricity was out for so long due to the negligence of the defendants. The loses
which were involved could be linked to physical damage. but the pure economic loss of the work which wasn’t
completed cannot be claimed.
In the case of Paul, he can sue the company as they negligently destroyed his stores wires. He can make a
claim as it can be linked to physical injury. The company had negligently destroyed his wires by not
controlling the crane properly. The damage to the wires had stopped him from doing business and
therefore it didn’t allow for him to operate his business. They can claim for the damage which was done
for instance the wires. But they cannot claim for the loss of profits which they would’ve made.
Someone can be held liable for wrong financial advice which they might give. For example, there is martin who
works for a money saving company and his job is to give advice all the time. He sometimes appears on tv shows
and radio shows. In the shows he gives advice to people. The court should use the normal Caparo 3 stage test
which can show if he owes a duty of care. Once martin gave advice to Ami on his twitter and Ami followed the
advice which made her lose money. To decide whether he owed a duty of care we will use the normal Caparo
test. Firstly, it is foreseeable if Martin gave the wrong advice then someone will be harmed and in this case, they
were harmed. Secondly there was proximity between martin and Ami as Ami had asked a question and martin
had answered the question. Lastly would it be fair, just and reasonable to impose a duty on martin. In this case it
would be fair, just and reasonable to impose a duty on martin as he had caused Ami economic loss. Due to the
outcome of the case the courts have changed the Caparo test as it isn’t good on its own for many situations.
Therefore, the judges had altered the test so that it makes more sense. The test for foreseeability is still the same,
then the courts say that it will only be fair, just and reasonable to impose a duty on people who give negligent
misstatements if there is ‘special relationship’ between the person who gave the advice and the person who took
the advice on.
The extended Caparo test has 3 issues which must be proved to satisfy the Caparo test. This is an altered version
of the test and therefore isn’t like the Caparo test for breach. The first thing which must be proved is that some
harm is foreseeable to someone who is in the claimant’s position and should be reasonably foreseeable because
of the defendant’s actions.
The second test is the test for proximity, this part has been extended in the Caparo test. There must be special
relationship between the claimant and defendant. The claimant is the person who will be relying on the
statement and defendant will be the person who gave the statement. For example, in the case of Hedley Byrne V
Heller, the defendant was an advertising agency and the victims were merchant bankers. Hedley Byrne wanted
to find out if they should invest some money into a company. They asked advertising agency to do checks on the
new business to find out if they are investable. When the company did the checks, it came back to them as the
P1 M1 - Pure Economic Loss and Negligent
Misstatement
The law doesn’t allow compensation for pure economic loss. Like psychiatric injury about when a duty of care
is owed, the court must believe this. There are a few examples of when someone may make a claim due to the
negligence of the defendant. The first reason for when people can claim is if there is direct result of damage to
the property or to someone. Secondly is if the reason is caused by negligent misstatement and lastly if it arises
from the circumstances the courts know that fall into the Hedley Byrne Principle. For this to be possible the
claimant will need to prove that the defendant was owed a duty of care and they must prove that there was a
breach of duty which had caused the loss to the claimant. A person can claim for physical injury, suffering and
for damage to goods. But a loss of funds isn’t claimable by law. For example, if something happens which
makes a company lose its profit. This is because if it was possible then it would open the floodgates then there
will be too many cases for the court and they may not be able to cope as the cases maybe useless. A case which
can be used to explain this is Weller & CO V Foot and Mouth Disease Institute 1966. In this case an auctioneer
firm was not allowed to make any cattle auctions. This was because the selling of the cattle was banned by the
institute. Due to the ban there was an outbreak of the foot and mouth disease. It had happened due to the
negligence of the defendants. They had tried to sue the defendants on the basis that they had lost profit due to
the ban by the institute. The court said that it was a case for pure economic loss and that the case will fail in the
law of tort. Another case which is among the same lines is Spartan Steel V Martin (1972), in this case the
defendant was a company who couldn’t do the work they did for a day this was because the electricity was cut
off for 14 hours straight. The electricity was out for so long due to the negligence of the defendants. The loses
which were involved could be linked to physical damage. but the pure economic loss of the work which wasn’t
completed cannot be claimed.
In the case of Paul, he can sue the company as they negligently destroyed his stores wires. He can make a
claim as it can be linked to physical injury. The company had negligently destroyed his wires by not
controlling the crane properly. The damage to the wires had stopped him from doing business and
therefore it didn’t allow for him to operate his business. They can claim for the damage which was done
for instance the wires. But they cannot claim for the loss of profits which they would’ve made.
Someone can be held liable for wrong financial advice which they might give. For example, there is martin who
works for a money saving company and his job is to give advice all the time. He sometimes appears on tv shows
and radio shows. In the shows he gives advice to people. The court should use the normal Caparo 3 stage test
which can show if he owes a duty of care. Once martin gave advice to Ami on his twitter and Ami followed the
advice which made her lose money. To decide whether he owed a duty of care we will use the normal Caparo
test. Firstly, it is foreseeable if Martin gave the wrong advice then someone will be harmed and in this case, they
were harmed. Secondly there was proximity between martin and Ami as Ami had asked a question and martin
had answered the question. Lastly would it be fair, just and reasonable to impose a duty on martin. In this case it
would be fair, just and reasonable to impose a duty on martin as he had caused Ami economic loss. Due to the
outcome of the case the courts have changed the Caparo test as it isn’t good on its own for many situations.
Therefore, the judges had altered the test so that it makes more sense. The test for foreseeability is still the same,
then the courts say that it will only be fair, just and reasonable to impose a duty on people who give negligent
misstatements if there is ‘special relationship’ between the person who gave the advice and the person who took
the advice on.
The extended Caparo test has 3 issues which must be proved to satisfy the Caparo test. This is an altered version
of the test and therefore isn’t like the Caparo test for breach. The first thing which must be proved is that some
harm is foreseeable to someone who is in the claimant’s position and should be reasonably foreseeable because
of the defendant’s actions.
The second test is the test for proximity, this part has been extended in the Caparo test. There must be special
relationship between the claimant and defendant. The claimant is the person who will be relying on the
statement and defendant will be the person who gave the statement. For example, in the case of Hedley Byrne V
Heller, the defendant was an advertising agency and the victims were merchant bankers. Hedley Byrne wanted
to find out if they should invest some money into a company. They asked advertising agency to do checks on the
new business to find out if they are investable. When the company did the checks, it came back to them as the
