Pure Economic Loss

Introduction

Losses in tort fall into three categories — **physical damage**, **consequential economic loss** and **pure economic loss**. This chapter examines the most difficult of the three: **pure economic loss**, meaning financial loss that does **not** flow from physical injury to the claimant or physical damage to the claimant's property. The **general rule** is that pure economic loss is **not recoverable** in negligence, a rule driven by the policy fear of liability **'in an indeterminate amount for an indeterminate time to an indeterminate class'**. You will study the leading authorities — **Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973]**, **Murphy v Brentwood District Council [1991] 1 AC 398** and **Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]** — and the **exceptions** that allow recovery, in particular the **negligent misstatement** route established in **Hedley Byrne**.

Assessment focus

For the SQE1 FLK1 assessment, you must be able to **classify** a loss as physical, consequential economic or pure economic, and then **apply** the general rule that pure economic loss is irrecoverable in negligence. The most heavily examined exception is **negligent misstatement** under **Hedley Byrne v Heller**: candidates must know the three-part test (**special relationship**, **assumption of responsibility**, **reasonable reliance**) and how a **disclaimer** can negate the duty. Questions are single best answer questions set in **realistic client scenarios** (for example a negligent surveyor or financial adviser); you will be expected to apply the principles rather than merely recall definitions. This is a closed-book assessment — ensure you can recall the leading cases and the misstatement test from memory.

Study tips

1) Memorise the **three categories of loss** and be able to give one example of each. 2) Learn the **general rule** — pure economic loss is **not recoverable** — and the **policy rationale** (indeterminate liability). 3) Anchor each exception to its case: **defective property → Murphy v Brentwood**; **third-party property damage → Spartan Steel**; **negligent misstatement → Hedley Byrne**. 4) Commit the **Hedley Byrne three-part test** to memory: special relationship, assumption of responsibility, reasonable reliance. 5) Remember that a **valid disclaimer** can defeat a Hedley Byrne claim (as in the facts of Hedley Byrne itself), subject to the **two common-law conditions** — reasonable steps to bring the notice to attention and wording that covers the loss — and, for a business disclaimer, the **reasonableness test under the Unfair Contract Terms Act 1977** (or the **fairness test under the Consumer Rights Act 2015** for consumers; see **Smith v Eric S Bush**).