Pure economic loss is one of the most technical and confusing topic of the tort law scholarship. There has never been accepted a one common definition of “pure economic loss”. Nevertheless, this concept is recognized by common law and civil law systems and it is associated with a rule of no liability or “bright line” rule, that a plaintiff can not recover damages for a purefinancial loss.
The thesis of this paper is to inquire why current approach on “pure economic loss” in common law jurisdictions is or is not satisfactory. The main idea is to establish and discuss what problems and controversies “pure economic loss” concept faces. Case law is used to illustrate how judges developed the concept over the years, and highlight main differences betweenrecoverable and non recoverable economic loss.
For purpose of this paper it is important to understand different types of relationships within such economic loss may arise (negligent misstatements, negligent performance of a service, contractual relational economic loss, economic losses arising from defective buildings and products).
To keep with world limit requirement, consequentialeconomic loss and economic loss caused by negligent misstatements is taken as main examples and is discussed in details. Possible exceptions to recovery for economic loss are also discussed. Paper ends with the conclusion of main arguments and it strengths the main idea, that common law court’s approach to pure economic loss is complicated and more or less unsatisfactory.
The development of theapproach.
After established “neighbour principle” in Donoghue v. Stevenson (1932) case, it would seem that, the tort of negligence holds a great promise for the recovery for “pure economic loss”. However, this principle is generally applicable to the cases, where an issue raised is protection from bodily injury or damage to property. The logic is that, plaintiff’s damages caused bydefendant, give rise to defendant’s liability, and the duty of the defendant is to avoid causing damage.
According to more recent leading authority Murphy v. Brentwood DC (1991) , negligence is not primarily applicable to the compensation of pure economic loss. Indeed, judges as a matter of policy have developed a “bright line” rule, that there is no duty of care to avoid causing pureeconomic loss. The exceptions are very limited where such duty may be recognized.
Thus, established “bright line” or exclusionary rule sets that “pure economic loss” is not recoverable. The meaning behind the word “pure” is important. It is meant that loss suffered by plaintiff, is loss without any harm done to plaintiff’s property or body and loss is purely financial.
Asdiscussed in further paragraphs, courts are very reluctant to award compensation for “pure economic loss” claims. The rational for the decision is based on policy grounds. The possibility of open floodgates and fear of future indeterminate number of claims, arising from one negligent act, is the main reason why compensation for such damage could be awarded only in exceptional circumstances.According to Lord Pearce judgment in Hedley Byrne & Co. V. Heller & Partners Ltd. (1964):
Economic protection has lagged behind protection in physical matters where there is injury to person and property. It may be that the size and the width of the range of possible claims have acted as a deterrent to extension of economic protection.
I should note that in our modernworld, “pure economic loss” claims arises out of the interdependence of relationships and interests, and within different types of situations. These relationships may involve two or more parties and different circumstances may surround them. It is important to understand, court’s approach to distinguish the ways in which pure economic loss arises within such a relationship. Courts found that...