Economic loss, psychiatric injury and defective products

Overview

Why pure economic loss is restricted (Spartan Steel, Caparo), negligent misstatement under Hedley Byrne, psychiatric injury for primary and secondary victims (Page v Smith, Alcock, McLoughlin, White) and liability for defective products.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What is pure economic loss, and is it recoverable in negligence?

   Model answer

   Financial loss that does not flow from physical damage to the claimant or their property. The general rule is that it cannot be recovered in negligence, because liability could otherwise be unlimited.

2. 2

   What did Spartan Steel v Martin (1973) decide about economic loss?

   Model answer

   Contractors negligently cut a power cable, stopping a steel works. The damaged melt in the furnace and the profit on it were recoverable as consequential loss, but the profit on melts that could not be processed during the power cut was pure economic loss and not recoverable.

3. 3

   What did Hedley Byrne v Heller (1964) decide about negligent misstatement?

   Model answer

   A bank gave a careless credit reference about a customer. The House of Lords held that a duty of care for negligent statements can arise where there is a special relationship, the claimant reasonably relies on the advice and the defendant assumes responsibility, although the bank escaped liability because of its disclaimer.

4. 4

   Why did the auditors in Caparo v Dickman (1990) owe no duty to investors?

   Model answer

   Their report was prepared for the company's shareholders as a body, not to help individual investors decide whether to buy shares. It was not fair, just and reasonable to impose a duty to anyone who might rely on it.

5. 5

   What must a claimant show to recover for psychiatric injury in negligence?

   Model answer

   A recognised psychiatric illness, not just grief or distress, caused by the defendant's negligence. The rules then depend on whether the claimant is a primary or a secondary victim.

6. 6

   Who is a primary victim of psychiatric injury, and what did Page v Smith (1996) decide?

   Model answer

   A primary victim was in the area of danger or reasonably believed they were. In Page v Smith the House of Lords held that if physical injury to a primary victim was foreseeable, the defendant is liable for psychiatric injury even if no physical harm occurred.

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