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CHAPTER 13
The Negligent Infliction
of Purely Economic Loss1
13.1 If the defendant, by careless words, acts or omissions, has caused no more
than economic loss to the plaintiff, the circumstances in which the former will be
liable to the latter in negligence are more closely circumscribed than if the plaintiff
suffers damage to the person or to property. While liability for purely financial harm
brought about by another’s lack of care is founded, at bottom, on the Atkinian
principle of foreseeability, it is limited by a variety of factors not normally considered
in determining liability for personal or property damage — factors such as reliance
by the plaintiff on the defendant, or the need for a special relationship between the
parties. It is because of this different, and more limited, approach to liability that the
topic has been dealt with separately in this chapter.
The first matters to be considered, in 13.2–13.17, are the preliminary issues of
what constitutes purely economic loss for these purposes, and the reasons for the
judicial reluctance to allow too broad a scope of liability when that is the loss for
which recompense is claimed. Although, as is pointed out in 13.18, there is little
or no reason in principle to distinguish between purely financial harm caused by a
negligent misstatement and the same harm caused by a negligent act or omission,
the courts’ approach to liability does differentiate between the two means of
bringing about the loss. Hence, 13.19–13.43 deal with liability for negligent
misstatements, while 13.44–13.79 are concerned with those circumstances in
which purely economic loss is compensable, if caused by an act or omission of the
defendant other than by words.
Introduction
What constitutes ‘purely economic loss’?
13.2 This chapter is, in the main, limited to a consideration of those situations in
which the only loss suffered by the plaintiff is financial, and in which the extent of
that loss is not confined by extraneous factors. This limitation excludes from the
present discussion a number of instances in which a plaintiff suffers economic loss.
1. See the broad-ranging and scholarly discussion of this area by Stapleton, ‘Duty of Care and Economic
Loss: A Wider Agenda’ (1991) 107 LQR 249; Stapleton, ‘In Restraint of Tort’ in Birks (ed), The Frontiers
of Liability, 1994, Vol 2, p 83; Stapleton, ‘Duty of Care: Peripheral Parties and Alternative Opportunities
for Deterrence’ (1995) 111 LQR 301.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
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Exclusions from the concept
13.3 A person who has suffered physical injury as the result of another’s negligence
is likely to undergo the financial harm of being unable to exercise his or her earning
capacity, and of having to meet medical and hospital costs. However, the extent of
that harm is, of necessity, constrained by the fact that it is a result of the injury to the
plaintiff as an individual. As a consequence, recovery for that harm is not subject to
the limitations already adverted to. Damages (including financial loss) for personal
injury are assessed in accordance with the principles discussed in Chapter 11.
13.4 Further, this chapter is not concerned with those secondary actions which
may be brought by one person as a result of the death or physical injury caused
to another. Principal among such actions is that available to the dependants of
one who dies as a result of the defendant’s negligence, under the local equivalents
of Lord Campbell’s Act: see 11.32ff. The other action in this category is that
available for the loss of the services of the person injured.2 Although, in both
cases, the plaintiff suffers no detriment other than financial harm, that loss is
necessarily limited to such as flows from the death or injury of an individual. That
fact is considered to be sufficient to keep liability within reasonable bounds, and
so such claims are routinely assessed by courts in accordance with established
principles.
It must also be recalled that this part of the book is confined to the tort of negligence,
and hence that this chapter deals with the negligent infliction of economic loss. The
circumstances in which the intentional causing of financial harm is actionable are
considered in Part VI.
13.5 Generally speaking, this chapter does not deal with cases where the plaintiff ’s
property has been damaged by a force external to that property and the plaintiff
seeks to recover the cost of repairing or replacing it.3 In most such cases, it has
been said,4 it is self-evident that the person responsible for the damage owes a
duty of care to the owner of the property. In any case, the extent of the defendant’s
possible liability is necessarily limited to the value of the damaged goods. In logic,
this chapter should also exclude those circumstances where loss is suffered by
reason of the plaintiff ’s inability to use goods that have been damaged by the
defendant’s lack of care. Such harm is not solely financial, but is consequent upon
the damage to the property concerned; it may therefore be regarded as closely
analogous to the financial harm incurred by one who suffers personal injury. This
type of injury is nevertheless discussed in 13.55ff because the type of loss of which
the plaintiff complains is similar to that for which compensation is granted in cases
of purely economic loss, and because the circumstances in which damages are (or
are not) available raise questions concerning the future development of this area
of the law.
2. The actio per quod servitium amisit is considered in 20.9.
3. It is not, however, always self-evident that a particular loss is an aspect of property damage or is purely
economic: see, eg, Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] 1 Lloyd’s Rep 62
at [22]–[29] per Tomlinson J (Eng HC).