Chapter 7 Answers to end-of-chapter questions

Special duty problems: economic loss

1. Is it possible to give a coherent account of the development of the law on pure economic loss in negligence?

Clearly this is a question about the history of the development of the law on pure economic loss in negligence, and could be something that formed the basis for discussion in a seminar or tutorial, or it could be the sort of question you might expect in an exam. However, the question is not 'what is the history of…', so a mere description of how the law has developed over time is simply not enough and would attract only low marks. The question asks about the coherence of the legal development of this area of negligence, i.e. has it been rational, does it make sense, can the development(s) be easily explained or summarised?

An answer to this question can go one of three ways, all of which are eminently arguable – the 'answer' you give, of course, will depend on your own opinion and/or reading/understanding of the cases. That said, all answers would have, somewhere, to explain what pure economic loss actually is, and how this is distinct from other types of economic loss. There should also be some explanation of why pure economic loss has been treated differently from other forms of economic loss – i.e. what is the legal and/or political rationale behind doing so (it is this kind of thing that lends itself to the inclusion of e.g. judicial quotations or extracts from academic writing)?

First, it can be argued that there is no coherency to the history of the development of the law in this area. An answer on this basis would have to look at the general exclusionary rule stating that there is no duty of care in respect of economic losses, explain why the rule exists (see above), and critique the rule, particularly with regard to any (seemingly or explicit) inconsistencies with the way it has been applied – use the cases. A basic answer will be able to draw distinctions between losses based on statements and losses based on 'activities' or conduct – but if arguing for incoherence some critique might usefully be made of the distinctions themselves. A close examination of the cases would be necessary and better answers would be those that fully engaged with the judgments, and/or with academic commentary on them.

Secondly, it can be argued that the law in this area – and its development – can in fact be explained coherently. There is a general exclusionary rule, based on a set of principles, and those principles, apart from perhaps the odd case (which may turn on an unusual set of facts), have generally been consistently applied. This is particularly true when it comes to the distinction between statement-based losses and those based on 'activities' or conduct. Where the rules have not been consistently applied, it may also be possible to argue that these were 'mistakes' that have later been addressed (e.g. compare Anns v Merton to Murphy v Brentwood). Better answers might place their discussion of these factors in a 'political' context: what was going on in the world at the time (of the big decisions) and why might this have affected the way judgments were being made? Related to this is the idea of what was going on in the law of negligence as a whole when big decisions on pure economic loss were being made, as well as what was happening in contract law (as many of these cases overlap the contract/tort boundary).

Thirdly, this could be answered by saying that the law on duty of care in pure economic loss has sometimes developed coherently (albeit with the odd exceptional case, as indicated above) but at other times appears more irrational – this is possibly the hardest answer to be able to write well. While a political and socio-economic context is helpful, for example, in understanding the development of the law and in particular its 'peaks and troughs', it doesn't really help us to understand the modern landscape of pure economic loss and the reinterpretations of some of the principles that recovery for such losses is supposed to be based on. Again, the relation of pure economic loss claims to the development of the law on negligence as a whole, as well as to the world at large, could provide useful context for stronger answers.

2. Jane Stapleton describes the principles on which pure economic loss in negligence can be found to attract a duty of care as 'soft concepts'. Do you agree?

An answer to this question, which is the type of thing that might be expected in an exam or as an assessed essay title, would require knowledge of the principles on which a finding that a duty of care should be owed by a defendant in respect of negligently-caused pure economic loss rest on. These principles stem back to the case Hedley Byrne v Heller [1964] (see section 7.3) and are:

  1. the existence of a special (or 'fiduciary') relationship of trust and confidence between the parties;
  2. a voluntary assumption of risk (express or implied) on the part of the defendant;
  3. reliance on the advice/information by the other party;
  4. the reliance having been reasonable in the circumstances.

That said, in more recent years (e.g. post-Murphy v Brentwood [1990]), these principles have been applied in ways which seem to be extensions of the principles as they were first formulated (see section 7.5 and 7.6) – so some idea of how the principles have been extended or reformulated – and in which cases this happened – would also be required. Then, an answer should turn to whether the principles are 'soft concepts' or not. Obviously, to do this really well (and this is probably fundamental if this were an assessed essay), it would be great to look at what Stapleton said in context. Read her work. Try to work out what exactly she meant when she used the phrase? Was she saying they are, for example, 'weak concepts' – in which case critique should focus on this? Or, did she mean 'soft' in the sense of being 'malleable' – easily moulded – in which case a closer look at the case law (especially post-Murphy), and critique of these later developments, should help in arriving at a conclusion.

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