Topic
Pure economic loss refers to financial loss not associated with any physical injury or property damage. In tort law, recovering such losses is generally limited, especially when they arise from negligent acts or misstatements. This limitation is to prevent an indefinite range of claims and ensure that only foreseeable and directly attributable losses are compensated. The law distinguishes between economic losses caused by physical damage or injury and those arising independently, with the latter being more restricted in recoverability.
Claims for pure economic loss resulting from negligent acts (as opposed to misstatements) are typically not recoverable, unless certain exceptions apply:
Pure economic loss resulting from negligent misstatements is more likely to be recoverable, provided certain conditions are met:
This case established that a party can be liable for pure economic loss resulting from a negligent misstatement if there is a special relationship. The defendant had disclaimed responsibility, so no liability was found, but the principle of potential liability was firmly established.
In this case, the Court of Appeal limited recovery for pure economic loss caused by negligent acts. The claimant could not recover lost profits resulting from an interruption of power supply, as these were considered pure economic losses not recoverable under negligence.
An investor consults a financial advisor, who negligently provides incorrect information about a stock's performance. Relying on this advice, the investor incurs significant losses. Due to the special relationship and reasonable reliance, the investor may recover the losses as pure economic loss.
A contractor accidentally cuts a power line, causing a factory to shut down temporarily. The factory owners claim lost profits due to the interruption. Under Spartan Steel, these lost profits would generally be considered pure economic loss and not recoverable, as they are not directly tied to physical damage or injury.
Claims for pure economic loss in tort law are subject to strict limitations, particularly when arising from negligent acts or misstatements. The law distinguishes between economic losses tied to physical damage or injury and those that occur independently, with the latter being less likely to be recoverable. Exceptions exist, particularly in cases of negligent misstatements where a special relationship and reasonable reliance can be established. These principles ensure that liability is fair and does not unduly burden defendants with unforeseeable or indirect consequences.