Special duty situation 2: pure economic loss and negligent statements

A person injured in a car accident is likely also to suffer financial loss as a result, for example, of
having to take time off from work to recover from the injury. There is no doubt that such
‘consequential’ economic losses are recoverable. However, any loss which is not linked to physical
injury, death or property damage is ‘pure’ economic loss and not recoverable in tort.

The case of Spartan Steel & Alloys v Martin (1973) provides a simple illustration of the recovery
rule. The defendant contractor, in the course of digging the road, negligently cut a power cable
causing the plaintiff's smelting works to be shut down. At the time of the power cut there was a
‘melt’ in progress and to stop the steel solidifying it had to be drawn out of the furnace. This
reduced the melts value by £368. The plaintiffs claimed for the reduced value of the melt and for
the profit which would have been made had it been completed. They also claimed for the loss of
profit from four further melts which would have been processed but for the 14-hour power cut. The
Court of Appeal allowed recovery for the reduction in the value of the solidified melt and the profits
they would have made from its sale. However, they obtained nothing for the loss of profits on the
four further melts which could have been processed before the electricity was restored; that was
pure economic loss independent of the physical damage.

The House of Lords held that in principle the defendants owed a duty of care in respect of statements
where there is a ‘special relationship’ between the giver and the recipient of the advice. HedleyByrne
profoundly changed the law in two respects: (1) the defendants were held to owe a

Economic loss cases: negligent statements

The forms of pure economic loss which are recoverable but only according to strict criteria

The starting point for the discussion of recoverable pure economic loss is Hedley Byrne & Co v
Heller & Partners Ltd (1964) where the claimants, through their bankers, asked the defendants for
advice about the creditworthiness of one of the bank’s customers. The defendants gave a
reasonably favourable reply, and the claimants extended credit to the customers and suffered
losses in consequence. The House of Lords held that in principle the defendants owed a duty of care
in respect of statements where there is a ‘special relationship’ between the giver and the recipient
of the advice.

Hedley Byrne profoundly changed the law in two respects: (1) the defendants were held to owe a
duty to take care in the advice or information that they gave; (2) that duty extended to purely
economic losses.

In order to establish a duty of care, proximity must exist in the context of a ‘special relationship’
between the parties.
the speaker is usually giving advice in a serious, business or professional context. They may be in
the business of giving advice or they may be especially knowledgeable about the subject on which
they speak. It is unusual, although not impossible, for the duty to arise between friends in a
relatively social context.

‘Voluntary assumption of responsibility’

The concept of a ‘voluntary assumption of responsibility’ has subsequently been used to establish
proximity in determining the existence of a duty of care. This arises from an undertaking either
expressed or implied that the defendant will exercise care in giving information or advice.
However, doubt has been expressed as to whether this criterion was necessary or useful. In Smith v
Bush (1990) Lord Griffiths suggested that it is not a helpful or realistic test for liability, but in
Henderson v Merrett Syndicates Ltd (1995) Lord Goff said that the criticism of the concept of a
voluntary assumption of responsibility in Smith v Bush is misplaced. The expression ‘assumption of
responsibility’ is considered in the textbooks and you should note the discussion.