Pure economic loss
Encyclopedia
Economic loss refers to financial loss and damage suffered by a person such as can be seen only on a balance sheet
rather than as physical injury to the person or destruction of property. There is a fundamental distinction between “pure economic loss” and “consequential economic loss” - Pure economic loss occurs independent of, or in the absence of, any physical damage to the person or property of the victim;
"Pure economic loss" is usually not recoverable in law as damages or otherwise.
Recovery at law for pure economic loss is restricted under some circumstances in some jurisdiction
s, in particular in tort
in common law
jurisdictions, for fear that it is potentially unlimited and could represent a "crushing liability" against which parties would find it impossible to insure
. U.S. Judge
Benjamin N. Cardozo
described it as, "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class."
Examples of pure economic loss include:
The latter case is exemplified by the English case of Spartan Steel and Alloys Ltd v. Martin & Co. Ltd
Similar losses are also restricted in German law though not in French law beyond the normal requirements that a claimant's asserted loss must be certain and directly caused.
In Australia it is very difficult to recover pure economic loss in negligence if it is not consequent to property damage.
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
rather than as physical injury to the person or destruction of property. There is a fundamental distinction between “pure economic loss” and “consequential economic loss” - Pure economic loss occurs independent of, or in the absence of, any physical damage to the person or property of the victim;
"Pure economic loss" is usually not recoverable in law as damages or otherwise.
Recovery at law for pure economic loss is restricted under some circumstances in some jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
s, in particular in tort
Tort
A tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...
in common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
jurisdictions, for fear that it is potentially unlimited and could represent a "crushing liability" against which parties would find it impossible to insure
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
. U.S. Judge
Judge
A judge is a person who presides over court proceedings, either alone or as part of a panel of judges. The powers, functions, method of appointment, discipline, and training of judges vary widely across different jurisdictions. The judge is supposed to conduct the trial impartially and in an open...
Benjamin N. Cardozo
Benjamin N. Cardozo
Benjamin Nathan Cardozo was a well-known American lawyer and associate Supreme Court Justice. Cardozo is remembered for his significant influence on the development of American common law in the 20th century, in addition to his modesty, philosophy, and vivid prose style...
described it as, "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class."
Examples of pure economic loss include:
- Loss of income suffered by a family whose principal earner dies in an accident. The physical injury is caused to the deceased, not the family.
- Loss of market value of a property owing to the inadequate specifications of foundations by an architectArchitectAn architect is a person trained in the planning, design and oversight of the construction of buildings. To practice architecture means to offer or render services in connection with the design and construction of a building, or group of buildings and the space within the site surrounding the...
. - Loss of production suffered by an enterprise whose electricity supply is interrupted by a contractor excavating a public utility.
The latter case is exemplified by the English case of Spartan Steel and Alloys Ltd v. Martin & Co. Ltd
Spartan Steel and Alloys Ltd v. Martin & Co. Ltd
Spartan Steel & Alloys Ltd v Martin & Co Ltd [1973] 1 QB 27 is a well-known English Court of Appeal concerning the recovery of pure economic loss in negligence.-Facts:...
Similar losses are also restricted in German law though not in French law beyond the normal requirements that a claimant's asserted loss must be certain and directly caused.
In Australia it is very difficult to recover pure economic loss in negligence if it is not consequent to property damage.