Negligent Misrepresentation and Pure Economic Loss
The problem of pure economic loss
Pure economic loss is loss not flowing from physical injury or property damage. As a general rule, it is not recoverable in negligence, because allowing it would expose defendants to indeterminate liability. Exceptions exist: negligent misstatement causing economic loss, and loss following physical damage to the claimant's property.
Negligent misstatement
The leading framework requires: a special relationship between the parties; a voluntary assumption of responsibility by the defendant; reasonable reliance by the claimant; and loss suffered as a result. A special relationship typically arises where the defendant has specialist knowledge, knows the claimant will rely on the statement for a specific transaction, and the statement is made in a business context. Questions test whether the adviser knew or ought to have known of the reliance and the purpose.
Scope of the duty
The duty is limited to the purpose for which the advice was given and the class of persons intended to rely. Advice given for one transaction does not generally extend to a different transaction or to a wider audience. Disclaimers may be effective if reasonable.
Worked rule of thumb
Ask: did the adviser assume responsibility towards this claimant for this purpose? An accountant who prepares accounts for a company, knowing they will be shown to a specific lender to obtain a loan, may owe a duty to that lender. The same accountant is unlikely to owe a duty to an unknown investor who later relies on the accounts for a different purpose.
Traps
Do not assume every careless statement creates liability. The claimant must have relied reasonably, and the loss must be economic loss caused by the reliance. A statement that is merely an expression of opinion, or one made in a social context, is unlikely to create a duty. Statutory regimes may modify the position.