Pure economic loss & psychiatric harm

TOR.04 — Pure Economic Loss & Psychiatric Harm

Both are areas where the duty of care is restricted by policy (floodgates, indeterminate liability). Default position: no duty, subject to recognised exceptions.

Pure economic loss (PEL)

PEL = financial loss not flowing from physical damage to the claimant's own person or property.

• Consequential economic loss (e.g. lost profit because your damaged machine stopped) IS recoverable.
• Pure economic loss is generally not recoverable in negligence.
• Spartan Steel v Martin — cut power cable: damaged melt + its lost profit recoverable; profit on melts that could not be made (pure loss) not recoverable.
• Murphy v Brentwood — defective buildings/products: cost of repairing the defect itself is PEL, not recoverable (overruled Anns). Damage to other property or persons can be.

The exception — negligent misstatement (Hedley Byrne v Heller): recoverable where there is an assumption of responsibility plus reasonable reliance (a "special relationship"). Refined in Caparo v Dickman: foreseeability + proximity + fair, just and reasonable. Auditors owed no duty to investors at large — purpose and known recipient matter. Extends to negligent provision of services (Henderson v Merrett; White v Jones — disappointed beneficiary of a negligently delayed will).

Trap: a disclaimer may negate assumption of responsibility but is subject to UCTA 1977 / CRA 2015 reasonableness (Smith v Eric S Bush).

Psychiatric harm

Must be a recognised psychiatric illness (e.g. PTSD, clinical depression) — not mere grief, fear or distress.

• Primary victim — in the actual zone of physical danger, or reasonably believed themselves to be. Need only foreseeable physical injury; psychiatric harm need not be foreseeable (Page v Smith). Eggshell-skull applies.
• Secondary victim — witnesses harm to another. Must satisfy the Alcock control mechanisms: (1) close ties of love and affection (presumed for spouse/parent–child); (2) proximity in time and space to the event or its immediate aftermath; (3) perception by own unaided senses (not TV/being told); plus foreseeable shock in a person of ordinary fortitude. Alcock v Chief Constable of South Yorkshire (Hillsborough).
• McLoughlin v O'Brian — immediate aftermath satisfied (hospital, 2 hours).
• Paul v Royal Wolverhampton (2024, UKSC) — a medical-negligence death witnessed later is generally not a compensable "event"; tightens secondary-victim claims against doctors.

Traps: rescuers/employees are not automatically primary victims (White v CC South Yorkshire); "sudden shock" still required for secondary victims; distinguish primary vs secondary before applying any test.