Define: Pure Economic Loss

Pure economic loss refers to financial harm suffered by an individual or entity as a result of negligent actions or omissions, without any accompanying physical injury or damage to property. In tort law, pure economic loss typically arises in cases where a party’s negligence or misconduct causes financial losses to another party, such as lost profits, decreased property value, or wasted expenditure. Unlike cases involving personal injury or property damage, claims for pure economic loss can be more complex to establish because they require proof of a direct and foreseeable relationship between the defendant’s actions and the plaintiff’s financial losses. Courts may limit recovery for pure economic loss to avoid opening the floodgates to potentially limitless liability, particularly in cases involving professional negligence, negligent misrepresentation, or economic loss resulting from defective products. However, in some jurisdictions, recovery for pure economic loss may be permitted under certain circumstances, such as where there is a special relationship between the parties or where the defendant owes a duty of care to the plaintiff.

‘Pure economic loss’ is economic loss unaccompanied by damage or injury. The English courts have always found pure economic loss problematic. Their tendency to reject claims to recover pure economic loss probably stems more from policy than logical considerations. The problem is that holding someone liable for pure economic loss may lead to damages completely beyond the scale of the fault involved. Moreover, it is often difficult to assess just how much economic loss has really been suffered. The high-point for claimants for pure economic loss was probably the decision in Anns v Merton (1977), but since then the courts have gradually retreated to a more conservative position. The low-point of liability, in recent years, was probably Murphy v Brentwood DC (1990), in which the court flatly stated that Anns was wrongly decided. According to Murphy, pure economic loss is prima facie unrecoverable unless the relationship between the claimant and the defendant can be brought within the principle of Hedley Byrne v Heller (1963). More recently, though, cases such as White v Jones (1995) have been decided in a way that suggests the Hedley Byrne principle is wide enough to encompass situations in which the claimant and defendant are unknown to each other. This is seen as an indication that the retreat from Anns brought about by the decision in Murphy has not amounted to a complete return to pre-Anns conservatism.

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This glossary post was last updated: 29th March 2024.