Claims for pure economic loss - Economic loss in wills and r...

Learning Outcomes

This article outlines the general principles governing claims for pure economic loss in the tort of negligence, with a specific focus on losses arising from negligently prepared wills and references. You should be able to distinguish between consequential and pure economic loss, recognise why recovery for pure economic loss is limited, and explain the Hedley Byrne assumption of responsibility framework. You should also be able to apply leading authorities to specific contexts: when a solicitor’s delay or error defeats a testamentary intention, exposing liability to “disappointed beneficiaries” under White v Jones; and when an employer’s negligent reference causes an ex-employee to lose employment, engaging Spring v Guardian Assurance. The analysis integrates the proximity/assumption of responsibility criteria, the Caparo approach to novel duties, and scope-of-duty limits (SAAMCo/BPE), alongside practical points on disclaimers and causation.

SQE1 Syllabus

For SQE1, you are required to understand the principles governing claims for pure economic loss as a specific aspect of the duty of care in negligence, including recognising situations where recovery is generally disallowed and the exceptions where a duty may arise, particularly concerning negligent statements, with a focus on the following syllabus points:

• The definition and types of pure economic loss.
• The general rule against recovery for pure economic loss and the policy reasons behind it.
• The requirements for establishing a duty of care for negligent misstatements causing pure economic loss (the Hedley Byrne principle and assumption of responsibility).
• The specific application of these principles to claims by beneficiaries disappointed by negligently drafted or executed wills (White v Jones).
• The potential liability for negligent references causing economic loss (Spring v Guardian Assurance).
• The relationship between assumption of responsibility and the Caparo proximity/fair, just and reasonable framework in novel duty situations.
• Scope-of-duty limits for negligent misstatements (SAAMCo and BPE Solicitors v Hughes Holland) and how they shape recoverable loss.
• The effect and enforceability of disclaimers and exclusion notices (subject to UCTA 1977 and CRA 2015) in negligent misstatement contexts.
• Practical causation issues, reliance, and mitigation of loss in negligent reference and wills cases, and the role of limitation (including s 14A Limitation Act 1980 for latent damage).

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the general rule in tort regarding claims for pure economic loss?
   1. Pure economic loss is always recoverable if causation is proven.
   2. Pure economic loss is recoverable only if the defendant intended the loss.
   3. Pure economic loss is generally not recoverable, subject to exceptions.
   4. Pure economic loss is recoverable only if it results from physical damage.

2. Which landmark case established the principle that a duty of care could arise for pure economic loss caused by negligent misstatements where a special relationship exists? a) Donoghue v Stevenson
   *b) Hedley Byrne & Co Ltd v Heller & Partners Ltd
   c) Caparo Industries plc v Dickman
   d)*White v Jones*

3. In White v Jones, why were the solicitors held liable to the intended beneficiaries?
   1. Because the beneficiaries had a contract with the solicitors.
   2. Because the solicitors committed fraud.
   3. Because the loss suffered was consequential economic loss.
   4. Because the solicitors assumed responsibility towards the testator to benefit the beneficiaries, creating sufficient proximity.

Introduction

In the tort of negligence, 'damage' is a key element required for a successful claim. While claims for personal injury and damage to property are commonplace, the recovery of damages for financial loss that is purely economic presents specific challenges. Pure economic loss refers to financial damage suffered by a claimant that is not a direct consequence of physical injury to the claimant or damage to their property. Examples include loss of potential profit, acquiring a defective (but not dangerous) product, or losses arising from reliance on inaccurate advice.

The courts have traditionally been restrictive in allowing claims for pure economic loss, primarily due to policy concerns about potentially indeterminate liability – the 'floodgates' argument. However, exceptions have evolved, particularly in cases involving negligent statements or advice where a defendant has assumed responsibility towards the claimant. The assumption of responsibility framework (originating in Hedley Byrne) and the proximity analysis in Caparo operate together to identify situations where a duty of care exists despite the general prohibition. This article focuses on these exceptions, specifically in the context of negligently prepared wills and references, and explains the modern limits on recoverable loss through scope-of-duty principles.

Key Term: Pure Economic Loss
Financial loss suffered by a claimant that is not consequent upon physical injury to the claimant's person or damage to their property.

General Principles of Pure Economic Loss

The general rule is that no duty of care is owed in respect of pure economic loss. This means that even if a defendant's negligence directly causes financial loss to the claimant, without accompanying physical damage to the claimant or their property, the claimant usually cannot recover damages in tort. The classic examples illustrate the distinction:

• Damage to property belonging to someone else leading to the claimant’s financial loss (Spartan Steel & Alloys v Martin & Co): the claimant cannot recover pure loss of profit while the utility cable (owned by a third party) was down; but they can recover loss consequential upon damage to their own property.
• Economic loss due to acquiring defective property (Murphy v Brentwood DC): the cost of repairing or reduced value of the defective item itself is pure economic loss and irrecoverable in tort.

This rule distinguishes pure economic loss from consequential economic loss. Consequential economic loss is financial loss that is a direct result of physical injury or property damage caused by the defendant's negligence (e.g., loss of earnings due to injury, cost of repairing damaged property). Consequential economic loss is recoverable under normal negligence principles.

Against this background sits a tightly controlled exception for negligent misstatements and service provision where the defendant has undertaken responsibility for the accuracy and reliability of information/advice relied upon by the claimant.

Key Term: Negligent Misstatement
An inaccurate statement made carelessly (negligently) by one party to another, which the other party relies upon to their financial detriment.

Key Term: Special Relationship
A relationship between the parties where one party assumes responsibility towards another party in relation to the provision of information or advice, knowing that the other party will reasonably rely on it.

Key Term: Assumption of Responsibility
The defendant’s undertaking, explicit or implicit, to exercise reasonable care so that the claimant can rely on information or services for a known purpose, forming the proximity necessary for a duty of care.

The requirements for establishing this special relationship generally involve:

• Assumption of responsibility: the defendant must have voluntarily assumed responsibility for the statement or services, knowing they will be relied upon by the claimant for a specific purpose.
• Reasonable reliance: the claimant must actually rely on the statement or services, and it must be reasonable to do so in the circumstances.
• Knowledge: the defendant knew, or ought to have known, that the claimant (either specifically or as a member of an identifiable class) would rely on the statement.

These Hedley Byrne criteria sit alongside, and often overlap with, the three-stage Caparo test (foreseeability of damage, proximity, and whether imposition of duty is fair, just and reasonable). In many negligent misstatement cases, assumption of responsibility is how proximity and fairness are satisfied.

A further modern control is the scope-of-duty principle (also known as the SAAMCo principle, reaffirmed in BPE Solicitors v Hughes Holland). Even where a duty exists, the recoverable loss is limited to the kind of loss that falls within the scope of the duty undertaken. Information-only cases allow recovery only for loss caused by the information being wrong, not all consequences of entering a transaction; “advice” cases (where the adviser assumes responsibility for the decision itself) allow recovery for all foreseeable consequences of entering the transaction. In wills and references, this typically limits loss to the value of the disappointed legacy or the earnings lost because the negligent reference prevented the job offer.

Economic Loss in Wills

A significant application of the exception for pure economic loss arises in the context of wills. If a solicitor negligently fails to prepare or execute a will correctly according to the testator's instructions, the intended beneficiaries may lose their expected inheritance. As these beneficiaries typically have no contract with the solicitor, their loss is purely economic.

Duty Owed to Beneficiaries: White v Jones

The leading case is White v Jones [1995] 2 AC 207. Here, a testator instructed his solicitors to change his will to benefit his daughters, but the solicitors negligently delayed, and the testator died before the new will was executed. The daughters received nothing under the previous will. The House of Lords held, by a majority, that the solicitors owed a duty of care to the intended beneficiaries.

The reasoning was based on an extension of the Hedley Byrne principle. The solicitors had assumed responsibility to the testator for the task of preparing the will. This assumption of responsibility extended to the intended beneficiaries because it was clearly foreseeable that they would suffer financial loss if the solicitors were negligent. Imposing a duty was considered fair, just, and reasonable to avoid an injustice where the estate itself could not sue (as it suffered no loss) and the beneficiaries would otherwise have no remedy. The duty is limited by scope: it is to take care so that the testamentary intention is effectively carried into action, and the recoverable loss is the value of the intended legacy that has been lost.

Earlier decisions had already suggested duties to beneficiaries in specific circumstances (for example, Ross v Caunters [1980] Ch 297, where a will was invalidated because a beneficiary had witnessed it), but White v Jones established a general principle across the will-drafting task. Subsequently, the courts have recognised liability where the solicitor’s failure to ensure valid execution defeats a testamentary gift to a named beneficiary, provided the testator’s instructions and intended benefit are clear.

The assumption-of-responsibility model helps resolve the privity problem: the testator’s solicitor is a professional who knows that their competence determines whether named beneficiaries receive their gifts; the proximity and fairness of imposing a duty to those beneficiaries follows, without undermining contractual boundaries.

Practical points:

• Damages are measured by the value of the disappointed legacy, not wider losses (e.g., expectations of interest or investment gains), reflecting scope-of-duty limits.
• Causation requires proof that but for the negligence the valid will would have been executed and taken effect on death.
• It is not necessary for the solicitor to have communicated directly with the beneficiary; the proximity arises from taking on the task of implementing the testator’s testamentary intentions.
• Disclaimers towards third parties will rarely be relevant or effective in this setting, because the duty arises from the professional undertaking to the testator for the known benefit of others and is subject to reasonableness controls if exclusion is attempted.

Worked Example 1.1

Ahmed instructs his solicitor, Priya, to draft a new will leaving his entire estate to his niece, Yasmin. Priya drafts the will but negligently fails to ensure it is correctly witnessed before Ahmed dies suddenly. The will is invalid, and Ahmed's estate passes under the intestacy rules to his distant relatives, leaving Yasmin with nothing. Can Yasmin sue Priya?

Answer:
Yes, Yasmin can likely sue Priya in negligence. Following White v Jones, Priya assumed a responsibility towards Ahmed to prepare the will correctly, and this duty extends to the intended beneficiary, Yasmin. It was foreseeable that Priya's negligence would cause Yasmin pure economic loss. It would be fair, just, and reasonable to impose a duty to provide Yasmin with a remedy. Her recoverable loss is the value of the legacy she would have taken, subject to proving that Priya’s negligence was the but-for cause of invalid execution.

Worked Example 1.2

Elena is named to receive £50,000 in a draft will. The solicitor fails to arrange execution before the testator’s death but contends that the gift might later have been changed had the testator lived. Can Elena recover the £50,000?

Answer:
Elena must prove that but for the solicitor’s negligence the will would likely have been properly executed as drafted (or as instructed to include her gift). If that is shown on the balance of probabilities, her loss is the value of the disappointed legacy (£50,000). The argument that the testator “might have changed their mind” will not defeat causation unless supported by evidence showing the gift would probably not have been in the final will. Recovery remains limited to loss within the scope of the solicitor’s duty to give effect to the testamentary intention.

Economic Loss from Negligent References

Another area where pure economic loss claims may arise from negligent statements involves the provision of references, typically employment references.

Duty Owed by Referee: Spring v Guardian Assurance plc

In Spring v Guardian Assurance plc [1995] 2 AC 296, the House of Lords held that an employer providing a reference for a former employee owed a duty of care to that employee regarding the preparation of the reference. If the reference contained negligent inaccuracies that caused the former employee financial loss (e.g., by preventing them from obtaining new employment), the employer could be liable for that pure economic loss.

The duty arises from the employer's assumption of responsibility when providing the reference, knowing it will be relied upon by both the former employee and the prospective new employer. Liability is not confined to statements of opinion; factual assertions (e.g., disciplinary records, performance metrics) must be verified with reasonable care, and the structure and tone of the reference must fairly reflect material facts. The claim is founded in negligence, not defamation: malice is not required, but carelessness causing economic loss is actionable where reliance and causation are made out.

As with all negligent misstatement cases, scope-of-duty principles govern damages. The loss recoverable is confined to the economic consequences flowing from the reference being wrong: the earnings and benefits reasonably attributable to the job offer lost because the negligently prepared reference prevented its being made (or led to its withdrawal). Wider financial consequences (e.g., career trajectory years later) must still satisfy foreseeability and scope-of-duty limits.

Disclaimers may be asserted by referees, but their effect is limited. A disclaimer issued to the recipient might be relevant to the recipient’s reliance; however, the subject of the reference is not party to such a disclaimer and cannot generally be deprived of a duty owed to them by an employer. In any event, exclusion of liability for negligence causing economic loss is subject to statutory reasonableness/fairness controls (UCTA 1977 for business-to-business contexts; CRA 2015 where trader-consumer applies). In practice, the safer route for an employer is to exercise reasonable care rather than rely on disclaimers.

Worked Example 1.3

Ben applies for a new job. His former employer, Croft Ltd, provides a reference to the prospective employer. The reference carelessly contains inaccurate negative information about Ben's performance, which Croft Ltd failed to verify. As a result, Ben does not get the job and suffers a period of unemployment, losing income. Can Ben sue Croft Ltd?

Answer:
Yes, Ben may be able to sue Croft Ltd in negligence. Following Spring v Guardian Assurance, Croft Ltd owed Ben a duty of care when preparing the reference. By providing the reference, Croft Ltd assumed responsibility for its accuracy. If the negative information was negligently included and caused Ben foreseeable pure economic loss (lost income), Croft Ltd may be liable. Ben must establish reliance by the prospective employer and that, but for the negligent inaccuracies, he would have secured the job. His damages will be limited to loss within the scope of that duty—primarily the earnings lost because the job offer did not materialise.

Worked Example 1.4

A referee uses a standard form including a disclaimer stating “no responsibility is accepted for the accuracy of this reference.” The referee includes inaccurate factual assertions without checking records. The prospective employer rejects the application. Does the disclaimer defeat the former employee’s negligence claim?

Answer:
No. A disclaimer aimed at the recipient does not generally extinguish the referee’s duty to the subject of the reference, which arises from assumption of responsibility when issuing a reference. Even as against the recipient, exclusion of liability for negligence is subject to statutory controls on reasonableness/fairness (UCTA/CRA). The decisive question is whether the referee exercised reasonable care in compiling the reference. If they did not, and the inaccuracies caused the subject to lose the job on the balance of probabilities, the claim can succeed.

Worked Example 1.5

Dev applies for a regulated role requiring an unblemished integrity record. His former employer’s reference wrongly states he was investigated for dishonesty. The prospective employer withdraws an offer. Dev later secures a different job at a lower salary. What loss is recoverable?

Answer:
Dev can claim the earnings and benefits he would have received from the withdrawn offer, less any earnings actually made during that period, applying mitigation and scope-of-duty limits. He cannot generally recover speculative downstream career losses beyond those flowing from the reference error unless they fall within foreseeability and the scope of the referee’s duty. The loss is confined to the kind of economic detriment caused by the negligent reference being wrong, not all disadvantages in Dev’s professional life.

Revision Tip

Remember that the key distinction between recoverable consequential economic loss and generally irrecoverable pure economic loss lies in whether the financial loss flows directly from physical damage to the claimant or their property. Cases involving negligent statements (like advice, wills, or references) are the main exceptions where pure economic loss may be recoverable, based on an assumption of responsibility and reasonable reliance. Always check the scope of the duty undertaken: in wills, it covers giving effect to the testamentary intention; in references, it covers the accuracy and fairness of the statements made.

Additional Principles: Disclaimers, Reliance and Scope

Negligent misstatement liability remains exceptional and controlled. Key points relevant to wills and references contexts include:

• Reasonable reliance must be shown. In valuation and report cases, reliance by an identifiable class (e.g., homebuyers) can suffice where the defendant knows the report will be communicated for that purpose (see Smith v Eric S Bush). In references, reliance is by the recipient, but the duty is owed to the subject who is foreseeably harmed by careless statements.
• Disclaimers can reduce or exclude duty only where they are effectively brought to the relying party’s attention and are reasonable/fair under UCTA/CRA. In wills, exclusion of liability to third-party beneficiaries is unlikely to be effective where the solicitor’s duty to the testator is to benefit those persons.
• Scope-of-duty (SAAMCo/BPE) confines recovery to loss of the kind the duty was meant to guard against. In wills, that is the lost legacy; in references, the lost earnings from the job thwarted by the negligent reference. “All losses from the transaction” recovery is reserved for advice cases where the adviser assumed responsibility for the decision itself.

Key Term: Scope of Duty
The principle that even if a duty is breached and loss is caused, recovery is limited to the kind of loss the duty was designed to protect against, not all losses consequential on entering the transaction.

Causation, Mitigation and Limitation

The usual negligence rules apply:

• Causation: the claimant must prove, on the balance of probabilities, that but for the negligent misstatement or service, they would have obtained the intended benefit (execution of will; job offer) or avoided the loss. “Loss of chance” in tort is generally not accepted where outcomes are uncertain unless the chance itself has a recognised value; in employment reference cases, courts typically require proof that the job would likely have been secured.
• Mitigation: claimants must take reasonable steps to reduce their loss (e.g., seeking alternative employment). Damages may be reduced by earnings obtained in the mitigation period.
• Limitation: professional negligence claims for pure economic loss generally have a six-year primary limitation from accrual of the cause of action. Where damage is latent or not immediately discoverable, s 14A Limitation Act 1980 provides a three-year period from date of knowledge (subject to a 15-year longstop). In wills, accrual commonly occurs on the testator’s death and the invalidity’s effect; in references, accrual occurs when the negligent reference causes the job loss and financial damage.

Practical Application and Risk Controls

In both contexts, careful processes reduce negligence risk:

• Wills: confirming instructions in writing; promptly arranging proper execution; checking formalities; recording reasons for delay; where appropriate, using holding measures (e.g., codicil) pending complex redrafting; keeping contemporaneous attendance notes that evidence causation if challenged.
• References: verifying factual content against records; avoiding unsupported opinions; distinguishing fact from opinion; using balanced wording; training HR staff on care standards; documenting the steps taken and sources consulted; avoiding “off the record” comments and ensuring consistency with internal records.

These practices reflect the courts’ emphasis on assumption of responsibility and the reasonableness of reliance: both parties’ reasonable expectations are grounded in professional care.

Key Point Checklist

This article has covered the following key knowledge points:

• Pure economic loss is financial loss not consequent upon physical injury to the claimant or their property.
• The general rule in tort is that pure economic loss is not recoverable.
• An exception exists for pure economic loss caused by negligent misstatements where there is a special relationship (Hedley Byrne principle).
• A special relationship requires an assumption of responsibility by the defendant and reasonable reliance by the claimant.
• Solicitors owe a duty of care to intended beneficiaries who lose their inheritance due to negligence in the preparation or execution of a will (White v Jones), with damages limited to the disappointed legacy within scope-of-duty.
• Employers (or other referees) owe a duty of care to the subject of a reference regarding its accuracy (Spring v Guardian Assurance), with recovery limited to earnings lost because of the negligent reference.
• The Caparo criteria for novel duties (foreseeability, proximity, and fairness) complement the assumption-of-responsibility analysis in negligent misstatement cases.
• Scope-of-duty limits (SAAMCo/BPE) control the measure of recoverable economic loss in misstatement cases.
• Disclaimers and exclusion notices have limited effect and are subject to statutory controls (UCTA 1977 and CRA 2015).
• Causation requires proof that the will would have been validly executed or that the job would have been obtained but for the negligence; claimants must mitigate loss and be mindful of limitation periods.

Key Terms and Concepts

• Pure Economic Loss
• Negligent Misstatement
• Special Relationship
• Assumption of Responsibility
• Scope of Duty