9.3 Economic Loss, Psychiatric Harm and Employers' Primary Liability
Key Takeaways
- Pure economic loss from a negligent act is generally irrecoverable (Spartan Steel; Murphy v Brentwood); consequential loss attached to physical damage is recoverable.
- Negligent misstatement can found a duty where the defendant assumes responsibility, there is a special relationship, and the claimant reasonably relies (Hedley Byrne).
- Primary victims are in the zone of physical danger (Page v Smith); secondary victims must satisfy Alcock controls, and Paul v Royal Wolverhampton NHS Trust [2024] UKSC 1 generally requires witnessing an accident.
- Wilsons and Clyde Coal sets the employer's non-delegable common-law duties: competent staff, adequate plant, a safe system, and a safe place of work.
- Section 69 of the Enterprise and Regulatory Reform Act 2013 removed most civil actions for breach of health and safety regulations, so FLK1 focuses on the common-law primary duty.
FLK1 groups three specialised areas that ordinary physical-injury analysis does not cover: pure economic loss arising from a negligent act or misstatement, psychiatric harm, and employers' primary liability at common law. Each has control mechanisms. Missing them is a typical way to over-recover on the exam.
Pure economic loss from a negligent act or misstatement
Consequential economic loss — money lost because property or the person was physically damaged — is recoverable. Pure economic loss — money lost without that physical damage to the claimant's person or property — is generally not recoverable when it flows from a negligent act.
Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27 is the teaching case. Contractors cut a power cable. Metal already in the furnace was damaged: the physical damage and the lost profit on that melt were recoverable. Profit on melts that could not be processed while the power was off was pure economic loss and not recoverable.
Murphy v Brentwood District Council [1991] 1 AC 398 treats the cost of repairing a defective building as pure economic loss. A claimant who discovers a defect before the building injures anyone is protecting their wallet, not their body. Product and building defects without physical injury to other property therefore usually fail in negligence (statutory product liability is a separate FLK1 topic).
Negligent misstatement is the main exception. Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 recognised that a duty can arise where the defendant assumes responsibility to the claimant, there is a special relationship, and the claimant reasonably relies on the statement. On the facts, a banker's disclaimer (without responsibility) prevented the duty arising. Social chat at a party is not an assumption of responsibility. A professional who knows the advice will be relayed to a known person for a known transaction may assume responsibility; an auditor reporting to shareholders as a class for the company's governance does not thereby assume responsibility to an individual bidder (Caparo Industries plc v Dickman).
White v Jones [1995] 2 AC 207 extends assumption of responsibility to disappointed beneficiaries where a solicitor's delay meant a will was never executed. The solicitor's duty is ordinarily to the client, but the specific testamentary intent would otherwise be empty.
Even when a duty exists, recoverable loss is limited by the scope of the duty. Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 and Meadows v Khan [2021] UKSC 21 (the SAAMCO line) ask what risk the service was supposed to protect the claimant against. An auditor who should have spotted a hedge-accounting problem is not thereby the insurer of every business risk. A doctor who should have tested for a genetic condition is responsible for the costs associated with that condition, not for the whole ordinary cost of raising a child. On the exam, match the lost money to the purpose of the advice.
| Loss | Typical result | Illustration |
|---|---|---|
| Lost profit because a machine was physically smashed | Recoverable consequential loss | Damaged melt in Spartan Steel |
| Lost profit because the power was off and no physical damage to the claimant's goods | Pure economic loss; generally no duty | Later melts in Spartan Steel |
| Cost of making a defective house safe | Pure economic loss after Murphy | Defective foundations |
| Lost investment relying on a paid-for reference | Possible Hedley Byrne duty | Special relationship plus reliance |
| Will never executed; intended gift fails | Possible White v Jones duty | Disappointed beneficiary |
Psychiatric harm
Grief, anger, and ordinary distress are not enough. The claimant needs a recognised psychiatric illness.
Primary victims are in the zone of foreseeable physical danger. If some personal injury to them was reasonably foreseeable, they can recover for psychiatric injury even if the mechanism is shock and their body is untouched (Page v Smith [1996] AC 155). They are not required to satisfy the Alcock control mechanisms.
Secondary victims witness injury to someone else. Alcock v Chief Constable of South Yorkshire Police [1992] 1 AC 310 (Hillsborough) imposes control mechanisms: a close tie of love and affection (presumed for spouses and parent/child, proved for others); proximity in time and space to the accident or its immediate aftermath (McLoughlin v O'Brian [1983] 1 AC 410); perception with the claimant's own unaided senses, not television or a later news report; and a sudden shocking event, not a gradual realisation. Siblings and friends failed in Alcock. Identification in a mortuary hours later was not the aftermath.
Rescuers are not a privileged class. Police officers at Hillsborough who were not themselves in physical danger were treated as secondary victims and failed (White v Chief Constable of South Yorkshire Police [1999] 2 AC 455). If a rescuer is in physical danger, they may be a primary victim.
Paul v Royal Wolverhampton NHS Trust [2024] UKSC 1 is now essential functioning knowledge. Daughters saw their father collapse and die in the street from a heart condition that, it was alleged, should have been treated earlier. Other conjoined appeals involved parents witnessing a child's death, or coming upon a body shortly afterwards, after missed diagnoses. The Supreme Court (Lord Burrows dissenting) held that secondary-victim liability is geared to witnessing an accident — an unexpected event external to the primary victim — not to witnessing death or injury from an earlier failure to treat disease. The claims were struck out. Do not advise that a relative who watches a hospital death after clinical negligence automatically has an Alcock claim.
Workplace psychiatric injury from occupational stress is a different route. The employer who knows, or ought to know, that the particular employee is at risk of psychiatric injury from workload can owe a duty (Hatton v Sutherland [2002] EWCA Civ 76, approved in Barber v Somerset County Council [2004] UKHL 13). Foreseeability of harm to this employee is the practical question.
Employers' primary liability
Do not confuse this with vicarious liability (section 9.4). Primary liability is the employer's own duty to the employee. Vicarious liability is the employer's liability for a tort committed by another person.
Wilsons and Clyde Coal Co Ltd v English [1938] AC 57 sets out the classic common-law duties: competent staff, adequate plant and equipment, a safe system of work, and a safe place of work. The duty is personal and non-delegable. Appointing a competent contractor to design the system does not discharge the employer if the system remains unsafe (McDermid v Nash Dredging & Reclamation Co Ltd [1987] AC 906).
The standard is reasonable care, not strict liability. Latimer v AEC Ltd shows that reasonable steps (sawdust on a flooded floor) can suffice; the employer need not close the factory if that would be disproportionate. The claimant still has to prove breach and causation in the usual way.
Civil claims for breach of health and safety regulations were largely removed by section 69 of the Enterprise and Regulatory Reform Act 2013. FLK1 therefore focuses on the operation and effect of the common law principles. Regulations remain relevant as evidence of what reasonable care required, but a regulatory breach is not, by itself, a civil cause of action in the way it once was.
A typical exam fork: an employee is injured by a colleague's negligence. Consider (1) the employer's primary duty (training, system, equipment) and (2) vicarious liability for the colleague's tort. They are cumulative, not synonyms. Another fork: an employee is injured because a specialist contractor designed an unsafe system. Primary liability can still attach to the employer because the safe-system duty is non-delegable, even though vicarious liability for a true independent contractor will usually fail after Barclays (section 9.4).
At a birthday party, an accountant tells a friend that a particular share is 'a sure thing'. The friend invests and loses £20,000. There is no retainer, fee, or disclaimer. Which analysis of pure economic loss is best?
Two daughters, standing beside their father in a shopping street, watch him collapse and die from a heart condition. A GP had allegedly failed to diagnose that condition months earlier. They develop a recognised psychiatric illness. After Paul v Royal Wolverhampton NHS Trust, which statement is most accurate?
A warehouse worker is injured because the employer's chosen independent contractor designed an unsafe picking system. The contractor is in business on its own account. The worker sues the employer. Which proposition about employers' primary liability is correct?