Pure economic loss

Economic loss is a term of art which refers to financial loss and damage suffered by a person such as can be seen only on a balance sheet rather than as physical injury to the person or destruction of property. There is a fundamental distinction between pure economic loss and consequential economic loss, as pure economic loss occurs independent of any physical damage to the person or property of the victim. It has also been suggested for it to be called "commercial loss" as injuries to person or property could be regarded as "economic".

Examples of pure economic loss include the following:

The latter case is exemplified by the English case of Spartan Steel and Alloys Ltd v. Martin & Co. Ltd. Similar losses are also restricted in German law though not in French law beyond the normal requirements that a claimant's asserted loss must be certain and directly caused.

Recovery at law for pure economic loss is restricted under some circumstances in some jurisdictions, in particular in tort in common law jurisdictions, for fear that it is potentially unlimited and could represent a "crushing liability" against which parties would find it impossible to insure.

In Australia it is very difficult to recover pure economic loss in negligence if it is not consequent to property damage. The test of duty of care has first been established in Caltex Oil v The Dredge "Willemstadt" and then Perre v Apand Pty Ltd.

Justice Cardozo's indeterminacy concerns were relied on by the Supreme Court of Canada to restrict imposing liability on a corporation's auditors for negligently auditing the corporation's financial statements. In Hercules Management v Ernst & Young, [1997] 2 SCR 165. The court determined that the auditors owed investors of the company a duty of care, and that the auditors had been negligent in conducting their audit. However, La Forest J, writing for a unanimous court, declined to impose liability on the auditors for policy reasons, citing Justice Cardozo's concerns over indeterminate liability.

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