Claims for pure economic loss - Defences applicable to pure ...

Learning Outcomes

This article examines the complete and partial defences applicable to claims for pure economic loss in negligence, including:

• identifying when contributory negligence applies to negligent misstatement and other economic loss claims, how courts quantify “just and equitable” reductions, and the factors influencing percentage apportionment between claimant and defendant
• distinguishing voluntary assumption of risk from mere risk awareness or contractual exclusion, and assessing why volenti rarely succeeds in professional advisory contexts involving asymmetry of information
• analysing the modern illegality defence, with its policy-based proportionality test, and evaluating when unlawful conduct will bar, limit, or leave untouched a claimant’s recovery for financial loss
• evaluating the role of disclaimers, exclusion clauses, and non‑reliance wording in shaping duty, reliance, and available defences, subject to statutory controls under UCTA 1977 and the Consumer Rights Act 2015
• linking reliance, causation, and scope-of-duty reasoning to the operation of defences so as to keep separate issues that defeat liability entirely from those that merely reduce damages
• applying these principles to realistic SQE-style problem questions, predicting likely judicial outcomes, and structuring clear, exam‑ready arguments for both claimants and defendants

SQE1 Syllabus

For SQE1, you are required to understand the defences applicable to pure economic loss claims in negligence, with a focus on the following syllabus points:

• the application of contributory negligence to pure economic loss claims, especially negligent misstatement and negligent provision of services
• the requirements for the defence of voluntary assumption of risk (volenti non fit injuria) and its limited role in economic loss claims
• the operation of the illegality defence (ex turpi causa non oritur actio), including the current policy-based approach and proportionality
• how these defences may reduce or bar a claimant’s recovery for pure economic loss
• interaction between defences and reliance/causation in negligent misstatement claims
• the role of disclaimers/exclusion clauses in economic loss cases and statutory controls under UCTA 1977 and the Consumer Rights Act 2015

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. Which defence, if successful, will completely bar a claim for pure economic loss?
   1. contributory negligence
   2. voluntary assumption of risk
   3. illegality
   4. all of the above
2. In a claim for pure economic loss, what is the effect of a finding of contributory negligence?
   1. The claim is barred entirely
   2. The claimant’s damages are reduced
   3. The defendant is not liable at all
   4. The court ignores contributory negligence

3. What must a defendant show to rely on the defence of voluntary assumption of risk in a pure economic loss claim?

4. True or false? The defence of illegality will always apply if the claimant has committed any unlawful act.

Introduction

Defences play a key role in limiting or excluding liability for pure economic loss in tort. Even where a claimant establishes a duty of care, breach, and causation, a defendant may avoid or reduce liability by successfully raising a defence. The main defences relevant to pure economic loss are contributory negligence, voluntary assumption of risk, and illegality. This article explains each defence, their requirements, and how they apply in practice.

In pure economic loss claims, the background liability most often arises from negligent misstatements or the negligent provision of professional services where a special relationship exists (assumption of responsibility and reasonable reliance). Defences operate against that background. Two additional features are especially important in this context:

• Reliance and causation are fact-sensitive. A defendant may deny or limit liability by showing the claimant’s loss did not result from reasonable reliance on the defendant’s statement or service, or fell outside the scope of the defendant’s duty. Although scope-of-duty is not a “defence”, it often functions like one in reducing or eliminating recovery for financial loss.

• Disclaimers and non‑reliance clauses can, in principle, prevent a duty from arising or operate as a defence, but they are subject to statutory control. In business-to-business contexts, the Unfair Contract Terms Act 1977 (UCTA) subjects exclusions of negligence liability to a reasonableness test. In business-to-consumer contexts, the Consumer Rights Act 2015 (CRA) applies a fairness test. Death and personal injury cannot be excluded; for pure economic loss, a reasonable or fair exclusion may be effective.

Defences to Pure Economic Loss Claims

Contributory Negligence

A defendant may argue that the claimant’s own lack of care contributed to their economic loss. If established, this defence will reduce the damages recoverable by the claimant to the extent the court considers just and equitable.

Key Term: contributory negligence
Contributory negligence is the partial defence that applies where the claimant’s own carelessness has contributed to their loss. The court reduces damages proportionally to the claimant’s share in the responsibility.

In pure economic loss claims, contributory negligence often focuses on reliance decisions. Typical allegations include that the claimant failed to take independent advice, ignored obvious risk warnings, did not read or heed clear written information, relied on informal advice outside the defendant’s remit, or assumed risk without reasonable inquiry. The Law Reform (Contributory Negligence) Act 1945 empowers courts to reduce damages where the claimant’s fault contributed to their loss; the reduction reflects both causative potency and blameworthiness.

In negligent misstatement and professional negligence, contributory negligence can be significant because claimants—particularly sophisticated clients or businesses—are expected to protect their own interests by taking reasonable steps proportionate to the transaction. However:

• The standard is objective and context-sensitive. A retail consumer will not be judged like a large corporate client with in-house knowledge.

• The defence does not excuse the defendant’s negligence; it only reduces damages. It is not available to a defendant liable for deceit.

• Where the claimant’s conduct amounts to unreasonable reliance (e.g., reliance in the face of unambiguous contrary information), the issue may defeat causation entirely rather than merely reducing damages.

Courts will look closely at the quality and clarity of the advice or information, the parties’ relative knowledge, the presence of warnings, and the feasibility of verification or independent advice. Professional retainer terms and risk disclosures are relevant but not conclusive.

Worked Example 1.1

A business owner relies on negligent financial advice from an accountant but fails to check basic facts that would have revealed the risk. The business suffers a financial loss. Can the accountant argue contributory negligence?

Answer:
Yes. If the business owner’s failure to check the facts contributed to the loss, the court may reduce the damages awarded for pure economic loss to reflect the claimant’s share of responsibility.

Additional illustrations help to see how reductions are calibrated:

• If a start‑up is advised to invest in a single high‑risk product and does so without reading the tailored risk letter which plainly highlights the exact risk that materialised, a material reduction is likely.

• Conversely, where complex advice negligently omits a critical risk that would not be apparent to a reasonable lay client, reductions for contributory negligence are likely to be modest or nil.

Worked Example 1.2

A property buyer receives a short mortgage valuation that states it is not a full survey and should not be relied upon for structural integrity. The buyer, without obtaining a survey, proceeds and later incurs expense remedying structural defects. The buyer sues the valuer for negligent misstatement about condition. Can contributory negligence reduce recovery?

Answer:
Likely. The valuer’s liability depends on what they said and the purpose of their valuation, but even if negligence is established, the buyer’s failure to obtain the recommended survey and heed the “not a full survey” warning is strong evidence of contributory negligence. Damages could be reduced significantly to reflect the claimant’s unreasonable reliance.

Practical notes for application:

• Identify precisely what advice or information the defendant assumed responsibility for, and the decision the claimant made.

• Separate causation and contributory negligence: if the claimant’s reliance was not reasonable at all, causation may fail; if it was reasonable overall but careless in some respects, a reduction under the 1945 Act follows.

• In professional advice cases, apportionment is highly fact-specific. The court can and does make fine-grained percentage reductions to reflect responsibility on both sides.

Voluntary Assumption of Risk (Volenti Non Fit Injuria)

This complete defence applies where the claimant freely and knowingly accepted the risk of loss. The defendant must prove both knowledge and voluntary acceptance.

Key Term: voluntary assumption of risk
Also known as volenti non fit injuria, this is a complete defence where the claimant knew of the risk and voluntarily accepted it, barring recovery for the loss.

In pure economic loss claims, volenti is rare. It requires the claimant to have actual knowledge of the specific risk that materialised and to have agreed—expressly or impliedly—to absolve the defendant from responsibility for it. Two distinctions matter:

• Risk warning vs consent to legal risk: Being warned of a risk does not automatically mean that the claimant accepted the legal risk vis‑à‑vis the defendant.

• Volenti vs contractual exclusion: A non‑reliance or exclusion clause may prevent a duty from arising or provide a contractual defence, but it is distinct from volenti and subject to statutory control (reasonableness/fairness). By contrast, volenti is a tort defence based on informed consent.

Courts are cautious in professional advice contexts because asymmetry of knowledge may undermine inferences of free and informed consent. Clear evidence is required—typically an explicit acknowledgment that the claimant will rely solely on their own judgment and release the adviser from responsibility in respect of the specific risk.

Worked Example 1.3

An investor is warned by a financial adviser that a particular investment is high risk. The investor proceeds anyway and loses money. Can the adviser rely on voluntary assumption of risk?

Answer:
Possibly. If the adviser can show the investor fully understood and accepted the risk, the defence may bar the claim. However, courts are cautious and require clear evidence of informed and voluntary acceptance.

Worked Example 1.4

A sophisticated investor signs a subscription agreement containing (i) a non‑reliance clause stating they have not relied on any statements outside the offering memorandum and (ii) a clause accepting the specific risk of liquidity loss identified in the memorandum. The investor later sues an advisory firm in negligence for pure economic loss after the very liquidity risk materialises. Can the firm invoke volenti?

Answer:
The firm is more likely to rely on the non‑reliance/exclusion wording (subject to reasonableness/fairness controls under UCTA/CRA) than on volenti. Volenti requires proof of informed acceptance of the legal risk as between the parties, which is difficult absent clear wording amounting to consent to the defendant not exercising reasonable care. If the clause is reasonable/fair, it may operate as a contractual bar; failing that, volenti will only rarely succeed.

Practice guidance:

• For volenti to succeed, look for unequivocal evidence that the claimant agreed to run the relevant risk without legal recourse against the defendant, not just that they knew the market risk existed.

• In consumer contexts, volenti will almost never be inferred and exclusions will be scrutinised under the CRA 2015.

• In motor vehicle passenger claims, statute curtails volenti. Although these are typically personal injury cases rather than economic loss claims, the same policy caution about inferring consent to negligence informs economic loss contexts.

Illegality (Ex Turpi Causa Non Oritur Actio)

If the claimant’s loss is connected to their own unlawful conduct, the defendant may raise the defence of illegality. The court will consider whether denying the claim is proportionate and justified by public policy.

Key Term: illegality
Also known as ex turpi causa non oritur actio, this is a complete defence where the claim arises from the claimant’s own illegal or immoral act, and the court refuses to assist.

The modern approach is not a rigid rule but a structured policy assessment. The Supreme Court has endorsed a range‑of‑factors analysis that typically asks:

• What is the core purpose of the law which has been transgressed, and would denying the claim further that purpose?

• Are there other relevant public policy considerations that weigh for or against allowing the claim (for example, deterring professional negligence and maintaining standards)?

• Would denying the claim be a proportionate response to the illegality, bearing in mind the seriousness of the conduct, its centrality to the claim, and whether the defendant would otherwise be unjustly enriched?

This approach is especially important in economic loss litigation involving professional services connected to unlawful schemes. Public policy may support allowing a claim even where the transaction had illegal elements, particularly where the defendant’s professional negligence facilitated the loss and denying recovery would undermine standards in regulated services.

Worked Example 1.5

A company enters into a contract for an illegal purpose and suffers financial loss due to the negligence of its professional adviser. Can the company recover its loss?

Answer:
Likely not. If the loss is directly linked to the illegal purpose, the defence of illegality may bar the claim for pure economic loss. The court will assess whether denying the claim is proportionate and justified.

Worked Example 1.6

A borrower, complicit in a mortgage fraud, instructs a conveyancing solicitor. The solicitor negligently fails to register the borrower’s title at the Land Registry and later the borrower cannot enforce rights needed to unwind the transaction, suffering pure economic loss. The conveyancer raises illegality. Is the claim barred?

Answer:
Not necessarily. Applying the modern policy approach, the court may permit recovery where the negligence is distinct from, and not central to, the illegal scheme, and where denying the claim would not further the purpose of the criminal law but would undermine the duty of care owed by conveyancers. Where illegality is incidental and the negligence is a separate, operative cause of loss, the claim may proceed.

Key points when analysing illegality:

• Examine how central the illegality is to the elements of the claim. If the claimant must rely on the illegality to establish the cause of action, the defence is more likely to apply.

• Consider proportionality. A blanket denial of redress to deter wrongdoing is not automatic; it must be justified.

• Identify competing public policies. Where professional negligence has independently caused economic loss, the case for permitting recovery—so as to uphold professional standards—can be compelling.

Exam Warning

The defence of illegality is not automatic. The court will consider the purpose of the breached law, relevant public policy, and whether denying the claim is a proportionate response. Not every unlawful act will trigger the defence, and in professional negligence claims connected to illegality, recovery may still be allowed if refusing relief would be disproportionate or undermine other significant public policies.

Additional considerations in economic loss cases

Although not separate defences, two features commonly intersect with the defences discussed above:

• Exclusions and disclaimers: In negligent misstatement and professional services cases, disclaimers and non‑reliance clauses can prevent a duty of care arising or provide a defence. Their effectiveness turns on statutory controls. Under UCTA 1977, business exclusions of negligence liability for financial loss must be reasonable having regard to all the circumstances in place when liability would have arisen. Under the CRA 2015, trader terms and notices must be fair to consumers, and terms that create a significant imbalance contrary to good faith are not binding. Death and personal injury cannot be excluded; financial loss can be, but only if reasonable/fair. Even where a disclaimer is ineffective, contributory negligence may still reduce damages.

• Reliance and scope of duty: A defendant may argue that the claimant did not in fact rely (or that reliance was unreasonable), or that the loss that materialised was outside the scope of the duty the defendant assumed. These arguments can defeat all or part of the claim and should be kept distinct from defences such as contributory negligence and volenti.

Summary

Defences are a key part of any claim for pure economic loss. Contributory negligence may reduce damages, while voluntary assumption of risk and illegality can bar recovery entirely. In negligent misstatement and professional services claims, courts scrutinise the claimant’s reliance and decision-making, often leading to reductions for contributory negligence where reasonable steps were not taken to protect their own interests. Volenti requires clear, informed consent to the legal risk and rarely succeeds in economic loss claims, particularly in advisory contexts. The illegality defence is assessed through a modern policy lens, weighing the purpose of the transgressed law, competing public policies, and proportionality; not every illegality defeats recovery, especially where professional negligence is a distinct, operative cause of loss. Finally, disclaimers and non‑reliance clauses interact with these defences and may prevent liability if reasonable or fair, but they are not a substitute for meeting the strict requirements of volenti.

Key Point Checklist

This article has covered the following key knowledge points:

• Contributory negligence reduces damages if the claimant’s own carelessness contributed to their pure economic loss; the court applies a just and equitable apportionment under the 1945 Act.
• In negligent misstatement and professional services claims, contributory negligence often focuses on unreasonable reliance, failure to take independent advice, or ignoring clear warnings.
• Voluntary assumption of risk (volenti) is a complete defence if the claimant knowingly and freely accepted the legal risk; in economic loss cases it rarely succeeds without clear agreement amounting to informed consent.
• Illegality (ex turpi causa) is a complete defence if the claim arises from the claimant’s own unlawful conduct; courts apply a policy‑based proportionality assessment and may allow recovery where illegality is incidental and denying relief would be disproportionate.
• Disclaimers and non‑reliance clauses can restrict or exclude liability for economic loss subject to statutory control (UCTA reasonableness; CRA fairness); they are distinct from volenti.
• Always separate reliance and scope-of-duty issues from defences: lack of reliance or out‑of‑scope loss defeats liability; contributory negligence reduces damages; volenti and illegality bar recovery.

Key Terms and Concepts

• contributory negligence
• voluntary assumption of risk
• illegality