Economic loss

'Pure economic loss' definition

A loss that is purely financial, in the sense that it does not result from damage to the claimant's property or injury to the claimant's person e.g. buying a defective product that does not cause injury

Cardozo, C.J. on floodgates

"an indeterminate amount for an indeterminate time to an indeterminate class of persons"

Nitrogen Eireann Teoranta v Inca Alloys Ltd., [1992]

- Original cracks = damage to property itself and so unrecoverable for economic loss - Consequential physical damage to surrounding property was recoverable - Claimant could not discover the cause of the original defect

Possible to claim liability for pure economic loss as a result of negligent acts such as :

1. As a consequence of acquiring a defective item of property 2. As a consequence of physical damage to a third party's property

Jacobs v Morton (1994) Complex structure theory depends on defective item:

1. Constructed by someone other than the main contractor responsible for the construction of the building work 2. Retained its separate identity 3. Positively inflicted damage on the building as opposed to simply fulfilling its function 4. Defective item was constructed at a different time than the rest of the building

Defective Premises Act 1972

1. Courts should not seek to impose common law rules of liability where Parliament had done so. 2. Persons who undertake work for, or in connection with, the provision of a dwelling, have a statutory duty to see that the work is done workmanlike or professional manner with proper materials, so the dwelling will be fit for habitation when completed

In summary

1. In general can't claim for pure economic loss in tort 2. Negligent acts that cause physical damage or personal injury are actionable 3. Pure economic loss arising from defective property not actionable unless within exceptions 4. Negligent acts that cause pure economic loss to a third party are not actionable

Three ways claimant may suffer economic loss as a result of a negligent act causing damage to a third party's property (pure economic loss not recoverable)

1. Interruption to business 2. Lack of proprietary interest 3. 'At risk' situations

Murphy v Brentwood District Council [1991] reasons of importance

1. Reaffirmed the general rule that you can't claim damages in tort for repairing a negligently made product/defective item of property 2. Anns overruled to the extent that local authorities are not now liable for defective buildings arising out of their supervisory functions 3. Junior Books limited to its own facts

Policy considerations

1. Tort law should not undermine contract law 2. The desire to avoid crushing liability

3 guiding principles that limit duty of care for pure economic loss

1. pure economic loss is not generally recoverable in tort, undermine contractual intentions 2. "defective product economic loss" is not generally recoverable 3. a claimant cannot generally recover in respect of damage to property unless he/she has a proprietary interest in the property which is damaged

Crushing liability

Enormous number of people can potentially suffer pure economic loss. People's financial interests are so closely interrelated that causing economic loss to one person usually produces a "domino effect".

Junior Books and Anns

Examples of short-lived liberal approach to economic loss. Courts quickly saw how they undermined contract law + drain on public purse

Anns v Merton LBC [1978]

Overruled (by Murphy) to the extent that local authorities are not now liable for defective buildings arising out of their supervisory functions

Lack of proprietary interest

Person cannot sue in respect of damage to property in which he or she has only a contractual interest (Cattle v Stockton Waterworks [1875]). No proprietary interest, no claim (Candlewood Navigation Corporation Ltd. v Mitsui Osk Lines Ltd [1986])

Spartan Steel & Alloys Ltd v Martin & Co Contractors Ltd

The defendants owed the plaintiffs a duty not to damage their property, and therefore had to pay for the damaged metal and the loss of profit resulting directly from that damage

'At risk' situations

Claimant might suffer damage because it is 'on risk' (under an insurance contract) under a contract with a 3rd party when the damage to that 3rd party's property occurs

Targets v Torfaen Borough Council [1992]

Claimant was entitled to recover for personal injuries even if they knew of the defect and it caused the harm. The claimant couldn't recover for the cost of repair of the defect

Murphy v Brentwood District Council [1991]

Courts have been prepared to entertain claims for pure economic loss in tort

D & F Estates Complex structure theory exception

Defective property may be considered as comprising distinct parts If there is a defect to a part of a property the loss caused to the other parts of the property may be claimed (criticised in Murphy, but not overruled - applied in Aswan Engineering Establishment Co. v Lupdine Ltd., [1987])

Careless statements? (negligent misstatement)

Easier for a claimant to recover

Conarken Group Ltd v Network Rail Infrastructure Ltd [2011]

Economic loss consequent on personal injury or physical damage to the claimant's property was actionable.

Consequential economic loss

Financial loss that is consequential upon damage to the claimant's person or property (much easier to recover losses) e.g. losses suffered by a claimant who has been seriously injured and must give up work, or loss of profits resulting from damage to defective machinery

The adjoining property/highway exception

If a dangerous defect in a building becomes apparent before it causes personal injury or property damage it becomes a defect in quality and liability lies in the contract BUT, since a building owner remains liable to third parties who might be damaged by a defective building because they own adjacent land or use the highway, they ought to sue a negligent builder even after the

Extremely close proximity exception

Junior Books v Vetch Co. Ltd (LIMITED TO ITS OWN FACTS) - defendant was liable - such a close proximity of relationship was almost akin to a contract

Policy reasons

Limit the liability of local authorities

General rule pure economic loss

No duty of care is owed

Careless activities?

No duty of care owed

Conarken principles, LJ Jackson

Recoverable losses: 1. Loss of income following damage to revenue generating property GENERALLY recoverable 2. Economic loss which flows directly and foreseeably from physical damage to property MAY be recoverable 3. Loss of future business MUCH LESS recoverable 4. Fair and reasonable

Interruption to business

Spartan Steel & Alloys Ltd. v Martin & Co (Contractors) Ltd [1973] Claimants could recover - Physical damage to smelt - Loss of profit on that smelt NOT - loss of profit on four other melts (pure economic loss)