Summary Negligence - Economic Loss PQ Notes (First Class)
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Course
Tort Law
Institution
University College London (UCL)
Comprehensive first class Tort Law PQ notes from University College London (2010/2020). Notes include concise case summaries, key reasonings to reconcile conflicting case law and detailed answer outlines to problem questions
a. Not tested for Essay, only PQ
Introduction
Negligence is concerned with physical harm to person and property can be quantified in
terms of economic loss
Consequential economic loss: Loss that arises from physical harm to your person or
property
Pure economic loss: Either no physical harm caused, or physical harm caused on third party
General rule: No duty of care for pure economic loss (Spartan Steel) subject to exception
where duty of care arises if D voluntarily assumes responsibility for C’s economic welfare
(Hedley)
b. Justifications for the Rule
Canadian National
o AF: Economic loss is an inevitable by-product of desirable but inherently dangerous
activity fair to distribute the costs amongst all who benefit
o AF: Contractual allocation of risk
Persons who stand to suffer economic loss can allocate such risks
appropriately within their contracts should not be able to claim for pure
economic loss
o CA: Insurance argument
D is in a better position to predict economic loss more able to obtain
cheap insurance
This incentivises them to take less care (eg. cheaper for builder to dig without
checking for cables) reduced care leads to higher risk of accidents
But C is unlikely to find general insurance against loss of profit would raise
problems of moral hazard
Unfair that D is much more well-insured than C C should be able to claim
c. Distinction between pure economic loss and consequential economic loss
Spartan Steel
o C manufactures in a factory, and D damaged a cable cut off electricity in factory
o C claimed the following losses
o Ruined metal in the furnace (physical damage to property)
o Loss of profit on the ruined metal (consequential economic loss)
o Loss of profit they expected to make by using the furnace during the period when
electricity was off (pure economic loss)
, Negligence: Duty of Care for Economic Loss
o Held that D owes a duty of care in respect to physical damage to property and
consequential economic loss, but not pure economic loss
o Rationale (Lord Denning)
o Risk of economic loss should be suffered by the community as a whole
o Nature of the hazard (losing electricity) is something that people should have to
put up with
o Floodgates argument (Justice Cardozo)
o Liability would be in an indeterminate amount, for an indeterminate time, and an
indeterminate class no boundary for who can claim
o Counters (Davies LJ)
o Absurd results will be removed by causation and remoteness
o Duty of care might not be found in the first place because of the general
negligence rules which apply
d. Pure Economic Loss for Defective Products
Conflicting case law starting from Ann, now overruled by Murphy
Dutton
o C bought house that had defective foundations sued local authority for negligently
approving the building
o Lord Denning: Case is about physical damage to property duty of care is owed
Anns
o Foundations in C’s house were defected and caused cracks in the walls sued local
authority for negligently approving building
o HoL stated that it was physical damage to property duty of care is owed
o Necessary to avoid present or imminent danger to the safety of the occupant
o Criticism: Property is defective, meaning that property is worth less than C thought. But
defective property did not harm other physical goods no physical damage to other
property
o Court used complex structure argument foundation is a separate entity from the
walls foundation has damaged the walls
e. Subsequent Case Law Development
Murphy
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