Summary
Summary Pure Economic Loss
- Module
- Tort Law (LAWW2017)
- Institution
- The University Of Nottingham (UON)
Topic 7 of the tort law module. Used by a 1:1(1st) student.
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Pure Economic Loss:A duty of care topic, when will D owe C a duty of care in respect of pure economic loss caused to C by D’s
negligence?
Main focus: pure economic loss
Pure economic loss (PEL): where the loss suffered by C is not consequent upon personal injuries or property
damage inflicted on C by D
The law of negligence treats PEL as a special type of harm and has developed restrictive rules for recovery of
this type of loss
Caparo Industries plc v Dickman [1990] 2 AC 605, 618 (per Lord Bridge)
‘One of the most important distinctions always to be observed lies in the law’s essentially different
approach to the different kinds of damage which one party may have suffered in consequence of the
acts or omissions of another. It is one thing to owe a duty of care to avoid causing injury to the person
or property of others. It is quite another to avoid causing others to suffer purely economic loss’
Tony Weir, A Casebook on Tort (10th edn, Sweet & Maxwell 2004) 56: ‘A person’s chances of obtaining the
money he is claiming depend on what he is claiming and who he is claiming it from: in other words, both the
type of injury he has suffered and the nature of his relationship with the defendant are material, perhaps vital,
considerations’
2 THE GENERAL RULE
No liability for pure economic loss
Rationale behind the general rule
Hierarchies of interests protected by tort law, with economic interests ranked lower than property and person.
Murphy v Brentwood DC [1991] 1 AC 398, 487 (per Lord Oliver):
‘The infliction of physical injury to the person or property of another universally requires to be
justified. The causing of economic loss does not. If it is to be categorised as wrongful it is necessary to
find some factor beyond the mere occurrence of the loss and the fact that its occurrence could be
foreseen. Thus the categorisation of damage as economic serves at least the useful purpose of
indicating that something more is required …’
Hedley Byrne & Co v Heller & Partners Ltd [1964] AC 465, 536 (per Lord Pearce):
‘How wide the sphere of the duty of care in negligence is to be laid depends ultimately on the courts’
assessment of the demands of society for protection from the carelessness of others. Economic
protection has lagged behind protection in physical matters where there is injury to person and
property’
, (a) Floodgates concerns:
Tony Weir, A Casebook on Tort (10th edn, Sweet & Maxwell 2004) 56: ‘It is right to distinguish property
damage from financial loss because things, being capable of gratifying the senses, are more significant than
wealth, just as people are more significant than things. It would also be inconvenient not to distinguish
property damage from financial loss because whereas property damage is always limited in extent (thanks to
the physical laws of inertia), the incidence of financial loss knows no bounds, and the courts would have a
fearful time trying to set them’.
(b) Protecting the contract/tort boundary:
Usually parties need to make a contract (agreement, consideration, privity, intention to create legal relations)
in order to protect their financial interests.
Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, 837 (Lord Steyn)
‘the restricted conception of contract in English law, resulting from the combined effect of the
principles of consideration and privity of contract… while the present structure of English contract law
remains intact the law of tort, as the general law, has to fulfil an essential gap-filling role. In these
circumstances there was, and is, no better rationalisation for the relevant head of tort liability than
assumption of responsibility’
(c) Commercial interests
JSC BTA Bank v Khrapunov [2018] UKSC 19 at [6]
‘The reason for the general rule is that, contract apart, common law duties to avoid causing pure
economic loss tend to cut across the ordinary incidents of competitive business, one of which is that
one man’s gain may be another man’s loss. The successful pursuit of commercial self-interest
necessarily entails the risk of damaging the commercial interests of others. Identifying the point at
which it transgresses legitimate bounds is therefore a task of exceptional delicacy’
(ii) Illustrations of the general rule
Cattle v Stockton Waterworks Co (1875) LR 10
D (waterworks company) maintained pipes under land, with the owner of land hiring P (Cattle) to dig
a tunnel. Defective pipe flooded land, reducing P’s profit.
o No recovery – relational economic loss.
Blackburn J said if recovery was allowed, then in other cases liability would be owed to everyone who
suffered a financial loss (e.g., in a flooded mine) – meaning the sphere of liability would be too high –
because the court tried to remedy every wrongdoing.
Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27
D’s negligent road work led to a failure of electric power supply to P’s factory. P had to pour molten
metal out of furnace to prevent damage, in the manufacturing of stainless steel.
o Losses: damage to molten metal, loss of profits to be earned on that metal, lost profit
regarding failure to complete further melts during power cut
, First two losses were recoverable, however, the lost profits on further melts were not recoverable as
this was a relational economic loss.
Policy reasons, Denning MR: legislative position is that electricity boards not liable to consumers for
economic loss of power shortages caused by their own negligence, common law should adopt similar
policy. The nature of the hazard, also, is one which is ‘regarded by most people as a thing they must
put up with’ and will ‘try to make up the economic loss by doing more work the next day’.
Floodgates concern: ‘be no end of claims,’ and the economic loss should be ‘suffered by the whole
community’.
Dissenting (Edumand Davies LJ): disagrees with policy considerations, ‘foreseeable… direct
consequences of the defendants’ – meaning there should be liability for a failure in a duty of care.
‘Economic loss may be recovered provided it is directly consequential upon physical damage’.
BOUNDARIES AND DEFINITIONS
(i) Consequential economic loss
Pure economic loss is not consequential upon damage to the claimant’s person or the claimant’s property. Of
consequential economic loss, which is recoverable without special difficulty (though subject to the rules of
remoteness)
SCM (UK) Ltd v Whittall and Son Ltd [1971] 1 QB 337, 341 (Lord Denning MR)
D negligently damaged electric cable when building – cable supplied electricity to several factories
along a road. 7 hour power outage to P’s typewriter factory. P’s molten materials solidified. Company
had to strip them and chip away material – parts damaged beyond repair. Claim made for item value
for one full day’s production.
Consequential economic loss succeeds – Lord Denning Mr, ‘defendant by his negligence causes
physical damage… plaintiff is entitled to compensation for the physical damage’.
o ‘It is well settled that when a defendant by his negligence causes physical damage to the
person or property of the plaintiff, in such circumstances that the plaintiff is entitled to
compensation for the physical damage, then he can claim, in addition, for economic loss
consequent on it’
Network Rail Infrastructure Ltd v Conarken Group Ltd [2011] EWCA Civ 644
D’s negligence led to railway track closure – NR contractually obliged to Train Operating Companies
(TOCs) due to line closure. NR revered damages for repair costs, consequential economic loss.
Lagden v O’Connor [2004] 1 AC 607
D damaged C’s car, C not able to hire replacement car due to costs, so signed a credit hire agreement. Hire fee
higher than other rates
(ii) Property damage
Where D commits a positive act which damages C’s property, C must show they
(i) Had a sufficient interest in the property at the time it was damaged by D’s act, and
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