Introduction

• claimant's (C) pure economic loss resulting from defendant's (D) carelessness only gives rise to Negligence claim if duty of care, for D to owe C duty of care there must be sufficient proximity
• general rule: D not owe any duty of care to C not to cause pure economic loss, therefore loss not recoverable
• limited duty situation: C can only recover for loss exceptionally (if possible to show sufficiently close relationship between C & D)
• consequential economic loss: economic losses if C suffers personal injury or damage to property, recoverable
• pure economic loss: loss not consequential from personal injury or damage to property
• without special rule for economic loss: floodgates open for indeterminate number of Cs for claims for limitless amounts

Damage to a third party's property

• damage to third party's property may result in pure economic loss: if A borrows item from B & item damaged due to D's negligence, B can claim for damaged property, but A cannot claim for any pure economic losses incurred (having to hire substitute item)

  Spartan Steel & Alloys Ltd v Martin & Co Ltd [1973] 1 QB 27

  Facts:

  • plaintiffs (P) owned steel factory, electricity supplied by direct cable owned by third party (Electricity Board)
  • Ds carelessness carried out road works & damaged cable, Electricity Board had to shut down power supply to P's factory for 14.5hrs overnight to mend
  • factory worked 24hrs a day, when power stopped metal was being melt processed in furnace (which required constant temperature & therefore power)
  • if P left mixture in furnace without power it could damage machinery, so P used alternative method to process, producing less valuable material (physical damage: £368 & loss of profit: £400)
  • Ps also lost opportunity to load furnace further 4 times during power cut (losing profit: £l 767)

  Issue:

  • which losses could P recover?

  Held:

  • P could recover: damage to melt in furnace when power cut (£368) & loss of profit on that melt (£400), as cost of physical damage to P's property (the melt) & consequential economic loss (the lost profit)
  • P not recover: loss of profit during whole period power cut, as pure economic loss caused by damage to property of third party (cable belonged to Electricity Board)
  • Lord Denning: .. I think the question of recovering economic loss is one of policy. Whenever the courts draw a line to mark out the bounds of 'duty' they do it as a matter of policy so as to limit the responsibility of the defendant...
• if A suffers pure economic loss due to D negligently damaging third party's property, insufficiently close relationship between D & A, no duty owed & losses not recoverable

No physical damage

• pure economic loss may arise where there has been no physical damage

  Weller & Co v Foot & Mouth Disease Research Institute [1966] 1 QB 569

  Facts:

  • D negligently released foot & mouth disease which affected cattle
  • P operated cattle market which had to close due to outbreak & P lost revenue

  Issue:

  • could P recover for the loss?

  Held:

  • P could not recover: loss not caused by physical damage, was pure economic loss & no duty of care owed by D
• pure economic loss without physical damage is not recoverable

Defective goods or property

• general rule: claim for defective goods can be made under contract law

  Anns v Merton London Borough Council [1978] AC 728

  Facts:

  • P's flats had structural damage due to subsidence, Ps did not sue builders (who they had contract with)
  • Ps claimed against D, local council, arguing D negligently approved building plans & / or negligently failed to inspect building works

  Issue:

  • could Ps recover in tort?

  Held:

  • House of Lords: Ps could recover from D, despite no contract between parties, because structural damage was material damage to property
• Anns v Merton London Borough Council [1978] controversial because no contract & traditional view property damage only applies to existing property (whereas original property was defective)

  Junior Books v Veitchi [1983] 1 AC 520

  Facts:

  • Ps new factory had defective flooring & lost money during refit, Ps had contract with main builders
  • Ps claimed against Ds, the negligent specialist sub-contractors, who attended meetings with builders & P discussing flooring

  Issue:

  • could Ps recover in tort?

  Held:

  • Ps could recover from Ds, confirming view of property damage in Anns v Merton London Borough Council [1978]
• Anns v Merton London Borough Council [1978] & Junior Books v Veitchi [1983] heavily criticised for: opening floodgates to unlimited claims, where D may have no relationship with C & allowing claims in tort interferes & undermines contract law

  Murphy v Brentwood District Council [1991] 1 AC 398

  Facts:

  • P bought new build house but ceiling & water pipes cracked due to defective foundation design
  • cost of repairs: £45 000, P sold house unrepaired for £30 000 (£35 000 below market value of house in sound condition)
  • P sought damages from D, local council, who negligently approved building plans

  Issue:

  • could P recover from D?

  Held:

  • House of Lords: loss was pure economic loss, as property was defective when acquired (resulting in having to repair or scrap - both at economic loss)
  • D did not owe duty of care as pure economic loss
  • effect of decision: overrule Anns v Merton London Borough Council [1978]
  • building structural damage so not apply complex structure theory (if component in large item defective & damages whole property then classed as property damage)
  • Lord Bridge: .. [no duty arises in the acquisition of defective property] in the absence of a special relationship of proximity imposing on the tortfeasor a duty of care to safeguard the plaintiff from economic loss...
  • Junior Books v Veitchi [1983] distinguished: exception was satisfied, was special relationship between D & P (due to discussions at meeting about flooring)
• pure economic loss for defective goods recovered in tort: only if special relationship between P & D (duty of care owed)