Tort A - Liability for Economic Loss

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Liability for economic loss

It is generally much more difficult to establish a duty of care in respect of economic loss than for damage to property or personal injury. 

Generally, NO DUTY OF CARE IS OWED TO AVOID CAUSING PURE ECONOMIC LOSS BY CARELESS ACTIVITIES. 

Very different rules apply to careless statements, where it is much easier for the claimant to recover. The development of the two has largely been a historical accident which has been heavily influenced by policy arguments. 

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Pure Economic Loss

Pure economic loss is

LOSS THAT IS PURELY FINANCIAL. IT DOES NOT RESULT FROM DAMAGE TO THE CLAIMANT'S PROPERTY, OR TO THE CLAIMANT'S PERSON. 

IN TORT, GENERALLY, YOU CANNOT CLAIM FOR PURE ECONOMIC LOSS. eg, Ali causes a traffic accident, Beth is delayed in a traffic jam and is late for work losing two hours' pay. This is pure economic loss and she cannot recover. 

Tort law must not undermine contract law - contract for the allocation of responsibilty, eg, in a power cut. 

The desire to avoid CRUSHING LIABILITY -a negligent act causing personal injury or property damage is only likely to affect a limited number of people. Whereas pure economic loss can extend extremely far, as peoples' financial interests are very closely interrelated these days. Domino effect of economic loss. 

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SPARTAN STEEL & ALLOYS V MARTIN & CO (CONTRACTORS)

An arbitrary line has been drawn between pure economic loss and consequential economic loss. 

The defendants were construction workers, negligently cutting through a cable supplying electricity to the defendant's factory, causing a power cut lasting 14.5 hours. A claim was brought for three different things:

1. Damage to melt that was in the furnace at the time the power went off that had solidified and had to be thrown away PHYSICAL DAMAGE TO PROPERTY.       2. Loss of the profit that would have been made on the sale of that melt CONSEQUENTIAL ECONOMIC LOSS RESULTING FROM PROPERTY DAMAGE          3. Loss of profits on four further melts which would have been procesed while the factory was closed. 

The claims for the first two were recoverable, but the third claim was not. The defendants owed a duty not to damage property, and had to pay for the damaged metal and the loss of profits consequent on that damage, but they did not owe a duty in respect of future los profits because they did not result from property damage. This was due to policy considerations and the fact that people should be able to bear the loss of power cuts. 

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Consequential economic loss

Consequential economic loss is financial loss that is:

CONSEQUENT UPON PERSONAL INJURY TO THE CLAIMANT'S PERSON OR DAMAGE TO PROPERTY

eg, someone has to give up work due to being injured. It is recoverable because it results directly from damage to the claimant's property or person. 

GENERALLY, CONSEQUENTIAL ECONOMIC LOSS IS RECOVERABLE, BUT PURE ECONOMIC LOSS IS NOT

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Relational Economic Loss

Relational economic loss is financial loss that occurs because of the RELATIONSHIP BETWEEN THE IMMEDIATE VICTIM OF A WRONG AND THE PLAINTIFF. 

AT COMMON LAW, THIS IS USUALLY IRRECOVERABLE. 

In the case of personal injury, there is a long-standing refusal to recognise one person as having any legally-compensatable interest in the physical well-being of another. The Fatal Accidents Act 1976 has to step in in the case of fatal accidents involving the death of a breadwinner. 

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WEST BROMWICH ALBION FC V EL-SAFTY [2006]

This case illustrates the rule of no compensation for relational economic loss. Nobody can have a legally-compensable interest in the physical well-being of another. 

A footballer employed by West Brom suffered injury and was treated negligently by a doctor who advised him to have an operation on his knee, bringing the footballer's career to an end. The club suffered economic loss as a result of this advice. The Court of Appeal dismissed the club's claim. It was financial loss as a result of an injury, not their own injury, making it relational economic loss which is irrecoverable, and the Fatal Accidents Act 1976 could not apply because the accident had not been fatal. 

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CATTLE V STOCKTON WATERWORKS [1875]

In cases of damage to property, the rule is similar. Recovery is denied for financial loss stemming from damage to the property of another person. 

The defendants in this case laid a pipe under land belonging to Mr Knight and were under a statutory duty to keep the pipe in good repair. Mr Knight contracted Mr Cattle, the plaintiff, to dig a tunnel under a road on his land. Mr Cattle agreed to do this for a fixed price, but noticed that the land had become waterlogged. He realised the defendant's pipe was leaking and contacted them, but they did not repair it. Mr Cattle lost profit on his contract and sought to recover from the defendants, but it was held that he could not sue for damage that had been done to Mr Knight's land, as this was relational economic loss. It was not his property and therefore he could not sue, as he had no proprietary interest in the land. His loss was relational and he had no cause of action. 

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WELLER V FOOT & MOUTH DISEASE RESEARCH INSTITUTE [

The plaintiffs were auctioneers of cattle. The defendants by their carelessness had allowed a virus to escape from their research institute and infect cattle in the local vicinity leading to all cattle markets being closed. The plaintiffs lost profit as a result. It was held that while the institute might be liable to the owners of the infected cows (damage to property) they could not be liable to the auctioneers because there was no proprietary interest in the cows. It was therefore relational economic loss. 

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THE ALIAKMON [1986]

Is there such thing as a transferred loss in English law? 

The plaintiffs had contracted to buy a cargo of steel coils to be shipped from Korea. The arrangement was that although the risk in the cargo passed to the plaintiff, the ownership had not. When the coils were damaged at sea by the defendant shippers' negligence, the plaintiffs who had to pay for the damaged goods sought recover. It was held that they could not have a remedy because they only had a contractual interest in the coils, not a proprietary one. This therefore made the loss relational, and they were unable to recover. 

This resulted in the bizarre situation where the person who had suffered loss could not sue, but the person who could sue had suffered no loss.

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CONARKEN GROUP LTD V NETWORK RAIL INFRASTRUCTURE [

THERE IS ONE EXCEPTION TO THE RULE OF RELATIONAL LOSS. 

The defendants damaged Network Rail's track which had led to interruption in rail services. Train services are run by train operating companies following privatisation which have track access agreements with Network Rail. These agreements provide that Network Rail must pay compensation to the Train Operating Companies when access to the track is interrupted and compensation is calculated on the basis of the potnetial losses suffered by the TOCs. Network Rail sought to recover compensation from the defendants for the damages track but ALSO for the compensation paid out to the TOCs claiming it as consequential economic loss. The defendants argued that consequential loss should be confined to the cost of repairs and the loss of Network Rail to use the line not the TOCs. If the TOCs had brought a claim they would have lost as this would be relational economic loss. But the Court of Appeal was prepared to allow Network Rail's claim on the basis that they HAD suffered property loss and the issue of recovery of compensation payment was one of scope of duty and remoteness of damage - it was still classed as consequential loss rather than relational. 

The contractual agreements therefore allowed them to circumvent the rule given in Cattle v Stockton Waterworks, about relational economic loss, but the rule remains intact.

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MUIRHEAD V INDUSTRIAL TANK SPECIALITIES [1986]

The general quality of a product is related to the price the person has paid for it, so tort law may not impose obligations to supply goods of a certain quality as it interferes with the process of bargaining and renders contract law redundant. 

In this case an enterprising fishmonger planned to buy lobsters in summer and resell them at Christmas. He contracted with the first defendants to build him a tank where the lobsters were stacked, and sea water was circulated through the tank to oxygenate it using pumps from a third party supplied to the defendants. Because the motors had been made in Frnace they were unstuiable in the UK and so the pumps failed and the lobstes died. Muirhead successfully sued the defendants for breach of contract but they went into liquidation. He therefore brought a claim against the manufacturers of the pump claiming compensation for the loss of lobsters, profits, his expenditure incurred and the cost of the pumps. He could only sue for his damage to property and for the loss of profits consequent upon that damage. He could not recover for the cost of the pumps nor his expenditure trying to fix them. 

The courts are unwilling to allow pure economic loss claims where to do so would interfere with expressed contractual intentions.

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SIMAAN V PILKINGTON GLASS LTD [1988]

A sub-contractor failed to provide the correct shade of glass was  not liable to the plaintiffs who had suffered economic loss as the main contractors when their client refused to pay. 

They were not liable as there is no recovery where contractual intentions are undermined

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D & F ESTATES LTD V CHURCH COMMISSIONERS [1989]

Defective product economic loss is generally not recoverable. As in Muirhead v INdustrial Tank Specialists, he was not able to claim for the cost of replacing the pumps, as defective product economic loss is not recoverable in tort. What about defective buildings?

In this case the plaintiffs brought an action against the sub-contractors who had negligently plastered the walls of a flat, claiming the cost of renewing the plaster and the disruption and loss of rent. This failed, because it was a claim for pure economi loss and was only recoverable in contract.

There is a difference between situations on the one hand where an undiscovered defect materialised causing damage to other property and personal injury and, on the other hand, situations where a dangerous defect is discovered by the building owner before any such damage has occured. In the latter instance, the cost of remedying the defect - even where this is necessary to obviate an immediate threat of personal injury or damage to property - was to be regarded as non-recoverable pure economic loss. Tort law cannot impose obligations of a contractual nature.The plasteres could not be liable to the plaintiffs with whom they had no contractual relationship for defect in the quality of their workmanship.

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MURPHY V BRENTWOOD DISTRICT COUNCIL [1990]

Brentwood Council, relying on the negligent advice of its consulting engineers, approved the building plans for a house. There were errors in the design of the foundations making them defective. Murphy bought the house and while in occupation, the foundations cracked causing extensive damage. The Murphy family had to move out. Instead of repairing the house, Murphy sold it to a builder for considerably less than he paid and sued the council for his financial loss, but the claim failed. He could not recover for his pure economic loss. While a local authority or builder could be sued for an UNDISCOVERED DEFECT THAT SUDDENLY MATERIALISED CAUSING PERSONAL INJURY OR DAMAGE TO PROPERTY OTHER THAN THE BUILDING ITSELF, no duty of care was owed in respect of damages caused by a defect that had become apparent - it had been discovered or reasonably ought to ahve been discovered. The cost of replacing other property damage by an apparent defect was regarded as pure economic loss. 

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TARGETT V TORAFEN BC [1992]

There are two exceptions to the rule of apparent defects. 

A claimant may recover for personal injurycaused by an apparent defect where it is unreasonable to expect the claimant to repair the defect or vacate the building. 

In this case a council tenant was injured when he fell down poorly designed steps that were not adequately lit. When he sued the council, the defendant said that the defect was apparent and that it was a matter of pure economic loss because the tenancy was less valuable than it might have been. The Court of Appeal held that Murphy did not lay down an absolute rule to the effect that a claimant who suffered an injury ebcause of a defect was automatically barred from recovery because they had known of that defect. It was held to be unrealistic to expect them to vacate the property for fear of injury of a small defect, and therefore liability should be decided on whether in the circumstances, it was reasonable to expect the homeowner to remain.

2. A claimant may also recover when the defect is a potential source of liability to neighbouring landowners.

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The Defective Premises Act 1972

This act provides for the liability of builders and other professionals involved in the construction of dwellings. Under the Act, 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 in a workmanlike or professional manner with proper materials so that the dwelling will be fit for habitation when complete. This duty is not only imposed on builders, but also architects, surveyors and sub-contractors. It is owed to not only the person commissioning the work but also to every person who later acquires an interest in the dwelling. 

It provides a remedy for mere defects in quality provided that they make the house unfit for habitation without the claimant having to show an imminent danger of person injury or damage to other property. There is a six-year limitation period. 

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ROSS V CAUNTERS [1980]

Recognition of a tort duty owed by a professional to a third person in carryong out a contract has provoked controversy due to undermining the rule of privity in contract. 

However, there is one case where this rule is not followed: a solicitor in preparing a will owes a duty to intended beneficaries of the will to prevent them suffering financial loss. 

In this case the defendant solicitor failed to tell a testator that if his will was witnessed by the spouse a beneficiary, any gift to that beneficiary would be void. The plaintiff, whose husband witnessed the will, sued the solicitor for loss of her gift under the will. It was held that the solicitor owed the plaintiff a duty of care and was liable. 

This case was unlikely to lead to indeterminate liability because the specific intended beneficiaries would be persons known to the solicitor who was supposed to draft the will. 

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WHITE V JONES [1995]

Ross v Caunters was upheld. 

A testator had quarreled with his daughters and made a will cutting them out of his inheritance. He reconciled with them subsequently and asked his solicitor to put them back in the will to be left £9,000 each. The defendant dailed to act promptly and the testator died before it was implemented. The estate was distributed according to the old will and the daughters were deprvied of their intended legacies. They brought an action for £9,000 each in damages. The House of Lords upheld their claim, even though it was a claim in tort undermining the principle of privity of contract. It was held that the solicitors had assumed responsibility to the plaintiffs. 

It was argued that this case was giving the plaintiffs the benefit of a contract to which they were not parties as it was between the testator and the solicitor. But the person with a claim had not suffered loss and the person suffering loss had no claim. 

This ratio has been limited strictly to this application.

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HEMMENS V WILSON BROWNE [1993]

Ross v Caunters and White v Jones have been limited in their application,.

In this case a man having an affair with the plaintiff instructed his solicitors to draft a document entitling her to call upon £110,000 at any time in the future. The solicitors drafted the document but it had no legal affect. When the plaintiff asked the man to fulfil hiis promise he refused to pay having gone back to his wife. The plaintiff sued the solicitors arguing that their negligent drafting had caused her to lose her gift, but it was held that the policy considerations of Ross v Caunters and Jones v White did not apply as the man was still alive and would have been able to adjust the legality of the document if he wished. 

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