#2289 - Economic Loss Caused By Negligent Activities - Tort Law

Economic Loss caused by negligent activities

The Traditional Approach

• Only where losses are consequential

  • E.g. personal injury, property damage

    • As a result a defect

      • Can there be recovery

• Giliker: where loss is purely financial

  • i.e. because defect in house is discovered

    • then this is PEL and can’t be recovered.

Extension of the Principle?

• Giliker: decision in Anns meant that property damage was re-characterised (has now been overruled)

  • Lord Wilberforce:

    • House should be treated as a chattel

      • Therefore, defects in house

        • As well as (established rule) damage caused to property by consequences of a defect

          • Would BOTH be liable and grounds for a suit

Principles of Modern Law

• Economic loss not recoverable in tort where no contract exists between parties in absence of UCTA or sufficient proximity.

  • Muirhead v Industrial Tank Specialists [1986]:

    • C reared lobsters in tanks, pumps preserved health of lobsters by pumping in sea water, intended to make a profit on them by buying them cheap and then selling them at Christmas for more.

    • Lobsters died owing to D’s negligence when powers cut out

      • Goff LJ: Dead lobsters = physical damage.

        • Therefore, C can claim from D (manufacturer) any loss owing to the damage

          • i.e. loss of profits selling them on.

        • BUT can’t recover cost of the pumps/trying to fix them.

          • Cos D lacks a sufficiently proximate relationship between himself and manufacturer.

• This means that “Defective product economic loss” without contract is not recoverable

  • D and F Estates Ltd v Church Commissioners [1989]: C were the leesee and occupiers of a flat in Chelwood House owned by D. D had built house using sub contractor (X) who turned out to have negligently plastered. C sued X for recovery of the loss.

    • Lord Oliver: no such thing in English law as transmissible warranties of quality

      • If you don’t have a contract with them, you cannot sue them.

    • Lord Bridge

      • Difference between “latent” defects and “apparent defects”.

        • With latent defects, when the negligent construction causes damage to property or persons X can sue

        • If the defect is discovered before such things result it is “apparent”

          • Then this is PEL, not property damage and is therefore not recoverable

      • Take a dangerously built garden wall

        • If I have to pay to fix or demolish it

          • Only the structure itself is flawed and need to be repaired

          • Not my foot or some of my property

            • Therefore, repairing the wall is PEL.

    • Lord Keith:

      • If you discover a defect, it becomes apparent

        • Therefore, cost of recovering other property (or personal injury) subsequently damaged by apparent defect = PEL

          • And can’t be recovered from the tortfeazor

  • Murphy v Brentwood [1991]:

    • Why loss is PEL

      • Lord Keith:

        • With product liability, it is the latency of the defect which causes the injury

          • Once this becomes apparent

            • Then it no longer poses such a danger

          • All you then have to do is either dispose of the chattel or correct it

            • In both cases, the loss is then purely economic.

        • Complex Structure idea discussed but not approved.

    • Reasons behind rejecting recovery

      • Lord Keith: Since this is PEL, what would happen if we imposed a duty on the council?

        • Would lead to wide field of claims

          • Would need a duty on the builders

            • And therefore any manufacturer

        • Difficult questions of liability

          • If a dangerous defect was discovered before it was dangerous,

            • Would C be entitled to sue for the rectification of it?

        • Undermining contractual intentions

          • Claims that would not be available in contract would be available in tort

            • Thus C could sue for defects that don’t make property dangerous but merely useless.

              • In complete absence of negotiated contractual warranty.

        • Defective Premises Act 1972 is available

  • Exceptions

    • Injury caused by apparent defect when unreasonable for C to repair it

      • Targett v Torfaen BC: C rents house from D, the owner of house. Access to door by stairs with no lower handrail and no artificial lighting, C complains but nothing done. C falls down steps at night, injuring self.

        • Held Tenant is in entirely different position from an owner of a house defectively constructed who finds apparent defect.

          • If A finds out about a dangerous defect, does nothing, and is then injured by it/has property damaged by it,

            • This will not destroy his proximity to B who created the danger, or exonerate B from liability to A,

              • unless reasonable for A to remove or avoid the danger

    • Where defect potential source of liability to neighbouring landowners.

      • Lord Bridge in Murphy v Brentwood

        • If building stands to close to a boundary and remains potential source of injury to neighbours after discovery of dangerous defect

          • Ought in principle to be able to sue negligent builder for costs of making building safe for neighbours

        • Giliker: unclear how far this principle goes

    • Complex Structure Theory?

      • Parts of house can be treated as separate entities

        • Lord Keith: electrical wiring faulty, causes fire that burns house down

          • “reserve judgement on this question”

        • Lord Bridge:

          • Might be able to treat foundations as different entity to rooms of the house

      • Lord Keith and Lord Bridge expressed doubts about validity in Murphy v Brentwood however.

    • Where a survey is produced by X which fails to spot defects and it is reasonable for X to assume Z will act in reliance on that survey

      • Harris v Wyre Council

        • Lord Templeman

          • Common Law imposes a duty on someone who contracts to carry out an operation to use reasonable care and skill

            • Is the same even when there is no contract

          • Responsibility is assumed by a valuer to a valuee by agreeing to carry out a report on a mortgage matter

            • And knowing that the report will probably be relied upon

        • Lord Griffiths:

          • If warranty put on front excluding liability

            • Then UCTA s.2(1) invalidates exclusion of personal injury liability

            • And UCTA s.2(2) requires exclusion of property damage liability to be (s.11(3)) reasonable.

    • Defective Premises Act 1972

      • S.1(1) As Long as house is “dwelling”

        • i.e. building is erected/converted/extended so to be used for habitation.

      • Then builder owes duty to

        • S.1(1) use proper materials/work in professional manner

        • S.1(2) discharged by carrying out instructions that have been given to builder

          • S.1(3) and not just carry out agreed instructions proposed by builder

            • S.1(2) Unless has duty to point out to instructor that instructions are defective

      • Duty owed to

        • S.1(1)(a) person who orders construction

        • S.1(1)(b) anyone who has/acquires legal or equitable interest in dwelling

      • S.1(5) Runs under normal limitation period (6 years)

        • From last completion of work on dwelling (including remedial work)

      • S.2(1) does not apply to statutory approved schemes.
        

Is the Murphy v Brentwood decision justifiable?

• Undermines the point of negligence law

  • Hoyano: Whole purpose of negligence law is to set standards of liability for risky practise

    • So that people know what standard they need to aspire too

      • Decision of Murphy v Brentwood seems opposed to this

  • Denial of PEL and having to wait until defect causes personal injury/property damage = policy of cure rather than prevention

  • C has no recourse from negligence even though no opportunity to make contract with negligent builder most of the time

• Poorly reasoned

  • Distinction between “dangerous” when undiscovered and “...