#2381 - What Is Pure Economic Loss - Tort Law

What is Pure Economic Loss?

Definition

• Giliker: where loss is purely financial

  • Consequential losses are not pure economic loss

    • e.g. X suffers a facial injury owing to D negligently running him over with a car

    • X is a model

    • X now loses contracts and future contracts

      • This is not economic loss because it is a consequence extending from the personal injury

  • Only when Z suffers purely financial loss is this pure economic loss in law:

    • Suppose X is contracted the his agent Z

    • Z can no longer get money from X’s work, because X cannot work anymore

    • Z has suffered no personal injury nor property damage

      • She has suffered a purely financial loss

        • Her pocket has been hit

          • But nothing else has

• Spartan Steel v Martin and Co [1973]:

  • D was a construction company near to SS’s factory, which was supplied by an electricity cable. D negligently severed that cable by not taking enough care, meaning the factory had to close.

    • The melt already in the furnace suffered damage

      • SS was allowed to claim for this loss AND the lost profits from the damaged melt

    • BUT factory had had to close down for 14 hours

      • Meaning 5 other melts could not be melted down

      • Thus, SS suffered lost orders from those 5 melts they could not melt down during the “down time”.

  • Lord Denning: SS can recover lost melt, but not the 5 others that weren’t damaged

    • Should be no liability for lost profits and PEL because

      • Nature of hazard

        • Loads of people suffer loss owing to things beyond their control – go and get on with it

      • Floodgates – desire to avoid crushing liability

        • Used to stop loads of claims happening

        • If claims for economic loss allowed for power shutdown, would be no end of claims

          • And no end of damages

        • Would be wasteful to investigate whether the claims were real or not

      • Risk of economic loss should be borne by whole community

      • Law provides for deserving cases where property damage occurred

  • Problems with the Denning Approach:

    • Hoyano:

      • PEL can be just as devastating to people as property damage

      • PEL can at least be compensated like for like (lost money for compensation money),

        • whereas personal injury monetary compensation often futile in the most serious cases

      • Lord Edmund Davies dissenting

        • Rather arbitrary line drawn

          • Between consequential losses and economic loss resulting from damage to property which C only has contractual interest

          • Essentially drawn on who actually owns the property damaged

            • Which may be minor

              • In comparison to who depends on the property damaged and therefore then suffers loss

          • Wouldn’t it be clearer to say that D is liable for PEL where it is reasonably foreseeable

            • Problem then is that is that “reasonably foreseeable” can extend very far and to large numbers of claimants.

The effect of policy on the rationale behind denying PEL

• Giliker: Law should not undermine contract law

  • Consistency

    • Those who contract for the installation and maintenance of emergency generators

      • Have a contractual remedy if they then break down during a power cut

      • Would be inconsistent to give this remedy in tort when already available in contract

  • Nature of Tort and Contract

    • Contract is much more specific and also a voluntarily assumed obligation

    • Tort law is more general and imposes obligations upon people

      • Even when X does not know he owes an obligation to Z

    • Argument = protect economic interests by contract or tough luck

  • Problems with this way of thinking

    • Stapleton: why is contract a more desirable way of dealing with PEL?

    • Hoyano: Too simplistic analysis

      • Sometimes no opportunity to make a contract

      • Sometimes even when you have a contract C wants to use tort

        • Different limitation periods (tort more generous)

        • Different measure of damages

        • Escape route from contractual term excluding liability or capping damages

• Cadazo CJ: Avoid Crushing Liability

  • Liability in an indeterminate amount for an indeterminate time to an indeterminate class (floodgates argument)

  • Nightmare situation:

    • John Lewis truck carries furniture to John Lewis, Lorry driver crashes and blocks road owing to negligence of other driver

      • Negligent driver liable for any consequential losses to John Lewis

        • E.g. driver injury, damaged truck, lost profits, repairs to damaged furniture

    • BUT During accident, tailback for three miles, loads of vehicles stuck

      • Suppose a solicitor loses two hours of billable time, Advertiser misses presentation where he may get lucrative contract, Law student fails exam b/c late and loses training contract etc.

        • If PEL allowed wouldn’t a negligent driver be liable for all of the losses of “victims by ricochet”?

  • Problem = potential liability for unlimited damages

    • Unpredictability of extent of potential liability

      • While C knows what financial interest will be damaged, D does not from the result of his actions

    • Necessity to maintain a realistic and proportionate limit on damages

    • Unfair for D to compensate parties with whom D has no contact

      • Hoyano:

        • BUT Law only requires minor physical damage to trigger vast liability for consequential losses in personal injury

        • Amount of financial loss may be entirely foreseeable by D

      • Stapleton: is rarely a problem in real cases rather than hypothetical ones.

  • Problem = potential for unlimited class of claimants

    • Unpredictability of victims by ricochet

      • Lord Oliver in Caparo: Bottle of ginger beer damages one consumer, but loss stops there

        • Statement may be circulated and repeated without permission of author

      • Hoyano:

        • Does not justify barring all economic loss claims

          • E.g. where only one C or where D knows C’s financial interests before the tort

      • Stapleton: is a volume concern, not a numbers concern

        • Not an objection in cases of mass personal injury claims

          • But then physical...