Pure Economic Loss Tort Essay

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Title: FIRST CLASS TORT LAW ESSAY - ECONOMIC LOSS.
Description: FIRST CLASS TORT LAW ESSAY - ECONOMIC LOSS. It has often been argued that, in dealing with economic loss cases, the courts have concentrated on the cause of such losses rather than any overarching policy. Consider this argument in light of the different types of economic loss recoverable in the law of Tort. INCUDES FULL FOOTNOTES AND BIBLIOGRAPHY.

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Economic Loss Assignment

LLB TORT LAW COURSEWORK
It has often been argued that, in dealing with economic loss cases, the courts have concentrated on
the cause of such losses rather than any overarching policy
...

This paper will set out to demonstrate that although the courts have considered policy in dealing with
economic cases as it commented in the Spartan Steel and Alloys Ltd v Martin & Co (Contractors)
Ltd1, judges will generally give more weight to the causes of such losses (in the exceptions to the
general rule)
...
Economic loss
can be divided into two categories: ‘consequential’, which is the economic loss arising from personal
injury or damage to property, and ‘pure economic loss’, which does not arise from personal injury or
damage to property
...


Any economic losses occurring by a wrongful act or omission are

irrecoverable unless they involve physical loss and/or damage or they are consequential losses, which
is a direct result of physical damage
...
Previously, the courts had used the neighbour test in Donoghue v Stevenson2 to justify
new areas of liability if there were policy reasons for doing so
...
Their tendency to reject claims to recover pure economic loss was
seen as stemming more from policy than logical considerations, for fear that it is potentially unlimited,
it could represent a ‘crushing liability’, the foreseeability element, and the interaction with contract
law, which is more appropriate to deal with pure economic loss
...

The courts have sought to make a distinction between actual damage to property, consequential loss
and pure economic loss
...
It was decided that the damage to lost
steel in the furnace is property damage and recoverable in the law of tort; the loss of profit is
consequential economic loss, is also recoverable; however, the loss of profits on the further melts that
were not produced due to the furnaces being switched off, was pure economic loss, which is not

1

[1972] 3 WLR 502 (CA)
...

3
Supra at n 1
...
Lord
Denning commented in his judgment that:
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
...
5

Denning made five considerations
...
‘If such be a policy of the legislature in regard to
electricity boards, it would seem right for the common law to adopt a similar policy in regard to
contractors
...
’6 The second consideration is the
nature of the hazard, namely the cutting of the supply of electricity
...
7 Denning considered this to be a healthy attitude, which the law should encourage
...
The fourth
consideration is ‘in such a hazard as this, the risk of economic loss should be suffered by the whole
community who suffer the losses’
...
10 In this
instance, the law provides for deserving cases
...
11
Although other ‘Commonwealth courts share English law’s generally restrictive approach to pure
economic losses, Canadian National Railway v Norsk Pacific Steamship12 showed ‘willingness to
expand the frontiers of liability in this area, in which the court held that liability arose because the
4

Mark Lunney and Ken Oliphant, Tort Law: Text and Materials (2nd edn, Oxford University Press, Oxford 2003) 340
...

6
Ibid 342
...

8
Barbara Harvey and John Marston, Cases and Commentary on Tort (6th edn, Oxford University Press, Oxford 2011) 93
...

10
Harvey and Marston, Cases and Commentary on Tort (n 8)
...

12
[1992] 1 SCR 1021
...
13 The objective of negligent claims, is to put
the claimant in the same position they would have been in had the tort not occurred
...
15
There appears to be several underlying principles the courts consider in pure economic loss cases
...
In Cattle v Stockton Waterworks Co17 the
claimant was a builder who was unable to complete his work as the defendant negligently flooded
land he was working on
...

The courts began to allow claims for economic losses based on defective goods and a general retreat
from Anns v Merton London B
...
There have been a whole series of cases involving actions against
local authorities for failing to enforce building regulations, confusing the distinction between pure
economic loss and consequential economic loss – Dutton v Bognor Regis U
...
C19 and Batty v
Metropolitan Property20
...
The
precise principle on which the House of Lords based its decision was unclear and the legitimacy of
liability was considered in D & F Estates Ltd v Church Comrs
...
In D & F Estates Ltd the House of Lords affirmed that damage to a
building attributable to its defective construction constitutes pure economic loss and as the action was
brought against the builder, it was not necessary to consider the decision in Anns could still be
13

Lunney and Oliphant, Tort Law: Text and Materials (n 11)
...

15
Ibid at 346
...

17
(1875) LR 10 (QB)
...

19
[1972] 1 QB 373
...

21
Lunney and Oliphant, Tort Law: Text and Materials (n 9) 347
...

23
[1991] 1 AC 398
...
Following Anns, the distinction between material physical damage and pure economic
loss seemed to have lost entirely
...
Ltd25,
which stretched the scope of the duty of care to a point many have referred to as the ‘high water mark’
of pure economic loss, looking more at the cause of such losses rather than the policy
...
They could not sue the sub contractor in
contract law, as they did not have a contract, so they sued the defendant in tort
...

The courts distinguish between a defect in a good (contract law) and damage to goods caused by a
defect in a product (tort law)
...
The duty of care principle26
referred to ‘foresight of physical injury or damage to property as a consequence of negligent
behaviour; but if goods fail to work, there is no damage on which to base a duty of care – the
appropriate claim would be seem to be in contract’
...
This is apparent in House
of Lords decisions with regard to: liability for negligent references (Spring v Guardian Assurance
plc29); liability of solicitors to third parties (White v Jones30); and concurrent liability in contract and
tort (Henderson v Merrett Syndicates Ltd31)
...


All three of the cases have

contractual overtones and similarly in Junior Books, it was decided there was a quasi-contract and as
such economic loss was recoverable
...

[1982] 3 WLR 477
...

27
Lunney and Oliphant, Tort Law: Text and Materials (n 4) 346
...

29
[1994] 3 WLR 354
...

31
[1994] 3 All ER 506
...

The courts re-affirmed the difference between a defect in property and damage actually caused by a
defect
...
The House of Lords overruled Anns in the
case of Murphy35, in which the claimant made a loss in the market value of a property owing to the
inadequate specifications of the foundations by an architect
...
36 The House of Lords in Murphy thought the existence of the act was a factor against
imposing a common law duty of a different scope
...
Surely, the law should not leave the consumer to his contractual rights if he is
not in a position to bargain them and should be more ready to allow him a tort action and the benefit
of duties imposed by the law for his protection?’37
Lord Bridge of Harwich also commented on the complex structure theory, which is when one part of
the structure causes damage to another part of the same structure, ‘be regarded in the law of tort as
having caused damage to other property for the purpose of the application of Donoghue principle’38
...


‘According to Murphy, pure economic loss is prima facie

unrecoverable unless the relationship between the claimant and the defendant can be brought within
the principle of Hedley Byrne
...
40 Failure to take care could give rise to
liability for economic loss caused by the negligent advice
...

Simaan General Contracting Co v Pilkington Glass Ltd (No 2)[1988] QB 758
...

35
Supra at n 23
...

37
Ibid at 362
...

39
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
...

33

5

Economic Loss Assignment

from this position, the principles established in Hedley Byrne continue to form the basis of any duty of
care owed in relation to pure economic loss’ when such loss is based on reliance on a statement
...
’42 ‘The function of the law of tort is to deter dangerous conduct and in these
circumstances the manufacture of dangerous products, and also encourage improvements in the levels
of safety in society
...
Furthermore, the desirability of
spreading the loss most efficiently and fairly to those who can best bears that loss
...
It is the ‘dangerous’ nature of the product with which tort law
is concerned and which implicates the policies underpinning the tort
...
45
More recently, though, cases such as White v Jones46 have been decided in a way that suggests the
Hedley Byrne principle is wide enough to encompass situations in which the claimant and defendant
are unknown to each other
...
However, due to a special
relationship giving rise to proximity and cemented by the solicitor’s voluntary assumption of
responsibility for the task, the courts concluded that solicitors do owe a duty of care to the
beneficiaries and not just their client
...

There is a mix of general negligence and Hedley Byrne
...
48

41

Ibid
...

43
Ibid
...

45
Grubb and Mullis, An Unfair Law for Dangerous Products: The Fall of Anns (1991) Conv 225
46
[1995] 2 WLR 187
...

48
Horsey and Rackley, Tort Law (n 19) 185
...
‘The principles from Hedley Byrne have been
applied to negligent provision of services, reflecting a more flexible approach and willingness on the
part of the courts to do practical justice
...


7

Economic Loss Assignment

STUDENT DECLARATION
I, student number 150062, declare that this piece of work contains 2509 words
...


BIBLIOGRAPHY
Books:
Harvey B and Marston J (2011), Cases and Commentary on Tort (6th edn, Oxford University Press,
Oxford)
Horsey K and Rackley E (2011), Tort Law (2nd edn, Oxford University Press, Oxford)
Lunney M and Oliphant K (2003), Tort Law: Text and Materials (2nd edn, Oxford University Press,
Oxford)
Journals and Articles:
Grubb and Mullis, ‘An Unfair Law for Dangerous Products: The Fall of Anns’ (1991) Conv 225
Hughes A and McBride NJ, ‘Hedley Byrne in the House of Lords: An Interpretation’ (2005) 15 Legal
Studies 49
Quill E, ‘Consumer Protection in Respect of Defective Buildings’ (2006) 14 Tort Law Review 105
Stapleton J, ‘Duty of Care and Economic Loss: A Wider Agenda’ (1991) 107 Law Quarterly Review
249
Case Law:
Anns v Merton London B
...

Batty v Metropolitan Property Realisations Ltd [1978] QB 554
...

Caparo Industries plc v Dickman [1990] UKHL 2
...

D & F Estates Ltd v Church Comrs
...

Donoghue v Stevenson [1932] UKHL 10
...
D
...

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
...


8

Economic Loss Assignment

Junior Books v Veitchi Co
...

Ministry of Housing v Sharp [1970] 2 QB 223
...

Murphy v Brentwood District Council [1991] 1 AC 398
...

Simaan General Contracting Co v Pilkington Glass Ltd (No 2 )[1988] QB 758
...

Spring v Guardian Assurance plc [1994] 3 WLR 354
...

White v Jones [1995] 1 All ER 691
...

Electronic Information/sources:
LexisNexis

9


Title: FIRST CLASS TORT LAW ESSAY - ECONOMIC LOSS.
Description: FIRST CLASS TORT LAW ESSAY - ECONOMIC LOSS. It has often been argued that, in dealing with economic loss cases, the courts have concentrated on the cause of such losses rather than any overarching policy. Consider this argument in light of the different types of economic loss recoverable in the law of Tort. INCUDES FULL FOOTNOTES AND BIBLIOGRAPHY.

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Executive Summary:

This study emphasises the divergence between the legal approach to pure economic loss and the economic one, and focuses on the latter. Traditional economic theory is grounded on the divide between social and private loss and is employed in formulating policy recommendations for an efficient outcome. However, it fails to explain why pure economic loss cases are treated differently in different legal systems.

This study suggests that pure economic loss should be regarded as the internalisation of positive externalities through a mechanism (tort law) primarily designed for negative externalities. The pure economic loss problem is a problem of choosing between secondbest solutions, because tort law generally fails to provide first-best internalisation of both types of externalities. Within this framework, some new hypotheses on the comparative law and economics of pure economic loss will be discussed.

Introduction

'Pure economic loss' and the possible approaches

Although there is no common definition of 'pure economic loss', it is generally understood to deal with matters of tortious liability for loss that is neither consequential upon death and personal injury of the claiming victim nor upon the infringement of the victim's property.

But other than that, the various topics that are dealt with under the heading of 'pure economic loss' seem to have little in common. The concept of 'pure economic loss' covers very dissimilar subjects such as liability for negligent statements (on which the plaintiff reasonably relied), ricochet damage to third parties in case of personal injury, and liability for inducing (or profiting from) breach of contract. 'Pure economic loss covers a wide variety of legal problems that are not dealt with in a homogenous way in the various legal systems.

In some cases the defendant's negligence will cause no physical damage or injury to the plaintiff or their property, but the...


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