Tort Lecture
Week 6: Economic Loss
WHAT IS ECONOMIC LOSS?
➔ Area of tort concerning economic loss stemming from a negligent act
➔ Reluctance to allow claims
➔ Fears of unlimited indeterminate claims
➔ Floodgates argument
➔ Potential for economic loss claims to snowball, affecting a wide rage of people
NEGLIGENT ACTS
➔ Two types of situations where economic loss can be claimed:
◆ Loss resulting from negligent misstatement
◆ Loss resulting from negligent act
➔ Claimant can sue for economic loss that stems from physical loss
➔ BUT can only sue for economic loss resulting from a negligent act in specific circumstances
(consequential economic loss)
➔ Network Rail Infrastructure Ltd v Conarken Group Ltd [2011] EWCA Civ 644
◆ 2 heavy goods vehicles caused damage to railway bridge
◆ admitted to damage & admitted liability for the repairs
◆ bc the bridge was damaged, train company were required to make
compensation payouts to train operating services bc they couldn’t run their
trains
◆ this is a part of the C’s agreements with the train operating services
◆ D didn’t want to compensate for compensation C had to pay, said it was pure
economic loss
◆ CoA:
● you caused physical damage to property and the compensation that C
had to pay was the direct result of that physical damage caused by
your negligence
● held liable because it was reasonably foreseeable so it is fair, just and
reasonable to allow liability
TWO FORMS OF ECONOMIC LOSS
➔ Tort fixes many problems using financial solutions e.g. damages, but this is not what we mean
when we talk about economic loss
➔ Two forms of loss in negligence:
◆ pecuniary
● pecuniary = financial/economic losses that can be accurately calculated using
a cost assessment
◆ non-pecuniary
● non-pecuniary = losses that aren’t financial in nature, so can’t be assessed
e.g. compensation for a lost limb
➔ Two forms of economic loss:
◆ Consequential loss
● loss is secondary to the damage
◆ Pure economic loss
, ● the only damage suffered
● not often fully recoverable w/ the exception of negligent misstatement
➔ Tort of negligence distinguishes them both using the duty of care as a control device
CLAIMS FOR ECONOMIC LOSS - WHERE TO BEGIN?
➔ Identify what type of economic loss you are dealing with:- PURE or CONSEQUENTIAL
➔ when looking at claims for economic loss, you begin with the duty of care question and what
type of loss is being suffered
◆ economic or consequential?
◆ consequential is the only way in which a damage can be recovered
➔ KEY CASE: Spartan Steel & Alloys v Martin and Co Ltd [1973] CA
◆ Defendants negligently cut an electricity mains cable supplying power to the claimants
factory
◆ No power for 14hrs and could not operate their steel furnace
◆ Possibility that the molten would solidify = damage
◆ Factory had to be closed
◆ Owners claimed under three heads
● a) the damage to the steel in the furnace
● b) the loss of profit that could have been made
● c) the anticipated lost profit on the steel that would have been processed
◆ Court of appeal allowed recovery for
● a (physical damage to property)
● b (consequential economic loss, B being a consequence of A)
● BUT NOT C (anticipated profit - pure economic loss)
◆ the loss of profit couldn’t be made on the steel that was in the furnace when the power
cut out
◆ this loss of profit wasn’t something reasonably foreseeable
◆ property damage is reasonably foreseeable
KEY TAKEAWAYS FROM SPARTAN STEEL
➔ A duty of care is only owed in respect of FINANCIAL LOSSES relating to PROPERTY DAMAGE
caused by the defendant’s NEGLIGENCE
➔ Must be as a direct result of the damage to the property
➔ Lord Denning - policy consideration
◆ Power failures were a fact of life
◆ A thing they must put up with
◆ Inflated claims for lost profits
◆ Crushing liability
◆ Contract Law
● prefer to use when looking at arrangements/agreements/disputes between
companies/organisations
● SS we’re actually prevented from claiming from the electricity company bc of
an exclusion clause in the contract
● tort law is not there to contradict contract law
EXCEPTION TO THE GENERAL RULE: HEDLEY BYRNE & CO LTD V
HELLER & PARTNERS [1963] AC 465
Week 6: Economic Loss
WHAT IS ECONOMIC LOSS?
➔ Area of tort concerning economic loss stemming from a negligent act
➔ Reluctance to allow claims
➔ Fears of unlimited indeterminate claims
➔ Floodgates argument
➔ Potential for economic loss claims to snowball, affecting a wide rage of people
NEGLIGENT ACTS
➔ Two types of situations where economic loss can be claimed:
◆ Loss resulting from negligent misstatement
◆ Loss resulting from negligent act
➔ Claimant can sue for economic loss that stems from physical loss
➔ BUT can only sue for economic loss resulting from a negligent act in specific circumstances
(consequential economic loss)
➔ Network Rail Infrastructure Ltd v Conarken Group Ltd [2011] EWCA Civ 644
◆ 2 heavy goods vehicles caused damage to railway bridge
◆ admitted to damage & admitted liability for the repairs
◆ bc the bridge was damaged, train company were required to make
compensation payouts to train operating services bc they couldn’t run their
trains
◆ this is a part of the C’s agreements with the train operating services
◆ D didn’t want to compensate for compensation C had to pay, said it was pure
economic loss
◆ CoA:
● you caused physical damage to property and the compensation that C
had to pay was the direct result of that physical damage caused by
your negligence
● held liable because it was reasonably foreseeable so it is fair, just and
reasonable to allow liability
TWO FORMS OF ECONOMIC LOSS
➔ Tort fixes many problems using financial solutions e.g. damages, but this is not what we mean
when we talk about economic loss
➔ Two forms of loss in negligence:
◆ pecuniary
● pecuniary = financial/economic losses that can be accurately calculated using
a cost assessment
◆ non-pecuniary
● non-pecuniary = losses that aren’t financial in nature, so can’t be assessed
e.g. compensation for a lost limb
➔ Two forms of economic loss:
◆ Consequential loss
● loss is secondary to the damage
◆ Pure economic loss
, ● the only damage suffered
● not often fully recoverable w/ the exception of negligent misstatement
➔ Tort of negligence distinguishes them both using the duty of care as a control device
CLAIMS FOR ECONOMIC LOSS - WHERE TO BEGIN?
➔ Identify what type of economic loss you are dealing with:- PURE or CONSEQUENTIAL
➔ when looking at claims for economic loss, you begin with the duty of care question and what
type of loss is being suffered
◆ economic or consequential?
◆ consequential is the only way in which a damage can be recovered
➔ KEY CASE: Spartan Steel & Alloys v Martin and Co Ltd [1973] CA
◆ Defendants negligently cut an electricity mains cable supplying power to the claimants
factory
◆ No power for 14hrs and could not operate their steel furnace
◆ Possibility that the molten would solidify = damage
◆ Factory had to be closed
◆ Owners claimed under three heads
● a) the damage to the steel in the furnace
● b) the loss of profit that could have been made
● c) the anticipated lost profit on the steel that would have been processed
◆ Court of appeal allowed recovery for
● a (physical damage to property)
● b (consequential economic loss, B being a consequence of A)
● BUT NOT C (anticipated profit - pure economic loss)
◆ the loss of profit couldn’t be made on the steel that was in the furnace when the power
cut out
◆ this loss of profit wasn’t something reasonably foreseeable
◆ property damage is reasonably foreseeable
KEY TAKEAWAYS FROM SPARTAN STEEL
➔ A duty of care is only owed in respect of FINANCIAL LOSSES relating to PROPERTY DAMAGE
caused by the defendant’s NEGLIGENCE
➔ Must be as a direct result of the damage to the property
➔ Lord Denning - policy consideration
◆ Power failures were a fact of life
◆ A thing they must put up with
◆ Inflated claims for lost profits
◆ Crushing liability
◆ Contract Law
● prefer to use when looking at arrangements/agreements/disputes between
companies/organisations
● SS we’re actually prevented from claiming from the electricity company bc of
an exclusion clause in the contract
● tort law is not there to contradict contract law
EXCEPTION TO THE GENERAL RULE: HEDLEY BYRNE & CO LTD V
HELLER & PARTNERS [1963] AC 465
