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Negligence & Pure Economic Loss - Coggle Diagram
Negligence & Pure Economic Loss
Basics
Economic loss: pecuniary or financial loss, both 'consequential' and 'pure'
Consequential economic loss: Loss(es) incurred as a result of physical injuries or damage to property
E.g. A claimant suffered physical damage as a result of physical damage to the claimant's person/property
This loss is claimable as it has resulted in another person/property being damaged
Pure economic loss: other losses that follow which do not flow from the damage
E.g. The claimant suffered financial losses that does not directly result from personal injury or damage to property
Financial loss unaccompanied by other damage (if there's no physical loss to the claimant's person/property
This loss is classified as purely an economic loss and hence not claimable
Why? Per Ultramares Corp v Touche, Niven & Co (1931):
"May expose defendants to a liability in an indeterminate amount, to an indeterminate class, for an indeterminate" time (Cardozo J)
Economic Loss
-A consequence of a negligent act/damage to the property of a 3rd party
Cattle v Stockton Waterworks (1875):
Facts: Claimant contracted landowner for a fixed sum to dig a tunnel to use the land. Upon building the tunnel through the land claimant found a defect in the underground pipes laid by the defendant. This caused flooding and delay in the completion of the construction and the contract became less profitable. Claimant sought to recover the loss of profits under the contract from the defendant.
Held: Defendant not liable. It was held that the claimants cannot recover the loss because the loss was too remote (not foreseeable). Claimant cannot recover economic loss because he only had contractual interest. If claimant were to claim compensation = open of the floodgates
Can be a consequence of a defective product
Junior Books v Veitchi Ltd (1983):
Facts: Claimant entered into a contract with a firm of contractors (main contractors) for the construction of a factory. Claimant also instructed the main contractors to hire flooring specialists (defendants). Hence there's contract between the claimant + main contractors and contract between main contractors + defendants but no contractual relationship between claimant + defendants. Floor turned out to be defective and had to be rebuilt, necessitating a closure of the claimant's factory. For some reason claimant did not pursue contractual remedy on the main contractors but brought claim against defendant for the defective floor and lost of profits
Held: Allowing the claim by claimant stating it being economic loss caused by supply of defective product
Muirhead
Ca be a consequence of a property that is defective
Spartan Steel & Alloy Ltd v Martin & Co (Contractors) Ltd (1973):
Facts: The claimant had a stainless steel factory which gets its electricity by a direct cable from the power station. Defendant was doing work with a excavator and negligently damaged the cable. Due to this the factory was deprived of electricity for 15 hours. The claimants suffered damage to their property, which reflected a loss of profit due to interruption to the supply.
Held: Claimants were able to claim profits on the spoilt metal in furnace, the profit of the metal but
NOT the loss lost of profit for the metal not made.
The lost of profits on the metal was
directly consequential
but it is
NOT for the lost of profits due to the blackout
Anns v Merton London Borough Council (1978):
Facts: Local authority approved building plans for a block of flats that turned out defective. When the flats started to subside, lessees sought to recover the cost of repairs from the authority and others
Held: HoL allowed damages to be recovered by the tenants against the local council who negligently inspected and approved the defective foundations - i.e. economic loss
2-staged test per Lord Wilberforce:
When there is sufficient proximity so that it is 'reasonably foreseeable' that one party's negligence would cause loss or damage to the other
With those two where defendant has a DOC to claimant
Murphy v Brentwood District Council (1991):
Facts: Claimant bought a new house but due to defective foundation ceiling and water pipes cracked where the cost of repairs were $45,000. Claimant sold unrepaired house at $30,000 which was below market value of the house in sound condition . Claimant sought to recover damages from the defendant (local council) who approved building plans based on negligent advice from an independent contractor
Held per Lord Bridge: It becomes a defect of quality when the defect is discovered before it causes any personal injury/damage to property it merely is a defect in quality. The chattel can be repaired at an economic cost = loss sustained is purely economic. Hence
loss is recoverable when party owes the loser a contractual duty
But it is NOT recoverable in tort because there is no relationship of proximity imposed on defendant to give a DOC to safeguard claimant from economic loss
Per Lord Bridge difference between physical damage and financial loss:
Physical damage: If a builder does something which renders it dangerous to persons = liable in tort for injury to person/damage to property resulting in defect
Financial loss: If defect becomes apparent before injury/damage is caused, where loss sustained by building owner is purely economic
D & F Estates Ltd v Church Commissioners for England (1989):
Facts: Claimant owned a block of flats by a firm of contractors where plastering works are sub-contracted. 15 years later, the plasters were cracking and had to be replaced. As there was no contractual relationship between claimant and defendant there's an action brought in tort.
Held: Claimant satisfied their duty by hiring competent tradesmen. Since there's no actual risk of health, HoL held that loss is purely economic and not recoverable. Defendant owed a DOC to claimant on physical damage to person/property on negligent construction of property but NOT against loss caused by defect on quality in property. Hence claim failed because cost of repairs is purely economic
The Malaysian Position
Basics:
Economic loss: financial loss, both 'consequential' and 'pure'
Consequential economic loss: Loss incurred due to physical injury/damage to property
Pure economic loss: Loss incurred that do not flow from damage (independent from it)