1. Damage to the metal which is in the furnace at the time of the power cut
2. Loss of profit on that metal
3. Loss of profit on the metal that would have been produced in the furnace for the 14 hours lost
The courts held that the first two was economic loss and was recoverable, whereas the third is not, establishing the fine line of distinction between the losses. What makes the third so different from the first two? It is hard to justify why the third should not be compensated when the first two is.
The initial position on pure economic losses are that they are never recoverable, as established in the case of Crane v Crandler, Christmas and Co. The defendant provided some advice to a party, knowing that it would be relied on a 3rd party. The third party suffered losses due to the bad advice given, and sued the defendant. It was held that the defendant did not owe a duty of care to them, merely to the contractual party they were with.
The reason behind this is because the courts wanted to prevent a floodgate of litigation. While as a general rule, an act or omission can cause personal injury and damage to property to a limited amount of people, the possible economic loss from the same act may be vast and indeterminate. Similarly, the law of contract is seen as a way that economic loss is compensated, the law is reluctant to disturb this. Contract was seen as offering certainty, defendants would only be liable for their own failure to fulfill a freely undertaken agreement and this clearly had benefits in the commercial world. However this may cause great hardship to the claimants who are left without a remedy, eemingly as there was no moral reason not to compensate such losses.
In the case of Hedley Byrne v Heller, the claimants were asked by a company, Easipower to buy some advertising space for them. Hedley then contacted Heller, who was Easipower’s bankers to provide them with a credit reference. On both occasions, they were given favourable references –but with a disclaimer. Relying on the advice, they contracted with Easipower who later went into liquidation, and Hedley sought to recover losses of 17000 from Heller. The conditions that had to be statisfied was
1 A special relationship between the claimant and defendant
2. Voluntary Assumption of that advice
3. Reliance on the advice
4. Reasonable to rely on the advice
Henceforth, it established that subject to limited conditions, it is possible for negligence to provide a remedy for pure economic loss caused by negligent provision of statement and advice. Essentially there needs to be a ‘special relationship’ between the party that arises where the defendant supplied advice or information knowing that the claimant would rely on it. This is sometimes called a ‘negligent misstatement’.
This was further expanded in Junior Books v Veitchi, where the claimants requested a special type of floor to be built in their factory. It was found to be defective, and was compensated.
The situation after this was that the claimants could recover for economic loss caused by statements and following Ann’s and Junior Books, they could also recover for pure economic loss arising from negligent acts. However this has faced much criticism and the courts began to drawback. Murphy’s case overulled Ann’s case . The House of Lords put a stop to the possibility that defects in products can be seen as damage to property, economic loss could not thus be compensated in negligence.
The position of pure economic loss may be unjust to the claimant. In the case of Spartan Steel v Martin, the defendant’s act had caused all three types of losses and those three types were easily forseeable, so why should the defendant not be liable for the third loss? The claimant is left with a loss has no redress unless they have a contract. This allows defendants to get away with seriously careless behavior.
by
zhilinglim27gmailcom (student)
