This was accepted and applied by the majority of the Court of Appeal in Candler v. Crane Christmas [1951] 2 KB 164. (See Cohen LJ).
Consequential Economic Loss
Claims for economic loss may be allowed where it is a direct consequence of physical damage. This was determined by the Court of Appeal in SCM (United Kingdom) Ltd v. Whittall and Son Ltd [1971] QB 337. As contractors were rebuilding a boundary wall a workman damaged an electric cable, which ran alongside the road. The cable supplied electric current to several factories in the area. The claimants owned a typewriter factory. They alleged that the defendants had negligently damaged the cable, causing a seven hour power failure in their factory, resulting in damage to materials and machines and loss of production. The claimants argued that the defendants were negligent, that the consequences of their acts were reasonably foreseeable and that they owed a duty to the claimants to take reasonable care not to damage the cable. The defendants denied that they owed any duty of care to the claimants or that they were negligent. Alternatively, they alleged that the damage was too remote.
The Court of Appeal held that the contractors knew that the cable supplied current to factories in the neighbourhood and that if they damaged the cable the current would be cut off thereby causing damage. They were liable for the physical damage and the consequential loss of production.
Concerning the basis of the decision Lord Denning MR said:
“The law is the embodiment of common sense: or, at any rate, it should be. In actions of negligence, when the plaintiff has suffered no damage to his person or property, but has only sustained economic loss, the law does not usually permit him to recover that loss. The reason lies in public policy … So here I would ask: When an electric cable is damaged, many factories may be stopped from working. Can each of them claim for their loss of profit? I think not. It is not sensible to saddle losses on this scale on to one sole contractor. Very often such losses occur without anyone’s fault. A mine may be flooded, or a power failure may occur, by mischance as well as by negligence. Where it is only mischance, everyone grumbles but puts up with it. No one dreams of bringing an action for damages. So also when it occurs by negligence. The risk should be borne by the whole community who suffer the losses rather than rest on one pair of shoulders, that is, on one contractor who may, or may not, be insured against the risk. There is not much logic in this, but still it is the law … In other words, the economic loss is regarded as too remote to be recoverable as damages.”
Lord Denning MR went on to say:
“I must not be taken, however, as saying that economic loss is always too remote. There are some exceptional cases when it is the immediate consequence of the negligence and is recoverable accordingly.”
Lord Denning MR concluded:
“Seeing these exceptional cases you may well ask: How are we to say when economic loss is too remote or not? Where is the line to be drawn? Lawyers are continually asking that question. But the judges are never defeated by it. We may not be able to draw the line with precision, but we can always say on which side of it any particular case falls … Where, again, is the line to be drawn? Only where “in the particular case the good sense of the judge decides.””
This was applied by the Court of Appeal in Spartan Steel & Alloys Ltd v. Martin & Co. (Contractors) Ltd [1973] 1 QB 27. The defendants’ employees were digging up a road when they negligently damaged an electric cable. The defendants knew that this was the direct supply from the power station to the claimants’ factory. The claimants were without electricity until the Electricity Board was able to repair the cable and, immediately the power supply failed, they had to pour molten metal out of their furnace to prevent the metal solidifying and damaging it. As the claimants could not keep the metal at the correct temperature and complete the “melt”, the metal depreciated in value by £368 and they lost a profit from the sale of the metal from that melt of £400. They could also have completed four further melts during the power cut and their loss of profit from those melts was £1,767.
In an action for negligence against the defendants, the claimants claimed all three sums as damages, a total of £2,535. The defendants admitted negligence and liability for the physical damage of £368 but denied liability for the claimants’ economic loss. The claimants contended that the defendants were liable for their economic loss and that there was a doctrine in English law of “parasitic damages” by which damages not recoverable in themselves could be recovered if they could be attached to a claim for physical damage and were foreseeable.
In the Court of Appeal, Lord Denning MR and Lawton LJ held that the claimants were entitled to recover the £400 as damages as the loss of profit from the melt was a foreseeable financial damage immediately consequential on the foreseeable physical damage to the metal but they were not entitled to recover the loss of profit from the four melts due to the negligent interruption of the electricity supply.
Edmund Davies LJ (dissenting) thought that where a defendant, who owes a duty of care to a claimant breaches that duty and, as both a direct and a reasonably foreseeable result of that injury, the claimant suffers only economic loss, he is entitled to recover that loss as damages and, since the claimants’ financial loss was both the direct and foreseeable consequence of the defendants’ negligence, they were rightly awarded damages for their financial loss.
Lord Denning thought that there was no such thing as parasitic damages in English law.
Lord Denning said:
“… at bottom I think the question of recovering economic loss is one of policy. Wherever 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. Wherever the courts set bounds to the damages recoverable-saying that they are, or are not, too remote-they do it as a matter of policy so as to limit the liability of the defendants … IN many of the cases where economic loss has been held not to be recoverable it has been put on the ground that the defendant was under no duty to the plaintiff … In other cases, however, the defendant seems clearly to have been under a duty to the plaintiff, but the economic loss has not been recovered because it was too remote …On the other hand, in the cases where economic loss by itself has been held to be recoverable, it is plain that there was a duty to the plaintiff and the loss was not too remote.”
Lord Denning MR concluded :
“The more I think about these cases, the more difficult I find it to put each into its proper pigeon-hole. Sometimes I say: “There was no duty”. In others I say: “The damage was too remote.” So much so that I think the time has come to discard those tests which have proved so elusive. It seems to me better to consider the particular relationship in hand, and see whether or not, as a matter of policy, economic loss should be recoverable, or not.”
Defective Premises
Liability for pure economic loss caused by defects in premises concern:
- builders and sub contractors; and
Builders and Sub-Contractors.
In the days of Anns and Junior Books there might have been liability. It is unlikely today. Lord Brandon, in Junior Books, delivered a dissenting speech in which he said that if a wider scope of duty were adopted it would impose obligations on the parties which would be appropriate only if there were a contract. In the case of sub-contractors the position would be that they would be subject to an implied warranty to the building owner that the flooring, when laid, would be well designed, as free from defects of any kind and as fit for its contemplated purpose as the exercise of reasonable care could make it. This, in Lord Brandon’s opinion, was contrary to sound policy. Lord Keith, although he agreed with the majority, expressed the opinion that a general duty on manufacturers in respect of defects and quality ought to be avoided.
Bingham LJ subjected Junior Books to extensive critical analysis in the Court of Appeal decision in Simaan General Contracting Co. v. Pilkington Glass Ltd (No. 2) [1988] 1 All ER 791. He thought that Junior Books contained within it the seeds of a major development of the law. Its implications for the law of contract and product liability were, in his opinion, staggering. He concluded that it remained to be seen whether those seeds would be encouraged or permitted to germinate and that for the time being they would not. Dillon LJ said:
“My own view of Junior Books is that the speeches of their Lordships have been the subject of so much analysis and discussion with differing explanations of the basis of the case that the case cannot now be regarded as a useful pointer to any development of the law, whatever Lord Roskill may have had in mind when he delivered his speech. Indeed I find it difficult to see that future citation from Junior Books can ever serve any useful purpose.”
Junior Books was not followed, distinguished and restricted to its facts by the House of Lords decision D & F Estates Ltd v. Church Commissioners for England and Wales [1988] 2 All ER 992. The Hyde Park Property Development Co. Ltd, which went into liquidation in October 1980, employed Wates Ltd to build a block of flats in West London. Wates Ltd employed a sub contractor to do the plastering work in the flats. The plastering work was carried out negligently. The block of flats was sold to the Church Commissioners. The Church Commissioners leased one of the flats to D & F Estates, who let the flat to Mr and Mrs Tillman. Fifteen years after the flats were built, the plaster began to come away from the walls. The claimants sued the church Commissioners and Wates Ltd. Here action failed in the House of Lords. Lord Bridge said:
“If a builder erects a structure containing a latent defect which is dangerous to persons or property, he will be liable in tort for injury to persons or damage to property resulting from that dangerous defect. But if the defect becomes apparent before any injury or damage has been caused, the loss sustained by the building owner is purely economic. The loss can be recovered if it flows from breach of a relevant contractual duty, but in the absence of a special relationship of proximity it is not recoverable in tort.”
