Balkin and Davis pp. 411-418; 431-439

A Summary of the B+D Readings for Week 5.

pp. 411-418 - Pure Economic Loss


  • A lack of earning capacity due to physical injury
  • Secondary actions which may be bought by one person as a result of the death or physical injury caused to another
  • Intention causing financial harm
  • Cases where the Plaintiff's property has been damaged by a force external to that property and the Plaintiff seeks to recover the cost of repairing or replacing it

Examples of Pure Economic Loss (Keep in mind, it does depend on the circumstances of the case)

  • A research institution which carelessly allows a virus to escape and affect livestock will cause pure economic loss to the auctioneer who is denied the opportunity to sell the livestock
  • Workers who carelessly sever an electricity cable halt production at a factory which looses profit for that given time
  • Builder fails to comply with plans. Owner discovers the structure is beginning to become unstable and is worth less than he/she paid for
  • Minister of Crown negligently holds consent from a development project an a company misses out on possible lost income during that period
  • A dredge operated with insufficient care ruptures a pipeline on a sea bed. Company has to find a more expensive means of transport
  • D's negligent misstatement causes the P to enter into an unprofitable contract when if the misstatement had not been made, P would have entered a highly lucrative deal
  • Solicitor who is negligent in the drawing of a will may be liable to those the testator intended to benefit

Reasons for judicial reluctance to impose liability

Courts have stressed the need for some control mechanism narrower than the concept of 'reasonable foreseeability' due to :-

1. Fear of indeterminable liability

Example: 'A' recommends to 'B' to purchase a particular companies shares. But 'A', through carelessness, has overlooked some fault that renders the shares a bad investment. 'A' as a reasonable person would foresee that his advice may be passed on from B to others, who in turn may be passed on to others etc etc.

Criticism: If reasonable foresight was the only criterion for liability, 'A' would be liable to all those who had acted on the original advice to 'B'.

Cardozo CJ: Danger is that D is unable to estimate in advance the extent of potential liability, and arrange his/her affairs accordingly.

2. Disproportion between D's blameworthiness and extent of liability

If liability is to depend on no more than reasonable foreseeability, D may be exposed to claims the extent of which is out of proportion to the degree to which the relevant conduct fell below that of a reasonable person.

3. Interrelationship between tort and contract

Where a DOC had arisen between parties to a contract, the law of negligence plays a dominant role and that of contract a subsiding one, as a DOC is usually presumed (unless the terms of the contract state otherwise).
Thus, you can co-currently own a DOC in contract and tort (e.g. Professional to client)

4. The need to protect competition being stifled

In a capitalist society (i.e. one person's gain is another's loss), it is necessary for the law not to impeded competition between business entities.

Therefore, the Law is prepared to countenance conduct which is intended to cause economic harm to a trade rival, so long as the perpetrator does not commit some act which is otherwise unlawful.

5. The need for certainty

Only by this means can legal practitioners advise their clients of their rights, or lack of them.

6. The effect of insurance

Lord Denning in the English Court of Appeal suggested that the financial harm suffered when a business is forced to close temporarily because of disruption to essential services ought not to be borne by the person who has caused the disruption. One reason for this view was that the business is likely to have insured against this loss, so that the effects of the harm are spread by that insurance among the wide section of the community.

Difference between words and acts

Refer to Caltex Oil v The Dredge.

pp. 431-439 - Negligent Acts or Omissions

If loss is suffered by the D's negligence in causing loss or damage to property belonging to anyone other than the P, courts in Aus and NZ have been prepared to allow recovery IF the circumstances are such that the defendant must have reasonable contemplated the likelihood of such loss and has no justification for inflicting it.

Where the P's loss arises because a house or other structure that has been acquired turns out to have been defectively constructed, Aus and NZ courts have been generally in favour of recovery.

In the UK, neither of these situations would generally warrant recovery.

Losses consequent upon damage to another's property

Refer to Caltex Oil v The Dredge and/or Perre v Apand Pty Ltd.

What are *perhaps* some of the main principles from those cases:-

  1. Pure economic loss due to the additional cost of the property damage is recoverable;
  2. Need to have a sufficiently determinable group to whom a DOC is owed for recover for economic loss (cases seem a bit unclear on this point);
  3. Finding liability on the part of the D company would not derogate from its pursuit of its own commercial advantage (capitalism argument —> encourage competition);
  4. Vulnerability to the harm. Inability of the P to take measures to protect him or her self from the consequences of the D's actions is regarded as an important factor when determining a DOC.

Losses consequent on damage to the P's property

The general principle

A D who, by negligent act or omission, causes damage to the P's property is liable not only for the cost of repairing or restoring the property; but also for the further financial harm which is a direct consequence of the damage to property.

Example: Contractor negligently severs electricity cable which serves a number of factories - contractor will be liable both for the value of the material rendered useless by that disruption and for profits P expected to make on selling the material.

But, the contractor will not be liable for any other profits lost to the manufacturer by reason solely of the disruption to production that is regarded as no more than an indirect consequence of the contractor's negligence.

Example: Two ships collide and resultant pollution to the sea which leads to a temporary embargo of its use. None of those who are thereby prevented from exploiting the waters (e.g. fisherman, tackle shops etc) may recover loss, for no property belonging to any of the P's has been damaged.

For a P to recover for financial harm in these circumstances, in addition to showing that such harm is the direct result of the damage to property, causation must be proved and thus no break in the causal link between the property damage and losses claimed.

P must have proprietary or possessory rights

The general principle discussed above applies only when the property damage by the D is that to which the P has a proprietary or possessory right.

Refer to Cattle v Stockton Waterworks Co.