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Introduction

claimant's (C) pure economic loss resulting from defendant's (D) carelessness only gives rise to Negligence claim if duty of care,
for D to owe C duty of care there must be sufficient proximity
general rule: D not owe any duty of care to C not to cause pure economic loss, therefore loss not recoverable
limited duty situation: C can only recover for loss exceptionally (if possible to show sufficiently close relationship between C & D)
'consequential economic loss': economic losses if C suffers personal injury or damage to property, recoverable
pure economic loss: loss not consequential from personal injury or damage to property
without special rule for economic loss: floodgates open for indeterminate number of Cs for claims for limitless amounts

Damage to a third party's property

damage to third party's property may result in pure economic loss: if A borrows item from B & item damaged due to D's negligence,
B can claim for damaged property, but A cannot claim for any pure economic losses incurred (having to hire substitute item)

SPARTAN STEEL & ALLOYS LTD V MARTIN & CO LTD [1973] 1 QB 27

FACTS:
plaintiffs (P) owned steel factory, electricity supplied by direct cable owned by third party (Electricity Board)

Ds carelessness carried out road works & damaged cable, Electricity Board had to shut down power supply to P's
factory for 14.5hrs overnight to mend

factory worked 24hrs a day, when power stopped metal was being melt processed in furnace (which required
constant temperature & therefore power)

if P left mixture in furnace without power it could damage machinery, so P used alternative method to process,
producing less valuable material (physical damage: 368 & loss of profit: 400)

Ps also lost opportunity to load furnace further 4 times during power cut (losing profit: l 767)

ISSUE:
which losses could P recover?

HELD:
P could recover: damage to melt in furnace when power cut (368) & loss of profit on that melt (400), as cost of
physical damage to P's property (the melt) & consequential economic loss (the lost profit)

P not recover: loss of profit during whole period power cut, as pure economic loss caused by damage to property
of third party (cable belonged to Electricity Board)

Lord Denning: '.. I think the question of recovering economic loss is one of policy. Whenever 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...'
 if A suffers pure economic loss due to D negligently damaging third party's property, insufficiently close relationship between D & A,
no duty owed & losses not recoverable

No physical damage

pure economic loss may arise where there has been no physical damage

WELLER & CO V FOOT & MOUTH DISEASE RESEARCH INSTITUTE [1966] 1 QB 569

FACTS:
D negligently released foot & mouth disease which affected cattle

P operated cattle market which had to close due to outbreak & P lost revenue

ISSUE:
could P recover for the loss?

HELD:
P could not recover: loss not caused by physical damage, was pure economic loss & no duty of care owed by D

pure economic loss without physical damage is not recoverable

Defective goods or property

general rule: claim for defective goods can be made under contract law

ANNS V MERTON LONDON BOROUGH COUNCIL [1978] AC 728

FACTS:
P's flats had structural damage due to subsidence, Ps did not sue builders (who they had contract with)

Ps claimed against D, local council, arguing D negligently approved building plans & / or negligently failed to
inspect building works

ISSUE:
could Ps recover in tort?

HELD:
House of Lords: Ps could recover from D, despite no contract between parties, because structural damage was
material damage to property

Anns v Merton London Borough Council [1978] controversial because no contract & traditional view property damage only
applies to existing property (whereas original property was defective)

JUNIOR BOOKS V VEITCHI [1983] 1 AC 520

FACTS:
Ps new factory had defective flooring & lost money during refit, Ps had contract with main builders

Ps claimed against Ds, the negligent specialist sub-contractors, who attended meetings with builders & P
discussing flooring

ISSUE:
could Ps recover in tort?

HELD:
Ps could recover from Ds, confirming view of property damage in Anns v Merton London Borough Council
[1978]

Anns v Merton London Borough Council [1978] & Junior Books v Veitchi [1983] heavily criticised for: opening floodgates to
unlimited claims, where D may have no relationship with C & allowing claims in tort interferes & undermines contract law

MURPHY V BRENTWOOD DISTRICT COUNCIL [1991] 1 AC 398

FACTS:
P bought new build house but ceiling & water pipes cracked due to defective foundation design

cost of repairs: 45 000, P sold house unrepaired for 30 000 (35 000 below market value of house in sound
condition)
 P sought damages from D, local council, who negligently approved building plans

ISSUE:
could P recover from D?

HELD:
House of Lords: loss was pure economic loss, as property was defective when acquired (resulting in having to
repair or scrap - both at economic loss)

D did not owe duty of care as pure economic loss

effect of decision: overrule Anns v Merton London Borough Council [1978]

building structural damage so not apply complex structure theory (if component in large item defective & damages
whole property then classed as property damage)

Lord Bridge: '.. [no duty arises in the acquisition of defective property] in the absence of a special
relationship of proximity imposing on the tortfeasor a duty of care to safeguard the plaintiff from economic
loss...'

Junior Books v Veitchi [1983] distinguished: exception was satisfied, was special relationship between D & P
(due to discussions at meeting about flooring)

pure economic loss for defective goods recovered in tort: only if special relationship between P & D (duty of care owed)

LINKS:

Site Resources
Pure Economic Loss: Rules (Study Note)
Pure Economic Loss: Rules (Flash Card)

Further Resources
Negligence Chapter - Catherine Elliott & Frances Quinn

SITE CRIMINAL LEGAL SYSTEM TORT LAND

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