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Distinguishing between property damage and pure economic loss in negligence: a personality thesis

Published online by Cambridge University Press:  02 January 2018

Christian Witting
Christian Witting*
Affiliation:
School of Law, University of Nottingham
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Abstract

The law of negligence favours redress for damage to property interests over redress for damage to mere economic interests. The question arises whether this preference can be justified. In endeavouring to answer it, the author surveys existing reasons given by courts and commentators for maintaining a distinction between property and economic interests. Each of these reasons, which collectively focus upon the ‘problematic’ nature of economic losses, is found to be either ad hoe in nature or without substantial explanatory power. However, it is submitted that the distinction is explicable on the basis that, whereas an individual's personality is partly constituted by the property that he or she owns, so that property can be seen as essential to the ways in which individuals constitute and define themselves, no such claim can be made with respect to mere abstract holdings of wealth. Although wealth permits the acquisition of property and participation in activities and experiences which might help to constitute and define the self in the future, the very fact that wealth has not been transposed into these things precludes it from being considered as important as actual holdings of property. The protection of property interests ought, therefore, to precede the protection of mere economic interests.

Type
Research Article
Information
Legal Studies , Volume 21 , Issue 3 , September 2001 , pp. 481 - 514
Copyright
Copyright © Society of Legal Scholars 2001

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References

1. (1988) 1 QB 304.

2. Insolvency Act 1986, ss 336–337.

3. See generally Cane, P Tort Law and Economic Interests (Oxford: Clarendon Press, 1996)Google Scholar.

4. Eg Mogul Steamship Co Ltd v McGregor, Gow & Co (1892) AC 25; Allen v Flood (1898) AC I; Quinn v Leatham (1901) AC 495.

5. Eg Pasley v Freeman (1789) 3 Term Rep 51.

6. Eg Lumley v Gye (1853) 2 E & B 216; 118 ER 749.

7. Eg Acrow (Automation) Ltd v Rex Chainbelt Inc (1971) 1 WLR 1676.

8. Eg Rookes v Barnard (1964) AC 1129.

9. The torts of passing off and malicious falsehood do not require proof of intention, although this is often present.

10. Eg Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465.

11. Eg Henderson v Merrett Syndicates Ltd (1995) 2 AC 145.

12. See Cane, n 3 above, p 27. Economic interests might even be protected where the claimant does not own the land or chattel in question. For example, trespass and nuisance will protect a lessee's interest in land. The rule in The Winkfield (1902) P 42 permits a bailee in possession to sue for torts to goods. Even an immediate right to possession of goods has been held sufficient to permit suits in conversion and negligence: Chabbra Corpn Pte Ltd v Jag Shakti (Owners) (1986) 1 AC 337 (conversion); Margarine Union GmbH v Cambay Prince Steamship Co Ltd (1969) 1 QB 219 at 250 (negligence).

13. The categories listed are suggested by Feldthusen, B Economic Negligence (Scarborough, Ont: Carswell, 1994)Google Scholar. The remaining category that Feldthusen examines, concerning the liability of public authorities, will not be treated in this paper. As he states: ‘the issues which arise in recognising a duty of care in public authority cases are often unique… [T]he method of deriving a duty of care is different from that in a case involving only private parties.’ (at 272).

14. In Murphy v Brentwood District Council (1991) 1 AC 398 at 492, Lord Jauncey said: ‘In the 40 years after Donoghue v Stevenson it was accepted that the principles enunciated by Lord Atkin were limited to cases where there was physical damage to person or to property other than the property which gave rise to the damage and where there was no reasonable opportunity of discovering the defect which ultimately caused the damage’, citing Grant v Australian Knitting Mills Ltd (1936) AC 85; Farr v Butters Brothers & Co (1932) 2 KB 606. See P Cane ‘Physical Loss, Economic Loss and Products Liability’ (1979) 95 LQR 117 at 123.

15. (1972) 1 QB 373.

16. (1972) 1 QB 373 at 392 per Lord Denning MR, at 400 per Sachs LJ, and at 415 per Stamp LJ.

17. Lord Denning MR said that it was a case of ‘physical damage to the house’: (1972) 1 QB 373 at 396; Sachs LJ said that ‘there is ample evidence of physical damage having occurred to the property’ (at 405).

18. (1978) AC 728.

19. (1978) AC 728 at 759 per Lord Wilberforce.

20. (1978) AC 728 at 759.

21. (1989) 1 AC 177.

22. (1989) 1 AC 177 at 211. Lord Oliver stated: ‘A cause of action in negligence at common law which arises only when the sole damage is the mere existence of the defect giving rise to the possibility of damage in the future, which crystallizes only when the damage is imminent, and the damages for which are measured, not by the full amount of the loss attributable to the defect but by the cost of remedying it only to the extent necessary to avert a risk of physical injury, is a novel concept’ (at 213).

23. (1991) 1 AC 398.

24. (1991) 1 AC 398 at 464 per Lord Keith, at 488 per Lord Oliver, and at 492 and 495 per Lord Jauncey.

25. (1991) 1 AC 398 at 464 per Lord Keith.

26. (1991) I AC 398 at 467–468 per Lord Keith (adopting comments of Deane J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503–505), at 475 per Lord Bridge, and at 484 per Lord Oliver.

27. (2000) BLR 97.

28. (2000) BLR 97 at 108.

29. One further, and not insignificant, point to note is that the legislature has spoken on the matter of defective products and premises. Protection for purchasers of products now exists in the form of the Consumer Protection Act 1987, which sets out a very favourable strict liability regime. A degree of protection for purchasers and lessees of dwellings also exists under the Defective Premises Act 1972. Courts thus, understandably, are wary of increasing the scope of protection available to purchasers.

30. R O’ Dair ‘Murphy v Brentwood District Council: A House With Firm Foundations?’ (1991) 54 MLR 561 at 563.

31. (1875) LR 10 QB 453 (negligent failure by the claimant to maintain pipes causing flooding and making the claimant's contract to construct a tunnel less profitable).

32. (1875) LR 10 QB 453 at 457.

33. (1875) LR 10 QB 453 at 457.

34. (1877)3 AC 279.

35. (1877) 3 AC 279 at 290.

36. (1911) 1 KB 243 (sinking of a ship under tow with subsequent loss of revenue for section of the voyage not completed).

37. Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (1961) AC 388.

38. (1966) 1 QB 569.

39. (1966) 1 QB 569 at 587.

40. The claim could have been disposed of on the alternative ground that, although the claimants might have entered into a number of auction contracts but for the outbreak of disease, the mere expectation of such was not sufficient to invoke the protection of the law.

41. (1986) 1 AC 1.

42. The claimant was also owner of the vessel which had been chartered out on a bareboat basis to a company which had assumed the risk of damage by way of collision during the term of the bareboat charter. Thus, the claimant could not claim for any loss to its physical property.

43. (1986) 1 AC 1 at 15. It has been noted, however, that a charterer by demise gains a proprietary interest in a ship in a manner similar to the proprietary interest obtained by the lessee of property: M McGrath ‘The Recovery of Pure Economic Loss in Negligence - An Emerging Dichotomy’ (1985) 5 OJLS 350 at 365.

44. (1986) 1 AC 1 at 25 per Lord Fraser.

45. (1986) 1 AC 1 at 25.

46. (1986) 1 AC 785.

47. (1986) 1 AC 785 at 811.

48. See eg Morrison Steamship Co Ltd v Grey stoke Castle (Cargo Owners) (1947) AC 265.

49. Morrison Steamship Co Ltd v Grey stoke Castle (Cargo Owners) (1947) AC 265 at 284 per Lord Roche; Murphy v Brentwood District Council (1991) 1 AC 398 at 468 per Lord Keith. Cf Junior Books Ltd v Veitchi Ltd (1983) 1 AC 520 at 540 per Lord Roskill; J Stapleton ‘Duty of Care and Economic Loss: A Wider Agenda’ (1991) 107 LQR 249 at 265.

50. Morrison Steamship Co Ltd v Greystoke Castle (Cargo Owners) (1947) AC 265 at 281–282 per Lord Roche, at 297 per Lord Porter, and at 310–311 per Lord Uthwatt; Marc Rich & Co AG v Bishop Rock Marine Co Ltd (1996) 1 AC 211 at 226–227 per Lord Lloyd.

51. Morrison Steamship Co Ltd v Greystoke Castle (Cargo Owners) (1947) AC 265 at 281 per Lord Roche.

52. Doubts are expressed about the reasoning in the Greystoke Castle by P Atiyah ‘Negligence and Economic Interests’ (1967) 83 LQR 248 at 254–256.

53. (1992) 1 SCR 1021.

54. (1992) 1 SCR 1021 at 1162 per McLachlin J.

55. Early cases include Electrochrome Ltd v Welsh Plastics (1968) 2 All ER 205 (claim for loss of production following interference with water supply denied); British Celanese Ltd v AH Hunt (Capacitors) Ltd (1969) 2 All ER 1252 (claim for loss of profits consequent upon loss of power which caused solidification of materials in machines permitted); SCM (United Kingdom) Ltd v WJ Whittall and Son Ltd (1971) 1 QB 337 (claim for loss of profits consequent upon loss of power which caused metal to solidify and damaged machines permitted).

56. (1973) 1 QB 27.

57. (1973) 1 QB 27 at 34.

58. (1973) 1 QB 27 at 36.

59. (1973) 1 QB 27 at 37.

60. (1973) 1 QB 27 at 38.

61. (1973) 1 QB 27 at 38.

62. (1973) 1 QB 27 at 39.

63. (1973) 1 QB 27 at 49.

64. (1973) 1 QB 27 at 41.

65. (1973) 1 QB 27 at 41 and 45–46.

66. (1969) 2 All ER 1252.

67. (1969) 2 All ER 1252 at 1255.

68. British Celanese Ltd v AH Hunt (Capacitors) Ltd (1969) 2 All ER 1252; Spartan Steel & Alloys Ltd v Martin and Co (Contractors) Ltd (1973) 1 QB 27; Muirhead v Industrial Tank Specialities (1986) 1 QB 507.

69. Perry, S ‘Protected Interests and Undertakings in the Law of Negligence’ (1992) 42 UTLJ 247 at 269CrossRefGoogle Scholar.

70. Perry, n 69 above, at 269 (emphasis in original).

71. MacGrath, n 43 above, at 351 n 9 (emphasis in original).

72. (1964) 1 QB 533.

73. (1964) 1 QB 533 at 557.

74. (1964) 1 QB 533 at 556–557.

75. (1998) 2 Lloyd's Rep 255.

76. (1964) AC 465.

77. See K Barker ‘Unreliable Assumptions in the Modem Law of Negligence’ (1993) 109 LQR 461.

78. (1998) 1 WLR 829.

79. (1998) 1 WLR 829 at 835.

80. C Gosnell ‘English Courts: The Restoration of a Common Law of Pure Economic Loss’ (2000) 50 UTLJ 135.

81. Henderson v Merrett Syndicates Ltd (1995) 2 AC 145 at 180 per Lord Goff; Williams v Natural Life Health Foods Ltd (1998) 1 WLR 829 at 834 per Lord Steyn.

82. (1995) 2 AC 145.

83. (1995) 2 AC 145 at 182.

84. See C Witting ‘Justifying Liability to Third Parties for Negligent Misstatements’ (2000) 20 OJLS 615.

85. (1973) 1 QB 27.

86. (1973) 1 QB 27 at 40–41.

87. (1973) 1 QB 27 at 49.

88. (1992) 1 SCR 1021.

89. (1992) 1 SCR 1021 at 1173.

90. (1976) 136 CLR 529.

91. (1976) 136 CLR 529 at 568.

92. See eg Lunney, M and Oliphant, K Tort Law: Text and Materials (Oxford: Oxford University Press, 2000) p 13.Google Scholar

93. (1997) 71 ALJR 448 at 471.

94. See Atiyah, n 52 above, at 273–274.

95. See W Bishop ‘Economic Loss in Tort’ (1982) 2 OJLS 1; M Rizzo ‘The Economic Loss Problem: A Comment on Bishop’ (1982) 2 OJLS 197; B Feldthusen Economic Negligence, above n 13, 14–5; B Feldthusen and J Palmer ‘Economic Loss and the Supreme Court of Canada: An Economic Critique of Norsk Steamship and Bird Construction’ (1995) 74 Can Bar Rev 427; B Feldthusen ‘Liability for Pure Economic Loss: Yes, But Why?’ (1999) 28 UWALR 84.

96. Bishop, n 95 above, at 4.

97. Bishop, n 95 above, at 4.

98. Bishop, n 95 above, at 4.

99. Bishop, n 95 above, at 11.

100. Bishop, n 95 above, at 9.

101. Bishop, n 95 above, at 11. The exception arises where an industry is operating at peak capacity (at 15).

102. Spartan will, however, have an incentive to spend $50 on accident prevention so that it can secure the $70 for itself and make a $20 profit.

103. Bishop, n 95 above, at 15.

104. Bishop, n 95 above, at 13.

105. Bishop, n 95 above, at 14–17.

106. Bishop, n 95 above, at 17–19.

107. Bishop, n 95 above, at 28–29. See also W Bishop ‘Negligent Misrepresentation through Economists’ Eyes' (1980) 96 LQR 360.

108. Bishop, n 95 above, at 12–13.

109. Bishop, n 95 above, at 13. There is no sign of any concern for justice as between the parties in this prescription.

110. Bishop, n 95 above, at 19.

111. Rizzo, n95 above, at 199.

112. Rizzo, n 95 above, at 203–204.

113. The second part of this point is the present writer's rather than Rizzo's.

114. Rizzo, n 95 above, at 201 (emphasis in original).

115. Rizzo, n 95 above, at 199.

116. Some writers make the different point that economic losses are inherently vulnerable in a competitive economy and that it may be paradoxical to protect economic interests from negligent damage where they are not protected from intentional damage: see eg: Dwyer, J ‘Negligence and Economic Loss’ in Cane, P and Stapleton, J (eds) Essays for Patrick Atiyah (Oxford: Clarendon Press, 1991) p 311 Google Scholar; and Perry, n 69 above, at 264–265. This point is not of concern in this paper, which seeks to examine the position in the tort of negligence. However, the view of the author is that persons must be able to pursue their economic self-interest so long as the ‘harm’ that they cause others is merely a side-effect of that self-interest. Harm arising in such a way is a necessary consequence of competition, whereas carelessness is simply indefensible. See Finnis, J ‘Intention in the Law of Tort’ in Owen, D (ed) Philosophical Foundations of Tort Law (Oxford: Clarendon Press, 1995) p 244 Google Scholar; Simester, A ‘Moral Certainties and the Boundaries of Intention’ (1996) 16 OJLS 445 at 452CrossRefGoogle Scholar.

117. See related points made by J Stapleton ‘In Restraint of Tort’ in P Birks (ed) The Frontiers of liability, vol II (Oxford: Oxford University Press, 1994) p 84; P Benson ‘The Basis for Excluding Liability for Economic Loss in Tort Law’ in D Owen (ed) Philosophical Foundations of Tort Law (Oxford: Clarendon Press, 1995) p 431.

118. (1986) 1 AC 1.

119. (1986) 1 AC 785.

120. With respect to this class of case, Feldthusen notes that ‘a pure economic loss arising from a contract will often be relatively certain and open to fairly exact proof: n 13 above, p 234.

121. (1875) LR 10 QB 453.

122. (1966) 1 QB 569.

123. See Patel v Hooper and Jackson (1999) 1 WLR 1792 at 1800-1801 per Nourse LJ, confirming that this is the prima facie rule, although damages may also be permitted for the ‘reasonable costs of extricating’ the claimant from the purchase (at 1801).

124. (1982) 1 QB 438.

125. (1990) 1 AC 831.

126. (1991) Ch 295. 127. (1995)2 AC 296.

128. See ‘Domain of Contract’ Section 3(g) below.

129. ‘Financial interdependency [sic] in the modern world is such that a single negligent act… may cause widespread economic loss’: Feldthusen, n 13 above, p 85.

130. See eg Stapleton, n 49 above, at 254–255.

131. ‘The defendant must have some determinate notion of the risk in order to make a rational decision as to whether, an on what conditions, to speak…’: Feldthusen, n 13 above, pp 94–95. See also Stapleton, n 49 above, at 285.

132. Cane, n 3 above, p 456.

133. See eg Stapleton, n 49 above, at 255.

134. Cane, n 3 above, p 451.

135. See eg Feldthusen, n 13 above, p 14.

136. (1911) 1 KB 243.

137. See eg Sugarman, S Doing Away with Personal Injury Law (New York: Quorum Books, 1989) p 130.Google Scholar

138. Benson, n 117 above, p 427ff.

139. Benson, n 117 above, p 435.

140. Benson, n 117 above, pp 436–437.

141. Benson, n 117 above, p 437.

142. Benson, n 117 above, p 451.

143. Benson, n 117 above, p 452.

144. Benson, n 117 above, p 454.

145. Benson, n 117 above, p 454 (emphasis in original).

146. Benson, n 117 above, p 454.

147. It is Benson's aim to provide an explanation that is ‘internal to the law’: Benson, n 117 above, p 445. More helpful would be an explanation internal to tort law.

148. Benson, n 117 above, p 451.

149. Williams v Natural Life Health Foods Ltd (1998) 1 WLR 829 at 835 per Lord Steyn.

150. Benson recognises this, stating that ‘protected interests are defined in terms of what others have (‘suum’), not what they need or want’: Benson, n 117 above, p 457. See, however, discussion under section 3(h) below.

151. See eg Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd (1986) 1 AC 785 at 819 per Lord Brandon; Simaan General Contracting Co v Pilkington Glass Ltd (No 2) (1988) 1 QB 758 at 782 per Bingham LJ; Greater Nottingham Co-operative Society Ltd v Cementation Piling and Foundations Ltd (1989) 1 QB71 at 99 per Purchas LJ; Pacific Associates Inc v Baxter (1990) 1 QB 993 at 1020 per Purchas LJ, and at 1037 per Russell LJ.

152. (1995) 2 AC 145.

153. (1995) 2 AC 145 at 193.

154. See eg Greater Nottingham Co-operative Society Ltd v Cementation Piling and Foundations Ltd (1989) 1 QB 71.

155. See Sir R Cooke ‘An Impossible Distinction’ (1991) 107 LQR 46 at 50.

156. See East v Maurer (1991) 1 WLR 461; Smith New Court Securities Ltd v Scrimgoeur Vickers (Asset Management) Ltd (1997) AC 254; Stapleton, J ‘The Normal Expectancies Measure in Tort Damages’ (1997) 113 LQR 257 Google Scholar.

157. (1980) Ch 297.

158. (1995) 2 AC 207.

159. (1995) 2 AC 207 at 257.

160. (1995) 2 AC 207 at 259.

161. (1995) 2 AC 207 at 260.

162. (1995) 2 AC 296.

163. (1995) 2 AC 296 at 328. See also at 342 and 350 per Lord Woolf.

164. Barker has argued that Ross and White can be ‘rationalized as an extension of an existing, albeit rarely-invoked tradition of the law of tort of protecting expectation losses. The nature of the extension is simply that the degree of fault which the defendant's conduct has to display has been reduced from intention to something considerably lower on the scale, somewhere between negligence and recklessness’: Barker, K ‘Are We Up to Expectations? Solicitors, Beneficiaries and the Tort/Contract Divide’ (1994) 14 OJLS 137 at 147.CrossRefGoogle Scholar

165. (1995) 2 AC 296.

166. Hegel Grundlinien der Philosophie des Rechts (Berlin, 1821). The translation used here is A Wood (ed) GWF Hegel: Elements of the Philosophy of Right (H Nisbet trans, Cambridge: Cambridge University Press, 1991). Every reference to a section in the translation is denoted hereafter by the symbol ‘§’.

167. § 23 (emphasis in original).

168. § 7.

169. § 267.

170. Waldron, J The Right to Private Property (Oxford: Clarendon Press, 1988) p 359.Google Scholar

171. § 45–49 and 57.

172. § 66.

173. § 17.

174. § 15 (emphasis in original).

175. § 258.

176. § 30 (emphasis in original).

177. ‘[P]rivate property rights are not ends in themselves, but rather stepping stones to a historical process of social transformation’: M Salter ‘Justifying private property rights: a message from Hegel's jurisprudential writings’ (1987) 7 LS 245 at 249.

178. Wood, n 166 above, p xix.

179. Wood, n 166 above, p xxvi.

180. §33.

181. § 44 (emphasis in original).

182. § 57 (emphasis in original).

183. § 51.

184. § 51 (emphasis in original).

185. § 46. Whether the idea that property must essentially be private in nature in order to fulfil its role is a question answered by Waldron in his treatise, n 170 above.

186. § 46 (emphasis in original).

187. § 46.

188. M Radin ‘Property and Personhood’ (1982) 34 Stan LR 957.

189. Radin, n 188 above, at 959–960.

190. Radin, n 188 above, at 986ff.

191. Radin, n 188 above, at 991–992. ‘Property and privacy are intimately intertwined’ (at 1001).

192. Radin, n 188 above, at 992–996.

193. Radin, n 188 above, at 998.

194. Radin, n 188 above, at 1004.

195. Radin, n 188 above, at 990.

196. Radin, n 188 above, at 1010. See also M Radin ‘Reconsidering Personhood’ (1995) 74 Oregon LR 423.

197. M Dan-Cohen ‘Responsibility and the Boundaries of the Self (1992) 105 Harv LR 959.

198. M Dan-Cohen, n 197 above, at 977.

199. Honoré, T ‘Responsibility and Luck’ (1988) 104 LQR 530 at 531.Google Scholar

200. See nn 133 to 134 above and associated text.

201. (1932) AC 562.

202. Eg Clay v AJ Crump and Sons Ltd (1964) 1 QB 533; Perrett v Collins (1998) 2 Lloyd's Rep 255.

203. Eg Hedley Byrne v Heller and Partners (1964) AC 465.

204. Eg Candlewood Navigation Corpn Ltd v Mitsui OSK Lines Ltd (1986) AC 1

205. (1991) 1 AC 398.

206. (1973) 1 QB 27.

207. This is the argument employed by Kaye, T ‘Acts Speak Louder than Statements, or Nine into One Will Go’ (1995) 58 MLR 574 at 579CrossRefGoogle Scholar in his critique of the decision of the Court of Appeal in Marc Rich & Co AG v Bishop Rock Marine Co Ltd (‘The Nicholas H’) (1994) 3 All ER 686. See a similar argument with respect to Norsk Pacific Steamship Co Ltd v Canadian National Railway Co (1992) 1 SCR 1021 in D Cohen ‘The Economics of Canadian National Railway v Norsk Pacific Steamship’ (1995) 45 UTLJ 143 at 147.