W5 – ECONOMIC LOSS
INTRO
Tort law can be very hard on the defendant. A moments carelessness can cause
massive losses, accidentally. You fall on someone and the medical costs rise and
you need to pay for all of that damage on the victim. Its tough on both parties
but the defendant has to pay for something as small as falling on someone
accidentally.
It tries not to put all the burden on the defendant however, one of these being
in the form of ECONOMIC LOSS. They cannot have foreseen how serious their
conduct can become in an accidental instance.
The rule of remoteness only looks at the type of harm not the extent of the
harm. It is not a defence to mention the extent of harm, only the type.
THE SIGNIFICANCE OF THE TYPE OF C’S LOSS
Spartan Steel v Martin [1973] 1 QB 27.: Careless D cuts power to C’s
steel factory – C loses ‘melt’, shuts down for several hours. The factory
was still running, and relied on the energy circuit for industrial use. The
power goes out for 15 hours so it loses profits too. Spartan Steel sues
Martin for wasted melt, loss of profit for the melt and 15 hours of
missing profits.
OUTCOME: C gets damages on wasted metal & lost value of ‘melt’. But
NOT for loss of profit due to factory shut-down (take note that what
hurt the factory the most is the missing 15 hours of profits, to which the
court rules they cannot have those profits).
Q: Why not give C damages for lost profits too?
Wasn’t that loss just as foreseeable? In fact, isn’t it OBVIOUS that if
you cut the electricity off to a factory then the factory will lose out on
major profits? THE MOST FORESEEABLE LOSS IS NOT
COMPENSATED.
A: Yes, but it is of a type that D SHOULDN’T BE LIABLE for:
ECONOMIC LOSS
Q: Hold on, isn’t the loss of the value of the ‘melt’ economic too?
A: Yes, but it is not purely economic loss; it flows from PROPERTY
HARM
Punchline: there are good reasons why tort law should not hold D liable
for purely economic losses.
What are those reasons? Are they good?
, “[T]he cutting of the supply of electricity… is a hazard which we all run.
It may be due… to a tree falling on the wires, to an accidental cutting of
the cable, or even to the negligence of someone. When it does happen, it
affects a multitude of persons: not as a rule by way of physical or
property damage, but by putting them to inconvenience, and sometimes to
economic loss. The supply is usually restored in a few hours, so the
economic loss is not very large. Such a hazard is regarded by most people
as a thing they must put up with - without seeking compensation from
anyone. Some there are who instal a stand-by system. Others take out an
insurance policy against breakdown in the supply… They try to make up
the economic loss by doing more work next day. This is a healthy attitude
which the law should encourage.
If claims for economic loss were permitted for this particular hazard,
there would be no end of claims. Some might be genuine, but many might
be inflated, or even false… Rather than expose claimants to such
temptation… it is better to disallow economic loss altogether, at any rate
when it stands alone, independent of any physical damage.
In such a hazard as this, the risk of economic loss should be suffered by
the whole community who suffer the losses - usually many but
comparatively small losses - rather than on the one pair of shoulders, that
is, on the contractor on whom the total of them, all added together,
might be very heavy.
- Lord Denning, 38-9
WHY TREAT PURELY ECONOMIC LOSS DIFFERENTLY?
ARGUMENT: ‘Economic harm less serious than personal/property harm’
COUNTER: Much too sweeping claim; less serious ≠ not deserving
compensation!
ARGUMENT: ‘Potential for false claims’ (‘floodgates of litigation’)
COUNTER: OK, but maybe courts can weed those out…
ARGUMENT: ‘Loss to be shared by the community, rather than fall solely
on D’
COUNTER: Sure, but why not say the same about
personal/property harm?
Economic interests typically more intertwined than personal/property
INTRO
Tort law can be very hard on the defendant. A moments carelessness can cause
massive losses, accidentally. You fall on someone and the medical costs rise and
you need to pay for all of that damage on the victim. Its tough on both parties
but the defendant has to pay for something as small as falling on someone
accidentally.
It tries not to put all the burden on the defendant however, one of these being
in the form of ECONOMIC LOSS. They cannot have foreseen how serious their
conduct can become in an accidental instance.
The rule of remoteness only looks at the type of harm not the extent of the
harm. It is not a defence to mention the extent of harm, only the type.
THE SIGNIFICANCE OF THE TYPE OF C’S LOSS
Spartan Steel v Martin [1973] 1 QB 27.: Careless D cuts power to C’s
steel factory – C loses ‘melt’, shuts down for several hours. The factory
was still running, and relied on the energy circuit for industrial use. The
power goes out for 15 hours so it loses profits too. Spartan Steel sues
Martin for wasted melt, loss of profit for the melt and 15 hours of
missing profits.
OUTCOME: C gets damages on wasted metal & lost value of ‘melt’. But
NOT for loss of profit due to factory shut-down (take note that what
hurt the factory the most is the missing 15 hours of profits, to which the
court rules they cannot have those profits).
Q: Why not give C damages for lost profits too?
Wasn’t that loss just as foreseeable? In fact, isn’t it OBVIOUS that if
you cut the electricity off to a factory then the factory will lose out on
major profits? THE MOST FORESEEABLE LOSS IS NOT
COMPENSATED.
A: Yes, but it is of a type that D SHOULDN’T BE LIABLE for:
ECONOMIC LOSS
Q: Hold on, isn’t the loss of the value of the ‘melt’ economic too?
A: Yes, but it is not purely economic loss; it flows from PROPERTY
HARM
Punchline: there are good reasons why tort law should not hold D liable
for purely economic losses.
What are those reasons? Are they good?
, “[T]he cutting of the supply of electricity… is a hazard which we all run.
It may be due… to a tree falling on the wires, to an accidental cutting of
the cable, or even to the negligence of someone. When it does happen, it
affects a multitude of persons: not as a rule by way of physical or
property damage, but by putting them to inconvenience, and sometimes to
economic loss. The supply is usually restored in a few hours, so the
economic loss is not very large. Such a hazard is regarded by most people
as a thing they must put up with - without seeking compensation from
anyone. Some there are who instal a stand-by system. Others take out an
insurance policy against breakdown in the supply… They try to make up
the economic loss by doing more work next day. This is a healthy attitude
which the law should encourage.
If claims for economic loss were permitted for this particular hazard,
there would be no end of claims. Some might be genuine, but many might
be inflated, or even false… Rather than expose claimants to such
temptation… it is better to disallow economic loss altogether, at any rate
when it stands alone, independent of any physical damage.
In such a hazard as this, the risk of economic loss should be suffered by
the whole community who suffer the losses - usually many but
comparatively small losses - rather than on the one pair of shoulders, that
is, on the contractor on whom the total of them, all added together,
might be very heavy.
- Lord Denning, 38-9
WHY TREAT PURELY ECONOMIC LOSS DIFFERENTLY?
ARGUMENT: ‘Economic harm less serious than personal/property harm’
COUNTER: Much too sweeping claim; less serious ≠ not deserving
compensation!
ARGUMENT: ‘Potential for false claims’ (‘floodgates of litigation’)
COUNTER: OK, but maybe courts can weed those out…
ARGUMENT: ‘Loss to be shared by the community, rather than fall solely
on D’
COUNTER: Sure, but why not say the same about
personal/property harm?
Economic interests typically more intertwined than personal/property
