Economic Loss in UK Law

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. He gave this illustration: When a mine is flooded by negligence, thousands of men may be thrown out of work. So here I would ask: When an electric cable is damaged, many factories may be stopped from working. It is not sensible to saddle losses on this scale on to one sole contractor.

What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of "proximity" or "neighbourhood" and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other.

The second characteristic is that non-economic loss constitutes a major item in the damages. Any figure at which the assessor of damages arrives cannot be other than artificial and, if the aim is that justice meted out to all litigants should be even-handed instead of depending on idiosyncrasies of the assessor, whether jury or judge, the figure must be

Where A owes a duty of care in tort not to cause physical damage to B's property, and commits a breach of that duty in circumstances in which the loss of or physical damage to the property will ordinarily fall on B but, by reason of a contractual relationship between B and C, falls upon C, then C will be entitled, subject to the terms of any contract restricting A's liability to B, to bring an action in tort against A in respect of such loss or damage to the extent that it falls on him, C. To that proposition there must be exceptions.

Donoghue v. Stevenson [1932] A.C. 562 may be regarded as a milestone, and the well-known passage in Lord Atkin's speech should I think be regarded as a statement of principle. It is not to be treated as if it were a statutory definition. But I think that the time has come when we can and should say that it ought to apply unless there is some justification or valid explanation for its exclusion.

The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant (what Kirby J in Perre v Apand Pty Ltd [1999] HCA 36, (1999) 198 CLR 180, para 259, succinctly labelled "policy").

If a dangerous defect in a chattel is discovered before it causes any personal injury or damage to property, because the danger is now known and the chattel cannot be safely be used unless the defect is repaired, the defect becomes merely a defect in quality. In either case the loss sustained by the owner or hirer of the chattel is purely economic.