Pure Economic Loss in Negligence: Has England got it wrong? Does Australia have it right?

AuthorMarilena Stylianou
[2011] Southampton Student Law Review
Vol. 1
Pure Economic Loss in Negligence: Has
England got it wrong? Does Australia have it
Marilena Stylianou
The exclusionary rule regarding recovery for pure economic loss in negligence
in England has been the subject of academic debate for a long time. The law of
negligence in England has developed in such a way as to protect people in
cases of physical harm or damage to property, but it does not generally allow
for recovery when the loss is purely economic. There have been instances
where such a r ecovery was possible, but these were mere exceptions to the
rule. Australia on the other hand allows recovery when a range of factors
indicate that a duty of care should be imposed on the defendant to prevent
pure economic loss from being suffered by the plaintiff. This study examines
the reasons why such recovery is not possible in England. It involves an
account of the recent developments in the l aw in the light of the decision in
Customs & Excise Commissioners v Barclays Bank plc.
1 It reaches two
conclusions; that the decision per se was correct, but it provides little
assistance as to future cases. An examination and comparison of the Australian
position then follows, where it can be argued that Australia is in a slightly more
advantageous position in this area because its system can more readily adapt
and react to change. However, England has managed to reach correct
conclusions in its case law by adopting a bright line exclusionary rule. It would
be over simplistic to state that one jurisdiction‟s approach is correct and the
other is wrong. The preferred approach lies somewhere in between the
positions that the two jurisdictions have adopted.
ure economic loss is loss that involves no damage to property or
physical injury to a person.2 Fleming has argued that recovery for pure
economic loss „has been and remains the most controversial area of
torts‟. 3 The issue of recovery for pure economic loss has tr oubled the
judiciaries of many jurisdictions, which have have responded to this problem
with different approaches. England has followed a bright line exclusionary
1[2006] UKH L 28
2 Weir, T, An Introduction to Tort Law, (2nd edn, OUP, United Kingdom, 2006) 190
3 Fleming, J.G, The Law of Torts, (9th edn, LBC Infor mation Services, Sydney, 1998) 194
S.S.L.R. Economic Loss in Negligence: Has England got it wrong?
Vol. 1
rule and refuses to grant recovery when the loss is purely economic. The
general rule has its exceptions; the most notable being Caparo v Dickman
and Hedley Byrne v Heller.5 Australia has taken a middle position, rejected
the broad exclusionary rule6 and viewing each case more open-mindedly.7
England has catered t o all other categories of loss yet left recovery for pure
economic loss in a stagnant state. What follows is an account of the historic
development of the law in this area in England, an examination of the
Customs & Excise8 case and an account of where this case has left the law.
The similarities between the English and Australian jur isdictions allow a
comparison between the development of pur e economic loss doctrine. A
comparably monumental case to Customs & Excise9 is Perre v Apand,10 not on
the facts, but because of the change that the decision instigated. I t is
important t o clarify that Australia has not always allowed recovery for pure
economic loss; it had followed England for many years only diverging after the
Caltex11 ruling.
From the examination of the relevant case law, it can be argued that it is high
time that England reviewed its exclusionary rule since at times it yields unfair
results. Conversely, Australia should review it‟s adjudication process since
there is no single route to a satisfactory outcome. Whilst England faces
problems regarding the fairness of decisions , Australia faces problems
regarding certainty and predictability.
The issue of indeterminacy of liability, the floodgates argument, and the
possible exposure of public authorities to endless litigation are but a few
reasons for England's exclusionary policy towards pure economic loss. Similar
arguments were put forward by Australian courts for refusing to allow
recovery for pur e economic loss. However, Australian courts took a different
route, considering in each case whether a judgment would create
indeterminate liability,12 yet not letting it determine the outcome of the case.
Australia has adopted a wide range of factors on which to base a conclusion
and thus achieves more balanced decisions.
The Customs & Excise13 case, although decided correctly, gives judges wide
discretion regarding liability for economic loss. The Perre 14 case leaves
Australian law in no better a position. It allows for the consideration of a
variety of issues, but does not provide one single legal test, which would
4 [1932] AC 562 (HL)
5 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL)
6 Bryan v Maloney (1995) 182 CLR 609 (H igh Court of Austr alia)
7 Fleming (n 1)
8 Customs & Excise Commissioners v Barclays Bank plc. [2006] UKH L 28
9 Customs & Excise (n 7)
10 Perre v Apand Pty Ltd (1999) 198 CLR 180 (High Court of Australia)
11 Caltex Oil (Australian) Pty Ltd v The Dredge „Willemstad‟ (1976) 136 CLR 529 (H igh Court
of Australi a)
12Examples woul d include: Perre v Apand (1999) 198 CLR 18 0 and Caltex Oil (Australian) Pty
Ltd v The Dredge „Willemstad‟ (1976) 136 CLR 529
13Customs & Excise (n.7)
14 Perre v Apand (n 9)

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