Tort - Economic Loss

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Economic Loss - Introduction

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To show liability for negligence, damage – or “injury” must be shown.

In the case of physical damage to goods, this is unproblematic, unless the economic loss is too remote.

However, pure economic loss is more problematic.

This is where financial harm is suffered in the absence of any physical injury to the person or property of the Pl.

There are particular categories where pure economic loss can be recovered; as a general rule, the courts are loathe to step outside of these categories.

The policy reasons for judicial unwillingness to compensate pure economic loss are as follows:

i. The scope of economic liability is difficult to contain (floodgates).

ii. The rules of contract are often seen as the appropriate arena for recovery of economic loss.

iii. Economic loss is an everyday reality in commercial dealings: the courts to not want to eventually have to step in as arbiters in a wide range of commercial cases where one company causes another to lose money.

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Glencar v. Mayo County Council (2001)

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The SC held that pure economic loss is not generally recoverable, but only when it falls into one of the following five categories:

i. negligent misstatements;

ii. negligent supply of shoddy or dangerous goods;

iii. negligent supply of shoddy or dangerous structures;

iv. independent liablity of statutory public authorities;

v. relational economic loss.

As the improper imposition of a mining ban did not fall under any of these categories, no duty was found to exist.

Quill points out that the Chief Justice left out one important category which is generally recognised: negligent performance of a service. However, Quill argues that the omission was not intended to deny the existence of this category.

Feldthusen points out the problem with this approach: it presumes a general exclusionary rule as to the recoverability of pure economic loss, which has no historic pedigree.

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Relational economic loss: the exclusionary rule

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Relational economic loss occurs where a person suffers loss because of damage to the person or property of a third party.

 Quill reckons that Glencar will restore the exclusionary rule to Irish law; no case has yet been decided on the issue.

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Leigh & Sillivan v. Aliakmon Shipping (1986)

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Pl had contracted for the purchase of goods which were damaged in transit by the Def’s negligence. Upon damage, the Pl had no proprietary interest in the goods, but they had a financial interest because they carried the risk in respect of damage to the goods.

HL: Pl lost because duty owed for damaged property was confined to those with proprietary interests; pure economic loss would only be recovered where there was high proximity, akin to a contractual relationship (this is known as the exclusionary rule).

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Irish Paper Sacks v. Sisk (1972)

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Applied the exclusionary rule.

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McShane v. Johnston (1997)

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Flood J. rejected the approach of the exclusionary rule

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Relational economic loss: the exceptions

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Where none of the three policy concerns mentioned above (Topic 4.1) are relevant to a case, the court may award recovery of relational economic loss (but often still refuses to do so).

Canadian approach: the category of “joint venture” has emerged. This must go beyond mere bailees or users of property; there must be indicia such as the contribution of assets to a common undertaking, mutual control or management, participation in profits etc. If these are present, the courts may recognise a duty towards a person who does not have proprietary interests.

Australian approach: Perre v. Apand (1999): Def provided deficient seeds to a potato grower, resulting in bacterial wilt, leading to a ban on export of potatoes to Western Australia. HC allowed claims of various parties (all related by blood) whose property was not damaged, but who were affected by the ban because of their proximity to the diseased crop. Feldthus summarises the rationale thus: “The Def should be held liable because it knew its negligence would cause damage to a known ascertainable class of plaintiffs who were particularly vulnerable” – and none of the above public policies were relevant.

If this approach were applied to earlier cases of relational economic loss, many Pls woud win. Why isn’t it? Quill suggests it is because of judicial caution and over-zealous application of the floodgates principle.

Glencar suggests our law will not proceed in the Australian direction, but it might actually be favourable.