Economic loss is a term of art [1] which refers to financial loss and damage suffered by a person which is seen only on a balance sheet and not as physical injury to person or property. There is a fundamental distinction between pure economic loss and consequential economic loss, as pure economic loss occurs independent of any physical damage to the person or property of the victim. It has also been suggested that this tort should be called "commercial loss" as injuries to person or property can be regarded as "economic". [1]
Examples of pure economic loss include the following:
The latter case is exemplified by the English case of Spartan Steel and Alloys Ltd v Martin & Co Ltd . [6] Similar losses are also restricted in German law, [7] though not in French law beyond the normal requirements that a claimant's asserted loss must be certain and directly caused. [8]
Recovery at law for pure economic loss is restricted under some circumstances in some jurisdictions, in particular in tort in common law jurisdictions, for fear that it is potentially unlimited and could represent a "crushing liability" against which parties would find it impossible to insure. [9] [10]
In Australia, the general rule is that damages for economic loss which are not consequential upon damage to person or property are not recoverable in negligence even if the loss is foreseeable. [11] : para 127 [12] Economic loss may be recoverable in cases where the plaintiff can prove an assumption of responsibility by the defendant and known reliance on the defendant by the plaintiff, [11] : para 128 or vulnerability in the sense of the inability of the plaintiff to take steps to protect itself from the risk of the loss. [11] : para 130
Cases in which the High Court has held that economic loss was recoverable include:
Justice Cardozo's indeterminacy concerns were relied on by the Supreme Court of Canada to restrict imposing liability on a corporation's auditors for negligently auditing the corporation's financial statements in Hercules Management v Ernst & Young, [1997] 2 SCR 165. [17] The court determined that the auditors owed investors of the company a duty of care, and that the auditors had been negligent in conducting their audit. However, La Forest J, writing for a unanimous court, declined to impose liability on the auditors for policy reasons, citing Justice Cardozo's concerns over indeterminate liability. [18]
Pure economic loss was not recoverable in negligence until 1963 and the decision of the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964). Up until Hedley Byrne was decided, pure economic loss was thought to be entirely within the realm of contract law. [19] From that point on, in jurisdictions following the English common law, it has been possible to recover for some pure economic loss in negligence; however, because purely economic loss can usually be anticipated and allocated differently by contract, the party seeking to be compensated for such loss must demonstrate a compelling reason to change the contractual allocation through tort liability.
In Malaysia, the Federal Court in Majlis Perbandaran Ampang v Steven Phoa Cheng Loon [2006] 2 AMR 563 followed the decision in Caparo Industries v Dickman [1990] UKHL 2 where it held; pure economic loss is claimable if 1) the damage was foreseeable, 2) the relationship between the parties was one of sufficient proximity, and 3) it is fair, just and reasonable to impose a duty of care on the defendant.
In the case of Tenaga Nasional Malaysia v Batu Kemas Industri Sdn Bhd & Anor Appeal [2018] 6 CLJ 683, the Federal Court has reaffirmed the position of the Caparo's three-fold test. However, the Court also stressed that the third element shall only be relevant in new and novel cases. In well-established cases such as economic loss, the third element is inapplicable and the Court must adhere to precedents.
In the United States, Chief Judge Benjamin N. Cardozo of the New York Court of Appeals famously described pure economic loss as "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class". [20] The product liability form of the rule (i.e., that there is no recovery for pure economic loss under a theory of strict product liability) can be traced back to Roger Traynor's decision in the California case Seely v. White Motor Co. (1965), which was later adopted by the Supreme Court of the United States in East River Steamship Corp v. Transamerica Delaval Inc. (1986). [1]
A few state supreme courts in the United States have departed from the majority rule and authorized recovery for pure economic loss through tort causes of action (usually negligence). The first was California in 1979, [21] followed later by New Jersey [22] and Alaska. [23] Legal scholars in the United States, such as Jacob Chabot, have also begun to question the majority rule, observing that indeterminate liability cannot truly ground the rule because of its many exceptions and concluding that departure from the rule would be desirable. [24]
The general rule of tort liability under German law is supplied by section 823 of the Bürgerliches Gesetzbuch (BGB), which does not provide for damages for pure economic loss. [25] However, the courts have interpreted BGB provisions imposing liability for harms caused by actions contrary to public policy or statute to allow for pure economic loss damages. [25]
Contractual liability for pure economic loss is recognized in German law. As a result, German courts have often turned to a contract theory to impose liability. [26] Such liability may be imposed even without privity of contract. [26]
In addition, liability for pure economic loss may be imposed under German law in the case of special relationships, such as the relationship of a guardian to a ward, in which the guardian may be subject to liability for pure economic loss if the guardian is at fault. [27]
Sweden adopted general principles of tort liability for the first time in 1972 with the adoption of the Tort Liability Act (skadeståndslagen, SKL). [28] Previously, liability had been largely confined to cases in which a crime had been committed. [28] Under the SKL, that limitation continues to apply in cases involving pure economic loss: it is available only when a crime has been committed. [29] However, in more recent decades, some Swedish court decisions have allowed damages for pure economic loss in exceptional circumstances even when there is no underlying crime. [30]
At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at law, the loss must involve damage to property, or mental or physical injury; pure economic loss is rarely recognised for the award of damages.
Negligence is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort law known as negligence involves harm caused by failing to act as a form of carelessness possibly with extenuating circumstances. The core concept of negligence is that people should exercise reasonable care in their actions, by taking account of the potential harm that they might foreseeably cause to other people or property.
A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable by the state. While criminal law aims to punish individuals who commit crimes, tort law aims to compensate individuals who suffer harm as a result of the actions of others. Some wrongful acts, such as assault and battery, can result in both a civil lawsuit and a criminal prosecution in countries where the civil and criminal legal systems are separate. Tort law may also be contrasted with contract law, which provides civil remedies after breach of a duty that arises from a contract. Obligations in both tort and criminal law are more fundamental and are imposed regardless of whether the parties have a contract.
Delict is a term in civil and mixed law jurisdictions whose exact meaning varies from jurisdiction to jurisdiction but is always centered on the notion of wrongful conduct.
The system of tort law in Australia is broadly similar to that in other common law countries. However, some divergences in approach have occurred as its independent legal system has developed.
In the United States, the calculus of negligence, also known as the Hand rule, Hand formula, or BPL formula, is a term coined by Judge Learned Hand which describes a process for determining whether a legal duty of care has been breached. The original description of the calculus was in United States v. Carroll Towing Co., in which an improperly secured barge had drifted away from a pier and caused damage to several other boats.
Vicarious liability is a form of a strict, secondary liability that arises under the common law doctrine of agency, respondeat superior, the responsibility of the superior for the acts of their subordinate or, in a broader sense, the responsibility of any third party that had the "right, ability or duty to control" the activities of a violator. It can be distinguished from contributory liability, another form of secondary liability, which is rooted in the tort theory of enterprise liability because, unlike contributory infringement, knowledge is not an element of vicarious liability. The law has developed the view that some relationships by their nature require the person who engages others to accept responsibility for the wrongdoing of those others. The most important such relationship for practical purposes is that of employer and employee.
In tort law, a duty of care is a legal obligation that is imposed on an individual, requiring adherence to a standard of reasonable care to avoid careless acts that could foreseeably harm others, and lead to claim in negligence. It is the first element that must be established to proceed with an action in negligence. The claimant must be able to show a duty of care imposed by law that the defendant has breached. In turn, breaching a duty may subject an individual to liability. The duty of care may be imposed by operation of law between individuals who have no current direct relationship but eventually become related in some manner, as defined by common law.
In some common law jurisdictions, contributory negligence is a defense to a tort claim based on negligence. If it is available, the defense completely bars plaintiffs from any recovery if they contribute to their own injury through their own negligence.
Exclusion clauses and limitation clauses are terms in a contract which seek to restrict the rights of the parties to the contract.
In common law jurisdictions, a misrepresentation is a false or misleading statement of fact made during negotiations by one party to another, the statement then inducing that other party to enter into a contract. The misled party may normally rescind the contract, and sometimes may be awarded damages as well.
Misleading or deceptive conduct is a doctrine of Australian law.
Cattanach v Melchior [2003] HCA 38; (2003) 215 CLR 1, was a significant case decided in the High Court of Australia regarding the tort of negligence in a medical context. It was held by a majority of the High Court that the negligent doctor could be held responsible for the costs of raising and maintaining a healthy child.
Recovery for pure economic loss in English law, arising from negligence, has traditionally been limited. Notably, recovery for losses that are "purely economic" arise under the Fatal Accidents Act 1976; and for negligent misstatements, as stated in Hedley Byrne v. Heller. Economic loss generally refers to financial detriment that can be seen on a balance sheet but not physically. Economic loss is then divided into "consequential economic loss" - that which arises directly from some physical damage or injury and "pure economic loss", which is everything else.
Burnie Port Authority v General Jones Pty Ltd is a tort law case from the High Court of Australia, which decided it would abolish the rule in Rylands v Fletcher, and the ignis suus principle, incorporating them generally into the tort of negligence.
Ignis suus, sometimes ignus suus, is a common law principle relating to an occupier's liability over damage caused by the spread of fire. It traditionally imposes strict liability.
Northern Territory v Mengel, was a significant Australian court case, decided in the High Court of Australia on 19 April 1995. The decision dealt with the conceptual framework of tort law and held that liability under tort depended on the plaintiff establishing the defendant was either negligent or intended to cause harm to the plaintiff. It overruled the decision in Beaudesert Shire Council v Smith.
The eggshell rule is a well-established legal doctrine in common law, used in some tort law systems, with a similar doctrine applicable to criminal law. The rule states that, in a tort case, the unexpected frailty of the injured person is not a valid defense to the seriousness of any injury caused to them.
The floodgates principle, or the floodgates argument, is a legal principle which is sometimes applied by judges to restrict or limit the right to make claims for damages because of a concern that permitting a claimant to recover in such situations might open the metaphorical "floodgates" to large numbers of claims and lawsuits. The principle is most frequently cited in common law jurisdictions, and in English tort law in particular.
Cattle trespass was an ancient common law tort whereby the keeper of livestock was held strictly liable for any damage caused by the straying livestock. Under English law the tort was abolished by section 1(1)(c) of the Animals Act 1971, but the tort continues to subsist in other common law jurisdictions, either in its original form as a common law tort, or as modified by statute.