PURE ECONOMIC LOSSDefinitionWhen Notrecoverable?Whenrecoverable?
Definition of Economic Loss• Economic loss = pecuniary or financialloss, both „consequential‟ and „pure‟.• Consequential economic loss – Loss(es)incurred as a result of physical injuries ordamage to property.• Pure economic loss – other losses thatfollow which do not flow from the damage(independent from it).
Spartan Steel & Alloys Ltd v Martin& Co (Contractors) Ltd • C had a stainless steel factory which obtainedits electricity by a direct cable from the powerstation. D were doing work on the ground withan excavator and negligently damaged thatcable.• As a consequence, the factory was deprivedof electricity for 15 hours which caused:– physical damage to the factory‟s furnaces and metal,– lost profit on the damaged metal and– lost profit on the metal that was not melted during the time theelectricity was off.• Spartan Steel claimed all the three heads of damage.YOU JUDGE!
Spartan Steel & Alloys Ltd v Martin& Co (Contractors) Ltd• The first two were allowed because they wereconsequent upon a threat of physical damage to theplaintiff‟s property.• The third claim was not allowed being a pure economicloss.• C suffered these losses because he was preventedfrom using the furnace and was not consequent uponphysical damage to the property
When not recoverable?• Cattle v Stockton Waterworks Co.Loss resulting from damage toproperty belonging to a 3rd party• Murphy v Brentwood District CouncilLoss due to a defective product
• Cattle v Stockton Waterworks Co.• C contracted to build tunnel under an embankment for a mr. X –D negligently caused flood to the embankment and thesurrounding land belonging to mr. X – this disrupted C‟s workand C suffered a loss of profit in the performance of his work formr. X – C sued D.• Court disallowed the claim for being a pure economic loss.• Murphy v Brentwood District Council• C (house owner) suffered losses after selling his defective housefar below market price – C sued D for such losses and forexpenses incurred in moving into a new house.• Court only allowed C to recover the cost of repairing a defectivebuilding due to the negligence, but not the loss for abandoningthe premise or expenses for remedying the defect.
Hedley Byrne & Co Ltd v Heller & Partners Ltd• D, a bank gave a reference to C (advertisingagent) regarding the financial responsibility ofa customer, expecting C to act on it.• D replied in a letter that was headed: "withoutresponsibility on the part of this bank,“ it saidthat the customer was "considered good forits ordinary business engagements".• C relied on the advise, that customer thenwent into liquidation and C lost £17,000 oncontracts. C sued Heller & Partners fornegligence, claiming that the information wasgiven negligently and was misleading.• D argued there was no duty of care owedregarding the statements, and in any caseliability was excluded.
Hedley Byrne & Co Ltd v Heller & Partners Ltd• Held: The law will imply a duty of carewhen a party seeking information froma party possessed of a special skilltrusts him to exercise due care, andthat party knew or ought to haveknown that reliance was being placedon his skill and judgment (i.e. whenthere is a special relationship withreliance)• However, since here there was anexpress disclaimer of responsibility, nosuch duty was, in any event, implied.• Therefore, C lost the case.
Yong & Co v Wee Hood Teck Development Corp.• Developer-purchaser-financier arrangement: Financier(Resp) gives loan to purchaser, and the letter agreed tocharge the land to the financier.• App (legal firm) prepared an agreement between thedeveloper, the purchaser and the financier – Theyundertook to have the land charged in the financier‟sfavor – but then acted for developers in charging thelands to another bank.• When the developer defaulted, the lands were sold to a3rd party, and financier was left as an unsecured creditorwho cannot execute their claim from the memorandum ofcharge resulting in a pure economic loss to thefinancier.• Can the Financier recover for the loss from the App?
Yong & Co v Wee Hood Teck DevelopmentCorp. • Argued by App: They should not be liable as there is noretainer (retainer contract) between App and Respondent.• Court: clear records and evidence from the past showed theexistence of the solicitor-client relationship between Appand respondent by way of implication Specialrelationship.• Court: App had not only failed to perform their obligationunder the contract with the required skill and care but werealso liable in tort for their wrongful act of depriving thefinancier from having security for the loan (i.e. when theFinancier failed to execute the memorandum of charge fromthe Purchaser).
Majlis Perbandaran Ampang Jaya v Steven PhoaCheng Loon & Ors  2 MLJ 389Steve Shim CJ:• “The third question postulated the consideration of whether pureeconomic loss is recoverable under the Malaysian jurisprudence innegligence and nuisance.• In the law of negligence, there is no immutable rule that pureeconomic loss is not recoverable. All major Commonwealthjurisdictions recognize that pure economic loss is recoverable innegligence.• Under English law, the general duty of care test enunciated inCaparo Industries Plc v Dickman  2 AC 605 is applicable to allnegligence claims, including claims for pure economic loss.– Pursuant to this test, three questions have to be addressed, namely, whether thedamage suffered by the plaintiff is reasonably foreseeable; whether there is arelationship of proximity between the plaintiff and defendant; and whether it is fairand reasonable that the defendant should owe the plaintiff a duty of care.”
• …from the analysis of Murphy v Brentwood; pure economic loss isrecoverable in negligence in English law on the two alternate bases, namelythe categorization approach and the open-ended approach.• The recognized categories include:– where a defendant has assumed a particular responsibility towards the plaintiff.For example, in White v Jones  2 AC 207, where a solicitor was found tohave assumed a responsibility towards the beneficiary under a will when draftingthe will pursuant to a testators instructions;– where a defendant has exposed a plaintiff to a particular danger (see Harris vEvans  1 WLR 1285); and– where there is a recognized legal relationship between the plaintiff anddefendant. For example, in Phelps v Hillingdon London Borough Council  2AC 6019, at p 667, it was found that a teacher-pupil relationship might place ateacher under a duty of care not to cause pure economic loss by teaching pupilsthe wrong syllabusMPAJ v Steven Phoa Cheng Loon & Ors… (cont‟d)
• The. open-ended approach‘: if the facts of a particular case do notcome within a recognized category of liability, a court could gofurther to look at the facts closely to determine if a duty of careshould nevertheless be owed by the defendant to the plaintiff.• Recent statements by the English courts confirm that the open-ended approach can be used to recognize duties of care in newsituations; supported by courts decisions in Australia, NZ andSingapore.• Couort: “Having had the benefit of reading the various authorities onthis subject… I would also endorse the view that caution should beexercised in extending the principle in Donoghue v Stevenson tonew situations. Much would depend on the facts and circumstancesof each case in determining the existence or otherwise of a duty ofcare. (So; favouring open-ended approach)
MPAJ v Steven Phoa Cheng Loon & Ors… (cont‟d)• Resp submitted that they should be allowed to recover economicloss against MPAJ, because:– First, the danger posed by the concept of diverting the East stream across the hillslope behind Highland Towers was reasonably foreseeable. It was recognizedby existing engineering codes.– Secondly, the drainage requirements for the hill slope imposed by JPS were theresult of its concerns for the safety of the Highland Towers apartment blocks,which were in close proximity to the hill slope. There was therefore a direct linkbetween the need for a safe drainage scheme on the hill slope and the HighlandTowers apartment blocks below it.– Thirdly, the Highland Towers tragedy rocked the nation and the world. 48 diedand many were made homeless. It has been urged upon this Court that publicpolicy would only accord with common sense and public perception if MPAJand/or its predecessor were held liable for requiring or approving the diversion ofthe East stream without ensuring its proper maintenance.• Court held: On the grounds so advanced, negligence would have beenattributed to MPAJ and/or its predecessor. But, for the reasons alreadystated, they are however immunized against any liability under s 95(2) ofAct 133.
Uda Holdings Bhd v Koperasi PasarayaMalaysia Bhd• Hawkers were relocated and issued aTOL to erect and operate stalls onpublic road near plaintiff‟ssupermarket.• This caused reduced business andsubstantial loss of profit to P. Plaintiffsued defendants on public nuisanceand breach of statutory duty.• Court held that due to the breach ofstatutory duty, DBKL and theGovernment were liable for a claimbased on pure economic loss. All thethree were joint tortfeasors.