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Who is liable for economic loss?
00:00 21 May 1997
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The case of London Waste v AMEC Civil Engineering decided on the
20th March 1997 provides a useful opportunity to examine the law
surrounding damages for economic loss claimed in tort.
The law draws a distinction between loss caused by physical damage and economic, or monetary, loss.
Normally a plaintiff claiming in the tort of negligence cannot recover economic loss. The substantial development in this area of the law over the past few years has indicated that economic loss is only recoverable where there is a special relationship amounting to reliance by the plaintiff on the defendant.
generator
London Waste was a generator of electricity and had entered into an agreement with Eastern Electricity to provide electricity to the latter's Tottenham substation. Between the generating station and the substation lay transmission cables which had been installed uniquely for the purpose of the supply of electricity between the two.
In 1974 the Greater London Council had made a capital contribution of œ177,000 towards the cost of providing these facilities for the supply of electricity from and to the power station, including the cost of laying the cables.
AMEC, which had no connection to either London Waste or to Eastern Electricity, was the main contractor for improvement works on the north circular road in London.
During the course of piling works, the electricity cables previously mentioned were severed. The effect was catastrophic to London Waste which suffered loss of income from the sale of electricity as well as, it believed, damage to its plant and equipment.
A number of difficult legal obstacles lay in front of London Waste before it would be able to recover such damages. London Waste, of course had no contract with AMEC and would therefore not be able to plead a breach of contract. Accordingly, it would have to prove breach of a duty of care in tort giving rise to recoverable loss.
An impediment to this would be to prove that the damaged cables were the property of London Waste. If this could not be established, and the cables proved to be the property of a third party, a general rule of law would exclude the duty of care the company needed to establish.
negligent
The legal rule broadly states that where a defendant negligently damages property belonging to a third party, and the plaintiff suffers economic loss because of a dependency upon that property or its owner, no duty is owed. In this case the plaintiff suffered loss of revenue.
Dealing with the damage to the cables, the judge confirmed his view that they were not the property of London Waste. Indeed there was no claim for the cost of repairing them.
Neither was there any allegation of damage to the plaintiff's plant requiring repair or imminent replacement or causing any interruption in the generation of electricity beyond that attributable to the severing of the cables.
Instead London Waste had alleged that "latent fatigue damage" had occurred to the generating plant and that its value had been reduced as a consequence.
limited
A further development of the general rule of law provides that there is a limited right of recovery of economic loss where the damage to the third party property causes consequential physical damage to the plaintiff's property.
It might be said that a train of causation must be present. In other words, the damage caused to the plaintiff's property must have arisen as a consequence of the primary damage to the third party's property.
London Waste could not avail themselves of this type of argument. It was clear that the loss of income they sought to recover was caused by the severance of the cables. They had not sought to argue the case that the damage to its plant, the so called " latent fatigue", had caused the loss of income claimed.
On those facts London Waste had no sufficient interest in the cables for the purposes of the remedy it sought and could therefore not avoid the rule that no general duty was owed in such a situation.
It had no right of action for the damage to the cables as it was neither owner nor lessee.
The fact that it had made substantial payment for the installation of the cables and that it had exclusive use of them did not change the court's view. n
The law draws a distinction between loss caused by physical damage and economic, or monetary, loss.
Normally a plaintiff claiming in the tort of negligence cannot recover economic loss. The substantial development in this area of the law over the past few years has indicated that economic loss is only recoverable where there is a special relationship amounting to reliance by the plaintiff on the defendant.
generator
London Waste was a generator of electricity and had entered into an agreement with Eastern Electricity to provide electricity to the latter's Tottenham substation. Between the generating station and the substation lay transmission cables which had been installed uniquely for the purpose of the supply of electricity between the two.
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In 1974 the Greater London Council had made a capital contribution of œ177,000 towards the cost of providing these facilities for the supply of electricity from and to the power station, including the cost of laying the cables.
AMEC, which had no connection to either London Waste or to Eastern Electricity, was the main contractor for improvement works on the north circular road in London.
During the course of piling works, the electricity cables previously mentioned were severed. The effect was catastrophic to London Waste which suffered loss of income from the sale of electricity as well as, it believed, damage to its plant and equipment.
A number of difficult legal obstacles lay in front of London Waste before it would be able to recover such damages. London Waste, of course had no contract with AMEC and would therefore not be able to plead a breach of contract. Accordingly, it would have to prove breach of a duty of care in tort giving rise to recoverable loss.
An impediment to this would be to prove that the damaged cables were the property of London Waste. If this could not be established, and the cables proved to be the property of a third party, a general rule of law would exclude the duty of care the company needed to establish.
negligent
The legal rule broadly states that where a defendant negligently damages property belonging to a third party, and the plaintiff suffers economic loss because of a dependency upon that property or its owner, no duty is owed. In this case the plaintiff suffered loss of revenue.
Dealing with the damage to the cables, the judge confirmed his view that they were not the property of London Waste. Indeed there was no claim for the cost of repairing them.
Neither was there any allegation of damage to the plaintiff's plant requiring repair or imminent replacement or causing any interruption in the generation of electricity beyond that attributable to the severing of the cables.
Instead London Waste had alleged that "latent fatigue damage" had occurred to the generating plant and that its value had been reduced as a consequence.
limited
A further development of the general rule of law provides that there is a limited right of recovery of economic loss where the damage to the third party property causes consequential physical damage to the plaintiff's property.
It might be said that a train of causation must be present. In other words, the damage caused to the plaintiff's property must have arisen as a consequence of the primary damage to the third party's property.
London Waste could not avail themselves of this type of argument. It was clear that the loss of income they sought to recover was caused by the severance of the cables. They had not sought to argue the case that the damage to its plant, the so called " latent fatigue", had caused the loss of income claimed.
On those facts London Waste had no sufficient interest in the cables for the purposes of the remedy it sought and could therefore not avoid the rule that no general duty was owed in such a situation.
It had no right of action for the damage to the cables as it was neither owner nor lessee.
The fact that it had made substantial payment for the installation of the cables and that it had exclusive use of them did not change the court's view. n
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