Recovery of economic loss in negligence - Essay Example

The commercial contracts include provisions either to exclude or limit recovery of damages generally for loss of business, profits or revenue which are contingent upon the breach of contract. However, it was held that ‘consequential’ is not different, but synonymous to ‘indirect’ by the English courts. In Croudace Construction Ltd. v. Cawoods Concrete Products Ltd - [1978] 2 Lloyd’s Rep. 55 (C.A.), Parker J. of the English Court of Appeal considered the usage of the word “consequential” and determined that it was no different than the word “indirect”.

It was held “indirect or consequential” do not exclude liability for damages which are the direct and natural result of the breaches complained of. . . . I do not think “intermediate” adds anything to the word “direct” and I do not think “consequential” adds anything to the word “indirect”. Therefore the position is that the loss of business, revenue or profit could be excluded under special circumstances known to the parties on proof of special circumstances and for damages contributed to by some supervening cause.

In the case of Saint Line Ltd. v. Richardsons Westgarth & Co. [1940] 2 K.B. 99 (K.B.), Saint Line purchased a set of ship engines from Richardsons. The engines were unsatisfactory and Saint Line claimed against Richardsons for (1) loss of profit; (2) wages; and (3) superintendent’s fees. The contract between the parties contained an exclusion clause as to “indirect” and “consequential damages”. The Court found that the claims were not precluded by the clause because the claims arose “directly and naturally from the breach”.

(Sidnel, 2010, p. 113-114) In the classic case of Perre v Apand Pty Ltd [1999] HCA 36, potato produced with “non-certified” seeds was infected and the grower was awarded damages for breach of implied conditions of the contract under the sale of goods legislation. Due to quarantine laws, the neighbours of the grower were not able to export their potatoes, because they were grown within 20 km of the known outbreak. The neighbours were successful in obtaining damages in High Court for the financial loss, though they could not sue for damages for negligence in respect of physical loss because there was no damage to this effect on the basis that physical harm is not a precondition to liability in negligence for economic loss.

In the present case, there is physical harm as well as economic loss consequent upon the damages. (The University of Queensland) Pure vs. consequential economic loss As against the consequential economic loss discussed above, in the case of pure economic loss, the loss strikes the victim’s wallet and nothing else. According to Bussani & Palmer (2003, p. 4), there has never been a universally accepted definition of ‘pure economic loss’ and a number of legal systems neither recognize the legal category nor distinguish it as an autonomous form of damage.

The same act of negligence might cause physical damage to one and pure economic loss to another, and in the later case becomes non recoverable unless it is intentional. Prima facie, the cause and effect relationship may appear to be simple. But, the causation in one's breach of duty relating to the harm to a third person is very complicated. The position is aggravated further by the facts which vary from case to