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Financial loss

Previous: Negligent misstatement

There are three types of financial loss: consequential financial loss, such as claims from personal injury; relational financial loss, which is the loss caused to a dependency of a physical victim, which is generally not recoverable, and pure economic loss which is the most difficult to quantify. Loss caused by negligent misstatement is often a type of pure economic loss.

Consequential financial loss

Although generally recoverable, limits must be set to this type of liability. If you are physically injured, a consequential financial loss claim would be for losses resulting from the injury, such as medical expenses or a loss of earnings. Though consequential financial loss does not just deal with personal injury.

A prime example of the limits of consequential financial loss can be found in Spartan Steel & Alloys Ltd v Martin & Co [1973]. The defendant negligently cut power to the claimant’s steel factory. The claimants could recover from immediate consequential financial loss, such as for the loss of a melt in the furnace and the profit which would have been made on it. However, recovery was not permitted for the loss of profit on 4 further melts which would have gone in the furnace should power not have been cut. This was because the recoverable loss was either physical damage or directly consequential upon that damage. If such a strict approach was not taken, indeterminate liability could result though a domino-like effect.

Historically though, the rules were even stricter. In Liesbosch Dredger v SS Edison [1933], damaging a dredger did not make one party liable for the hire fees while a replacement was built. It was said that consequential losses only occurred due to the claimant’s lack of money. This was more recently overruled in Lagden v O’Conner [2004]. Similarly to in this confirmation, in Network Rail Infrastructure Ltd v Conarken Group Ltd [2011], rail operating costs we recoverable from the defendant when they damaged the claimant’s line.

Consequential financial recovery cannot occur without a proprietary interest in the property which is damaged. Candlewood Navigation v Mitsui [1996] is a good example of this, where a ship’s charterers could not recover.

Relational financial loss

Generally, loss is not recoverable through relationships with others; there is usually a contractual claim to be made with a more immediate party. The only real exception to this rule is provided by the Fatal Accidents Act 1967, where the loss of direct dependencies does become recoverable.

Examples of the general rule include West Bromwich Albion Football Club v El-Safty [2006], where a football club could not sue a doctor for ending their player’s football career; Cattle v Stockton Waterworks [1875] where a contractor could not recover for lost profits when the defendant flooded the land the claimant was digging through; Weller v Foot and Mouth Disease Research Institute [1966], where auctioneers could not recover from an outbreak which the institute was responsible for and finally ‘The Aliakmon’ [1986], where relational loss was not recoverable over goods which the claimant’s did not yet own at the time of damage. A second exception can be found in Shell UK Ltd v Total UK Ltd, in which liability was allowed where Shell was the beneficial owner of property damaged by Total.

In Australia, relational loss can be recoverable where there is a close and proximate relationship. Therefore, in Caltex Oil Pty v The Dredge “Willemstad” [1976, Australia], although Caltex did not own a damaged pipeline, the defendants were liable to them for damaging it; the pipeline led only to Caltex’s oil terminal. Similarly in Canada, and the case of Norsk Pacific v Canada National Railway [1992, Canada], multiple users of a railway bridge were permitted to recover from damage to the bridge by the defendant’s ship. A final successful Australian example would be that of Perre v Apand Pty Ltd [1999].

Pure financial loss

There are no absolute rules to pure financial loss, it is suggested that the Caparo test should be used. Custom and Excise Commissioners v Barclays Bank Plc [2006] illustrates this: it was ruled that the claim was contemptuous. However, some categories have developed.

Professionals and clients

Professionals can owe a duty to non-clients. An example of this is in White v Jones [1995], contradicted in New Zealand by Brownie Wills v Shrimpton [1998, New Zealand]; in England, solicitors can owe duties to those who they are not contractually liable to. Furthermore, in Kapfunde v Abbey National Plc [1999], a doctor did not owe a duty to employees on instruction from their employees when carrying out medicals.

Reports and references

Often, duties are owed in providing reports and references, however not in the case of South Pacific Manufacturing Co Ltd v NZ Security Consultants [1992, New Zealand]. Here, an insurance assessor did not owe a duty to the insured, as freedom of expression must be protected. Following the more general rule however, the case of Spring v Guardian Assurance [1995] ruled that en ex-employee owed a duty to their employee in writing a reference. Finally, in Young v Bella [2006], a professor owed a duty in ensuring that a student was not a child abuser when plagiarising an essay with an anecdote of historic child abusing.

Next: Breach of duty

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