The University of Texas at Austin   School of Law

Main menu:

BGH NJW 1977, 2208 VI. Civil Senate (VI ZR 136/76) = JZ 1977, 721 = VersR 1977, 1006
12 July 1977
Professor B. S. Markesinis

The defendant was carrying out earth removal operations required in the construction of an aqueduct and reservoir for the city B and the local water authority. In the course of the works a mechanical digger operated by one of the defendant’s men damaged an electric cable which supplied several concerns. As a result current to the plaintiff’s business was interrupted for 32 minutes, and the work of its 1385 employees brought to a halt.

The Landgericht and the Oberlandesgericht dismissed the claim for damages. The plaintiff’s appeal was also dismissed.


I. 1. The Court of Appeal held that the plaintiff had no tort claim under § 823 I BGB, since no legal interest protected by this rule had been invaded: in having to pay wages when no work could be done owing to the lack of current the plaintiff suffered a purely economic loss. The court also held that there had been no invasion of an established and operative business. Furthermore, no claim arose under § 823 II BGB, for although there was a provincial regulation regarding the safeguarding of electric cables during building operations (§ 18 III Provincial Building Ordinance of Baden-Württemberg—BadWürttBauO), it did not have the character of a protective law (Schutzgesetz) in favour of customers supplied from the national electricity grid.

2. This is perfectly in line with the decision of this court.
(a) This court has frequently stated the preconditions which must be met before damages are payable for affecting a business (BGHZ 29, 65; 41, 123; 66, 388, 393). Those principles involve the conclusion that the damage done by the defendant’s mechanical digger to the electric cable was not an invasion of the plaintiff’s business as such, since there is lacking the requirement of intimate connection with the business (Betriebsbezogenheit). In a similar case (BGHZ 29, 65, 74) the court said that the breaking of an electric cable supplying a factory is no more intimately connected with the business than injury to its employees or damage to its vehicles: it is not an essential characteristic feature of an established and operative business that it have an uninterrupted supply of electricity, especially as all the other customers connected to the same cable have the same legal relationship with the utility that supplies the current. We need not dwell on this point since even the appellant does not contest it.

(b) Although it had previously held otherwise (see, for example, NJW 1968, 1279), this court in its decision of 8 June 1976 (BGHZ 66, 388) stated that § 18 III BadWürttBauO (and the similar provisions of the building ordinances of other Länder) are not protective laws in favour of subscribers who suffer economic loss through a lack of current due to damage to a cable. Accordingly there are no legal objections to the view of the Court of Appeal, which evidently was unaware of that decision. Nor, indeed, does the appellant himself contest this part of the judgment.

II. The plaintiff also puts forward a contractual claim both in his own right and by assignment. The Court of Appeal rejected this. The underlying facts are that representatives of the parties had a meeting on site with representatives of the water authority and the city, that the plaintiff’s business manager and the city representative drew attention to the presence of the main electric cable where the earthworks were about to begin and stressed how vital it was for the plaintiff’s business, and that the defendant’s clerk of works was then told that any digging in the neighbourhood of the cable must be done by hand rather than by machine. The Court of Appeal analysed these facts correctly, and its holding that the plaintiff was not drawn into the protective ambit of the contract of services between the water authority and the defendant cannot be faulted.

1. Case-law recognizes that persons not immediately involved in a contract may yet be drawn within its protective ambit, with the result that although they cannot bring a claim for performance, as would be the case if it were a true contract for the benefit of third parties under § 328 I BGB, they may nevertheless have a contractual claim for damages if they suffer harm owing to faulty conduct by the debtor in breach of contract (on this see BGHZ 49, 350; NJW 1975, 344; NJW 1954, 874; BGH VersR 1955, 750; NJW 1956, 1193; NJW 1959, 1676; BGHZ 51, 91, 96).

The cases agree that whether third parties are to be included in the protective area of a contract when they were not involved in its formation and have not been expressly covered by the parties, depends on the meaning and purpose of the contract and its construction in accordance with the principle of good faith (§ 157 BGB) (see BGHZ 56, 269, 273); in the long run what is critical is not so much the relationship between the contractors themselves as the special relationship between the creditor and the third party whose inclusion is in question (see especially BGHZ 51, 91, 96). In order to avoid an intolerable extension of contractual duties of care beyond what the principle of good faith can demand of the debtor of the contractual performance, the court has frequently observed that the duties of care and protection can only be extended beyond the actual parties to the contract if the principal creditor (here the water authority) has some responsibility for the well-being of the third party, as owing him protection and care (see especially BGHZ 51, 91, 96; NJW 1974, 1189). This requirement, which is needed so as to avoid blurring the line between contractual and tortious liability in an insupportable manner and contrary to the will of the legislature, is normally present only when there is a legal relationship of a personal nature between the contractual creditor and the third party, such as commonly arises in family relationships, in employment, and in landlord and tenant cases (see BGHZ 51, 91, 96).

2. Contrary to the appellant’s contention, the Court of Appeal acted consistently with these principles in holding that the requirements for including the plaintiff in the protective area of the contract for work between the defendant and the water authority were not satisfied in this case.

(a) In particular the water authority here was in no way responsible for the well-being of the plaintiff. For the contractual creditor, the plaintiff was only one of a large number of subscribers that might be affected by damage to the cable. As this court said in its judgment of 3 November 1961 (VersR 1962, 86, 88), contractual duties must not be extended in cases where faulty work or failure to take security measures could cause harm to people of all kinds—houseowners, tenants, entrepreneurs, and so on—for then the class of people protected by the contract would be unlimited and unenforceable. The mere fact that the plaintiff’s business was apt to suffer a considerable economic loss through interruption of the electricity supply does not justify holding that the water authority which could itself suffer if the plaintiff was damaged, must look out for its well-being. Even if it be true that the contractual creditor had a certain interest in the safety of the cable, this interest was only a general one, and not one solely or predominantly related to the needs of the plaintiff for which the plaintiff could claim protection from the creditor.

(b) Nor can it be said that the meeting on site modified the contract of works between the defendant and the water authority. The water authority was bound to give such instructions before the work started in order to enable the defendant to take the necessary steps to protect the utility cables (including telephone cables—§ 317 StGB), and the special reference to the harm the plaintiff might suffer if the current were interrupted was insufficient to bring it within the protective area of the contract contrary to the principles already stated. It is important that at the time he concludes the contract, the contractual debtor should be able to see what risk he is undertaking, and this would be impossible if the creditor could later determine what third parties were to be included in its protective area by making a unilateral declaration to the debtor or to some unauthorized employee.

3. The Court of Appeal was also right to hold that the plaintiff had no assigned claim for damages from the water authority. The requirements of Drittschadensliquidation are not met (BGHZ 51, 91, 93 ff.). There is no special legal relationship between the plaintiff and the water authority, the defendant’s contractual creditor, such as would justify holding that in law it was not the creditor but the plaintiff who suffered the harm. Only if, at the time of the wrong, the creditor’s interest is vested in, or has passed to, the third party, does the party liable have to make good to the creditor what is lost by reason of the creditor’s legal and economic relations with the third party. Apart from a few exceptional cases (e.g. BGHZ 40, 91, 100) this only applies when the creditor has contracted on the third party’s account (e.g. BGHZ 25, 250, 258) or when the object which the debtor was to safeguard belonged not to the creditor but to the third party (as in BGHZ 15, 224). No such fact situation is present here (see also NJW 1959, 479). We need not now enquire what the case would be if the defendant contractor had undertaken by contract a specific duty of care towards the third party since, as has been stated, no such agreement is shown to have been made.

Notes to Cases 11–13

1. These cases represent one facet of the wider problem of compensability of purely economic loss which remains, both in German and Anglo-American law, a central topic of the law of torts: (i) because it impinges (as cases 19 and 27 also show) on the uneasy relationship between contract and tort and (ii) because the decisions on this topic show how judicial fashions change vis-à-vis the concepts used to limit liability for negligence. We shall return to these more general points later; here suffice it to make a few general remarks about these ‘cable cases’.

2. The factual situation is, typically, the following: A damages B’s property and as a result C, (and, perhaps, others) suffer economic loss. Cases 8, 9, and 10 fall into this pattern and find an excellent English equivalent in Spartan Steel v. Martin and Co. [1973] 1 QB 27 and an American parallel in Beck v. FMC Corporation, 385 NYS 2d 956; aff’d, 369 NE 2d 10 (1977). A factual variant, raising analogous problems, is the following: A, a water company usually under a contractual obligation with a local authority B to provide water and maintain proper water pressures, fails to do so. As a result of this, firemen are unable to extinguish a fire that breaks out and consumes C’s house. In all but four American jurisdictions C’s claims against A are turned down, H. R. Moch Co. v. Rensselaer Water Co., 247 NY 160, 159 NE 896 (1928) being, perhaps, the locus classicus. These negative results of Anglo-American and German law call for a comment, not least because they are in stark contrast with the attitude taken by other systems (e.g. the French).

3. It is interesting to compare case 12 with Spartan Steel, above, and discover the true reasons that lie behind these judgments. Which of these judgments do you find most convincing? How many of the reasons given by Lord Denning MR, whose judgment is extracted below, can also be found in the German decision? Zweigert and Kötz, § 5, maintain that ‘style’ is one of the most important distinguishing features between Common law and modern civil law (though they do not specifically discuss judicial styles). How different do you find the style of: (i) the American and German judgments; (ii) the American and English judgments?

4. A policy factor which gets short shrift in these judgments is the insurance factor. The American water cases display an amazing ingenuity in utilizing every legal concept under the sun to turn down these claims while at the same time avoiding talking openly about insurance considerations. In these cases two types of insurance can be envisaged: loss insurance (which would justify the status quo) and liability insurance (which would argue in favour of a change in the law). Which of the two is cheaper and more efficient and why? A good discussion of the insurance factor can be found in 51 Cornell Law Rev. 142 (1965) and, most recently, in the decision of the Canadian Supreme Court in Norsk Pacific Steamship Co. Ltd. v. Canadian National Railway Co. [1992] 1 S.C.R. 1021 (extracts of which are reproduced below, pp. 223–64). The insurance aspect of the case are also increasingly considered by the German legal literature which seems divided as to whether a change in the law is desirable. For further details see Hagar, ‘Haftung bei Störung der Energiezufuhr’ JZ 1979, 53 and Bürge, ‘Die Kabelbruchfälle . . .’ Juristische Blätter 1981, 57. The two most thorough monographs on the subject are by Hermann, Zum Nachteil des Vermögens (1979) and Taupitz, Haftung für Energieleiterstörungen durch Dritte (1981).

5. In England the attitude of the courts towards economic loss has vacillated in the late 1970s, the 1980 and the early 1990’s. Though these doubts can also be found in other Common law jurisdictions such as Australia, Canada, and New Zealand the trend has, if anything, been towards a renunciation of the categorical exclusion rule. This is certainly the case in the last two of the aforementioned countries whereas the first seems to have opted for a nuanced approach. (For Canada see: Kamloops v. Nielsen [1984] 2 SCR 2; Norsk Pacific Steamship Co. v. CNR [1992] 1 SCR 1021; Winnipeg Condominium Corp. No. 36 v. Bird Construction Co. Ltd. [1995] 1 SCR 85=(1995) 121 DLR (4th) 193. For New Zealand see Invercargill CC v. Hamlin [1994] 3 NZLR 513 – a decision which forced the Privy Council – [1996] 2 WLR 367 P.C. - to accept that Commonwealth jurisdictions could agree to differ among themselves! For Australia see Bryan v. Maloney (1995) 182 CLR 609 but, also, Hill v. Van Erp (1997) 188 CLR 159. The different Commonwealth authorities are discussed by Mullany Torts in the Nineties (1997), ch.1. The cable cases, however, in England (and elsewhere) have remained unaffected so one is forced to cope with some fine distinctions they have provoked and which can also be found in America.

One situation where recovery is allowed is where the plaintiff can prove that his economic loss is immediately consequential upon damage to property. Cf. Newlin v. New England Tel and Tel Co., 316 Mass. 234, 54 NE 2d 929 (1944) (USA); SCM (UK) Ltd. v. W. J. Whittal and Son Ltd [1971] 1 QB 337 (England); and BGHZ 41, 123 and, more recently, BGH VersR 85, 1147 (Germany). This distinction helps to keep litigation under control, but it is crude and it has not passed uncriticized. (See the powerful dissenting judgment of Edmund Davies LJ in the Spartan Steel case.) The comparison of two American cases, Beck (above) and Dunlop Tire and Rubber Corp. v. FM Corp., 53 App. Div. 2d 150, 385 NYS 2d 971 (1976), offers a good illustration of the problem.

In Beck an explosion in factory A (FMC) damaged an electric power plant B (Niagara Mohawk) which supplied electricity to C (a Chevrolet plant). During the power cut, C laid off its hourly-paid work-force, and refused to pay it. D, one of the workers, sued B for breach of warranty and negligence, and A for negligence. The contract-based action was dismissed on the convincing ground that D was only an incidental beneficiary of the contract between B and C. The tortious actions against A and B were dismissed on the ground that no duty was owed by either of them to D. The reasoning begs the question, but the court let the cat out of the bag when it said that any ‘. . . contrary determination would unduly extend the liability of this defendant to an indefinite number of potential beneficiaries’.

Dunlop’s facts were slightly different, though the action arose out of the same incident at FMC’s factory. In Dunlop the explosion in A, besides damaging the power company B, also caused stones and debris to fall on C’s (Dunlop’s) plant. (Dunlop was about a mile closer to the centre of the explosion that Chevrolet was in the Beck case.) C (Dunlop) sustained lost profits of $170,000 due to the power cut and a further $16,445 due to the power cut as well as the prejudicial effect that the explosion had on its machinery. With regard to the latter, the court felt that Beck’s case did not apply since C’s claim was not ‘vicarious or derivative’ (by which the court must have meant ricochet). But is C’s tortious action in Dunlop really different from that of D in Beck? Was Beck adequately distinguished, or was the real reason for granting the claim in Dunlop connected with the fact that it was closely linked with material damage? This crucial point is only raised as a secondary point by the court.

Dunlop’s first and main claim for their purely economic loss was rejected. This time, however, causative language was used.

“Logically [said the court] if damage from the loss of power was foreseeable, then the interruption of production was also foreseeable and the lost profits resulting from the interruption should be compensatable, if proved and if, indeed, lost profits are recoverable at all in a tort action. However, while there is some limited authority that lost profits may be recovered [citations] such damages are subject to the general rule of certainty which requires that the plaintiff prove the extent of the damage and the causal relationship between the defendant’s negligence and the damage.”

And the court concluded: ‘A stoppage in production . . . does not necessarily result in lost profits and the damage which a manufacturer may sustain for a 24-hour shut-down of electrical power may well be too remote and speculative to be compensated.’ Can this reasoning be squared with that in Beck? The reasoning of the Dunlop court suggests that the floodgates of litigation can be controlled through the medium of foreseeability and remoteness. If that is so why use (as Beck did) the duty concept and frustrate recovery in all cases?

6. If distinctions are to be made what about the following situations?

(a) A damages B’s cable which has been installed to service only C’s factory. Can C recover? The point does not appear to have been decided in either England or Germany but an Australian case has given an affirmative answer. Caltex Oil (Australia) pty v. The Dredge ‘Willemstad’ (1976) 11 ALR 227. Here the floodgates argument cannot be invoked. Could this case be solved by applying Lord Goff’s theory of ‘transferred loss’ or the Germanic equivalent of Drittschadensliquidation? (See discussion above, p. 187.) In the Caltex case the Australian High Court distanced itself from the broad exclusionary rule so favoured by England courts. But the rich variety of views found in the multi-judgment decision makes it difficult to extract a common ratio decidendi and for this reason its precedental value in subsequent “leading” cases – such as Norsk – seems to have been limited.

(b) If A damages B’s cable and C’s molten material solidifies during the power cut and has to be thrown away, C has suffered material damage and can therefore recover damages for it (and for consequential loss of profits). But what if the solidified material can be remelted and used after the restoration of the power? A German court (OLG Hamm NJW 1973, 760) held that this was not interference with property since there was no permanent interference with its substance. The reasoning appears too abstract and conceptual, and perhaps it would be more convincing to accept that there is material damage. That the damage was only temporary should thus only influence the quantum of damages rather than the characterization of the loss as material or economic. On these points see Möschel, ‘Der Schutzbereich des Eigentums nach § 823 I BGB’ JuS 1977, 1, 5; Isenbeck, note on OLG Hamm in NJW 1973, 1755.

7. Case 9 also considers whether a claim can be based on § 823 II BGB (see discussion in text, Chapter 4). In the late 1960s the Supreme Court held that it could: BGH NJW 1968, 1279. The State Court of Appeals refused, however, to follow suit (see, for example, BayObLG NJW 1972, 1085; OLG Hamm NJW 1973, 760; OLG Saarbrücken VersR 1976, 176) and in the end forced the Supreme Court to recant. The answer, however, once again depends on unexpressed policy views about the issues. How else can one explain the fact that identically phrased statutory provisions have received different characterizations in Germany, Austria, and Switzerland? On this see the exhaustive treatment of Bürge in Juristische Blätter 1981, 57.

Addendum: Extracts from Lord Denning MR’s judgment in Spartan Steel v. Martin and Co. [1973] 1 QB 27, 36.

At bottom I think the question of recovering economic loss is one of policy. Whenever the courts draw a line to mark out the bounds of duty, they do it as matter of policy so as to limit the responsibility of the defendant. Whenever the courts set bounds to the damages recoverable—saying that they are, or are not, too remote—they do it as matter of policy so as to limit the liability of the defendant.

In many of the cases where economic loss has been held not to be recoverable, it has been put on the ground that the defendant was under no duty to the plaintiff. Thus where a person is injured in a road accident by the negligence of another, the negligent driver owes a duty to the injured man himself, but he owes no duty to the servant of the injured man—see Best v. Samuel Fox and Co. Ltd [1952] AC 716, 731; nor to the master of the injured man—Inland Revenue Commissioners v. Hambrook [1956] QB 641, 660; nor to anyone else who suffers loss because he had a contract with the injured man—see Simpson and Co. v. Thomson (1877) 3 App. Cas. 279, 289; nor indeed to anyone who only suffers economic loss on account of the accident—see Kirkham v. Boughey [1958] 2 QB 338, 341. Likewise, when property is damaged by the negligence of another, the negligent tortfeasor owes a duty to the owner or possessor of the chattel, but not to one who suffers loss only because he had a contract entitling him to use the chattel or giving him a right to receive it at some later date—see Elliott Steam Tug Co. Ltd. v. Shipping Controller [1922] 1 KB 127, 139 and Margarine Union GMBH v. Cambay Prince Steamship Co. Ltd [1969] 1 QB 219, 251–2.

In other cases, however, the defendant seems clearly to have been under a duty to the plaintiff, but the economic loss has not been recovered because it is too remote. Take the illustration given by Blackburn J. in Cattle v. Stockton Waterworks Co. (1875) LR 10 QB 453, 457, when water escapes from a reservoir and floods a coal-mine where many men are working. Those who had their tools or clothes destroyed could recover, but those who only lost their wages could not. Similarly, when the defendants’ ship negligently sank a ship which was being towed by a tug, the owner of the tug lost his remuneration, but he could not recover it from the negligent ship, though the same duty (of navigation with reasonable care) was owed to both tug and tow—see Société Anonyme de Remorquage à Hélice v. Bennetts [1911] 1 KB 243, 248. In such cases if the plaintiff or his property had been physically injured, he would have recovered: but, as he only suffered economic loss, he is held not entitled to recover. This is, I should think, because the loss is regarded by the law as too remote—see King v. Phillips [1953] 1 QB 429, 439–40.

On the other hand, in the cases where economic loss by itself has been held to be recoverable, it is plain that there was a duty to the plaintiff and the loss was not too remote. Such as when one ship negligently runs down another ship, and damages it, with the result that the cargo has to be discharged and reloaded. The negligent ship was already under a duty to the owners of the cargo, and they can recover the cost of discharging and reloading it, as it is not too remote—see Morrison Steamship Co. Ltd v. Greystoke Castle (Cargo Owners) [1947] AC 265. Likewise, when a banker negligently gives a reference to one who acts on it, the duty is plain and the damage is not too remote—see Hedley Byrne and Co. Ltd v. Heller and Partners Ltd [1964] AC 465.

The more I think about these cases, the more difficult I find it to put each into its proper pigeon-hole. Sometimes I say: ‘There was no duty.’ In others I say: ‘The damage was too remote.’ So much so that I think that the time has come to discard those tests which have proved so elusive. It seems to me better to consider the particular relationship in hand, and see whether or not, as a matter of policy, economic loss should be recoverable, or not. Thus in Weller and Co. v. Foot and Mouth Disease Research Institute [1966] 1 QB 569 it was plain that the loss suffered by the auctioneers was not recoverable, no matter whether it is put on the ground that there was no duty or that the damage was too remote. Again in Electrochrome Ltd v. Welsh Plastics Ltd [1968] 2 All ER 205, it is plain that the economic loss suffered by the plaintiffs’ factory (due to the damage to the fire hydrant) was not recoverable, whether because there was no duty or that it was too remote.

So I turn to the relationship in the present case. It is of common occurrence. The parties concerned are: the electricity board who are under a statutory duty to maintain supplies of electricity in their district; the inhabitants of the district, including this factory, who are entitled by statute to a continuous supply of electricity for their use; and the contractors who dig up the road. Similar relationships occur with other statutory bodies, such as gas and water undertakings. The cable may be damaged by the negligence of the statutory undertaker, or by the negligence of the contractor, or by accident without any negligence by anyone, and the power may have to be cut off whilst the cable is repaired. Or the power may be cut off owing to a short circuit in the power house and so forth. If the cutting-off of the supply causes economic loss to the consumers, should it as matter of policy be recoverable? And against whom?

The first consideration is the position of the statutory undertakers. If the board do not keep up the voltage or pressure of electricity, gas, or water—or, likewise, if they shut it off for repairs—and thereby cause economic loss to their consumers, they are not liable in damages, not even if the cause of it is due to their own negligence. The only remedy (which is hardly ever pursued) is to prosecute the board before the magistrates. Such is the result of many cases, starting with a water board—Atkinson v. Newcastle and Gateshead Waterworks Co. (1877) 2 Ex. D. 441; going on to a gas board—Clegg, Parkinson and Co. v. Earby Gas Co. [1896] 1 QB 592; and then on to an electricity company—Stevens v. Aldershot Gas, Water and District Lighting Co. Ltd best reported in (1932) 31 LGR 68; also in 102 LJKB 12. In those cases the courts, looking at the legislative enactments, held that Parliament did not intend to expose the board to liability for damages to the inhabitants en masse: see what Lord Cairns LC said in Atkinson v. Newcastle and Gateshead Waterworks Co. 2 Ex. D. 441, 445 and Wills J. in Clegg, Parkinson and Co. v. Earby Gas Co. [1896] 1 QB 592, 595. In those cases there was indirect damage to the plaintiffs but it was not recoverable. There is another group of cases which go to show that, if the board, by their negligence in the conduct of their supply cause direct physical damage or injury to person or property, they are liable: see Milnes v. Huddersfield Corporation (1886) 11 App. Cas. 511, 530 by Lord Blackburn; Midwood and Co. Ltd v. Manchester Corporation [1905] 2 KB 597; Heard v. Brymbo Steel Co. Ltd [1947] KB 692 and Hartley v. Mayoh and Co. [1954] 1 QB 383. But one thing is clear: the statutory undertakers have never been held liable for economic loss only. If such be the policy of the legislature in regard to electricity boards, it would seem right for the Common law to adopt a similar policy in regard to contractors. If the electricity boards are not liable for economic loss due to negligence which results in cutting off the supply, nor should a contractor be liable.

The second consideration is the nature of the hazard, namely cutting off the supply of electricity. This is a hazard which we all run. It may be due to a short circuit, to a flash of lightning, to a tree falling in the wires, to an accidental cutting of the cable, or even to the negligence of someone or other. And when it does happen, it affects a multitude of persons: not as a rule by way of physical damage to them or their property, but by putting them to inconvenience, and sometimes to economic loss. The supply is usually restored in a few hours, so the economic loss is not very large. Such a hazard is regarded by most people as a thing they must put up with—without seeking compensation from anyone. Some there are who install a stand-by system. Others seek refuge by taking out an insurance policy against breakdown in the supply. But most people are content to take the risk on themselves. When the supply is cut off, they do not go running round to their solicitor. They do not try to find out whether it was anyone’s fault. They just put up with it. They try to make up the economic loss by doing more work next day. This is a healthy attitude which the law should encourage.

The third consideration is this: if claims for economic loss were permitted for this particular hazard, there would be no end of claims. Some might be genuine, but many might be inflated, or even false. A machine might not have been in use anyway, but it would be easy to put it down to the cut in supply. It would be wellnigh impossible to check the claims. If there was economic loss on one day, did the claimant do his best to mitigate it by working harder next day? And so forth. Rather than expose claimants to such temptation and defendants to such hard labour—on comparatively small claims—it is better to disallow economic loss altogether, at any rate when it stands alone, independent of any physical damage.

The fourth consideration is that, in such a hazard as this, the risk of economic loss should be suffered by the whole community who suffer the losses—usually many but comparatively small losses—rather than on the one pair of shoulders, that is, on the contractor on whom the total of them, all added together, might be very heavy.

The fifth consideration is that the law provides for deserving cases. If the defendant is guilty of negligence which cuts off the electricity supply and causes actual physical damage to person or property, that physical damage can be recovered: see Baker v. Crow Carrying Co. Ltd. (unreported) 1 February 1960; Bar Library Transcript No. 45, referred to by Buckley LJ in SCM (UK) Ltd. v. W. J. Whittall and Son Ltd. [1971] 1 QB 337, 356; and also any economic loss truly consequential on the material damage; see British Celanese Ltd. v. A. H. Hunt (Capacitors) Ltd. [1969] 1 WLR 959 and SCM (UK) Ltd. v. W. J. Whittall and Son Ltd. [1971] 1 QB 337. Such cases will be comparatively few. They will be readily capable of proof and will be easily checked. They should be and are admitted.

These considerations lead me to the conclusion that the plaintiffs should recover for the physical damage to the one melt (£368), and the loss of profit on that melt consequent thereon (£400): but not for the loss of profit on the four melts (£1,767), because that was economic loss independent of the physical damage.

6. Economic loss (loss of use; other possible headings)

Back to top


This page last updated Thursday, 01-Dec-2005 11:04:42 CST. Copyright 2007. All rights reserved.