Establishing Economic Loss
| Author | John Lorn McDougall, Q.C. |
| Pages | 407-425 |
Establishing
Economic Loss
John
Lorn
McDougall,
Q.CJ
A.
INTRODUCTION
The
circumstances which will permit recovery
of
damages
to
compen-
sate
for
pure economic loss have been
a
puzzle
for
more than
a few
gen-
erations
of
lawyers throughout
the
common
law
world.
In
tort
claims,
compensation
for
pure economic
loss,
meaning monetary loss unaccom-
panied
by any
manifestation
of
physical
damage,
has
generally been
denied with
the
exceptions only proving
the
rule that recovery
is
gener-
ally
not
available.1
The
spectre
of
indeterminate damages
suffered
by an
indeterminate
class
of
plaintiffs,
raised
so
aptly
in the
classic
Ultramares
Corporation
v.
Touched
was the
governing rationale
for the
rule.
It has
John Lorn McDougall, Q.C.,
is a
partner with
the
Toronto
offices
of
Fraser Milner
Casgrain LLP.
He
acknowledges, with great thanks,
the
assistance
of his
colleague,
Meghan Thomas,
B.A.,
LL.B.,
who
helped turn
his
rough
drafts
into
a finished
paper.
Damages
for
pure economic losses
are
generally recoverable
for
numerous other
causes
of
action.
For
example, breach
of fiduciary
duty gives rise
to
remedies such
as
an
accounting
of
profits
or
compensatory damage
for
losses
suffered:
Mark Vincent
Ellis,
Fiduciary
Duties
in
Canada,
looseleaf (Don Mills,
ON: R.
DeBoo, 1988)
at
20.26.1^
In
breach
of
contract claims,
the
usual measure
of
damages
is to put the
plaintiff
in
the
position
it
would have been
in had the
contract been performed, which
may
include either losses incurred
in
reliance
on the
contract
or
profit
expected
from
the
contract,
both
of
which
are
generally pure economic losses: S.M. Waddams,
The Law
of
Damages,
looseleaf (Toronto: Canada
Law
Book,
2004)
at
15.200.
174
N.E.
441
(N.Y. 1931)
[Ultramares].
407
i
2
408
JOHN LORN
MCDOUGALL,
Q.C.
haunted those
who,
in the
ensuing
years,
have sought
to
rationalize
the
exceptional circumstances
in
which
recovery
of
economic
loss
simpliciter
has
been allowed
by the
courts. Needless
to
say,
it has
been
an
intellectu-
ally
challenging
and
sometimes
frustrating
past several decades
as
judi-
cial
attempts
to
rationalize
the
underlying bases
of
recovery have largely
failed,
with
the
result that
a
single overarching theory
for the
recovery
of
pure economic loss
has yet to be
formulated.3
No
matter
how it is
dressed,
a
loss
is a
loss.
It is
counter-intuitive
to bar
recovery simply because certain losses
are not
accompanied
by
physical harm.
After
all,
it is
also
the
case that
a
wrong
is a
wrong
and
a
remedy
should
not be
denied
simply
because
the
consequence
of the
wrong
has no
physical
manifestation.4
That said, society does
not
recog-
nize
all
pure economic losses
as
wrong.
For
example, losses
suffered
as a
result
of
failure
to
compete adequately
in a
legitimate market
clearly
are
not
compensable.
It is
relatively simple
to
award compensation where
the
economic loss
is the
result
of an
obvious
wrong5
and
simpler still
when
the
economic loss
is
accompanied
by
physical
damage.6
It is
more
difficult
to
establish
a
regime based
on
logic under which certain condi-
As
Esson J.A.
so
vividly described
at the
conclusion
of his
reasons
in
James
v.
Brit-
ish
Columbia,
[2005]
W.W.R.
417
(B.C.C.A.),
fifty
years
ago
only
one
decision
on
pure
economic
loss existed.
In
Candler
v.
Crane,
Christmas
&
Co.,
(Eng.
C.A.),
Lord
Justice
Asquith
(along with
the
majority
of the Law
Lords) declined
to
heed
Lord
Denning's
exhortation
to
adopt
a
more
"enlightened"
view which would allow
recovery
rather than cowering with "the timorous
souls
who
...
[are]
fearful
of
allow-
ing a new
cause
of
action."
A
dozen years later,
the
onslaught
of
economic loss cases
was
launched
by
Hedley
Byrne
& Co. v.
Heller
&
Partners
Ltd.,
(U.K.H.L.).
Esson
J.A.
observed,
"Having
regard
to the
manifest
and
multitudinous
difficulties
which
the
courts have experienced
in
applying
[Lord
Denning's] enlightened
ap-
proach,
I
cannot resist paraphrasing, however awkwardly,
the
words
of Mr.
Churchill
in
qualifying
his
praise
of the
modesty
of Mr.
Atlee.
It is now
apparent that
the
timo-
rous souls
had a
great deal
to be
timorous about."
An
excellent illustration
of
these
"multitudinous
difficulties"
in
rationalizing economic loss recovery
is
provided
by the
divided Supreme Court
of
Canada decision
in
Canadian
National
Railway
Co. v.
Norsk
Pacific
Steamship
Co.,
[1992]
i
S.C.R.
1021
[Norsk],
discussed
in
further
detail below.
However,
the
courts
in
England have taken
a
different
view:
see
Murphy
v.
Brent-
wood
District
Council,
[1991]
i
A.C.
398 at 487
(H.L.),
Lord
Oliver
of
Aylmerton.
Consider
the
example
of the
breach
of a
contractual
obligation,
where
the
courts
readily
award damages
to the
non-breaching party, whether they relate
to
physical
damages
or to
economic losses.
Imagine
that
the
contract
is for the
repair
of a
building.
The
contractor
breaches
its
obligation
to
repair
and the
building collapses, causing property damage
and
personal
injuries
to the
occupants.
The
court will award damages
to
restore
the
building's owner
to the
position
he or she
would have occupied
had the
contract
been performed; that
is, to put the
building
in a
state
of
repair. Also, damages
may
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