Recovery of pure economic loss in construction industry

Abstract

Pure economic loss is financial loss unaccompanied by damage or injury other than the defective building itself. It was formerly thought to be trite law that liability in tort did not extend to pure economic loss, without the attendant of physical damage. Hence the non-recovery would leave the entire group of first and subsequent purchasers (especially the dwelling houses owners) with no legal remedy against the errant builders, architects, engineers and the local authorities, in tort. It is arguable that the disallowance has resulted in unfair justice. However the disallowance does not find favour in other common law jurisdictions, in particular Canada, Australia and New Zealand, that have departed from the United Kingdom position in this area of law. Malaysia seems to have adopted the English policy in this issue. However, recent court decisions in other common law jurisdictions seemed to indicate that there was a concerted effort to rethink the legal reasons behind allowing the recovery of pure economic loss. Therefore this study intends to identify the legal reasons for allowing recovery of pure economic loss, in relation to the positions adopted by the courts in Canada, Australia and New Zealand. This project was carried out mainly by analysing leading cases reported in law journals in those countries. The findings showed that there were 2 legal reasons adopted by Canada and New Zealand and 3 legal reasons adopted by the Australian courts in allowing the recovery. However the courts have also set out limitation to the application of these reasons.