“What about a claim against the contractor/company who due to negligence cause the power cut? There seems to be no liability on their part as it keeps reoccurring”.
- A claim against a private contractor in these circumstances would need to be brought under the common law which, as explained in our Note, provides guidance and instruction as to the recovery of economic losses suffered by businesses in certain circumstances, including in relation to business interruption arising from power cuts.
- Our Note addresses the prospects of a successful claim being brought against the GEA, however as a matter of law the same principles would apply to a private contractor. In particular, a claim in respect of what is defined as a ‘pure’ economic loss (i.e. the loss of a potential gain or profit, or a wasted cost) will normally fall outside the range of economic loss which a court will be prepared to allow and is unlikely to be successful (whether against the GEA or a private contractor).
- The basic rationale for limiting the liability in such circumstances will, in our view, be fundamentally one of public policy.
The Court’s public policy considerations
- In the law of negligence, civil liability is based on establishing three principles: duty of care, breach of the said duty, and damage rising from said breach of duty. Compensation may be paid out to a claimant, which aims to put them back into the position they were in before the damage occurred provided all three principles are satisfied.
- In respect of duty of care, the Court will determine whether or not this is established using the three-part Caparo Test, which originated from the case of Caparo Industries PLC vs Dickman. In his judgement, Lord Bridge explained the parts to the Caparo test: (1) foreseeability of damage, (2) proximity between the defendant and the claimant; and (3) that it is fair, just and reasonable to impose a duty of care in such a situation.
- In applying the third stage of the Caparo test, of fair, just and reasonable, the courts take certain policy factors into account. Policy factors which may influence the court include such issues as:
Who can afford to bear the loss?
Which of the parties have insurance/ is the situation one subject to compulsory insurance?
Is the defendant a publicly funded body?
Opening the floodgates:-
Will imposing liability lead to a high volume of new claims?
What effect would this have on cost of insurance or its availability?
Will the courts be able to cope with the volume of cases?
The practical effects of imposing liability
Will the imposition of a duty of care act as a deterrent or raise standards?
Will imposing a duty have an adverse effect on decision making?
Will it affect the allocation of resources away from necessities?
- In our view, whilst a claim against a private contractor responsible for causing a power outage might arguably satisfy the first two limbs of the Caparo test described above (i.e. foreseeability of damage and proximity between the defendant and the claimant), it may however be unlikely to succeed on the third limb (whether it is fair, just and reasonable to impose such a duty of care). Taking into account the various policy issues outlined at paragraph 6 above:
(i) if the law allowed recovery for all economic loss, the extent of liability in many situations would be enormous. In this case, the contractor who cut the mainline electricity cable would have been liable to a range of businesses whose trade had been interrupted as a result;
(ii) the contractor could be bankrupted by needing to compensate all business affected by the power interruption arising from this single mistake and would have been forced to carry an excessive part of the risk associated with a socially useful activity which it carried on;
(iii) the effect of imposing such liability upon the contractor could deter the activity from being carried out at all;
(iv) the Court’s fear behind allowing claims for “pure economic loss” is that potentially unlimited claims could flood in. The Court has continued to have regard to these public policy considerations in cases involving public utilities and has limited the right to make claims for damages due to concerns that it may open the floodgates to litigation.