Under English law, pure economic loss claims under the tort of negligence are generally excluded. The Singapore courts take a different approach and have held that there is no such general exclusionary rule under Singapore law litigants and lawyers should instead refer to the universal framework widely referred to as the Spandeck test.

English Law

The English common law traditionally recognised a tortious duty to take care to avoid causing physical injury or damage to persons or property. Where a negligent act or omission caused a claimant to suffer physical property damage or personal injury, the resultant economic loss is typically allowed. For example, medical expenses and loss of earnings caused by incapacity are recoverable in a personal injury claim.

However, English law is more cautious in recognising a duty to avoid causing non-physical or pure economic losses, even when such losses were foreseeable. Three features distinguish pure economic loss from loss resulting from physical damage and have led the English courts to take a more restrictive approach to the imposition of a duty of care in relation to pure financial loss as compared to physical damage.[1]

First, negligence and physical damage depend largely on the laws of nature which limit the types of relationship giving rise to a claim. In contrast, pure financial losses are primarily human in creation and can form a complex web through which potentially indeterminate financial losses can ripple out from one negligent act.

Second, economic relationships are frequently created rather than imposed. Therefore, the participants in such relationships have a greater opportunity to use contracts to determine the level of risk to be taken and the degree of protection required.

Third, in a competitive economic society, the justifiable conduct of one participant for his own interests often led to economic consequences for another, such that pure economic losses frequently result in mere transfers of wealth from the claimant to the third party. This may be contrasted with physical harm to a person or property, which may be seen to involve a new loss to social wealth.[2]

Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd[3]  illustrates the difference between physical damage, consequential economic losses caused by physical damage, and pure economic losses. The defendants employees negligently damaged an underground electricity cable while digging up a road, causing power supply to the claimants factory to be interrupted. During the interruption, the claimants had to pour the molten metal out of their furnace to prevent the metal from solidifying and damaging it. The claimant was allowed to claim the loss in value in the metal that could not be kept hot enough to use further and the loss of profit from the metal, as the loss arose from foreseeable physical damage to the metal. However, the claim for loss in profit caused by the production that would have taken place during the power interruption was not allowed.

Relatedly, there is a rule against recovery in tort for economic loss by non-owners. In Leigh and Sullivan Ltd v Aliakmon Shipping Co Ltd,[4] the court held that buyers who were not owners of goods and who did not have an immediate right to possession of those goods had no right to sue the shipowners in tort for damage to the goods. In Tate & Lyle Industries Ltd v Greater London Council,[5] the defendants caused siltation of a riverbed, such that the claimants had to incur costs to dredge a channel to the claimants wharf. The claimants claim for the cost incurred was not allowed because it was held that they did not have any private rights over the riverbed and could not insist on any particular depth of water in connection with the operation of their business.

In Hedley Byrne & Co Ltd v Heller & Partners Ltd,[6] the House of Lords expanded the scope for claiming non-physical or purely pecuniary losses. It was held that a duty to take care could be owed by the maker of a statement to a person who suffered financial loss caused by reliance on the statement. It allowed recovery of economic loss in negligence within the boundaries of a special relationship that renders it appropriate to require a defendant to safeguard the economic interests of a claimant. It is now quite settled that professionals such as lawyers and accountants owe duties of care to their clients to safeguard their financial interests.[7] Lord Devlin expressed the view that the distinction between financial loss caused directly and financial loss arising from physical injury does not reflect logic or common sense.[8] Lord Hodson also expressed difficulty in seeing why liability should depend on the nature of the damage suffered.[9] Hedley Byrne provided the foundation for claims for negligent misstatements and opened the way for other claims in negligence for financial loss. It indicated a possible shift in English common law that opened the door for recovery of financial loss standing alone in an action for negligence.

However, in practice, claims for economic loss alone do not often succeed outside the Hedley Byrne context.[10] In construction disputes, pure economic losses which arise as a result of building defects are generally not recoverable. In Murphy v Brentwood District Council,[11] the House of Lords decided that the district council which approved the foundations of the buildings did not owe a duty of care to the purchaser of a flat who suffered diminution in the value of his flat as a result of construction defects.  The general position is that defects in property which only affected its quality and reduced its value generally do not constitute physical damage. In Thomas v Taylor Wimpey Developments Ltd,[12] the claimant incurred costs to prevent future physical damage to a neighbouring property arising from a builders construction of a defective retaining wall. However, the claim failed as the costs were held to be pure economic losses. The court cited the general rule that if the defect becomes apparent before any danger or damage has been caused, the loss sustained by the building owner is purely economic.[13]

While a contractor may not be liable in negligence for constructing a structurally defective building, it may remain legally exposed under a building contract. However, from an insurance perspective, such pure contractual liability may not be covered under the liability section of the contractors construction all risks policy. This may cause the contractor to be exposed to uninsured liability risks.

Singapore Law

The law of torts in Singapore has English roots, and English court cases often remain persuasive under Singapore law. However, the Singapore courts have in recent decades developed local jurisprudence, including in the law of torts, to take into account the local context. This has given rise to departures from positions taken in English case law.

In the context of pure economic losses arising from building defects, the Singapore Court of Appeal has relied on other Commonwealth authorities instead of Murphy[14] in allowing a building management corporations claim for pure economic loss against a developer in RSP Architects Planners & Engineers v Ocean Front Pte Ltd.[15] In RSP Architects Planners & Engineers v Management Corporation Strata Title Plan No 1075,[16] the Singapore Court of Appeal also departed from Murphy. It referred to two distinguishing factors that made it unrealistic to treat houses and consume goods the same way: (a) the significant investment in real property as opposed to a mere chattel; and (b) the permanence of the structure which gives rise to greater expectations than for a chattel, especially in Singapore, where land is not only scarce but expensive.

In the subsequent case of Sunny Metal & Engineering Pte Ltd v Ng Khim Ming Eric,[17] the Singapore Court of Appeal had to decide whether an architect for a construction project was liable in tort to the employer of a building project for pure economic loss. The court decided that there was no need to determinatively resolve the test to be applied to determine the imposition of a duty of care, and that apart from the need for proximity between the parties, the other factors to determine the existence of a duty of care will be addressed on a more appropriate occasion

The appropriate occasion arose in the landmark case of Spandeck Engineering (S) Pte Ltd v Defence Science & Technology Agency,[18] in which the Singapore Court of Appeal provided a universal framework to determine the existence of a duty of care in all situations, including pure economic loss cases. The framework consists of a two-stage test preceded by a preliminary threshold of factual foreseeability. If it was foreseeable to the defendant that his negligence would cause the claimant to suffer losses, the court would consider whether there was sufficient legal proximity between the claimant and the defendant, including in the physical, circumstantial and causal sense, supported by a twin criteria of voluntary assumption of responsibility and reliance. If the proximity requirement is satisfied, a prima facie duty of care arises. The court will then determine whether there are any policy considerations, such as the presence of a contractual matrix which clearly defines the rights and liabilities of the parties and their relative bargaining positions, to negate the prima facie duty.  

The Court of Appeal in Spandeck held that there is no justification for a general exclusionary rule against recovery of all economic losses. Instead of examining the type of damage, it is more important to consider the circumstances in which the economic loss arose the problem of indeterminate liability, which is a key reason for precluding pure economic loss, does not present itself in all pure economic loss cases.

The Singapore Court of Appeal restated the application of a single test for all claims of negligence in NTUC Foodfare Co-operative Ltd v SIA Engineering Co Ltd.[19] It noted that it departed from English law by not applying a general exclusionary rule against recovery for pure economic loss the court found the exclusionary rule to be a blunt tool for addressing the concern of indeterminate losses that may lead to injustice. Instead, the Spandeck test, especially the proximity requirement, was deemed to be a better tool for addressing the concerns over indeterminate liability and for permitting recovery of pure economic loss in deserving cases. The court also held that under the law of negligence in Singapore, there is no requirement for a claimant to own or have possessory title to property to sue for loss flowing from damage to that property.

Conclusion

While Singapore law is based on and substantially remains similar to English law, the Singapore courts have gradually developed the common law in Singapore in the local context. Divergences from English law necessarily arise, as in the case of the Singapore courts treatment of claims for pure economic loss in negligence disputes. The Spandeck test remains the port of call for assessing whether a defendant owed a claimant a duty of care, regardless of the type of loss alleged. The local case law will continue to develop incrementally as more and more such cases get resolved in the courts. 

This article solely provides general information and does not contain any legal advice or create any relationship. The circumstances often differ and legal advice specific to each case should be sought.


References

[1] Clerk & Lindsell on Torts (Andrew Tettenborn gen ed) (Sweet & Maxwell, 24th Ed, 2023) para 7-106.

[2] Perre v Apand Pty Ltd (1999) 164 A.L.R. 606 at 623.

[3] [1973] QB 27.

[4] [1986] AC 785.

[5] [1983] 2 AC 509.

[6] [1964] 1 AC 465.

[7] Henderson v Merrett Syndicates Ltd [1995] 2 AC 145.

[8] Hedley Byrne at 517.

[9] Hedley Byrne at 509.

[10] Charlesworth & Percy on Negligence (Mark Armitage gen ed) (Sweet & Maxwell, 15th Ed, 2022) at para 2-247.

[11] [1991] 1 AC 398.

[12] [2019] EWHC 1134 (TCC).

[13] Lord Bridge in Murphy v Brentwood District Council [1991] 1 AC 398 at 475.

[14] [1991] 1 AC 398.

[15] [1995] 3 SLR(R) 653.

[16] [1999] 2 SLR(R) 134.

[17] [2007] 3 SLR(R) 782.

[18] [2007] 4 SLR(R) 100.

[19] [2018] 2 SLR 588.

Meet the Author

Alvin Ee, Partner
Rajah & Tann Singapore LLP

Alvin is a Partner in the Insurance & Reinsurance Practice Group of Rajah & Tann Singapore LLP. He has been instructed on a wide range of insurance-related disputes, including matters involving insurance coverage, construction defects, and professional negligence. He also regularly advises on insurance corporate and regulatory issues, such as schemes of transfer of insurance businesses, licensing and registration of insurance companies and brokers, and issuances of catastrophe bonds.

Rajah & Tann Singapore LLP is a full-service law firm. It is part of the Rajah & Tann Asia network with local counsel in over 10 countries in Asia.
 
 
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