Legal Liability For Pure Economic Loss: A Case Study

Nature of the Griffith's complaint and the body of law to be researched

In 2016, BC Hydro acquired a 10-hectare parcel of land for a future electrical sub-station.

In 2017, BC Hydro granted a 10-year lease on a 2-hectare portion of the property near the highway that passed in front of the land, to Richard Petty, who planned to open a Race Track. And BC Hydro was advised of the planned use of the leased land.

Over the next 6 months, Mr Petty spent $2,000,000 on improvements to the location, building a Clubhouse, Concession Facility selling beer and wine and liquor, Parking for 5,000 spectator vehicles and 2-kilometer oval-shaped racetrack.

Richard’s Race Track was an instant success and it grew.

Richard’s Race Track promoted scaled-down Grand Prix gasoline-powered race cars, operating from 9:00 a.m. to 1:00 a.m. in the morning, 7 days a week, during the May-September summer season, running 10 races per day for professionals and amateurs.

Throughout the summer of 2017 and 2018, Richard’s Race Track attracted more and more racers and some Saturday nights, more than 7,000 spectator vehicles.

Some nights the cars were parked all along both sides of the highway running in front of Richard’s Race Track and the neighbouring property.

The adjacent parcel of land is owned by the Griffith Family, and has been owned by them since 1958. In 1960, the Griffiths built a 75 Unit motel, with outdoor pool, water-slide and spacious, manicured gardens, which appealed to the tourist traffic that have been stopping and staying at the Griffith’s Mayberry Motel for decades.

The Mayberry Hotel also included a Dance Hall where functions are held every Friday and Saturday nights through the same Summer tourism season. Parking was always a challenge for the Mayberry dance Hall, and folks were used to parking along the highway in front of the property.

The noise generated from the fans, the race car high-pitched motors and the screeching tires could be heard for miles around – and the odour of burning rubber and high-octane fuel was noticeable for kilometers in all directions.

The traffic, the disruption and the over-zealous, intoxicated fans of racing seriously interfered with the operation of the motel located adjacent to Richard’s Race Track, and in the 2018 Summer Season, the Griffith’s Mayberry Motel suffered a 50% reduction in bookings and revenues and had a loss on operations for the first time in their 50-year history.

The Griffiths had just listed the Mayberry Motel for sale the previous spring, at an asking Price of $12,000,000. Based on the revised financial forecast foe the business, the Griffith’s Accountant advised they might be lucky to see $1,500,000 and suggested they revise the Listing Price down by $700,000.

The Griffiths were first crest-fallen, and then got angry. Both at Richard’s Race Track and at BC Hydro.

The Griffiths, Mom & Dad, Grandma Griffith and 7 great-Griffith Grandchildren are in your Courtroom.

Indicate the nature of the Griffith’s complaint and the body of law to be researched,

Who do the Griffiths have a claim against – if any?

Assess the factors that Courts look at in such instances and gauge the likelihood of their success,

Suggest what would be an appropriate remedy or remedies,

And the nature of Court’s decisions in this area – the magnitude and types of awards that have been given in similar cases?

Finally, How would you balance the interests of the two businesses if you ere the Judge hearing this case?

The Griffith family has been owning the Mayberry Motel since 1958 which includes a 75 unit motel with outdoor pool, water-slide and lush gardens that appeals to the passerby tourists who stop by while passing through the area for decades. The Mayberry motel includes a Dance Hall, which houses functions every Friday and Saturday night in the summer tourism season. People coming to the motel has been using the parking along the highway, in front of the property. Since the establishment of the racetrack, things have not been easy for the motel business. It has been losing customers abruptly. The noise from the fans and the screeching high-pitched noise of the racecars has been a problem. The odour of high-octane fuel and burning rubber has been creating an unpleasant environment for the tourists of the motel. The motel suffered a 50% reduction in bookings and overall profit, experiencing a huge loss for the first time in their 50 years of business history. This made the Griffith family decide to sell off the motel, to which the property agent is of the opinion that they would not even receive half the amount they are asking for. They had to lower to amount from $12,000,000 to $700,000 for selling the property. This is an instance of pure economic loss faced by the Griffith family due to the negligent way of conducting the car-racing business. This paper strives to discuss the nature of the complaint that the Griffith’ family is bringing on to BC Hydro and Richard petty for the pure economic loss sustained by them. In addition, the essential factors and the available remedies are also to be discussed as well that the court takes into consideration for adjudicating cases of pure economic loss. Lastly, a balance needs to be chalked out evaluating the interest of all the parties to the concerned case.

The Griffith family’s complaint gives a clear picture of ‘Pure Economic Loss’ under the English Common Law. Under the common Law, Pure Economic Loss refers to the financial loss or damage that a person suffers due to an act or an omission carried out negligently by another who have a duty to take necessary care for such person who is suffering by such negligence. Referring to several examples, the word ‘pure’ represents the untainted loss, which stands apart from all types of loss as it devoid of physical damage under the common law suffered by the aggrieved party. Common examples of pure economic loss include loss of profit, excess expenditure or loss of some type of financial gain acquired in the usual course of business. Therefore, it is essential to understand whether loss is occurring out of consequential fact or it is an effect of pure economic loss, as pure economic loss is generally unrecoverable (Bernstein, 2006). Pure economic loss results to personal injury, which evolves out of the negligence of the defendant where the aggrieved party is unable to start his regular course of business as a result of the heavy damage done by the defendant. However, pure economic loss can be recovered by way of law of contract if there are certain provisions incorporated in the contractual terms of agreement. Pure economic loss refers to the loss of profit that is reflected on a balance sheet of the business but it cannot be felt physically. Economic loss is divided into consequential and pure economic loss; the former is originating from some kind of physical damage of profit while the latter covers other kind of losses. The reason behind disallowing most claims as pure economic loss is potentially because they have an unlimited nature of claim that is granted by the law. In Canadian National Railway Co. V. Norsk Pacific Steamship Co (1992) 1 SCR 1021 it was held that the nature of pure economic loss is such that the aggrieved party might suffer from an unforeseeable injury and there is no way the aggrieved party can insure himself from being affected. Some examples of pure economic loss are as follows:

• When the principal owner or breadwinner of a family dies, the family suffers from severe economic loss yet it the physical injury is called upon the disease and not to the family itself.
• Loss of the value of a property which wears out due to incorrect foundation signifies appear economic loss to the family owning the property, yet the physical damage is caused to the house (Winnipeg condominium corporation no. 36 v. Bird construction co. [1995] 1 SCR 85).
• A construction enterprise loses production as it suffers uninterrupted electric supply due to an ongoing excavation of a public utility service carried out by a contractor.

Who do the Griffiths have a claim against – if any?

Before the judgment of Hedley Byrne & co v. Heller & Partners Ltd the principle of pure economic loss and the provision of delivering remedies for encountering such loss were unknown to the world. Following the Hedley Byrne case and the Anns v. Merton London Borough Council case, the principle of economic loss has been embraced in the Canadian law by the Supreme Court of the country and has also allowed recovery of damages for pure economic loss. Nevertheless, the Canadian Courts have kept a control over the limits of recoverability of damages for economic loss and states that there are certain criteria on which such recoverability depends. In Nielsen v. Kamloops [1984] 2 SCR 2 the Supreme Court of Canada adopted the principle of economic loss and articulated the following questions which supports the prevalence of pure economic loss in any given case:

1. Is there a close proximity between the parties which is the plaintive who has suffered loss and the defendant who has caused the suffering upon the plaintiff so that there is a probability of the defendant to cause harm upon the plaintiff?
2. If the above answer is yes, then are there any considerations, which negate or limit the duty of the defendant so that it gives rise to such breach?

These are the factors upon which the principle of pure economic loss due to negligence has developed in Canada.

BC Hydro invested on 10 hectare of land for building an electrical substation in 2016. This piece of land was nearby to the Griffith family’s Mayberry Motel. In 2017, BC Hydro signed a lease of 10 years with Richard Petty allowing him to build a racetrack on a 2 hectare land adjacent to the Motel. BC Hydro being the leasing company should have taken appropriate measures while leasing out the piece of land to Richard Petty for starting up the race track. BC hydro should have evaluated the consequences that both the businesses would face as they are so dissimilar from each other. The Motel, being an establishment which offers peaceful staying option to passerby tourists with beautiful lush gardens and outdoor pools; dance hall to conduct functions, would have never preferred a racetrack to be its adjacent neighboring business, making noise and emitting foul smell. The leasing company should have conducted a proper research and survey of the surroundings to the proposed race track before leasing out the piece of land.  It is quite evident that a race track is likely to bring noise and pollution along with it which would certainly affect the calm and peaceful surrounding of a motel. Therefore, BC Hydro should have taken these factors into consideration before leasing out the land adjacent to the Mayberry Motel. Thus, the claim of Griffith family against BC Hydro is reasonable. This makes BC Hydro liable to pay damages. Richard Petty should be held liable as well for not adopting preventive measures to maintain a peaceful business environment for the racetrack and the motel as well. As the owner of the racetrack, Richard Petty should have adopted measures to control the high-pitched motors and screeching tires noises which could be heard from miles away and the unpleasant smell of the high-octane fuel and burning rubber, which could be smelled from far away as well. Therefore, Richard Petty could be held liable for showing negligence to provide a peaceful business environment for the motel. In addition, he could also be held liable for damaging the surrounding. Therefore, Richard petty could also be held liable for being negligent towards his neighboring business family who has been running the motel over 50 years.

Assess the factors that Courts look at in such instances and gauge the likelihood of their success

The court in the Edwards v. law Society of Upper Canada [2000] O.J. No. 2085, stated that the factor of possibility of the injury is not sufficient to establish the duty of care of the defendant toward the plaintiff. It is more important to establish the fact that the plaintiff and defendant was in a proximate and direct relationship with each other to know each other’s area of comfort and discomfort. This is one of the major deciding factors on which the courts are relying upon while deciding issues of pure economic loss. The aggrieved party must prove that the defendant was closely related and had a duty of care towards him in the given circumstances. If the plaintive is successful in establishing the fact that the defendant has a duty of care towards him then the next question arises that whether there is any policy consideration between the parties, which may give the defendant an immunity to deny his duty of care. Therefore, from the above aspects it can be deduced that the currently the Canadian law decides upon the matters of economic laws in the following way:

• In matters where any of the five categories of pure economic loss fits into the circumstances of the case prima facie duty of care seems to exist (Goldberg, 1991).
• In case the plaintiff is able to establish the fact that the defendant had knowledge of the circumstances and situation of the plaintiff’s business and there is no contractual obligation between the parties by which the defendant can deny his duty of care.
• Lastly, it is the duty of the court to examine the facts that there is no disruption of a public policy for granting remedies to the plaintiff.

In the given case, the court would certainly look for sufficient evidence for establishing the duty of care of BC Hydro and Richard Petty. BC Hydro is to be made liable for the facts that it bore responsibility of checking and evaluating the surrounding before leasing out the land to Richard Petty for constructing the racetrack adjacent to the Griffith family's motel. It is a duty of the seller to be careful about the consequences of the specific sale while selling anything. The prima facie negligence of BC Hydro makes the company liable to the Griffith family’s claim. While, Richard petty should be held liable for being the owner of the racetrack which is causing severe injury to the motel business by spreading immense air and noise pollution which is not only hurting the business but damaging the environment as a whole.  These are the grounds and essential elements on which the court shall determine the loss suffered by the plaintiff, firstly in the hand of BC Hydro for the incorrect lease and secondly in the hands of Richard Petty who is the owner of the racetrack. Both the defendants are to be charged with the tort of negligence shown towards the adjacent business house to which they owe a duty of care for running a business within a close territory.

Suggest what would be an appropriate remedy or remedies

In Canadian National Railway v. Norsk Pacific Steamship co. (1992) 1 SCR 1021, the supreme court of Canada had laid down the five categories of pure economic losses where the plaintiff is eligible to recover the Loss sustained by him.

1. The liability of public statutory authorities towards the aggrieved parties who have suffered from pure economic loss due to wrongful act of such authorities.
2. Negligent misrepresentation of the defendant causing injury to the plaintiff. It arises when the aggrieved party had relied on the statement made negligently by the defendant which results to the loss of the plaintiff.
3. Relational economic loss affected on a third party which indirectly causes harm to the plaintiff.
4. Negligent performance of a service arises where the defendant does a negligent act and deprives a beneficiary to whom he owes a duty of care.
5. Negligence supply of bad quality goods or structures was discussed by the court in the Winnipeg Condominium Case.

Under these circumstances, the court allows the plaintiff to recover damages from the defendant who is responsible for the injury caused to the plaintiff.

In the given case the Griffith family would be liable to recover damages from BC Hydro and Richard petty on the grounds of the different types of negligence they have shown towards the Mayberry Motel business. It would be appropriate on the part of the Griffith family to claim for damages from BC hydro for leasing out the land to construct the racetrack adjacent to the Motel as the company should have anticipated that the racetrack would create problems for the motel. While, in case of Richard petty, it would be justifiable for the plaintiff to ask for damages from him as he is the owner of the racetrack who has been negligent on running the race track inefficiently by polluting the environment and damaging the business of the adjacent motel.

 In Attis v. Canada (Health), 2008 ONCA 660 - CanLII, the court did not find a close relationship between the victim and the agency. The agency was held not to be providing any direct service to the aggrieved party. The agency has no responsibility to keep a record of the patients who had received implants. It was held by the court that the agency bears no duty of care to the patients using the implants. The court found that ‘Health Canada’ did not have any duty of care under any private law to the victims who have suffered due to the negligently manufactured breast implants. The court mentioned that the duty to towards the patience in this scenario was upon the medical device industry and the victim’s medical advisors, hospitals staffs, the manufacturer and the distributor of the implants.

In Wellington v. Ontario, 2011 ONCA 274, a family brought charges against the Special Investigation Unit (SIU) of Ontario for killing a young member of the family in a police shooting. The deceased’s family brought charges against SIU for conducting their work negligently, which resulted in the death of their family member. The court dismissed the claim and held that SIU did not bear any duty of care towards the deceased’s family. The court noted that the proximity between SIU and the deceased’s family was not close enough as SIU did not bear any duty towards an individual family, rather has its duty toward the public at large. It was held that if SIU was held responsible for violating a duty of care towards a single family under private law, such decision would hamper SIU’s primary duty to protect the public at large.

The nature of Court’s decisions in this area – the magnitude and types of awards that have been given in similar cases?

In Hercules Management v. Ernst & Young (1997) 2 SCR 165 the court held that the company was liable to receive damages from the auditors who had duty of care towards the company. The company was liable to recover damages from the auditors who did not conduct their duty as they were supposed to do and showed negligence in their conduct

In Perre v. Apand Pty Ltd (1999) HCA 36 is a landmark Australian case where the Australian court held that the agricultural company had been negligent towards its conduct and wrongfully introduced bacterial wilt into an adjacent potato farm. This affected the neighboring farmers as the crops were banned from selling in the market due to the government rules and regulation, which prohibits the sale of bacteria infected crops.

In  Heaslip Estate v. Mansfield Ski Club Inc. (2009), 252 O.A.C. 1 (CA) the court held the government of Ontario responsible for failing to arrange for an air ambulance to dispatch the deceased from a remote community to the hospital. The government owed a duty of care to safely transfer the victim to the hospital which it did not fulfill. It was noted by the court that the province was alerted about the victim’s condition of a life-threatening injury and there was provision for the province to provide air ambulance to patients suffering from life-threatening injuries in times of need.

Conclusion and Recommendation

Therefore, to conclude for the given case, a balance is required to be drawn so that both the parties can operate their businesses with ease. The claim of aggrieved party should be taken into consideration by the court on the grounds that the defendants owed duty of care of their neighboring business house to some extent. One cannot run a business by affecting another. Therefore, the Griffith family would be liable to receive damages.

As for recommendations, as the owner of the racetrack, Richard Petty must adopt preventive measures to check the obnoxious sound of the racing cars and the toxic smell of the fuel and burning rubber. Investment on less sound emitting racing cars is a good solution to one of the problems. For the motel, it is advisable for the owner to arrangement for soundproof walls and air-purifiers for the guests, which would curtail the issues to some extent.

References

Anns v. Merton London Borough Council

Attis v. Canada (Health), 2008 ONCA 660 – CanLII

Bernstein, A. (2006). Keep It Simple: An Explanation of the Rule of No Recovery for Pure Economic Loss. Ariz. L. Rev., 48, 773.

Canadian National Railway Co. V. Norsk Pacific Steamship Co (1992) 1 SCR 1021

Canadian National Railway v. Norsk Pacific Steamship co. (1992) 1 SCR 1021

Edwards v. law Society of Upper Canada [2000] O.J. No. 2085

Goldberg, V. P. (1991). Recovery for Pure Economic Loss in Tort: Another Look at" Robins Dry Dock V. Flint". The Journal of Legal Studies, 20(2), 249-275.

Heaslip Estate v. Mansfield Ski Club Inc. (2009), 252 O.A.C. 1 (CA)

Hedley Byrne & co v. Heller & Partners Ltd

Hercules Management v. Ernst & Young (1997) 2 SCR 165

Nielsen v. Kamloops [1984] 2 SCR 2

Perre v. Apand Pty Ltd (1999) HCA 36

Wellington v. Ontario, 2011 ONCA 274

Winnipeg condominium corporation no. 36 v. Bird construction co. [1995] 1 SCR 85