Documentation:Torts/Negligence Relational Economic Loss

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Negligence causing relational economic loss

Relational economic loss is one of three categories of negligence actions for pure economic loss that have been recognized by Canadian courts (alongside negligent misrepresentation and negligent supply of shoddy goods or structures).[1] It arises when a defendant negligently inflicts harm onto a third party, or their property, that consequently causes the plaintiff pure economic loss.[2][3] It remains controversial whether negligence liability should extend to protect the economic interests of people who are financially impacted by physical injury to another party, while not suffering physical injury themselves.[4]

Canadian courts have adopted a "joint venture principle" as a means of assessing proximity in the context of relational economic loss while limiting the potential for indeterminate liability.[5] A plaintiff's contractual relationship with a third party whom the defendant has injured will be relevant to the court's determination of proximity, but it is not solely determinative.[5][6]

Some common law jurisdictions, such as England and Wales[7] and many US states,[8] recognize a general exclusionary rule against recovery of relational economic loss. Other jurisdictions, such as Singapore and Australia, have adopted different tests from Canada's for assessing relational economic loss claims.[9][10]

Defining relational economic loss

The Supreme Court of Canada in 1688782 Ontario Inc. v. Maple Leaf Foods Inc. recognized relational economic loss as one of three actionable categories of pure economic loss between private parties in Canadian tort law.[1] Further, as with any action in negligence, a defendant's liability is governed by whether they owed the plaintiff a duty of care, which hinges on establishing a relationship of proximity, amongst other factors.[11]

Relational economic loss claims concern damage suffered by the plaintiff that is purely financial, and not consequential on damage to the plaintiff's own person or property.[2] In Canada, injury or property damage to a third party is a requirement for a successful negligence claim for relational economic loss.[12]

The "joint venture principle" in Canadian relational economic loss actions

Damaged bridge with the middle collapsed and water flooding underneath and grass in the forefront.
Often used as an illustration of relational economic loss, the Canadian National Railway Co. v. Norsk Pacific Steamship Co. judgment involved a railway suing a steamship owner for economic loss caused by its inability to fulfill its cargo delivery contracts after the ship crashing into a bridge owned by the government, which the railway used to facilitate the transportation of cargo.[5]

The Supreme Court of Canada in Canadian National Railway Co. v. Norsk Pacific Steamship Co. held that relational economic loss may be recoverable when the plaintiff establishes a relationship of proximity with the defendant through the plaintiff's "joint venture" with the physically injured their party.[13] La Forest J, writing for the dissent in Norsk, was reluctant to recognize this "joint venture principle" and stated that the plaintiff should have been limited to its contractual rights against the third party to receive compensation in that case.[5] La Forest J was of the view that relational economic loss may be actionable under certain circumstances, but not in that case given the overarching policy concerns that recognizing the defendant's liability in tort might encroach on contract law.[5]

The majority viewed judge-made exclusionary rules surrounding relational economic loss as arbitrary, and departed from the English common law in this respect.[5] Writing for the majority, McLachlin CJ explained that Canadian courts have long recognized economic loss as recoverable in tort law, even absent injury to the plaintiff's person or property, in principled circumstances. These circumstances are not governed by any exclusionary rule, but rather by the general test for negligence in Canada: the Anns/Cooper test.[5]

To alleviate concerns of indeterminate liability that might arise from recognizing a duty to care in Norsk, the majority adopted the "joint venture principle" as part of the proximity analysis.[5] McLachlin CJ stated that courts should be flexible in determining whether a joint venture existed between the physically injured third party and the plaintiff who has suffered pure economic loss, based on all relevant contextual factors, rather than merely the details of a contract between the plaintiff and the third party, as preferred by La Forest J.[5] The Court described a joint common venture as a relationship "with the property owner with the result that in justice [the plaintiff's] rights against third parties should be the same as the owner's".[5]

Some academic commentators, as well as other common law courts, have criticized the majority's "joint venture" approach to relational economic in Norsk as uncertain and incoherent with the general framework for negligence claims.[4][14]

Intersections with contract law

The Supreme Court of Canada in Norsk averred that “the plaintiff’s ability to foresee and provide for the particular damage in question is a key factor in the proximity analysis”.[15] In Design Services Ltd. v. Canada, the Court stated that, when determining whether the relationship between the defendant and plaintiff was sufficiently proximate to establish a duty of care under the Anns/Cooper test in the context of pure economic loss, the Court will consider whether the plaintiff had an opportunity to protect themself from economic loss via contract and declined to do so.[16]

For example, in Design Services, the subcontractor plaintiff suffered relational economic loss resulting from a failed tendering process between the general contractor and the Canadian government.[17] The Supreme Court of Canada found that no duty of care should be recognized between the government and the subcontractor plaintiff, as the tendering process provided an opportunity for a subcontractor and general contractor to submit the tender as a joint venture, thereby making the subcontractor party to the contract.[18] However, the plaintiff declined to do so, which the Court ultimately viewed as fatal to the recognition of a duty of care between the government and the plaintiff, stating that recognizing a duty of care in such circumstances would allow the plaintiff to circumvent the deliberately arranged contractual rights of the parties involved in the tendering process.[6]

Divergent stances on relational economic loss across other common law jurisdictions

England and Wales

English common law rejects negligence causing relational economic loss as actionable in tort.[7] As put unanimously by the UK Supreme Court in Armstead v. Royal & Sun Alliance Insurance Company Ltd., "someone who negligently causes physical damage to another person’s property is not liable to pay compensation to a third party claimant who suffers financial loss as a result of the damage".[19]

United States

Many US states have applied a similar exclusionary doctrine to claims for pure economic loss as the UK.[8] The Fifth Circuit in Lousiana v. M/V Testbank upheld a rule, originally set out in Robins Dry Dock v. Flint, that excludes all claims for relational economic loss absent physical injury to the plaintiff.[8]

Australia

Australian common law recognizes relational economic loss as actionable in certain cases. The High Court of Australia in Caltex Oil (Australia) Pty Ltd. v. The Dredge "Willemstad" adopted a "known plaintiff" test that operates to alleviate concerns of indeterminate liability.[9] Under the known plaintiff test, the defendant will only be liable for economic loss sustained by a plaintiff whom they specifically knew would suffer economic loss as a result of their negligence.[9] Courts of other common law jurisdictions in the UK, Canada, and Singapore have criticized the "known plaintiff" test for being unjust and arbitrary, due to its only rationale for existing being as a tool to solve the problem of indeterminate liability.[20]

Singapore

The Singapore Court of Appeal in Spandeck Engineering (S) Pte Ltd v, Defence Science & Technology Agency made a principled departure from English common law, which does not recognize negligence claims for pure economic loss.[21] In explaining why Singaporean common law departed from English common law in this respect, the Court later stated, in NTUC Foodfare Co-operative Ltd. v. SIA Engineering Company Ltd.:[22]

The basis of [the Spandeck] holding was the recognition that there is nothing intrinsically objectionable about recovery for pure economic loss. It is not the nature of such loss, but the circumstances in which it arises, which underpins the exclusionary rule. Unlike physical damage, economic losses are not constrained by the laws of nature: they often ripple out from a negligent act due to human responses to the same. This gives rise to the concern of indeterminate liability: that to allow recovery for pure economic loss might lead to liability for an indeterminate amount to an indeterminate class. It was to address this concern that the common law barred recovery for economic loss unless such loss was consequent upon physical damage to person or property. Yet in Spandeck, we recognised that the exclusionary rule is a blunt tool for this purpose. In some cases, the concern of indeterminate liability it was designed to address will never arise. In such cases, there may be scant reason to disallow recovery for pure economic loss... Applying the exclusionary rule may thus lead to injustice. Accordingly, in Spandeck, we rejected the exclusionary rule in favour of a single test for a duty of care in tort, premised on proximity and policy considerations.

At the proximity stage of establishing a duty of care, Singaporean courts will consider factors such as the defendant's control over the situation giving rise to the risk of harm and their knowledge in relation to the plaintiff and the plaintiff's vulnerability or reliance.[10] Additionally, other factors such as physical, circumstantial, and causal proximity between the defendant and the plaintiff will be considered when determining whether the defendant owed the plaintiff a duty of care.[23] Singaporean courts have also advocated for the rigorous application of the remoteness doctrine so as to curtail issues of indeterminate liability that may arise from the recognition of a duty of care.[24]

Discussion questions

  • What is relational economic loss? Why is relational economic loss often not recoverable in a tort action?
  • The Supreme Court of Canada, in Design Services Ltd. v. Canada, described the appellants’ action as an “unjustifiable encroachment of tort law into the realm of contract law.”[25] Are these areas of law mutually exclusive?
  • What is the rationale of precluding tort claims where they concern contractual choices made willingly by the parties?
  • Given the challenges of assessing proximity in relational economic loss cases, is the Singapore Court of Appeal’s reasoning in NTUC Foodfare Co-operative Ltd. v. SIA Engineering Company Ltd. that relational economic loss should not be subject to a special proximity analysis persuasive?[22]
  • In light of the diverging jurisprudential perspectives on relational economic loss in other common law jurisdictions, is Canada's reliance on the "joint venture principle" in the context of relational economic loss claims principled?[5] What alternative standards are available to Canadian courts to minimize indeterminate liability in the context of relational economic loss claims?


  1. ↑ 1.0 1.1 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35 (§19.3.2.2) at para 21.
  2. ↑ 2.0 2.1 Perry, Ronen (2005). "Relational Economic Loss: An Integrated Economic Justification for the Exclusionary Rule" (PDF). Rutgers L Rev. 56 (3): 716.
  3. ↑ Design Services Ltd. v. Canada, 2008 SCC 22 (§19.3.3.2) at para 33.
  4. ↑ 4.0 4.1 Feldthusen, Bruce (1996). "The Recovery of Pure Economic Loss in Canada: Proximity, Justice, Rationality, and Chaos". Manitoba LJ. 24 (1): 21.
  5. ↑ 5.00 5.01 5.02 5.03 5.04 5.05 5.06 5.07 5.08 5.09 5.10 Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC).
  6. ↑ 6.0 6.1 Design Services Ltd. v. Canada, 2008 SCC 22 (§19.3.3.2) at para 56.
  7. ↑ 7.0 7.1 Armstead v. Royal & Sun Alliance Insurance Company Ltd., [2024] UKSC 6 (§19.3.3.1).
  8. ↑ 8.0 8.1 8.2 Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC), citing State of Louisiana ex rel. Guste v. M/V Testbank, 1985 AMC 1521.
  9. ↑ 9.0 9.1 9.2 NTUC Foodfare Co-operative Ltd v. SIA Engineering Company Ltd., [2018] SGCA 41 (§19.3.3.3) at paras 62–64, citing Caltex Oil (Australia) Pty Ltd v. The Dredge “Willemstad” (1976) 136 CLR 529.
  10. ↑ 10.0 10.1 NTUC Foodfare Co-operative Ltd v. SIA Engineering Company Ltd., [2018] SGCA 41 (§19.3.3.3) at para 40, citing Anwar Patrick Adrian v. Ng Chong & Hue LLC, [2014] 3 SLR 761.
  11. ↑ 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35 (§19.3.2.2) at paras 21–23.
  12. ↑ Design Services Ltd. v. Canada, 2008 SCC 22 (§19.3.3.2) at para 35.
  13. ↑ NTUC Foodfare Co-operative Ltd v. SIA Engineering Company Ltd., [2018] SGCA 41 (§19.3.3.3) at para 69, citing Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC).
  14. ↑ NTUC Foodfare Co-operative Ltd v. SIA Engineering Company Ltd., [2018] SGCA 41 (§19.3.3.3) at paras 70–73.
  15. ↑ Design Services Ltd. v. Canada, 2008 SCC 22 (§19.3.3.2) at para 33, citing Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC).
  16. ↑ Design Services Ltd. v. Canada, 2008 SCC 22 (§19.3.3.2) at para 54.
  17. ↑ Design Services Ltd. v. Canada, 2008 SCC 22 (§19.3.3.2).
  18. ↑ Design Services Ltd. v. Canada, 2008 SCC 22 (§19.3.3.2) at paras 55–58.
  19. ↑ Armstead v. Royal & Sun Alliance Insurance Company Ltd., [2024] UKSC 6 (§19.3.3.1) at para 20.
  20. ↑ NTUC Foodfare Co-operative Ltd v. SIA Engineering Company Ltd., [2018] SGCA 41 (§19.3.3.3) at para 64.
  21. ↑ NTUC Foodfare Co-operative Ltd v. SIA Engineering Company Ltd., [2018] SGCA 41 (§19.3.3.3) at para 1, citing Spandeck Engineering (S) Pte Ltd. v. Defence Science & Technology Agency, [2007] 4 SLR(R) 100.
  22. ↑ 22.0 22.1 NTUC Foodfare Co-operative Ltd v. SIA Engineering Company Ltd., [2018] SGCA 41 (§19.3.3.3) at paras 2–3.
  23. ↑ NTUC Foodfare Co-operative Ltd v. SIA Engineering Company Ltd., [2018] SGCA 41 (§19.3.3.3) at para 40, citing Sutherland Shire Council v. Heyman, 1988 ABCA 234.
  24. ↑ NTUC Foodfare Co-operative Ltd v. SIA Engineering Company Ltd., [2018] SGCA 41 (§19.3.3.3) at paras 42–43.
  25. ↑ Design Services Ltd. v. Canada, 2008 SCC 22 (§19.3.3.2) at para 56.
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