Scottish Court of Session Decisions

At advising on 15th July 1971,—

LORD MIGDALE .—The point raised in each of these reclaiming motions is the same, so I propose to deal only with the first case. The pursuers, who are now the reclaimers, have a factory at East Mains Industrial Estate, Broxburn. They produce articles by means of machinery powered by electricity. At 2.50 P.M. on 24th February 1969 the electricity supply failed and it was not restored until 6.26 A.M. on 25th February. For about 15½ hours their production stopped. The cause of the stoppage was that a J.B.C. excavator, operated by a servant of the defenders, came into contract with and damaged an underground electric supply cable which had been laid by and was the property of the South of Scotland Electricity Board. The pursuers claim damages from the defenders on the ground that they failed to ascertain the routes of such cables before using the excavator. The place where the cable was damaged was some 500 yards from the pursuers' property. The pursuers' premises, plant and material were not damaged. Their claim is in respect of financial loss resulting from loss of production during the 15½ hours for which their plant was idle and is made up of (a) wages and overhead costs, £335; and (b) loss of profits on lost products, £480—a totla of £815.

As the pursuers' case is a claim for reparation flowing from a breach of duty, they will have to show that the defenders owed them a duty and were in breach of that duty. The defenders deny that they owed any duty to the pursuers in the circumstances of this case. They also deny they were in breach of duty. So both these questions are open. They do not, however, arise at this stage, for the defenders contend that, even if they were in breach of a duty owed to the pursuers, the damage which they claim to have sustained in not recognised as reparable by the law of Scotland. They contend that there are certain losses in respect of which that law will not sustain a claim. In particular, it will not recognise a claim for financial loss which does not stem from damage to the climants' property.

The pursuers, on the other hand, contend that they have relevantly averred that the defenders owed them a duty to take reasonable care not to damage the electricity supply cable, that the defenders were in breach of that duty because they failed to ascertain the route of the cable and damaged it through the use of their excavator, and that their financial loss was a reasonably foreseeable consequence of the cutting off of electricity. Accordingly the defenders should have had that event in contemplation. Counsel for the pursuers conceded that liability for consequences, even if foreseeable, does not extent to all events which can be causally traced back to the breach of duty, but contended that in this case the pursuers are liable.

While I recognise that it may be difficult to lay down a rule which can be of general application, it is not necessary to do so in this case. The law of Scotland has for over a hundred years refused to accept that a claim for financial loss which does not arise directly from damage to the claimant's property can give rise to a legal claim for damages founded on negligence. That is the conclusion at which the Lord Ordinary has arrived, and I agree with him.

This proposition is supported by three cases. In Allan v. Barclay the pursuer claimed damages in respect of the loss of the services of his workman who was injured in a road accident due to the fault of the defender's servant. Lord Kinloch reported the case to the First Division and the claim was disallowed. Lord Kinloch said (at p. 874):

"The grand rule on the subject of damages is, that none can be claimed except such as naturally and directly arise out of the wrong done; and such, therefore, as may reasonably be supposed to have been in the view of the wrongdoer."

Their Lordships in the Division took the same view, and Lord President M'Neill (at p. 875) said it appeared to be a new proposal in the law of Scotland.

The case of Simpson & Co. v. Thomson concerned a claim by underwriters against the owner of two vessels belonging to the same person, one of which was insured with them. The House of Lords held that the underwriters could have no greater right of action than the owner had, and, as the owner of the insured vessel also the owner of the responsible for the negligent navigation of the wrong-doing vessel, neither he nor the underwriters could sue. In the course of his speech Lord Penzance, dealing with a contention for the pursuers, said (at p. 46):

"The principle involved seems to me to be this, that where damage is done by a wrongdoer to a chattel, not only the owner of that chattel, but all those who by contract with the owner have bound themselves to obligations which are rendered more onerous, or have secured to themselves advantages which are rendered less beneficial, by the damage done to the chattel, have a right of action against the wrongdoer, although they have no immediate or reversionary property in the chattel, and no possessory right by reason of any contract attaching to the chattel itself, such as by lien or hypothecation."

After giving some illustrations he went on to say (at pp. 46–7):

"But the ground upon which I will ask your Lordships to reject this contention … is this, that … no precedent or authority has been found or produced to the House for an action against the wrongdoer, except in the name, and therefore in point of law on the part of one who had either some property in or possession of the chattel injured."

Lord Blackburn agreed.

The third is Reavis v. Clan Line Steamers .Mrs Reavis and her orchestra were involved in a collision between two vessels in which the Rowan sank. Some members of the orchestra were drowned and others were injured. Mrs Reavis claimed, as damages, a sum as compensation for personal injuries and loss of effects; a sum representing loss of profits on the orchestra from the date of the collision to the disbanding of the orchestra; and a sum representing loss of profits through the break-up of the orchestra, which could not continue after losing so many of its members. The only dispute concerned her claims for loss of profits due to the loss of services through death or injuries of some of the members of the orchestra and its consequent disbandment. These claims were disallowed. Lord Constable in the Outer House referred to the passage by Lord Kinloch in Allan v. Barclay and he also referred to the speech of Lord Penzance in Simpson & Co. v. Thomson, from which I have quoted. He draws the conclusion that the sole right of action for injuries to property belongs to those who have legal right therein. Mrs Reavis could claim for loss of musical scores and for loss or diminution of her own earning power, but not for financial loss because she had been deprived of the services of persons who were useful to her. He accordingly dismissed this claim. In the Inner House their Lordships of the First Division took the same view. Lord President Clyde, after referring to Allan v. Barclay and a passage in Lord Fraser's work on Master and Servant (3rd ed., p. 311), said (at p. 740):

"In the law of Scotland … a person claiming reparation for injury by another person's fault cannot go beyond the effects of such injury on his own person, his own health, his own business or their capabilities, and his own property."

His Lordship then referred to the passage from the speech of Lord Penzance and finally reverted to and accepted the passage by Lord Kinloch on the grand rule on the subject of damages—"none can be claimed except such as naturally and directly arise out of the wrong done." Lord Cullen pointed out (at p. 741) that since 1864—the date of the decision in Allan v. Barclay —no instance of an action in respect of a loss of services had emerged in the law of Scotland.

I think this line of authority covers the present case. The pursuers cannot recover for loss of profits unless that loss arises from damage to their plant or materials. They could not recover for financial loss if the wrongful act of the defenders had deprived them of the valuable services of an employee, and I see no difference in principle between that financial loss and the financial loss they have sustained because the wrongful act of the defenders has deprived them of a supply of electricity. It was not their electricity. The damage was done outside their premises and before the cable reached their meter. It was not their cable and no part of their property was damaged.

Mr Cameron, for the pursuers, contended that the authorities I have referred to were before the decision in Donoghue v. Stevenson was pronounced. Lord Atkin said (at p. 44:

"Who, then, in law, is my neighbour ? The answer seems to be—persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question."

Counsel contended that since that decision the range of liability had been extended and that in the present case the defenders ought to have had in contemplation the consequences to the purusers (and other users of electricity) if the supply was cut off. These consequences embraced a stoppage of production followed by a loss of profits. The defenders not only owed a duty to the pursuers but were liable to recompense them for the loss arising from breach of that duty. I do not think the case of Donoghue v. Stevenson, which dealt with persons to whom a wrongdoer owed a duty, has altered Scots law on the measure of damages.

Counsel also contended that the defenders owed a duty to the pursuers not to cut off their electricity and that the stoppage of production was a direct damage to their business arising from the cutting off of the supply. Here again I do not think this contention goes beyond ascertainment of the scope of the duty. Even if the defenders owed such a duty to the pursuers, I do not think it extends the range of the defenders' liability. The wrongful act did not damage their property.

The Lord Ordinary has considered a number of English cases, including S.C.M. Ltd. v. W. J. Whittall . I prefer to decide the present case according to the law of Scotland, but nowhere among the English cases can I find authority for the proposition that a person can recover damages for financial loss which does not arise directly from damage to his property. On the contrary, not only are the dicta of Lord Denning M.R. at p. 344 and Winn L.J. at p. 348 in that case against that proposition, but so are the decisions in a number of the other cases referred to, including Weller & Co. v. Foot and Mouth Disease Research Institute .

In my opinion the Lord Ordinary arrived at the right decision and I would refuse the reclaiming motion and dismiss the action.

I would do the same in the second case.

LORD CAMERON .—The reclaimers in these two reclaiming motions are seeking damages for alleged loss sustained by them through the interruption of their supply of electrical energy due to the severance of or damage to a supply cable on the industrial estate where their premises are situated. The defenders in one case are named as builders and in the other are described as carrying on business as, Inter alia, civil engineering contractors. The pursuers do not disclose in their pleadings what their own business is or was or the use to which they put the energy supplied under contract with the South of Scotland Electricity Board.

At the time of these mishaps the industrial estate was said to be in course of development. The damaged cable or cables carried supplies of energy not only to the pursuers but to other occupiers of premises on the estate. It is alleged in both cases that damage was caused through the actions of certain of the defenders' servants because of the defenders' failure to take proper steps to ascertain by inquiry the position of these cables and to warn their servants against interference with them. As a result of these events the reclaimers say they sustained loss calculated by reference to certain estimated figures representative of loss of production and of profit. No actual physical damage is said to have been caused to any of the reclaimers' property, and therefore the claim in this case is based solely on economic damage and loss. The cables themselves were the property not of the reclaimers but of the statutory board. In these circumstances the defenders challenged the relevancy of the pursuers' pleadings, as disclosing no cause of action recognised by the law of Scotland. They also attacked the relevancy of the specific averments of fault themselves and contended that the damages claimed were in any event too remote, but the principal issue in these cases arises on the first point, because, if the defenders are right here, then that is an end of the case.

The damage said to have been sustained was, so the defenders maintained in their submissions to the Lord Ordinary, only indirectly and not directly the result of any negligence of the defenders and therefore too remote to found a relevant claim. The direct result of this negligence was the damage to the cable itself and for this a claim might lie at the instance of the electricity board, but no claim would lie for the indirect consequences, namely, loss arising from the the interruption of supply, albeit over a period of hours, during which the reclaimers' factory was put out of action. It is this contention which the Lord Ordinary has sustained.

The reclaimers are admittedly suing for the injurious consequences to them which arise out of damages caused to the property of another. None of their own property is said to have suffered any physical injury or damage as a result of the consequences of temporary interruption of their supply of electricity. The argument which the respondents successfully advanced can be simply stated and sufficiently supported. The property of the reclaimers was not damaged: therefore they cannot have a claim for consequential loss arising to them out of physical damage caused by negligence to the property of another with whom they were in contractual relations. There was no direct relationship of any kind between the assumed delinquents and themselves, and therefore no claim of damages would lie. The proposition was firmly based on the unchallenged authority of Allan v. Barclay, Simpson & Co. v. Thomson and Reavis v. Clan Line Steamers . To accept the reclaimers' argument would be to ignore the plain meaning and effect of these authorities, and the ratio of these decisions was clear. As Lord Kinloch put it in Allan v. Barclay (at p. 874, "The grnat rule on the subject of damages is, that none can be claimed except such as naturally and directly arise out of the wrong done; and such, therefore, as may reasonably be supposed to have been in the view of the wrongdoer … The personal injuries of the individual himself will be properly held to have been in the contemplation of the wrongdoer. But he cannot be held bound to have surmised the secondary injuries done to all holding realtions with the individual, whether that of a master, or any other."

Now in the later case of Simpson & Co. v. Thomson Lord Penzance dealt with an argument, advanced on behalf of underwriters, that by virtue of the policy which they had entered into the respect of a ship which was lost they had an interest of their own, and it was such as would support an action by them in their own names against the wrongdoer. Lord Penzance in dismissing the argument said this (at p. 46):

"This proposition virtually affirms a principle which I think your Lordships will do well to consider with some care, as it will be found to have a much wider application and signification than any which may be involved in the incidents of a contract of insurance. The principle involved seems to me to be this, that where damage is done by a wrongdoer to a chattel, not only the owner of that chattel, but all those who by contract with the owner have bound themselves to obligations which are rendered more onerous, or have secured to themselves advantages which are rendered less beneficial, by the damage done to the chattel, have a right of action against the wrongdoer, although they have no immediate or reversionary property in the chattel, and no possessory right by reason of any contract attaching to the chattel itself, such as by lien or hypothecation. This, I say, is the principle involved …"

In the case of Reavis,3 while the pursuer was held entitled to sue for her own personal injury and the loss of her baggage and effects in a collision at sea, she was held not entitled to insist in a claim for damages arising out of the loss alleged to have been sustained by her through the drowning of a number of misicians with whom she was in contract. It this line of authority is accepted as applicable to the circumstances of the present case, then it seems to me that the reclaimers cannot succeed.

This is a case of economic loss not associated with or brought about by physical or material injury or damage to corporeal property of the reclaimers. It is, on the contrary, a loss which arises as a consequence of the damage to the cable and one only of the consequences. In these circumstances, and on the line of authority I have cited, the loss would be too remote and indirect to be relevant to found a good claim for reparation. The law of Scotland, as illustrated by the well-known cases to which I have referred, is clear on this point and there is no Scottish authority to the contrary effect. It would also appear that this is in accordance with the law of England—see S. A. de Remorquage à Hélice v. Bennetts in which Hamilton J. (as he then was) adopts, quotes and applies the language of Lord Penzance in Simpson & Co. v. Thomson . It may be noted that Lord Penzance's observations in that case were accepted and concurred in my Lord Blackburn. But the reclaimers argued that this line of authority did not strike at the relevancy of their claim, because here there was a direct interference with the supply of energy which was transmitted by the cables, and that the interruption of production, with consequent probability of financial loss, was a direct interference. That being so, it should have been reasonably foreseeable by anyone in the position of the defenders. Further, it would be absurd to say that, if this interruption of supply had caused material injury to their machinery, there would have been a good claim of damages at their instance based on loss arising from the cost of repair and loss of production, as in the case of British Celanese v. A. H. Hunt Ltd., approved in S.C.M. Ltd. v. W. J. Whittall, but that, if loss occurred through inability to set machinery in motion because of lack of electrical energy, that loss could not be compensated. If injury of one kind could be foreseeable, then equally so could injury of the other. This argument appeared to me initially attractive, as at least it would appear to possess the merit of logical justification. But if it is once admitted, at what point is the line to be drawn ?

I would refer again to the often-quoted words of Lord Justice-Clerk Thomson in Malcolm v. Dickson (at p. 547):

"A wrongdoer is not held responsible for all the results which flow from his negligent act. Practical considerations dictate, and the law accepts, that there comes a point in the sequence of events when liability can no longer be enforced. This rule of convenience and common sense is enshrined in the maxim causa proxima non remota spectatur. It is for this Court to say whether as matter of law the pursuer's claim falls to be classified as proximate or remote. Both sides were agreed as to the test which fell to be applied, and we were referred to various dicta in Bourhill v. Young [1943] AC 92 and Muir v. Glasgow Corporation . I cite but one of these, Lord Macmillian in the former case (at p. 88): ‘The duty to take care is the duty to avoid doing or omitting to do anything the doing or omitting to do which may have as its reasonable and probable consequence injury to others, and the duty is owed to those to whom injury may reasonably and probably be anticipated if the duty is not observed.’ The test of proximity is whether what has flowed from the act is what would have been anticipated by a reasonable man as a natural and probable consequence of it. It is fails to pass that test, it is too remote for the law to take cognisance of it."

I would draw particular attention to the words of Lord Macmillan, who limited the injury for which damages may be recoverable to that which is the "reasonable and probable" consequence of the act or omission which caused it. It is of course true that both Malcolm v. Dickson and Bourhill v. Young were cases of physical injury, but the principles there stated and accepted were not in any way said to be limited to such cases. In my opinion they were and are of general application. Further, law is, as Lord Denning observed in S.C.M. Ltd. v. W. J. Whittall (at p. 344), not conditioned or determined wholly by logic and in no chapter of the law is this more true than in the matter of the extent of legal liability to make reparation for loss sustained through negligent acts or omissions. In the familiar language of Lord Wright in Dredger Liesbosch v. S.S. Edison (at p. 460):

"In the varied web of affairs, the law must abstract some consequences as relevant, not perhaps on grounds of pure logic but simply for practical reasons."

It is in face of these formidable difficulties that the reclaimers' argument, which sought to by-pass Allan v. Barclay, Simpson & Co. v. Thomson and Reavis v. Clan Line Steamers, is to be considered. As put by Mr Cameron in his careful address, it was based on the initial submission that the reclaimers were within the area of those who would be directly affected by a negligent act which caused damage to an electrical supply cable. Two results were said to follow directly and simultaneously from the rupture of the cable: (1) physical damage to the cable, and (2) immediate rupture of the supply of energy. Consequently they were directly affected by the defenders' negligence and such injurious affection was something which should have been within their contemplation. This duty of care was breached and the loss flowing directly from it, albeit not flowing from physical damage to the reclaimers' property, was recoverable. At this point I think it is necessary to see what are the reclaimers' averments of duty in which the defenders are alleged to have failed. They aver:

"The said accident was caused by the fault and negligence of the defenders. The defenders knew or ought to have known that it was probable that services such as electric cables supplying other parts of the said industrial estate would run through the property where they were carrying out the said excavation work. On industrial estates such as the said estate services such as electric cables supplying one factory frequently run thr4ough the ground attached to another factory or other factories. It was accordingly the defenders' duty in carrying out the said work to take reasonable care not to damage such services and so cause loss and damage to other occupies of premises on the said estate, such as the pursuers. It was their duty to ascertain the position of such services, and in particular of electric cables, before commencing excavation work and to take reasonable care to avoid damaging the said cable in the course of the work. It was their duty to inform their employees who operated excavation machinery of the position of such electric cables and to instruct them to avoid such cables when operating such machinery. It is the normal practice of contractors before carrying out excavation work to ascertain from the appropriate electricity board the position of any electric cables at or in the vicinity of the place where the work is to be carried out. In these duties the defenders failed and so caused the said accident."

These averments are of wide generality. There are no special circumstances, such as experience of previous accidents on the site or of warnings of risk given but not heeded, such as distinguish this case from British Celanese v. A. H. Hunt Ltd.

This means that the reclaimers must contend that the duty here was owed to everyone within the possible area of supply from this (or any other) cable on this estate, which is itself a far-reaching proposition, whether the loss arises from physical injury to property in premises served by the supply as a consequence of its rupture or is a financial or economic consequence of disruption of industrial production due to interruption of supply.

But in the law of Scotland the obligation to avoid acts or omissions which in fact result in loss or injury to another, and to take reasonable care to avoid such injury and to insure against it, arises only if that risk is a reasonable and probable consequence of the act or omission. Unless that can be affirmed, that act or omission cannot be branded as negligent. Further, it is not all consequences of negligent acts or omissions which are to be taken into account as qualifying for an award of damages: they may be too remote and remoteness may be determined by considerations of practical expediency or even of public policy.

Even on acceptance of the initial step of the reclaimers' arguments, that they were directly and not indirected affected by the defenders' actions or omision or those of their servants, there are still two major hurdles to be surmounted before the relvancy of their claim could be affirmed: (1) that in the circumstances the duty alleged did lie upon the defenders, and (2) that, if there were a breach of such duty, the damages claimed are recoverable.

I am not satisfied that the reclaimers can succeed in surmounting them. It might be that a reasonable man in the defenders' situation might have contemplated physical damage to a cable consequent upon operations by mechanical tools in the ground if some care were not taken to ascertain its position horizontally and vertically, but that is not this case. What the reclaimers are saying is that this type of loss, purely economic and not in any way associated with physical damage to their property, is one which should have been foreseen as reasonable and probable by the defenders as a consequence of their failure in the only matters condescended upon. How far is this to go ? Is it to extend to every person or premise served by this cable, however far away from the site of rupture ? The reclaimers do not limit the range of the duty geographically. Is it to be anticipated that fracture of one cable at a particular time of day is a reasonable and probable consequence of a failure to take action to ascertain the position and laid depth of cables, which will in turn lead to breakdown of production in this or any other factory or workshop within the range of supply ? The reclaimers do not suggest they are the only concern drawing supplies of electricity from this cable or that the defenders had reason to think that in the area where they were to work supply cables to factories were likely to be laid. No doubt a reasonable man might with some reason surmise that, if a cable were fractured, this might lead to industrial dislocation or even financial loss, but equally it might not. I am far from accepting the proposition put in wide general terms in the reclaimers' pleadings that this duty on which they found was owed to them, and to each and every other person or concern on the line of supply, wherever they might be. There may well be a duty owed to the electricity board, but that is another matter. Further, this is said to be a duty which is of general application, as Winn L.J. noted in the case of S.C.M. Ltd., and, as he observed in that case, the consequences of acceptance would be enormous. There is no authority in the law of Scotland which directly supports as proposition so wide as this, or so momentous and onerous in its application as the reclaimers present it.

But even if the reclaimers' argument upon the existence of such a duty and the relevance of their averments in relation to it were affirmed, on which I express no concluded opinion, there still remains the practical issue whether the damages claimed are, as the respondents also maintain, too remote. The claim is essentially one in respect of alleged loss of profit, no associated with physical injury or damage. No case was cited in the law of Scotland in which such a claim as this has been sustained. When loss of earning capacity or loss of profit has been directly associated with foreseeable physical injury sustained by a pursuer, that loss can enter the assessment of the appropriate monetary reparation. But where there is no physical or material injury or damage on which to base an assessment of loss of earning capacity or profit, the question of what extent or character of loss, if economic loss alone is to be claimed, should be regarded as falling within contemplation of a reasonable man as the natural and direct consequence of a failure in duty of the kind on which alone this case is founded, is much more difficult. I emphasis that the duty which the reclaimers seek to impose on the defenders is not one to be imposed on someone who is intending to carry out work on a cable. Such a case would give rise to other and possibly very different considerations, in particular as to what would or should fall within the scope of foreseeability, as laid down in the leading Scottish authorities to which I have referred. The defenders here had no intention or mind to interfere with or work upon any supply cable. The breach of duty which alone is founded upon is failure to obtain information as to the probable site of cables laid and the depth to which they were laid. If there is such a duty owed in general to anyone who may be to any extent affected by possible interference with any cable, it is going far indeed to assert that every loss of earnings, not merely of earning capacity, which may arise to a commercial or industrial user must be regarded as a natural and direct consequence flowing from the initial negligence.

The initial and only negligence on which the reclaimers found is failure to ascertain the direction in which cables were laid—though this cable was some 500 yards distant from the reclaimers' premises and no reason is alleged why the defenders should have anticipated that a cable supplying the reclaimers' works or factory should have been in particular area of the industiral estate. If that is the negligence of which the reclaimers complain, should that loss which they say they sustained be regarded as the natural and direct consequence, or should it be regarded as too remote from the only breach of duty founded upon ? No doubt this loss was a consequence but it was not the natural consequence; it depended in the first place on a coincidence of time between the interruption of the supply and the need for in the particular but undisclosed operations on which the reclaimers say they were engaged. To bring it about required the intervention of a convenient time factor. Further, as the operations are ex hypothesi unknown to the defenders and not said to be ascertainable by them, it is impossible to determine how far stoppage or breakdown of machinery or equipment, with consequent deleterious effect on production and hence (presumably) loss of earnings or earning capacity, should be regarded as a natural consequence of the alleged failure in duty. Thus it cannot be said that the loss claimed is a natural consequence of the assumed negligence.

Equally I think the loss cannot be characterised as direct, i.e. a direct consequence of failure to ascertain the position or assumed position of cables on the estate. It is in a sense a capricious consequence, depending as it does not only on this alleged failure but on the fortuitous coincidence of an excavator and a supply cable buried at a depth sufficiently shallow to render the cable exposed to risk of damage from the machine. All these things were required to co-operate and coincide to bring about the result of injury to the cable, not to mention loss of earnings to the reclaimers. I think the loss here claimed, even if the duty alleged was in fact breached, is too remote.

In the result, therefore, I think that, if this is to be regarded as a case of damage arising to a third party, i.e. economic loss not associated with physical damage, drom injury negligently caused to person or property of another, then these reclaiming motions must fail. If, on the other hand, it can be regarded, as the reclaimers maintained, as a case of direct injury to their rights without material damage to property, then I am of opinion that, even if such a duty was owed to them, as the reclaimers maintain, in any event the damages said to flow from the defenders' failure in that duty are too remote, and that these reclaiming motions fail on this ground also.

LORD PRESIDENT (Clyde).—I agree.