Relational economic loss (or interference with contractual relations): The last hurdle

• Jurisdiction: South Africa
• Published date: 29 May 2019
• Author: Dale Hutchison
• Citation: 2000 Acta Juridica 133
• Date: 29 May 2019
• Pages: 133-157

Relational economic loss (or interference with contractual

relations): The last hurdle

2000 Acta Juridica 133

Dale Hutchison *

University of Cape Town

I Introduction

Relational economic loss is the term coined by common lawyers to denote pure economic

loss suffered by one person, as a result of injury to the person or property of another. 1

It is, by definition, harm of an indirect or secondary nature, what the French call

dommage par ricochet: the victim is at least one step removed from the original

accident, but is financially affected because of a relationship with the primary victim — in

one way or another he was dependent for his economic well-being on the person or

property of the latter. The loss suffered by a dependant on the death or disablement of a

breadwinner is a classic example; another is the loss caused to the users of a bridge

when it is put out of operation as a result of a collision. 2 Very often, but not always, the

relationship between the primary and secondary victim will be a contractual one, in

which case the loss is sometimes called contractual relational economic loss, 3 though we

in South Africa are more familiar with the term interference with contractual relations.

The two concepts are not quite identical 4—a negligent act might, for example, disturb

contractual relations without causing any physical harm — but, nonetheless, overlap

sufficiently for present purposes to allow them to be used almost interchangeably.

For reasons that are well known, but which will nonetheless be restated below, the

common-law courts have for more than a century, and with a remarkable degree of

consistency, maintained a fairly rigid exclusionary rule with regard to relational economic

loss. Even in the post-Hedley Byrne era, attempts to relax the rule so that at least some

plaintiffs may recover compensation for this type of loss, have met with only limited

success, as we shall see. And in South Africa, too, the

* BCom LLB (Cape Town) PhD (Cantab), Professor of Private Law, University of Cape Town.

2000 Acta Juridica 134

position at present is very much the same. Despite the gradual recognition of claims for

economic loss generally, and the widening of the circle of persons who may institute the

actio legis Aquiliae, the decision of the Appeal Court in Union Government v Ocean

Accident and Guarantee Corporation Limited 5still stands firmly in the way of any

plaintiff seeking compensation for relational economic loss. In denying the claim of the

Government in that case for loss suffered through an injury to one of its employees, the

Court adopted a very cautious and pragmatic approach, emphasizing the dangers

inherent in any such expansion of the Aquilian remedy:

'Once one goes beyond physical proximity and considers the possibilities that may arise out

of the relationships, contractual or other, between the physically injured person and other

persons who may suffer indirectly, though materially, through his incapacitation, one is

immediately met with the prospects of an unmanageable situation. It is easy to imagine the

1 See eg B Feldthusen Economic Negligence 2ed (1989) 200; J G Fleming The Law of Torts 8ed (1992) 145.

2 Cf Canadian National Railway Co v Norsk Pacific Steamship Co Ltd (1992) 91 DLR (4th) 289, [1992] 1 SCR

1021.

3 ['(A)] convenient if somewhat barbarous phrase', in the words of La Forest J in the Norsk case (n 2) at 291e.

4 Cf Feldthusen (n 1) 201; Robby Bernstein Economic Loss (1993) 131-32; D Hutchison 'Relational economic

loss in the Supreme Court of Canada' (1994) 111 SALJ 240 at 241.

51956 (1) SA 577 (A).

2000 Acta Juridica 133

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absurdities that would arise if all persons contractually linked to the injured person could sue

the careless injurer for the loss suffered by them.' 6

The important question is whether this is still good law in our country. Given the

developments in our law ofdelict since 1956, when the Union Government case was

decided, and more particularly in the field of economic loss, it is obvious that the

continued existence of the exclusionary rule cannot be taken for granted. The matter will

have to be reconsidered by the Appeal Court, and one senses that a different approach

will be adopted, more in line with that followed in cases dealing with other formsof

economic loss. That would gladden the heart of many academic writers, and none more

so than N J van der Merwe, who has long argued that Union Government is wrong, or at

least a bad decision. 7We should bear in mind, however, the caution displayed in this

regard by the late Paul Boberg, whose views still deservedly command the respect of our

courts. Although he welcomed the opening up of liability for economic loss that began in

earnest with the decision in the Trust Bank case, 8Boberg predicted that in the field of

negligent interference with contractual relations the courts were unlikely to depart

significantly from the approach adopted in Union Government. 9Thus far the subsequent

case law tends to bear out his prediction. It certainly remains true to say that not

2000 Acta Juridica 135

every foreseeable person who is made worse off as a result of an accident can expect to

recover compensation. 10

Against this background, it may prove interesting and helpful to look again at the

origins and rationale of the exclusionary rule in the common law systems, and at why

the rule continues to survive in the post-Hedley Byrne era. The developments in Canada

and Australia are of particular interest, for there alternatives to a firm exclusionary rule

have been seriously explored, with strong divisions of opinion emerging in the highest

courts, and then (in Canada) being smoothed over in the interest of legal certainty. 11It

is my strong belief that we, in South Africa, should pay more attention to these

developments in the common law, for although the terminology and general approach is

often very different to our own, the underlying policy concerns are the same, and the

recognition of different categories of economic loss can be of considerable assistance in

determining when it is wrongful to cause such loss. The more concrete approach of the

common law can usefully supplement, without displacing, our more general and abstract

theory.

II The exclusionary rule in common-law systems

The earliest case in point seems to have been an American one, Anthony v Slaid, 12but

the cases generally regarded as establishing the rule are British: Cattle v Stockton

Waterworks Co 13and Simpson & Co v Thompson. 14In the former a contractor's cost of

performing his contract was increased due to the defendant's negligence; in the latter an

insurer tried to sue in its own name for damage caused to the insured property. In both

6 At 585F-H, per Schreiner JA.

7 See generally N J van der Merwe Die Beskerming van Vorderingsregte uit Kontrak teen Aantasting deur

Derdes (1959). See too N J van der Merwe & P J J Olivier Die Onregmatige Daad in die Suid-Afrikaanse Reg

6ed (1989) 370ff; J Neethling, J M Potgieter & P J Visser Law of Delict 2ed (1993) 293ff.

8Administrateur, Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A).

9P Q RBoberg The Law of Delict; vol I: Aquilian Liability (1984) 104 and 108.

10 See eg De Harde v Protea Assurance Co Ltd 1974 (2) SA 109 (E);Franschoekse Wynkelder (Ko-operatief)

Bpk v SAR & H 1981 (3) SA 36 (C); Shell & BP South African Petroleum Refineries (Pty) Ltd v Osborne Panama

SA 1980 (3) SA 653 (D); Pike v Minister of Defence 1996 (3) SA 127 (Ck); but cf Coronation Brick (Pty) Ltd v

Strachan Construction Co (Pty) Ltd 1982 (4) SA 371 (D).

11 See the discussion below.

12 (1846), 52 Mass 290 (Sup Jud Ct); see Feldthusen (n 1 above) 200n8.

13(1875) LR 10 QB 453.

14 (1877) 3 App Cas 279 (HL).

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