• In the case of Muirhead v Industrial Tank Specialities [1986] Q.B. 507, it was held that the manufacturer of defective goods can be liable in negligence for economic loss suffered by the purchaser if there is a very close proximity/relationship between them, and the purchaser had relied on the manufacturer rather than the vendor.

Facts of the Case

  • C, a fish merchant, wished to expand his trade by purchasing lobsters in summer, storing them and selling them in the Christmas period.
  • To do this, C needed to install a sea water storage tank. This tank would need 7 pumps to pump, filter and recirculate (and thus oxygenate) the water.
  • D1 was responsible for installing the tank and pumps. D2 was responsible for supplying D1 with the pumps. D3 manufactured the tank and pumps in France.
  • In July and August 1979, D1 installed the tank and pumps at C’s premises. The pumps had to run 24 hours a day.
  • Within a few days, the motors driving the pumps started to cut out. The installation also used starter contacts that cut out when the pumps failed. These had to be manually reset before the pumps could be restarted.
  • The lobsters would begin to die within 48 minutes of the pumps failing. On one occasion, C lost his entire stock due to the pumps failing during the night.
  • Between February and March 1980, the pumps were sent back to D3 to be rewound, but once installed failed again.
  • In August 1980, D1 had all the pumps replaced with pumps produced by different manufacturers.
  • The tank now operated successfully, but C had lost his entire lobster stock and profits expected from the installation.
  • The cause of the trouble was shown to be that D3 had not adapted the pump motors for the UK voltage range.

Issues

  • Could D3 be liable in negligence for economic loss suffered by C?
  • Was the loss of C’s lobster stock reasonably foreseeable to D3?

Held by the Court of Appeal (Civil Division)

  • Finding for C, that D3 was not liable for C’s pure economic loss because there was no proximity or reliance to distinguish C’s situation from an ordinary purchaser. C could only pursue compensation from D1 as the vendor of defective goods.
  • However, the death of the lobsters was a type of physical harm reasonably foreseeable to D3. As such D3 was liable for economic loss resulting from that physical damage.

Lord Justice Goff

  • In this context, ‘proximity’ is a convenient label to describe a relationship through which D can reasonably foresee that his act or omissions is liable to cause damage to C of the relevant type.
  • ‘Relationship’ refers to no more than the relative situation of the parties (vendor, supplier, manufacturer, purchaser etc.) that may give rise to damage being reasonably foreseeable to them.
  • C did not rely on the statement on the motor plates claiming they were suitable for high voltage use. This negligent misstatement could show that D1 failed to act reasonably in mitigating the damage, but it does not create proximity between C and D3 that would justify liability.
  • The judge at first instance did not consider the death of the entire lobster stock reasonably foreseeable to D3. This was the wrong question to ask. What is important is the relevant type of damage suffered.
  • “In my judgment we are able to make that finding. I so conclude because that finding appears to me to follow inevitably from the judge’s finding that the appellants were aware that pumps incorporating their motors were being sold for use at fish farms, and his inferential finding that they should have realised that the pumps would be used for circulation and oxygenation of water in tanks where fish were kept. From this it must, in my judgment, follow that the whole purpose of the pumps, if so used, was to preserve the health, and lives, of the fish; and therefore that, if the pumps failed through the motors cutting out, physical harm to the fish was liable to occur” [532F].

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