Muirhead v Industrial Tank Specialities [1986] Q.B. 507

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.

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

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. 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.

A manufacturer may owe negligence liability for foreseeable physical damage caused by a defective product to other property, with consequential financial loss. Muirhead distinguished the damaged lobsters from the claimant's unrecoverable pure economic loss associated with the defective installation, absent a separate basis for responsibility.

Muirhead provides a concrete distinction between a product failing to perform and a product damaging other property. The pumps' failure caused the lobsters to die; that was different from the disappointed commercial expectations concerning the installation itself. A special relationship may sometimes support responsibility for pure economic loss, but the claimant did not establish such a relationship with this manufacturer. Identify each head of loss and its causal relationship to physical damage before discussing recovery.