Chapter 11Business and the law of tortreplacement. The decision of the House of Lords in
the Junior Bookscase suggested that in limited circum-
stances it may be possible to recover damages for
economic or financial loss.
Even if the consumer manages to overcome all the
difficulties involved in proving negligence, the manufac-
turer may still be able to defeat the claim or secure a
reduction in damages by showing that the accident was
caused wholly or partly by the consumer’s own neg-
ligence. The defence of contributory negligence may
apply where, for example, the consumer has ignored
operating instructions or continued to use a product
knowing that it was defective. Under the Law Reform
(Contributory Negligence) Act 1945, contributory neg-
ligence on the part of the consumer has the effect of
reducing the damages awarded to the extent that the
claimant was to blame for the accident. For example, if
a court assesses the claimant’s damages at £10,000, but
finds that he was 50 per cent to blame for what hap-
pened, his damages will be reduced by 50 per cent and
he will receive £5,000.Part I of the Consumer Protection
Act 1987
The difficulties of bringing an action and establishing
liability in negligence against a manufacturer led to a
growing interest in the subject of ‘product liability’. This
term is used to describe a system of strict liability for
manufacturers in respect of injury or loss caused by
their defective products.339Junior Books Ltdv Veitchi Co Ltd(1982)Junior Books entered into a contract with a building firm
for the construction of a new factory. Under this contract,
the architects acting for Junior Books were entitled to
nominate which subcontractor was to be employed by
the building firm to lay the flooring. The architects nom-
inated Veitchi. The floor proved defective and Junior
Books brought an action in negligence against Veitchi.
Even though there was no suggestion that the floor was
dangerous, Junior Books claimed damages for the cost
of re-laying the floor and the consequential financial loss
that this would involve (i.e. the factory would have to be
closed down to enable the floor to be replaced). The
House of Lords held that Junior Books Ltd was entitled
to recover damages from Veitchi. The relationship be-
tween the parties was so close that it gave rise to a duty
to avoid careless work which would inevitably cause
financial loss.This decision raised expectations of a significant
extension of the general principle laid down by Lord
Atkin in Donoghuev Stevensonby imposing liability for
pure economic loss. However, their Lordships stressed
that their decision was based on the very close proxim-
ity between the parties which fell just short of a direct
contractual relationship. A manufacturer does not norm-
ally have such a close relationship with the consumers of
his products. Subsequent cases have demonstrated the
limited application of Junior Books.
started to cut out and on one occasion Muirhead lost his
entire stock of lobsters. The cause of the problem was
that the motors were unsuitable for the English voltage
system. Muirhead obtained judgment against ITS but,
since it had gone into liquidation, the judgment was not
satisfied. Muirhead, therefore, brought an action in neg-
ligence against ITT and Leroy Somer claiming compen-
sation for the cost of the pumps, the cost of electrical
engineers called out to deal with the pumps, the loss of
lobsters and the loss of profit on intended sales of the
lobsters. The Court of Appeal held that a manufacturer
could be liable in negligence for economic loss suffered
by a consumer if there was a very close relationship
between the parties and the consumer had placed reli-
ance on the manufacturer rather than on the retailer as
was the case in Junior Books. However, there was no
evidence in this case of such a close relationship or reli-
ance. Therefore, Muirhead could not recover his economic
loss, i.e. the loss of profit on the intended sales of
lobsters (£127,375), although he could recover for loss of
his lobster stock (£11,000) as this amounted to reason-
ably foreseeable physical damage.Muirheadv Industrial Tank Specialities
Ltd(1985)
Muirhead, a wholesale fish merchant, wished to expand
his lobster trade by buying lobsters cheaply in the sum-
mer, storing them in a tank and reselling them at Christmas
when the prices are high. The scheme required sea
water to be pumped continuously through the tank to
oxygenate the water and thereby keep the lobsters alive.
The tank and pumps were installed by ITS. The pumps
were supplied to ITS by ITT. They were powered by elec-
tric motors made by a French company and supplied
through its English subsidiary of Leroy Somer Electric
Motors Ltd. Within a few days of installation, the pumps