ECONOMIC LOSS AND THE SUPREME COURT OF CANADA: AN ECONOMIC CRITIQUE OF NORSK STEAMSHIP AND BIRD CONSTRUCTION
AbstractThe authors employ basic economic analysis of law to criticize two recent decisions in the Supreme Court of Canada. Both decisions break with the common law's traditional aversion to all owing recovery for pure economic loss innegligence. Both put the law in Canada in direct contradiction to the law in England. In each case the authors argue that economic analysis supports the traditional prohibition against recovery, not the new Supreme Court rules. In Winnipeg Condominium Corporation No. 36 v. Bird Construction Co. the court held that a building owner could recover the cost of repairing potentially dangerous defects from the nonprivity builder. The authors argue that this new rule is inefficient. The risk had already been allocated in contract by sophisticated commercial parties. The judicial reallocation of this risk will not promote safety as the court assumed it would. In Canadian National Railway Co. v. Norsk Pacific Steamship Co., a divided court allowed the plaintiff to recover for relational economic loss caused by damage to a third party's property. The authors justify the traditional exclusionary rule because relational loss is usually less deserving of legal protection than personal injury or damage to property. Most relational losses are not true social losses. Instead, the plaintiff's loss is another party's gain, a mere transfer. Norsk, however, deals with the rare exception, a relational loss that was a true social loss. Nevertheless, the authors offer two additional reasons to deny the claim. First, the "proximity" rule in the majority judgement does not effectively limit potential plaintiffs. Second, the typical relational loss plaintiff, including the plaintiff in Norsk, is better positioned to insure against the loss.
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