Rechtswissenschaftliches Institut
Comparative Private Law
Pure economic Loss
Prof. Dr. Ulrike Babusiaux
8th and 15th December 2014
PLEASE NOTE:
The following slides are not complete.
The missing words and phrases must be filled in by the students.
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Tortious Liability for pure economic loss
(Case study)
Pure economic loss
-
the problem covers a variety of different situations
-
generally accepted demarcation lines:

as
to damage resulting from death or injury or
damage to tangible objects

as
to consequential economic loss under the
heading of loss
resulting from
,
or
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Different systems and their answers:
Germany:
- § 823 I BGB with its
rights does not seem to
protect against loss of goodwill, market opportunities or any other
economic interest (exception: eingerichteter und ausgeübter
Gewerbebetrieb)
- § 823 II BGB and § 826 BGB can cover this category of
damage (e.g. breach of contract)
- gap-filling
(Vertrag mit Schutzwirkung zugunsten
Dritter = protective effect of a contract for the benefit of a third
party)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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The Common Law (England)
- some torts allow the
loss, but are generally
restricted to wilful, deliberate or intentional acts, e.g. fraud,
conspiracy, deceit, passing off, inducing breach of contract
- with regard to the
the courts show restraint to
allow claims for pure economic loss (floodgate-argument)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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France
- there is no separate category of „pure economic loss“
- Article 1382 C.civ. does not distinguish between protected and
unprotected interests
- courts accept compensation of pure economic loss, if the
interests were legitimate (intérêts légitimes juridiquement
protégé) and if the damage is direct and caused by the fault of
the defendant
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Some examples of pure economic loss:

that cause damage to third parties: e.g.
erroneous information about investments

(Reflexschäden, indirekte Schäden, dommage
par ricochet): e.g. members of the family of the victim

: e.g. power cuts damage the owner of a
manufacture
 Participation in the breach of other parties‘ contracts
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Disregarding someone else’s contract
- Court of Appeal 1988, Rickless v. United Artists Corporation
(Reader, p. 76)
-BGH 26 November 1986, Conspiring wife (Reader, p. 80)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Court of Appeal Rickless v. United Artists Corp.
Facts:
The actor Peter Seller starred in a series of five Pink Panther fils.
Except for one movie, he did not himself contract to provide his
services but did so through «loan-out» companies, which
contracted with production companies created by the producer of
the Pink panther series, Blake Edwards.
After Peter Seller’s death, and without having obtained
permission, another production company, also created by Blake
Edwards, made a sixth Pink Panther movie using previously
unreleased material left over from the earlier films.
Such use gave rise to breaches of the contracts between the
«loan-out» companies and the original production companies.
The personal representatives of Peter Sellers and the «loan-out»
companies sued the production company and the distributor of
that film.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Held:
The court of first instance gave judgment for the plaintiffs.
The court of appeal dismissed the appeal, holding
-
that the defendants had breached the performer’s rights and
were liable for those breaches.
-
That, under the terms of agreements concluded for each of
the five films, the defendants were obliged to use the actor’s
performances only for the film to which the agreement related.
-
Since, the making of the sixth film constituted a breach of that
negative convenant, the defendants were liable in tort for
procuring such breach.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Court of Appeal
Bingham LJ:
«… could the defendants be held liable … for inducing a breach of …
negative covenants? The defendants argued that they could not. I found
that contention startling, and a familiar example will show why. Take the
case of an employment contract containing a valid covenant against
competition for 12 months after termination. The contract comes lawfully
to an end. The employee has performed all the service required of him
and has received all the pay to which he is entitled. The only contractual
term remaining in force is the employee’s negative covenant not to
compete. A third party, knowing of the covenant, induces the employee
to work for him during the period of the convenant and in obvious breach
of it. It is accepted that an action would lie … against the employee. But
if the defendants are right, no action would lie against the third party.
They contend that it would not. I can find no basis in principle for such
anomalous result, which conflicts with both the law and the practice as I
have long believed them to be.»
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Observations:
(1) Where is the problem of pure economic loss in this case?
(2) On what legal basis does judge Bingham found his decision
against the defendants?
(3) What about contractual liability in this case?
(4) What are the restrictions against opening the floodgates of
compensation for pure economic loss in this case?
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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BGH 26 November 1986:
Facts:
The plaintiff bought a house in 1973. In 1974, after marriage, he conveyed
the house to his wife, and the conveyance was duly recorded in the
Landregister. The couple subsequently entered into a notarized contract
whereby they agreed that the wife had put up one-sixth of the value of the
house and the plaintiff five-sixths and that, in case of divorce, the wife
accepted the obligation to return the property to the plaintiff on payment by
him of one-sixth of the value of the house.
After the plaintiff and his wife had separated in June 1979, the wife, without
the knowledge of her husband, granted three liens (Grundschulden), each of
DM 100’000 over the property. The liens were entered in the Landregister in
August 1979.
They were later given to the bank as collateral security for a loan. The wife
failed to make any repayment to the bank.
In February 1984, the divorce was pronounced and the court ordered the
wife to return the property to the plaintiff. The defendant bank thereupon
terminated the credit to the wife and initiated proceedings for the compulsory
sale of the property by public auction (Zwangsversteigerung).
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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The claim:
The plaintiff sued the bank, claiming
-
that his ex-wife had wished to cause him harm by issuing liens
on the property which she was obliged to return in the event of
divorce.
-
that the defendant bank was aware of that fact and that it
colluded with … the wife to cause injury to the plaintiff.
The plaintiff relied on § 826 BGB against the defendant bank to
seek a declaration that the compulsory sale of the property was
unlawful.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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BGH:
«The defendant acquired the real estate securities from the
person formally holding title at the request of the owner
registered in the Land Register. Unknown to the defendant when
he made the acquisition, the priority notice of conveyance in
favour of the plaintiff did not preclude assignment of the real
estate securities already effected. (…) The defendant was not
required to inquire as to whether the plaintiff’s former wife (…)
incurred tortious liability to third parties by effecting and assigning
liens (Grundschulden) by way of security.
Contractual claims are not amongst the rights infringement of
which in itself gives rise to claims in tort. Nor does the moral
order oblige an independant third party in a case of conflict to
subordinate its own interests of the contracting parties. Thus,
there is no claim under § 826 BGB for damages against a third
party simply on the ground of his cooperation in the violation by
the debtor of his creditor’s rights under the contract.»
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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The principle in German Law.
«In accordance with settled BGH-case-law, involvement by a
third party in a breach of contract is contra bonos mores only if
his interference with the contractual relations is marked by a
particular lack of consideration for the person concerned. Such a
lack of consideration may above all be constituted by collusion
with the debtor under the contract in order specifically to frustrate
the claims of the creditor concerned. The allegation of conduct
contra bonos mores is well-founded only in cases of serious
offences to feelings of decency, where the course of conduct of a
third party is incompatible with the basic requirements of a proper
view of the law.»
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Observations:
(1) Where is the problem of pure economic loss in this case?
(2) On what legal basis does the BGH found his decision for the
wife?
(3) What about contractual liability in this case?
(4) What are the restrictions against opening the floodgates of
compensation for pure economic loss in this case?
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Cass. civ. 3e, 8 July 1975 Sté de copropiété …v
Servim.
On 19 June 1969 Mrs Sabatier by a unilateral promise granted the Pravat
Compagny an option over certain real property that she owned; the option
was exercisable until September 1969.
On 11 July 1969, Pravat assigned the benefit of that option to the plaintiff.
On 21 September 1969, Pravat assigned the benefit of that option to the
defendant, the Servim compagny.
On 22 September Servim learnt of the earlier assignment of the option to the
plaintiff.
On 3 October 1969, Mrs Sabatier formally conveyed the property to Servim.
As a consequence of the conveyance, the plaintiff lost the benefit of that
option that Pravat had assigned to him.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Cour de cassation:
«Having regard to Art. 1382 C.civ.: The beneficiary of a promise
of sale is entitled to invoke against a person who is not a party
to that promise either the fraud with which that person is
associated or merely the fault of which that person was guilty
in agreeing to acquire a building which it knew to be subject to
the promise.
(…) It is clear from the court of appeal‘s own findings, that, after
learning of the promise of sale binding Pravat to SCRI under
the document of 22 September 1969, Servim was not
informed by a letter from the notary dated 26 September 1969
of the difficulties that might arise owing to the existence of that
promise, and that Servim itself indicated to the notary, in a
letter of 3 October 1969, that it relieved him of all liability.
Having thus established all the elements constituting a fault
(faute), the court of appeal, in deciding as it did, applied
Article 1382 C. civ. incorrectly.»
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Observations:
(1) Where is the problem of pure economic loss in this case?
(2) On what legal basis does the Cour de cassation found his
decision against the defendants?
(3) What about contractual liability in this case?
(4) Are there any restrictions against opening the floodgates of
compensation for pure economic loss in this case?
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Comparison:
Liability of a third-party accomplice to a contractual breach
 Common Law: induction to breach of contract (intentional);
 German Law § 826 BGB: non consideration (contra bonos
mores) of the other parties‘ contract; intentional harm of the
other parties‘ contract
 French Law:
for breach of contract even if the benefit
is only due to a negligent behaviour
French Law does
question, whereas the German Law and the Common
Law are restrictive about this special kind of loss.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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II. Why should economic loss be treated differently?
1. The
Lord Denning: «there would be no end of claims»
 French example does not found this impression

claims
 alternative control instruments (such as causation, proof of
damage, the duty of the victim to mitigate damages etc.)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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2. Indeterminacy of Numbers and Amounts
Cardozo (1931): «the defendant would be exposed to a liability in
an indetermined amount for an indeterminate time to an
indeterminate class»

 unforeseeability of the amount of loss (also a general problem
in torts)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Policy Considerations:
• deterrence:
• degree of protection: Are pure economic interests less worthy
than life, limb and property?
• justice: Is
• balance of interests: Would it be the best to allow courts to
decide about the compensation of pure economic loss
because of the facts and the interests in question?
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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