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 EWHC 685, Queens Bench Division - Ben Cooper QC
This important judgment, upholding the defendants’ applications for summary judgment and/or strike-out of claims arising from the outbreak of foot and mouth disease in 2007, clarifies the limits on liability for consequential loss and damage caused by government measures taken in response to an environmental disaster, whether claims are brought in negligence, nuisance or under the rule in Rylands v. Fletcher.
The claimants were all livestock farmers who suffered loss and damage as a result of the outbreak of foot and mouth disease (‘FMD’) that occurred in two phases between August and September 2007 in the vicinity of laboratories operated by the first two defendants at a site in Pirbright, Surrey, which was the source of the outbreak.
As a result of the outbreak, susceptible livestock which had been infected with FMD, or which had been directly exposed to the threat of infection as a result of having to come into close proximity with the virus, had to be slaughtered. In addition, pursuant to the Foot and Mouth Disease (England) Order 2006 (which implements Council Directive 2003/85/EEC in the UK), the government and the EU imposed various restrictions across the whole of Great Britain on the movement and export of animals and animal products, together with other restrictions on related activities (such as holding animal fairs and markets, hunting and stalking, and the sale of animal fodder). The restrictions were progressively lifted through October and November 2007 and all remaining restrictions were lifted on 31 December 2007.
Originally, the claimants fell into two categories. The first group consisted of farmers whose livestock had been infected or exposed to a direct threat of infection and, as a result, had to be culled. The second group consisted of farmers whose animals were neither infected nor exposed to the risk of infection and were not, therefore, culled, but who suffered loss and damage as a result of the restrictions placed on the movement and/or export of livestock.
The losses claimed by claimants in the second group included lost income as a result of inability to sell or export animals, loss of milk production, extra cost of feeding and keeping animals, losses sustained through disruption to normal breeding patterns, and losses resulting from what were described as ‘loss of condition’ and/or ‘welfare problems’. ‘Loss of condition’ referred to a reduction in an animal’s optimal condition for slaughter as a result either of losing weight, or of growing older and gaining weight. ‘Welfare problems’ referred to impairments to the health and wellbeing of animals as a result of the conditions in which they had to be kept because they could not be moved.
All of the claimants pursued their claims in negligence, private nuisance and under the rule in Rylands v. Fletcher.
The first defendant was the Institute for Animal Health (‘IAH’), a government-funded research body which carries out research into (amongst other things) FMD at the Pirbright site which was the source of the outbreak. The second defendant, Merial, is a private company which sub-lets part of the Pirbright site, at which it produces (amongst other things) FMD vaccine. The claimants alleged (and, for the purposes of the summary judgment/strike-out applications, it was assumed) that the outbreak was caused by the negligence IAH and/or Merial, in particular by allowing FMD virus to escape through faulty drains.
The third defendant (DEFRA) is the government department responsible for licensing IAH and Merial to carry out work with FMD virus. The claimants alleged that DEFRA was jointly liable with IAH and Merial and also alleged that DEFRA itself was negligent in licensing IAH and Merial to work with FMD virus because it had known that the drains at the Pirbright site were faulty.
Prior to the hearing of the defendants' applications, settlement was reached with claimants in the first category (i.e. those whose livestock was culled).
In respect of the claimants in the second category (i.e. farmers whose animals were neither infected nor culled), the defendants pursued applications to strike out their claims and/or for summary judgment, on the basis that the losses sustained by claimants in that category were outside the scope of any duty owed by the defendants, either because they were pure economic losses or because they were indirect or consequential losses resulting from the imposition of government measures rather than directly from the escape of FMD virus.
The defendants’ applications for strike-out and/or summary judgment came before Tugendhat J, who granted those applications. Six main points of interest may be derived from the judgment, as follows:
1. In relation to the approach to an application for summary judgment and/or strike-out, this judgment is further authority for the proposition that doing justice does not mean justice to the claimant alone and that, where a trial will be time consuming and expensive and where there are issues of law which can be determined in the defendants’ favour without a trial, then it is in the interests of all parties for such issues to be determined before the time and expense of a trial is incurred. In particular, such issues of law can and should be comprehensively argued at the preliminary stage: it is not necessary to have a trial to enable full legal argument to take place. (See paragraphs 7-10.)
2. The judge held that the question of whether a particular loss is to be characterised as physical damage or pure economic loss will turn upon the particular facts. In general terms, physical damage means actual tangible harm to the fabric of the property caused by a factor external to the property. However, in the context of agricultural produce or livestock, that description may (depending on the circumstances) be apt to cover not only obvious instances of physical damage, such as breaking the leg of a sheep or the stem of a flower, but also the effects of less tangible ‘external factors’ such as a delay in taking particular action which causes the produce or livestock to become too fat (or thin), or too ripe. On that basis, the judge concluded that the claimants had a real prospect of succeeding in their contention that at least some of their losses constituted physical damage because that argument may depend upon more detailed information as to their precise losses and their causes that was not available at this stage of proceedings. (See paragraphs 54-76.)
3. However, other than those losses which might arguably be characterised as physical damage in the sense described above (or as economic loss consequent upon such physical damage), the claimants’ losses were pure economic loss. In particular, the judge rejected a submission made on behalf of the claimants that there is an intermediate category of damage which is not physical damage but which is to be treated as if it were because it results from some interference with or effect upon physical property and so is to be treated as being ‘analogous to physical damage’. (See paragraphs 77-84.)
4. The claimants could not recover damages for their pure economic losses because of the ‘exclusionary rule’ which excludes such losses from the scope of any duty of care. The judge reviewed a long line of authorities in which that exclusionary rule has been applied so as to exclude recovery for economic losses resulting from damage to the property of a third party with whom the claimant is in contractual relations and concluded that the claimants in the present case were in an even ‘weaker position’ since they were not in contractual relations with any party whose property had been damaged. (See paragraphs 85-96.)
5. In respect of the damage which might arguably be characterised as physical damage, the judge held that such losses were also outside the scope of any duty of care that might be owed by the defendants because the damage in question was indirect. (See paragraphs 97-127.) The reasoning behind this conclusion may be summarised as follows:
a. The judge reviewed the authorities on the relevance of whether physical damage is direct or indirect, in which the recent trend has been to recognise that indirectness is a relevant factor which may take the damage in question outside the scope of the duty of care (see for example Marc Rich & Co AG v. Bishop Rock Marine Co Ltd  1 AC 211; Landcatch Ltd v. International Oil Pollution Compensation Fund  2 Lloyd’s LR 552;  2 Lloyd’s LR 316). Delineating the scope of the duty will depend upon analysis of the purpose of the rule imposing a duty on defendant and the degree of proximity between the alleged breach and the losses claimed.
b. The purpose of the exclusionary rule which applies in respect of pure economic losses flowing from direct physical damage to the property of a third party is to avoid opening the floodgates to unlimited liability to an indefinite number of persons. In particular, that rule has been applied so as to exclude liability to auctioneers affected by an outbreak of FMD ( Weller v. Foot and Mouth Disease Research Institute  1 QB 569).
c. The claimants asserted that the defendants owed a duty to avoid causing them losses sustained by reason of the measures that would be imposed as a consequence of any outbreak of FMD. They argued that the scope of that duty was defined by the effects of the measures in question. However, those measures would affect not only the claimants, but all livestock farmers in Great Britain and others in associated industries, such as animal hauliers, slaughterhouses and animal auctioneers. Therefore, if the claimants were to succeed, there would be no basis in principle for excluding the claims of hauliers, slaughterhouse owners or auctioneers.
d. Consequently, the claimants were in no greater proximity than the auctioneers whose claims had been rejected in Weller. There was no ‘connecting link’ between the livestock that was actually infected by the FMD virus which the defendants (allegedly) caused to escape and the indirect or consequential losses sustained by the claimants (whether physical or economic). Therefore, applying the principles upon which the exclusionary rule is based, the claimants’ losses were outside the scope of any duty of care which might have been owed by the defendants.
6. In respect of the claims in nuisance and under the rule in Rylands v. Fletcher, the judge held that the exclusionary rule applies equally, since claimants should not be able to avoid the limits on recovery in negligence simply by calling the negligence a nuisance. In any event, the rule has its origin in Rylands v. Fletcher cases (such as Cattle v. The Stockton Waterworks (1875) LR 10 QB 453), which are a sub-species of nuisance. Further, any interference with the claimants’ enjoyment of their land was not directly caused by anything emanating from the defendants’ land, but was the result of the exercise of statutory powers by the government, imposing the movement restrictions and other measures which caused the claimants’ losses. (See paragraphs 131-136.)
The central importance of this case lies in its clear delineation of the boundaries of liability for an environmental disaster caused by a negligent act or omission, where the primary consequence of the act or omission is direct physical injury to some property, but where government intervenes to impose measures to limit the extent of the direct physical damage and those measures in turn lead to much wider indirect or consequential losses (whether physical or economic). The judgment of Tugendhad J is a strong reinforcement of the exclusionary rule which confines the scope of any duty of care in those circumstances to direct physical damage.
The judgment is firmly within the trend of recent authority (since Murphy v. Brentwood DC  1 AC 398) in which the courts have emphasised the traditional categorisation of different types of damage and have resisted significant expansion of the tort of negligence. In particular, the judgment illustrates the ongoing strict limits on circumstances in which a claimant can recover damages for pure economic loss, as well as the continued importance of distinguishing between direct and indirect losses in the context of defining the scope of any duty of care.
Tugendhat J emphasised at several points in his judgment the importance of clarity and certainty in defining the scope of the duty of care and rejected the claimants’ call to expand the duty of care in part on the grounds such expansion would result in a loss of clarity and an indeterminate liability to a wide variety of potential claimants (see for example paragraphs 94, 125-126). This judgment will certainly do much to clarify the limits on the losses which may be recovered in respect of a negligent act or omission whose primary result is direct physical injury to property: in those circumstances, the scope of the duty will be limited to such direct physical injury (and other consequential losses sustained by those whose property is injured); indirect or consequential losses sustained by those who do not own property that is directly injured will be excluded.
Finally, this judgment is also a welcome addition to the growing body of authority which explores the relationship between negligence on the one hand, and nuisance and Rylands v. Fletcher on the other. It provides a reminder that, where the same act may constitute more than one tort, the limits which the law imposes on recovery of damages in one tort cannot be evaded simply by applying the alternative label.
Charles Pugh and Ben Cooper of Old Square Chambers appeared for the Institute for Animal Health (the First Defendant).