Spartan Steel and Alloys Ltd v. Martin & Co. Ltd

"Spartan Steel and Alloys Ltd v. Martin & Co. Ltd" [1973] 1 QB 27 is a well known English Court of Appeal concerning the recovery of pure economic loss in negligence.

Facts

The plaintiffs had a stainless steel factory, which obtained its electricity by a direct cable from the power station. The defendants were doing work on the ground with an excavator and negligently damaged that cable. As a consequence, the factory was deprived of electricity for 15 hours which has caused physical damage to the factory’s furnaces and metal, lost profit on the damaged metal and lost profit on the metal that was not melted during the time the electricity was off. The plaintiffs claimed all the three heads of damage.

Judgment

The Court of Appeal, consisting of Lord Denning MR, Edmund-Davies LJ and Lawton LJ have delivered a majority judgement (Edmund-Davies LJ dissenting), that the defendants could only recover the damages to their furnaces, the metal they had to discard and the profit lost on the discarded metal. They could not recover the profits lost due to the factory not being operational for 15 hours. Their main reasoning for this was that while the damage to the metal was "physical damage" and the lost profits on the metal was "directly consequential" upon it, the profits lost due to the blackout constituted "pure economic loss".

Although the majority seemed to agree that the defendants owed the plaintiffs a duty of care and the damage was not too remote since it was foreseeable, they declined to allow the recovery of pure economic loss for policy reasons outlined by Lord Denning in his leading judgement:

#Statutory utility providers are never liable for damages caused by their negligence.
#A blackout is a common hazard and a risk which everyone can be expected to tolerate from time to time.
#If claims for pure economic loss in such cases were allowed, it might lead to countless claims, some of which may be spurious (the "floodgates" argument).
#It would be unfair to place the entire weight of many comparatively small losses upon the shoulders of one person in such cases.
#The law does not leave the claimant without remedy by allowing him to recover the economic losses that are directly consequential upon physical damage.

Dissent by Edmund-Davies LJ

Edmund-Davies LJ did not agree with the majority, finding that the loss was both direct and foreseeable consequence of the defendant's negligence and should therefore be recovered. In his view, in most cases, spurious claims could be avoided either on the grounds that no duty was owed or that the damage was too remote.

Effect of the judgment

The judgment has outlined in very clear terms that there are two types of economic loss: economic loss consequential on physical damage and "pure" economic loss. Only the first is in principle recoverable. This has lead to much litigation concerning the precise distinction between economic and physical damage as well as to disagreements when the economic loss could be seen as consequential upon physical loss. [See e.g. Anns v. Merton London Borough Council [1978] A.C. 728; and "Murphy v. Brentwood District Council" [1990] 2 All ER 908]

See also

*English tort law
*Negligence
*Pure economic loss