Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27 is a well-known English Court of Appeal

Court of Appeal of England and Wales

The Court of Appeal of England and Wales is the second most senior court in the English legal system, with only the Supreme Court of the United Kingdom above it...

 concerning the recovery of pure economic loss

Pure economic loss

Economic loss refers to financial loss and damage suffered by a person such as can be seen only on a balance sheet rather than as physical injury to the person or destruction of property...

 in negligence

Negligence

Negligence is a failure to exercise the care that a reasonably prudent person would exercise in like circumstances. The area of tort law known as negligence involves harm caused by carelessness, not intentional harm.According to Jay M...

.

Facts

Spartan Steel and Alloys Ltd had a stainless steel factory in Birmingham

Birmingham

Birmingham is a city and metropolitan borough in the West Midlands of England. It is the most populous British city outside the capital London, with a population of 1,036,900 , and lies at the heart of the West Midlands conurbation, the second most populous urban area in the United Kingdom with a...

, which obtained its electricity by a direct cable from the power station. Martin & Co Ltd 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. Spartan Steel claimed all the three heads of damage.

Judgment

The Court of Appeal, consisting of Lord Denning MR, Edmund-Davies LJ and Lawton

Lawton (surname)

Lawton is a surname, and may refer to:* Alexander Lawton , a division commander in the American Civil War* April Lawton, musician and graphic designer* Barbara Lawton, American politician* Ben Lawton, American surgeon and healthcare activist...

 LJ delivered a majority judgment (Edmund-Davies LJ dissenting), that the Spartan Steel 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 Martin & Co Ltd owed the Spartan Steel a duty of care

Duty of care

In tort law, a duty of care is a legal obligation imposed on an individual requiring that they adhere to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be established to proceed with an action in negligence. The claimant...

 and the damage was not too remote

Remoteness

Remoteness in English law is a set of rules in both tort and contract, which limits the amount of compensatory damages for a wrong.In negligence, the test of causation not only requires that the defendant was the cause in fact, but also requires that the loss or damage sustained by the claimant was...

 since it was foreseeable, they declined to allow the recovery of pure economic loss for policy

Policy

A policy is typically described as a principle or rule to guide decisions and achieve rational outcome. The term is not normally used to denote what is actually done, this is normally referred to as either procedure or protocol...

reasons outlined by Lord Denning in his leading judgment:

1. Statutory utility providers are never liable for damages caused by their negligence.
2. A blackout is a common hazard and a risk which everyone can be expected to tolerate from time to time.
3. 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).
4. It would be unfair to place the entire weight of many comparatively small losses upon the shoulders of one person in such cases.
5. 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

Remoteness

Remoteness in English law is a set of rules in both tort and contract, which limits the amount of compensatory damages for a wrong.In negligence, the test of causation not only requires that the defendant was the cause in fact, but also requires that the loss or damage sustained by the claimant was...

 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

Remoteness

Remoteness in English law is a set of rules in both tort and contract, which limits the amount of compensatory damages for a wrong.In negligence, the test of causation not only requires that the defendant was the cause in fact, but also requires that the loss or damage sustained by the claimant was...

.

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 led 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.