Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd is a leading Court of Appeal decision addressing the limits of negligence liability for economic loss, especially the distinction between recoverable consequential economic loss and unrecoverable pure economic loss.
The judgement is notable for its discussion of duty of care, remoteness, and policy considerations, and remains one of the most cited authorities on the limits of recovery for economic loss caused by negligent acts. The case also highlights the differing reasoning within the Court of Appeal, with a strong dissent challenging the majority’s approach.
Facts of Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd
In Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd, the plaintiffs operated a stainless-steel factory in Birmingham which depended on a continuous electricity supply to run its furnaces twenty-four hours a day.
The defendants were contractors engaged in roadworks near the factory. While digging up the road using an excavator, the defendants’ employees negligently damaged an electric power cable. The cable did not belong to the plaintiffs but to the Midland Electricity Board, although it supplied power directly to the plaintiffs’ factory.
The negligent cutting of the cable caused a power outage lasting approximately 14.5 hours. As a result, the plaintiffs suffered three different heads of loss:
- Physical damage to a melt of metal in the furnace at the time, which had to be removed prematurely to avoid damaging the furnace, causing a loss in value of £368.
- Consequential loss of profit on the sale of that damaged melt, amounting to £400.
- Pure economic loss, namely the loss of profit on four additional melts that could have been produced during the time the factory was without power, totalling £1,767.
The plaintiffs brought a negligence claim seeking compensation for all three categories of loss.
Issues
The Court of Appeal in Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd was required to determine the extent to which the defendants could be held liable for economic losses flowing from the power cut. The central questions were:
- Could the plaintiffs recover the loss of profit that arose directly from the physical damage to the melt that was being processed at the time?
- Could the plaintiffs recover the pure economic loss relating to profits they would have made from melts which had not yet begun when the power cut occurred?
- How should the line be drawn between recoverable consequential economic loss and unrecoverable pure economic loss in negligence?
These questions required the Court of Appeal to consider the scope of the defendants’ duty of care, the principles of remoteness, and broader policy concerns relating to the potential extent of liability.
Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd Judgement
The Court of Appeal, in Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd, held by a majority that the plaintiffs were entitled to recover the value of the damaged melt (£368) and the consequential loss of profit relating to that melt (£400).
However, they could not recover the £1,767 representing profit from the melts that were never produced. This latter amount was considered pure economic loss and therefore irrecoverable in negligence.
Thus, the plaintiffs’ claim succeeded in part and failed in part.
Reasoning of the Majority
Lord Denning MR
Lord Denning MR grounded his reasoning in legal policy. He accepted that the plaintiffs could recover for the physical damage to the melt and the consequential economic loss arising directly from that damaged property. These losses were sufficiently connected to the negligent act.
However, Lord Denning MR distinguished this from the pure economic loss relating to the four additional melts that could have been produced if power had not been interrupted. He treated this category as being outside the scope of the duty of care because it did not arise from physical damage to the plaintiffs’ property.
In Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd, Lord Denning MR emphasised several policy considerations:
- Power cuts are a common incident of life, and businesses are expected to absorb or insure against these risks.
- Allowing recovery for all economic losses could open the floodgates, exposing defendants to extensive and indeterminate liability.
- Utility providers frequently enjoy statutory protection against liability for interruptions to supply; it would be inconsistent to impose greater liability on negligent contractors.
He concluded that although the defendants owed a duty of care to avoid physically damaging the melt in production, that duty did not extend to the loss of profits from future melts not yet begun.
Lawton LJ
Lawton LJ agreed with Lord Denning’s conclusion but adopted a more traditional analysis. He focused on remoteness and the scope of the duty of care. While he accepted that some economic loss might be foreseeable, he considered the pure economic loss claimed by the plaintiffs to be too remote to be recoverable.
In Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd, Lawton LJ regarded the loss as lying beyond the reasonable scope of the duty owed by the defendants. As such, economic loss not directly tied to physical damage was not recoverable.
Dissenting Reasoning
Edmund Davies LJ
Edmund Davies LJ provided a strong and detailed dissent. He argued that all of the losses, including the £1,767 pure economic loss, should have been recoverable. In his view, there was no valid distinction between the loss of profit on the damaged melt and the loss of profit from melts that could not be produced.
In Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd, he reasoned:
- Both types of loss were equally foreseeable.
- Both flowed directly and naturally from the defendants’ negligent act.
- It was artificial to allow one form of loss but not the other merely because one was associated with physical damage and the other was not.
He described the majority’s distinction as “indefensible” and “a distinction without a difference”.
Outcome in Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd
The outcome of Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd was that the plaintiffs succeeded in recovering:
- £368 for the physical damage to the melt;
- £400 for the consequential loss of profit on that melt.
However, they were unable to recover the £1,767 representing the loss of profit from melts that could not be processed during the power outage.
Conclusion
Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd remains a significant case in the law of negligence. It stands as a clear authority for the principle that:
- Consequential economic loss tied to physical damage is recoverable, but
- Pure economic loss that is not connected to physical damage is not recoverable in negligence.
The case is frequently cited in discussions of duty of care, remoteness, and policy limits on negligence liability. It also contrasts with later developments in the law concerning relational and economic losses, but its core principle continues to guide courts in defining the boundary between actionable and non-actionable loss.