Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [...

Facts

• Spartan Steel & Alloys Ltd operated a factory supplied with electricity by a power cable.
• Martin & Co (Contractors) Ltd, while working nearby, negligently severed this power cable, causing a power outage at Spartan Steel’s factory.
• As a direct result, Spartan Steel suffered three types of loss: (1) physical damage to a melt of metal in the furnace, (2) loss of profit on the damaged metal, and (3) further loss of profit due to factory downtime caused by the interruption.
• The losses were assessed under common law negligence principles, with the classification of each loss type being central to the court’s analysis.

Issues

1. Whether the physical damage to the melt and the consequential economic loss were recoverable in negligence.
2. Whether the loss of profit resulting from factory downtime, characterized as pure economic loss, was recoverable.
3. How the duty of care in negligence applies to financial losses unconnected to physical damage.
4. Whether any exceptions would allow recovery for pure economic loss in these circumstances.

Decision

• The Court of Appeal held that only the physical damage to the metal and the economic loss directly consequential to that physical damage were recoverable in negligence.
• The court found that the loss of profit from the factory’s downtime, as pure economic loss unconnected to physical damage, was not recoverable.
• The distinction between consequential economic loss and pure economic loss was upheld as fundamental to limiting liability in negligence claims.
• The court recognized narrow exceptions to this rule, such as liability for negligent misstatements in certain circumstances, but none applied on the facts.

Legal Principles

• Pure economic loss in negligence, defined as financial loss not arising from physical damage to person or property, is generally irrecoverable to prevent indeterminate liability.
• Consequential economic loss, directly resulting from physical property damage, is recoverable.
• The requirement for a proximate causal link and direct consequence from the defendant’s act is essential for recoverability.
• The distinction between tort and contract law is maintained through the bar on pure economic loss in negligence claims.
• Statutory and common law exceptions to the rule against recovering pure economic loss exist only where there is an assumption of responsibility, as in negligent misstatement (e.g., Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465).
• Attempts to create additional exceptions, such as the "complex structure theory," have been rejected in later case law.

Conclusion

Spartan Steel & Alloys Ltd v Martin & Co established that, in negligence, only losses directly linked to physical damage or its immediate economic consequences are generally recoverable; pure economic loss, such as loss of profit from mere interruption of business, remains irrecoverable except in narrowly circumscribed situations.