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

In negligence, financial loss caused by an interruption of electricity is irrecoverable where it stands independently of physical damage. The claimant may recover for physical damage and for financial loss directly consequential upon that damage.

The existence of some actionable physical damage does not make every other foreseeable loss recoverable as a form of “parasitic damages”. The limits upon recovery reflect legal policy, including the ordinary incidence of interruptions, the number and verification of potential claims, the distribution of risk, and the availability of insurance.

The defendants negligently damaged an electricity cable supplying the plaintiffs’ steelworks. The interruption ruined metal in one furnace, caused the loss of profit on that melt, and prevented four further melts from being completed.

Faulks J awarded £2,535, comprising £368 for physical damage, £400 consequential profit and £1,767 profit lost on the further melts. The defendants appealed only against liability for the independent loss of profit. The central issue was whether foreseeable financial loss unconnected with physical damage was recoverable in negligence.

1. By a majority, allowing the appeal: the damages were reduced to £768. The plaintiffs could recover £368 for the damaged melt and £400 profit lost as a consequence of that damage. They could not recover £1,767 profit on the four melts that were never undertaken.

2. Lord Denning MR held that the recovery of economic loss depended ultimately upon legal policy. Independent financial loss from an interruption of a utility supply should remain with the consumers affected. Relevant considerations included the common incidence of interruptions, the potentially numerous and difficult-to-verify claims, mitigation problems, the possible concentration of widespread losses upon one defendant, and the availability of standby systems or insurance.

3. Lord Denning MR rejected the suggested doctrine of “parasitic damages”. A head of loss that is independently irrecoverable does not become recoverable merely because the same wrong also causes actionable physical damage. The ancient-light authorities were explicable by the jurisdiction to award damages in place of an injunction and did not establish a general doctrine.

4. Lawton LJ agreed that foreseeable financial loss not consequential upon physical injury or property damage was irrecoverable, except where it was the immediate consequence of a breach of a duty specifically protecting the claimant against that kind of loss. He regarded Cattle v Stockton Waterworks Co (1875) LR 10 QB 453 as stating the applicable rule and concluded that it had not been overruled by Morrison Steamship Co Ltd v Greystoke Castle [1947] AC 265.

5. Edmund Davies LJ dissented. He would have held that purely economic loss was recoverable where it was both a reasonably foreseeable and direct consequence of breach of an established duty of care. He considered the distinction between profit lost on the damaged melt and profit lost on the four further melts fortuitous, and would have dismissed the appeal.

1. Court of Appeal: By a majority, allowed the defendants’ appeal and reduced the damages from £2,535 to £768, with interest at 6 per cent to judgment.

2. Birmingham Assizes: Faulks J held the defendants liable for the physical damage, consequential profit and independent profit lost during the electricity interruption. No report citation is stated.