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Essay: Spartan Steel and Alloys v. Martin and Co (Contractors) 1973: Duty of Care and Pure Economic Loss

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Case Note Summary of the case Spartan Steel & Alloys Ltd. v. Martin & Co.(Contractors) Ltd. 1973

The Spartan Steel & Alloys Ltd. v. Martin & Co (Contractors) Ltd. case was heard by the Court of Appeal in 1973. The judges present were Lord Denning M.R, Edmund Davis (Dissenting) and Lawton L.JJ.  The case come under tort law, as it discussing duty of care, physical damages and pure economic loss. Pure economic loss is that which is not linked to physical injury or property damage.

Spartan Steel had a stainless steel factory which obtained its electricity by a direct cable from the power station. The defendants, Martin & Co Ltd. were doing work on the ground with an excavator and negligently damaged that cable. As a consequence, the lack of power caused physical damaged metal and loss of profit on the metal that was not melted during the time the electricity was off. Spartan Steel claimed all the three heads of damage.

As a result the metal depreciated in value by £368 and they lost profit from the sale of the metal which was £400. They could had also completed four further melts where they potentially lost £1,767 in profit. Felix J. found the defendants liable for the damages and awarded the claimants £2535 damages.

The main issue in this case is not all financial losses are recoverable in tort law. Pure economic loss is solely and purely economic, a special type of negligence that may not be recoverable. There are two types of economic loss: economic loss consequential on physical damage and pure economic loss. 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, see Anns v Merton London Borough Council.

Martin & Co admit that they are liable for the physical damages. However did not dispute that they are liable for the loss of profit on the first melt, because that was truly consequential on the physical damages and thus covered in the case S.C.M Ltd. v. Whittall, where part of the claim arose from physical damage was not struck out, but economic loss was. They argued that they did not owe damages for the four further metals and the potential profit on them, that Spartan Steel claimed they would have made during the lack of power.

The respondents, Spartan Steel & Alloy stated defendants owed them a duty to take reasonable care to avoid damage. The factories economic loss cause by the negligent breach of duty was recoverable whether or not they had suffered physical damage to the materials.

The question was whether the respondents could recover damages for the loss of profits or whether this was irrecoverable in negligence as it was a ‘pure economic loss’.

On behalf of Spartan & Steel, Mr. Bathurst argued that there was a concept called ‘parasitic damages’. Robert E. Keaton states “once a tort cause of action for physical harm has been established… as so-called parasitic damages, compensation for any associated emotional distress.” which means damages that are not recoverable by themselves, would have to attach themselves to a claim for physical damages. He argued that although pure economic loss was a result of the inability of Spartan Steel to make the four further melts could not be recoverable in its own. However, attached to the legally recoverable claim of damages and loss of profit on the first melt, which were were direct consequences of the power cut; it can itself be recoverable as it is attached to it.

Denning said “I do not like the doctrine of “parasitic damages”. I don’t not like the very word “parasitic”. A “parasitic” is one who is a useless hanger-on sucking the substance out of others… The phrase “parasitic damages” coveys to my mind the idea of damages which ought not in justice to be awarded, but which somehow or other have been allowed to get through by hanging on to others.” He went on to say he does not believe is this doctrine, he referred to the case Leeds Industrial Cooperative Society Ltd. v. Slack. The damages in this case in effect are buying the right to put up the new building. If the owner delays and allows the building to occur without making any objection, he cannot seek an injunction. Denning thought the damages for the big new windows should not be recovered, however the damages for the small old windows ought to be recovered. Thus Denning rejected Bathurst’s argument based on ‘parasitic damages’. Denning also states the question of economic loss is one of policy, there are many case in which the economic loss has not be recovered. In the case Best v. Samuel Fox & Co. Ltd. it was on the grounds no duty of care to the claimant. So where the person is injured in a road accident due to the negligence of another, the negligent driver owe a duty of care to the injured person, himself. However he does not owe duty of care to the servant of the injured person. However in the case Blackburn J. In Cattle v. Stockton Waterworks Co the defendant Cleary has been under the duty of care to the plaintiff, but the economic loss has not been recovered as it was too remote. Martin & Co owed the Spartan Steel a duty of care and the damage was not too remote since it was foreseeable, however they declined to allow the recovery of pure economic loss for policy reasons outlined by Lord Denning in his leading judgment.

Edmund Davies the dissenting judge, did not disagreed with Denning argument, that the link between the negligence and pure economic consequences may be hard to mould. However he found the loss was direct and foreseeable consequence of the defendants negligence and Spartan Steel loss’ should be recovered. He conclusions his judgement by stating it would be incorrect to draw any distinction between the first, melt and the four melts. In other words Spartan Steel are entitled to recover all of the financial loss they have sustained. He stresses that this case is dealing with economic loss which was both reasonably foreseeable and a direct consequence of defendants negligence. He backed his argument which referring to the case The Wagon Mound where it states “it would be wrong that a man should be held liable for damage unpredictable by a reasonable man because it was ‘direct’ or ‘natural’, equally it would be wrong that he should escape liability, however ‘indirect’ the damage, if he foresaw or could reasonable force the intervening event which led to its being done”. It follows the decision of Faulks J. As having given the right awarded sum of £2,535 as both directness and force ability were established.

Lawton L.J agrees with Denning’s argument. He could not understand how the loss of profit was sustained by other judges was recovered but not the pure economic loss, claiming both loses were foreseeable and direct, referring to the negligent ship that was already under a duty to the cargo owners; where they can recover the cost of discharging a reloading the ship, as it is not too remote; see Morrison Steamship Co Ltd. v. Greystoke Castle (Cargo owners). Likewise, when a banker negligently gives a reference to one who acts on it, the duty is plain and the damages is not too remote as in the case Hedley Byrne & Co Ltd. v. Heller & Partners Ltd. After applying the facts of the case and referring the Dennings argument, Lawton would allow the appeal and reduce the damages to only the physical damage and loss of damages of the first melt, £768.

The case clearly outlines two types of economic loss, pure economic loss and sequential economic loss, where the later 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, see Anns v Merton London Borough Council. On the other hand, referring to Société Anonyme de Remorquage à Hélice v Bennetts where economic loss by itself has been to be recoverable, it is plain that there was a duty to the claimant and the loss was not too remote. There are no concrete set of principles to determine if a loss is purely economic or consequential, therefore it is agreed with Denning when he states it would be a matter of relationship as each case is different and of policy, until there is a defining process to go about it.

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