Court of Appeal · 2-1: Lord Denning MR and Lawton LJ; Edmund Davies LJ dissenting
Facts
Martin and Co, road contractors, negligently damaged an electricity cable while digging a road, which cut off the supply to Spartan Steel's factory for about fourteen hours. Spartan Steel melted metal in an arc furnace, and at the time of the cut a melt was in progress. To prevent damage to the furnace, the melt had to be poured out and was spoiled. Spartan Steel lost the value of the damaged melt, the profit it would have made on that melt, and the profits on four further melts which it could not carry out while the power was off. The cable belonged to the electricity board, not to Spartan Steel.
History
The trial judge awarded damages for the physical damage to the melt and for the loss of profit on that melt, but refused to award damages for the profit lost on the further melts. Spartan Steel appealed.
Issue
Whether a claimant who suffers loss as a result of the defendant's negligence in damaging a third party's property can recover for loss that is purely economic, in addition to loss consequent on physical damage to the claimant's own property.
Held
Appeal dismissed by a majority of two to one. Spartan Steel recovered for the physical damage and the loss of profit on the damaged melt, but not for the lost profit on the further melts.
Ratio
- Damages for negligence cover physical damage to the claimant's property and economic loss consequent upon it, but economic loss that is not consequent on physical damage to the claimant's own property is generally not recoverable, even though foreseeable.
- The limit is justified by policy: the risk of indeterminate claims by large numbers of those affected by a disruption, and the fact that such loss is better borne by the claimants through insurance.
The judgments
Lord Denning MR (majority)
Held that there is a difference in law between physical damage and pure economic loss, and that the courts have drawn the line by considerations of policy, since to allow claims for all foreseeable economic loss from a power cut would expose defendants to an enormous number of claims. The risk of such loss should lie where it falls and be covered by insurance.
Lawton LJ (majority)
Agreed that economic loss not consequent on physical damage was not recoverable and that the line was one of practical policy, defended by the need to limit the liability of those who dig roads for the interruption of supplies.
Edmund Davies LJ (dissenting)
Would have allowed recovery for all the foreseeable loss on the ground that the same foreseeable chain of events led to both the physical damage and the further loss, and that policy considerations were not sufficient to deny a claimant who proved foreseeable loss.
Key reasoning
- Foreseeability alone does not determine liability for economic loss, and the courts have always limited recovery by reference to legal policy.
- To allow every business affected by a power cut to claim would expose a contractor to liability out of proportion to his fault, and those affected can insure against the risk of such interruptions.
- The loss on the damaged melt flowed from physical damage to the claimant's property and so was recoverable, whereas the lost profit on the other melts flowed only from the cutting of the supply.
Where it fits in the module
On the FHS topic of negligent damage to property, Spartan Steel shows the distinction between consequential and pure economic loss, an approach later examined in Junior Books v Veitchi [1983] 1 AC 520 and restated in Murphy v Brentwood DC [1991] 1 AC 398. The case is an example of explicit policy reasoning, including loss spreading and the floodgates concern. In later cases the courts preferred to frame the inquiry through proximity and assumption of responsibility, drawing on Hedley Byrne v Heller [1964] AC 465, as in Customs and Excise v Barclays Bank [2006] UKHL 28. The tutorial debate is whether the exclusionary rule can be defended or should be replaced by a general duty qualified by proximity.
Criticisms
- The distinction between physical damage and economic loss is arbitrary, because the claimant suffers the same loss of profit in either case and the defendant's fault is the same.
- The floodgates policy is overstated, since the claimant was a single identifiable business and the defendant could have anticipated and insured against such loss.
- The argument that claimants should insure against the loss favours the defendant, who negligently caused the harm, and transfers the cost to the victim.
- The line between loss consequent on damage and pure economic loss is difficult to draw in practice, as the division of the melts in this very case shows.
Written with AI (claude-sonnet-5.5 (Claude Code writer)) on 1 November 2026, reviewed for errors by a second model (claude-sonnet-5.5 (Claude Code checker)). Read the case itself at [1973] QB 27. Spotted an error? Tell us.