Pure economic loss caused by a negligent act: power cut damages calculation (Spartan Steel)
Forgewell Ltd runs a glass-making plant in England around the clock. Contractors digging up a nearby road negligently cut the cable supplying electricity to the plant, and the power is off for 12 hours. A batch of glass in the furnace at the time is ruined, reducing its value by £1,200. Had that batch been completed, Forgewell would have made a profit of £900 on it. Forgewell also proves that it would have made a further profit of £4,500 on new batches it could not start while the power was off. The contractors admit negligence.
Applying the leading authority on economic loss caused by a negligent act, how much is Forgewell likely to recover from the contractors?
Choose one answer to see the reasoning.
Worked answer
Correct answer D: £2,100.
THE RULE TO REMEMBER
Physical damage and economic loss consequential on it are recoverable in negligence, but pure economic loss independent of physical damage (such as lost production during a power cut) is generally not.
Pure economic loss caused by a negligent act: power cut damages calculation (Spartan Steel)
In Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd [1972] EWCA Civ 3, where contractors negligently cut a power cable to a factory, the majority of the Court of Appeal held that the claimant could recover for physical damage to its property and for economic loss consequential on that physical damage, but not for pure economic loss independent of any physical damage. Applying that rule, Forgewell recovers the £1,200 physical damage to the batch in the furnace and the £900 profit lost on that same damaged batch, which flows directly from the physical damage. The £4,500 profit on batches that could not be started is pure economic loss caused only by the interruption of supply, independent of any damage to Forgewell's property, and is not recoverable. The total is £1,200 + £900 = £2,100.
Why A is wrong: £6,600 wrongly includes the £4,500 profit on new batches, which is pure economic loss unconnected with physical damage.
Why B is wrong: £1,200 omits the £900 lost profit on the damaged batch, which is consequential on physical damage and recoverable.
Why C is wrong: £5,700 adds the pure economic loss of £4,500 to the physical damage while leaving out the consequential loss of profit.
Why E is wrong: The ruined batch is physical damage to Forgewell's property, and the profit lost on that batch is consequential on it, so both are recoverable.
A little more practice done.
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