Analysis of the about Economic Loss - Case Study Example

Tort Essay College Introduction Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd QB is a famous English Court of Appeal involving the recovery of pure economic loss in negligence (Lord Denning S Edmund Davies and Lawton 1973). Economic loss is the loss that can be seen physically. Economic loss is divided into consequential economic loss and pure economic loss (Lunney and Oliphant 1999). Spartan Steel has a factory located in Birmingham that deals in the manufacture stainless steel. The factory gets its electricity power through a direct cable from the Midlands Electricity Board power station of In 1969, contractors, Martins & Co Ltd were working on a road almost a half of a mile away. They were going to work on the road by excavating the road with a huge power-driven excavating shovel. They made studies about the location of the cables under the road. They were provided with the plans showing them. Unluckily, their field men were not very cautious. The power-driven shovel damaged the cables that delivered electricity to the Spartan works. As a result, The Electricity Board shut down the power even as they mended the cable. At that time, the factory was working continuously for 24 hours. The electric power was shut off at around 7.40 p.m. On 12th June, 1969, and was off for around 15 hours until it was repaired and restored at 10.00 a.m. On 13th June the same year. However, as this factory was working during the day and night, it suffered loss. Again when the power was shut off, there was an arc heater in which metal was melted to be transformed into ingots. Electric power was required all through so as to sustain the temperature in melting the metal. When the power failed, there was a risk that the metal might coagulate into solid form in the furnace and pose damage to the lining of the furnace. As an option, the plaintiffs melted the material by using oxygen and poured it from a tap out of the furnace. As a result, this implied that the melted material was valueless. The physical damage was evaluated at £368. Additionally, if the melt had been successfully completed, the plaintiffs would have made a profit on it of £400 (Lord Denning S Edmund Davies and Lawton 1973) The plaintiffs claimed that all the total damages against the Martin contractors were for negligence (Bishop 1982, p.1). No evidence was provided at the trial because the defendants confessed that they had been negligent. The case dispute was exclusively on the quantity of damages. The defendants took their stand on the current judgment in the court of SCM Ltd v WJ Whittall & Son Ltd QB. They admitted that they were responsible for the £368 physical damages. They did not seriously disagree that they are also responsible for the £400 loss of profit on the first melt. They denied that they were liable for the £1,767 for the other four melts. They claimed that was economic loss (and were not liable for it. Felix J rejected their claim and held them responsible for all the losses. The defendants appeal to this court ((Lord Denning S Edmund Davies and Lawton 1973). To the side of plaintiffs, Mr. Christopher Bathurst, came up with a point that was not talked about in SCM (United Kingdom) Ltd v WJ Whittall & Son Ltd. He claimed that there was a principle of English law (Stapleton 1991) that related to "parasitic damages." This implied existence some damages which, if they rest alone, would not recover but, if they can be occupied to some other legitimate plaintiff for damages, may be recoverable. By applying this Biological principle he contended that, even if the economic loss of £1,767 on the four melts, alone, would not be recoverable, nevertheless by being linked to the other claim and be recovered as a "parasite" to it. The court of Appeal judgment The Court of Appeal consisted of Lord Denning, Lawton LJ and Edmund-Davies LJ. They delivered a judgment based on majority grounds (Edmund-Davies LJ dissenting), that Spartan Steel Ltd could only recover the discarded metal, damages to their furnaces and the metal they had to (Court of Appeal 1972). Further, they could not recover the profits lost on the grounds the factory not being operational for 15 hours. Their central reasoning for this case was that the damage was physical/material and the gone profits on the metal were consequential upon it, the lost profits because of the shutdown represented "pure economic loss"(Court of Appeal 1972). Although the majority appeared to agree that Martin & Co. owed the Spartan Steel a duty of care and the damage was not too distant since it was predictable, they refused to allow the recovery of pure economic loss based on policy reasons stated by Lord Denning in his ruling: 1. Legal service providers are never responsible for damages caused by their negligence. 2. A power shutdown is an ordinary risk and common ordinary hazard which everybody can be anticipated to accept all the times. 3. If plaintiffs for pure economic loss in such cases were acceptable, it might direct to numerous false claims. 4. It would be unfair to place the total burden of many fairly small losses on the shoulders of one side or person. 5. The law does not leave the petitioner with no remedy by permitting him/her to recover the economic losses that are directly consequential on physical damage. According to Lord Denning’s opinion, when damage to property due to the negligence of another, the negligent tort feasor owes a duty to the property owner but not to the case of one who experiences loss only because he/she had a contract enabling him to use the property or giving him a right to obtain it at a later date (van Boom, Helmut and Christian 2004). In his first consideration, he pointed out the statutory undertakers. If the board members do not effectively control the electricity voltage, water or gas, and thus lead to economic loss to consumers, they are not held accountable in damages, not even if the cause is as a result of their own negligence. The only option was to prosecute the board before the justices as referred to Atkinson v New Castle & Gateshead Waterworks Co. going on to a gas board, Clegg Parkinson & CO. v Earby Gas Co. In those cases the courts based on legal enactments, held that parliament did not mean to expose the board to liability for residents (van Gerven 2001) The second consideration is the hazard nature that is, cutting off the electricity supply. This hazard may be caused by to a short circuit or to a tree accidentally falling on the wires, accidentally cutting the cable, or even someone’s negligence. When this happens, it affects many people not as the rule of physical damage to their property, but sometimes subjecting them to economic loss (Weinrib 2005) Dissent by Edmund-Davies LJ Edmund Davies LJ disagreed with the majority, stating that the loss was both straight and foreseeable outcome of the defendants negligence and should consequently be recovered. In his view, most false claims could be evaded moreover on the basis that no duty was owed. In the case where a defendant owing duty of care to the plaintiff violates that duty directly and as a logically predictable outcome of that injury, the economic loss is only suffered by the plaintiff, is he/she at liberty to recover damages for that loss? LAWTON LJ According to his opinion, the appeal raises a question that has been asked most times since the judgment of Blackburn J in Cattle v Stockton Waterworks Co and more commonly since the decision in if a plaintiff can recover from a defendant, proved or confessed to have been negligent, predictable financial damage which is nor substantial on predictable property damage and injuries to people. To his judgment the answer to this question is that such economic damage cannot be recovered when it is the instant consequence of a violation of duty to protect the plaintiff from that kind of loss. Many lawyers would agree to answer that ever since Cattle v Stockton Waterworks Co such damages have proved to be irrecoverable. Edmund Davies LJ doubts if Blackburn J laid down any such rule. Based on those doubts, Cattle v Stockton Waterworks Co. claim was in negligence. The declaration was “ that defendants, being a water company, negligently laid down under a turnpike road their pipes for distributing water to a district, and so negligently maintained and kept the pipes in such deficient repair, and in such defective case and leaky state, that, while the plaintiff was legally creating for reward to the plaintiff a channel across the turnpike road, and was legally using the road for such function, the pipes leaked, and large amounts of water flowed into the road, and upon the plaintiff’s running and flooded them, and plaintiff was caught up delayed the work process, and suffered huge loss.‟ I agree with Edmund Davis’ opinion because, the defendants, while making no unprofessional admission, nearly admit and accept their liability, on the ground that the £400 loss was a straight result of the physical damage inflicted to the material in the furnace. However, they refuse liability in respect to the £1,767 additional loss of profit due to the failure to put four more “melts” through the furnace prior to power being restored, not because it was any the less reasonably predictable result direct and of the defendant’s negligence than was the £400, but on the argument that it was unconnected to any physical damage and that economic loss not secured to and resulting from physical damage to property or injury to people is not recoverable under the law as damages for negligence. Reference List Bishop, W. 1982. "Economic loss in tort". Oxford Journal of Legal Studies 2: 1–29 Court of Appeal Spartan Steel & Alloys Ltd v Martin & CO (Contractors) LTD 1972 ABC.LR.06/22 Court of Appeal Spartan Steel & Alloys Ltd v Martin & CO (CONTRACTORS) LTD, 1972 3 All ER 557 Lord Denning M.R., Edmund Davies L.J., Lawton L.J., 1973. "SPARTAN STEEL & ALLOYS LTD. v. MARTIN & CO. (CONTRACTORS) LTD.", Managerial Law, Vol. 14 Iss: 1, pp.75 95 Lunney, M. & Oliphant, K. Tort Law: Text and Materials (2nd ed. ed.). Oxford: Oxford University Press. pp. pp 339–423. Stapleton, J. 1991. "Duty of care and economic loss: a wider agenda". Law Quarterly Review 107: 249. van Gerven, W. et al. (eds) 2001. Cases, Materials and Text on National, Supranational and International Tort Law. Oxford: Hart Publishing Lunney, M. & Oliphant, K. 1999. Tort Law: Text and Materials (2nd ed. ed.). Oxford: Oxford University Press. pp. 339–423. Van Boom, W.H, Helmut Koziol, Christian A. Witting 2004. Pure economic loss. p. 115. Weinrib, E. J. 2005. "The disintegration of duty", in Madden, M. S. Exploring Tort Law, London: Cambridge University Press, pp143-272 Read More