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The defendant's employees negligently damaged a cable, which supplied electricity to Jason's smelting factory, leaving it without electricity until the cable was repaired. As a result, Jason lost £368 on the actual value of the "melt" in the furnace, and lost the profit from its sale of £400. He also lost profits from four further melts which were lost during the power cut, resulting in a further loss of profit of £1,767. 


Which of the following statements best describes Jason's legal position?

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Jason can recover only for the physical damage to the one melt (£368) and the loss of profit on it (£400). He cannot recover for the loss of profit on the four further melts (£1,767) because this constitutes pure economic loss, which is not recoverable unless it results from some physical damage caused by the negligence. This principle is derived from Spartan Steel and Alloys Ltd. v Martin & Co (Contractors) Ltd. [1973], where the court held that claimants can only recover actual consequential losses resulting from physical damage and not purely economic losses. In this case, while the initial physical damage to the melt and the immediate consequential loss of profit are recoverable, the subsequent loss of profits from the halted production process are too remote and not directly caused by the physical damage. 


Key Point: The Spartan Steel v Martin case illustrates the distinction between consequential loss and pure economic loss in negligence claims. Consequential losses resulting directly from physical damage are recoverable, whereas purely economic losses that do not arise from physical damage are generally not recoverable. This limitation is significant in preventing the scope of liability from becoming excessively broad and unmanageable.

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