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Economic loss is `damage to the wallet' of the victim of negligence, in other words the claimant is less well
off than he would have been if the negligence had not occurred. Examples include a loss in profits, an
unwise investment, a loss of a financial benefit or payment and a loss in value of items.
There are two types of economic loss: consequential economic loss and pure economic loss. The
distinction is important because, subject to exceptions, a claimant can recover for consequential economic
loss, but not for pure economic loss.
Consequential economic loss occurs when the claimant suffers a money loss because he has suffered an
item of physical loss, in other words the economic loss is consequential on the physical loss. Examples
include a worker who loses wages because he has been injured by the defendant's negligence or a taxi
driver who loses fares because his taxi has been damaged by the defendant's negligence. In both cases, the
defendant's negligence causes physical loss or injury which in turn leads to a money loss for the claimant.
Pure economic loss is a stand-alone economic loss: there is no item of physical loss. An example would be
if the defendant's negligence causes a traffic accident which closes the road, thus preventing people
getting to the claimant's cafe and the claimant, as a result, loses several hours' worth of takings. The
claimant had suffered a money loss, but no physical loss or injury and therefore his loss is a purely
The difference between the two is illustrated by the facts of Spartan Steel and Alloys Ltd v Martin and
Co. (Contractors) Ltd (1972). The defendant was carrying out road works when, negligently, it severed the
electricity cable which supplied power to the claimant's smelting works. At the time the power was shut
off, the claimant was producing a consignment of ingots (a process called a `melt'). In order to protect its
furnace, the claimant had to remove the metal by prematurely cooling it, but this in turn meant that the
metal was damaged. The claimant suffered three losses:
1. Damage to the metal: this was a physical loss in the form of damage to property.
2. Loss of profit, because the damaged metal could not now be sold: this was an economic loss
consequential on the physical loss to the metal.
3. Loss of profit on four further melts that had been planned for the period when the electricity was off:
this was an economic loss not associated with any physical loss (pure economic loss) as the metal that was
scheduled to be used was undamaged by the incident.
Losses 1 and 2 can be recovered as an economic loss caused by a physical loss can be recovered, but an
economic loss that stands alone cannot be.
The Fortunity (1961) [consequential economic loss]
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DD's boat negligently sank a pleasure cruiser belonging to PP, who operated a fleet of such cruisers on the
Norfolk Broads. PP were awarded £2200 as the trade market value of the lost boat, plus £350 lost profits
for that season, there being no change of obtaining a replacement vessel at such short notice.…read more