Recoverable Losses in Negligence Torts: A Case Study

LES603 Business Law and Practice

Questions:

Format: Problem scenario, students are required to identify the relevant legal issues, state the applicable principles of law, supported by authority, and apply the law to the given facts to arrive at a conclusion.

Scenario (the facts) PSL Ltd are a manufacturing company which produces a variety of cast metal products. This involves operating 2 furnaces powered by electricity supplied through a cable owned by the power company.

A contractor has been engaged to construct a settling tank on a neighbouring industrial property. In the course of excavating the necessary hole for the tank, the contractor negligently severs the power cable supplying PSL’s foundry, cutting off the power for some 24 hours.

This causes the furnaces to cool and the melts in each to solidify. The consequences of this are serious. The solidified metal and slag has to be laboriously removed by hand assisted power tools, the damage to the linings of the furnaces means a virtual rebuild is required. PSL Ltd enumerate the losses caused by the negligence of the contractor as follows:

1. The cost of removing the solidified material and rebuilding the furnaces $750,000

2. The loss of production with respect to metal that was in furnaces at the time of the power cut $250,000

3. The loss of a particularly profitable contract to produce castings for an overseas client which cannot now be performed because the furnaces are out of commission $2,300,000.

Required: On the basis of the law you have studied, explain the extent to which the above losses would be recoverable from the negligent contractor or their insurers. Your argument, naturally, should be supported by appropriate legal authorities.

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