QUESTION 2

ABC Electrical Engineering Company Limited (ABC) has contracted to provide their services to XYZ Storage Company Limited (XYZ), to provide them with the electrical; engineering specifications for the building of a warehouse. One of the clauses in the twenty page signed contract states that:

Clause 20. Whilst ABC undertakes to perform all services with due care and diligence, the liability of ABC Electrical Engineering Co Ltd to the client arising out of the performance or non-performance of the said services shall be limited to a maximum of $150,000.

The work goes ahead and the warehouse is completed. Six months later, a fire breaks out in the warehouse and investigators trace it back to an electrical fault. The electrical who was sub-contracted from another firm to do the work claims she followed all specifications exactly as stated and it is clear that no fault is attributed to her or to her firm.

The specifications are examined and it is found that the new type of material used in some of the fittings had not been correctly calculated for in the specifications by ABC, although it had been noted that it was to be used.

Damages amount to $600,000. ABC Claims that if it is liable at all, this should be limited to $150,000. XYZ claims the full amount of the damages from ABC.

Please discuss the arguments that each party can raise in regard to ABC’s liability and conclude by indicating who has the stronger argument.