Miles is a factory owner. Peter is an electrical contractor who operates his business as a sole trader. Miles asks Peter if he will undertake to install a large new electric packaging machine that Miles has bought.

After a discussion, Peter confirms that he is qualified to do the job (which is true). Peter says that he will charge Miles $50,000 for the installation. Peter prepares a written contract which he presents to Miles to sign. Miles does not bother to read through the entire contract. He and Peter both sign it. Unknown to Miles, the contract expressly states that, in the event of any claim for breach of contract, Peter’s liability for damages will not exceed $5,000.

Peter and his assistant begin installing the machinery. Towards the end of the day Peter is tired and finding it difficult to concentrate. He connects an important electrical wire wrongly. When everything has been connected, Peter asks his assistant to turn on the electricity.

The assistant says, “Shouldn’t we check all the connections first?”

Peter says, “No. That would take a whole day. If there are any problems we’ll soon know.”

When power is switched on, the wrongly connected wire causes massive sparking and a large fire. The normal checks would have disclosed that a wire was wrongly connected.

Miles’ factory is damages by the fire and costs $30,000 to repair. Furthermore, production in the factory has to be stopped for two weeks while the repairs are made and Miles loses $10,000 of the trading profits he would otherwise have made.

 

 

1.      Can Miles establish that Peter has breached the terms of the contract?

2.      If he can prove a breach of contract, and claims damages for this, will he be limited to claiming only $5,000?

3.      Can Miles bring an action in negligence against Peter (rather than for breach of contract)?

4.      If Miles can bring an action in negligence against Peter, will he be limited to claiming only $5,000 in damages?