Nauticol Equipment Inc. ("Nauticol") is a company that supplies heavy equipment used in the oil exploration and drilling industry. Nauticol was aware that Primus Energy Ltd. ("Primus") required a contractor to design, manufacture, supply and install specialized gear boxes. The gear boxes would be used to drive a number of bucket wheel conveyor belts that transported oil sands at Primus' oil sands plant in Alberta. Nauticol decided to tender a bid on the Primus contract.

In order to tender on the contract, Nauticol set out to purchase the gear boxes. Nauticol was contacted by a representative of GearBox Works Ltd., a company that manufactured similar equipment. After visiting Primus' site and examining the conveyors, the representative of GearBox became familiar with the requirements of the gear boxes. GearBox represented to Nauticol that GearBox would be able to design and manufacture the specialized gear boxes, and the gear boxes would be suitable for the purpose intended. On the basis of these representations, Nauticol and GearBox entered into a contract. GearBox agreed that if Nauticol was successful in its tender to Primus, GearBox would provide the equipment for a price of $300,000. The contract also contained a provision limiting the total liability of GearBox to $300,000 for any loss, damage or injury resulting from GearBox's performance of its services under the contract.

Based on the information provided by the GearBox representative, Nauticol prepared and submitted its tender to Primus. Primus accepted the tender and entered into a contract with Nauticol for the project.

The gear boxes were installed at the Primus site by employees of Nauticol according to GearBox's installation procedures. Shortly after the gear boxes were put into service, the main gears in the housing failed. As a result of this failure, the conveyors were damaged and it was impossible for Primus to operate its plant. GearBox made several unsuccessful attempts to correct the gear boxes.

In order to meet its obligations under the Primus contract, Nauticol hired another supplier to correct the defects in the gear boxes. For an additional $400,000, Nauticol was able to correct the problem by replacing the gear boxes with gear boxes manufactured by another company and by repairing the damage to the conveyors. The total amount that had been paid by Nauticol to GearBox prior to discovering the defects was $250,000.

Questions

• Discuss what claim Nauticol can make against GearBox in this case.
• Would Nauticol be successful in its claim? Why? In answering, include a summary of the development of the relevant case law in this area.