Question 1 (12 marks)
Mr Essex engages a contractor, Southcourt, for the construction of his dream $2 million house on the Esplanade at Seacliff, South Australia. The house is designed by an architect who specifies high quality limestone external cladding to the house. During construction, Southcourt uses an inferior quality limestone external cladding product to that specified. Due to the limestone’s inferior quality, after 2 years the exterior of the house begins to deteriorate and look visually unattractive. However, this does not affect the structural integrity of the house.
Mr Essex contacts Southcourt to complain and requests they return to remove the inferior cladding and replace it with the higher quality cladding originally specified. Southcourt refuses to do so, but does offer to pay Mr Essex $15,000 in compensation for the diminution in the resale value of the house (as estimated by a local real estate agent).
Mr Essex obtains a quote from a local masonry trade contractor that it will cost around $80,000 to remove the existing inferior limestone cladding, and replace it with higher quality cladding originally specified. On this basis, Mr Essex rejects Southcourt’s offer of $15,000, and commences a court action to sue Southcourt for their breach of contract in the amount of $80,000.
With reference to the relevant common law principles and supporting case law, explain the likely outcome of the court case especially with respect to the amount of damages awarded to Mr Essex.
Wigan Contractors Pty Ltd (the head contractor) is engaged by the developer, Stargate Developments Pty Ltd, under a head contract to construct a $65 high-rise apartment building in Frome Street, Adelaide, called ‘Chique on Frome’. Chique on Frome is designed to house 120 apartments which have an estimated average rental value of around $600 per week each. The contract conditions provide for the Contractor to pay $30,000 liquidated damages per day in the event that the building works are finished late (i.e. after the date for practical completion).
Wigan completes the building works 15 days late. Most of the delay was caused by unavailability of labour and materials mid-way through the construction program. The express terms of the building contract do not allow for Wigan to claim an extension of time for unavailability of labour and materials. Therefore, Wigan is facing a considerable loss on the contract works due to having to pay the costs of staying on site for 15 extra days as well as having to pay liquidated damages under the contract to the developer.
Wigan argues that the contract has been frustrated at common law due to unavailability of labour and materials and, as such, the contract came to an end mid-way through the construction program when they first encountered difficulties in obtain labour and materials.
- Explain why Wigan’s argument that frustration has occurred, if successful, would result in them getting paid more money for the works. (7 marks)
- With reference to the relevant common law principles and supporting case law, advise whether the court is likely to agree with Wigan’s argument that the contract has bee frustrated. (7 marks)
Futile Construction Pty Ltd (the Contractor) was engaged by Five Seasons Ltd (the Principal) to design and construct a 10 storey serviced apartment building in the Adelaide City centre called Matrix Apartments. Matrix Apartments receives a certificate of occupation on 5 April 2012. On 12 May 2017, Five Seasons sells Matrix Apartments to Supreme Properties Ltd who continues to run the building as serviced apartments. On 27 February 2020 structural cracks appear in the floor slabs of the Matrix Apartments building. Subsequent investigations reveal that the cracks have been caused by inadequate steel reinforcement and poor concrete compaction in the slabs. For safety reasons, the building has to be shut down. Supreme claims that they have suffered total damages amounting to $3.75 million for both the cost to rectify the floor slabs and lost revenue whilst the serviced apartments have been out of action.
- Advise Supreme as to their chances of obtaining successfully obtaining remedies at law
for the damages they claim to have suffered. (12 marks)
- How would your answer differ if Five Seasons had not sold Matrix Apartments to