uilders Pty Ltd is a small family owned construction company seeking to expand its operations into larger commercial building contracts.

Conglomerate Ltd is a much larger company. It wants to build an office and apartment block on land it has recently bought in the CBD. The land currently houses an old and derelict factory which Conglomerate Ltd wants demolished as part of the contract.

Builders Pty Ltd tendered for the contract and was the preferred tenderer but the price it quoted was more than Conglomerate Ltd wanted to pay. Conglomerate Ltd’s contracts manager met with the CEO of Builders Pty Ltd and in the course of the conversation said, ‘Unless you guys can reduce your price by 10% we will go with one of the other tenderers. Your call. Let me know your decision by noon tomorrow’.

The CEO thought about it overnight and just before noon the next day rang the contracts manager and said, ‘You have us over a barrel. We will almost be doing this at cost but we need the work so we will do it for 10% less than the price we quoted. You will need to get the Council building permits though and we need you to ensure that there are no restrictions on working hours. For the price we are doing this we will need to be able to start early, finish late and work weekends’. A formal contract was drawn up containing those terms and was signed. Conglomerate Ltd then obtained the required council permits and Builders Pty Ltd started work.

Twelve weeks into the job the federal government, without warning, enacted the Building Workers Safety Regulation. It prohibited builders from carrying on work on any building site for longer than 8 hours a day on weekdays, 4 hours on Saturdays and not at all on Sundays and public holidays. (You may assume that the Regulation is valid and enforceable).

This will severely limit how Builders Pty Ltd can complete the job and the CEO has estimated that it will mean that the time required to finish the job will be extended by at least a month and that costs will increase by about 15%. He has been in contact with Conglomerate’s contracts manager and has asked to renegotiate the contract price but the contracts manager refused saying ‘That is the price to which you agreed and we are going to hold you to it. We are prepared to give you an extra month to complete the work but that is all. Unless you stay on the job and finish it we will sue you for breach of contract and bankrupt you if we have to’.

The CEO wants to know whether Builders Pty Ltd has to complete the contract or whether there is any way they can get out of it and, either way, whether he can ensure that they get paid for the work they have already done and, if they have to complete the job, whether there is any way they can ensure that they get at least a ‘break-even’ price. TOTAL 10 MARKS

– Part (b):

The CEO’s problems do not stop there. Because the job was much bigger than any the company has done in the past the Board decided to buy a new 5 tonne truck both to remove demolition materials and the earth that had to be excavated to lay the foundations for the new building and to transport building materials to the site during the construction phase.

The CEO spoke to the sales manager at Trucks R Us about Building Pty Ltd’s requirements, especially the 5 tonne payload requirement, specifically noting that the company wanted to minimize the number of individual trips the truck had to make in both the demolition and construction phases.

The sales manager assured the CEO that a Tuff brand truck he had in stock would suit the company’s requirements exactly and that he could also do a deal and sell it for $100,000, $10,000 below its list price. The CEO agreed to buy it, signed a contract, paid the agreed price in full and arranged to pick the truck up after Trucks R Us had added a winch and had registered it. The contract contained no reference at all to the truck’s payload capacity but did contain a clause reading ‘It is expressly agreed that all statutory implied conditions and warranties are excluded from this contract to the extent permitted by law’.

Three days later the CEO had still not heard from Trucks R Us and called in to see the sales manager who said, ‘Yeah, we did all that a couple of days ago and I meant to ring you to say it was ready. You can take it now if you like’. They went out into the yard where the CEO noted that the side of the truck was covered in graffiti. The sales manager said, ‘Some of the local louts must have got in last night and done that. It was OK when I left at 5pm yesterday’. The CEO demanded that the graffiti be removed and the sales manager refused saying ‘The truck has been yours since you paid for it. Didn’t you have it insured?’ As he needed the truck for the job the CEO took it but told the sales manager, ‘You have not heard the last of this. I am sure you are responsible to rectify the damage’.

When he started using the truck on the job the CEO noted that it performed poorly and seemed to have very little power when it was fully loaded. He took it to the local mechanic who told him that, while the truck was rated for a 5 tonne carrying capacity, in reality it struggled with loads of more than 4 tonnes and that this was well known in the industry. The CEO wants to return the truck to Trucks R Us for a full refund.

What are his rights in relation both to making Trucks R Us responsible for removal of the graffiti and requiring them to take the truck back and refund the purchase price? TOTAL 10 MARKS

– Part (c):

Worse was still to come. In undertaking the demolitions Building Pty Ltd’s workmen had to dismantle a large brick chimney stack that was part of the old factory. The CEO obtained engineering advice that the most efficient method of demolishing it was to use a controlled series of explosions. That would require council permission and the taking of a number of safely measures including the installation of physical barriers to prevent members of the public entering the area during the demolition and the erection of safety nets to ensure that any loose bricks dislodged by the explosions were contained within the site and not allowed to escape to cause damage outside it.

Council permission was obtained and all of the recommended safety measures were put in place. Unfortunately one of the explosive charges mis-fired and, as a result, the chimney toppled towards an adjoining building instead of collapsing in on itself as had been planned. It caused some structural damage to the adjoining building. A local resident who had climbed over the physical barriers (which were clearly marked with signs reading ‘Danger. Keep Out. Explosives in Use’) in order to take photographs of the explosions was also injured, as was a passing car which was hit by a loose brick which had unexpectedly been projected over the safety nets (the only one that was not stopped by the nets).

The owners of the building that was damaged, the local resident who was injured and the owner of the car are all threatening to sue Building Pty Ltd in negligence. Should the CEO be concerned? Explain your reasoning.

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