Farming And Rural Machinery Pty Ltd (FARM) is a manufacturer of farming equipment. FARM
owns a property in Mudgee, New South Wales. The property is 5 acres with a large warehouse in
which FARM manufactures its goods. The goods include tractors, harvesters and excavators.
FARM’s business is booming. In December 2020, FARM contracted with Crop Pty Ltd (Crop) to
supply Crop with 25 of FARM’s new model harvesters known as the UltraScythe. Crop is a retailer
of farm equipment and intends to re-sell the harvesters to local farmers.
The relevant terms of the contract between FARM and Crop are as follows:
Clause 2: FARM must deliver 25 UltraScythe harvesters to Crop by 1 February 2022.
Clause 4: If FARM does not deliver all of the harvesters by 1 February 2022, it must pay a
penalty of $2,500 to Crop for each day that it has not complied with clause 2.
Clause 13: Time is of the essence under the contract.
Clause 19: Standard force majeure terms apply.
Barry, FARM’s CEO and managing director, realises that FARM will need to build a second
warehouse on the property to be able to manufacture 25 UltraScythe harvesters for Crop by 1
February 2022.
In January 2021, FARM contacts Big Build Pty Ltd (Big Build), a local construction company.
Barry speaks with Trevor, the CEO of Big Build. During their conversation, they say the following:
Barry: It’s really important that the warehouse is completed on 1 May 2021 as I have to get
25 harvesters manufactured by 1 February 2022.
Trevor: No worries. We can definitely meet that deadline.
Barry: One thing you need to know is that the property is flood prone, so the new warehouse will
need foundations that are designed to survive a flood.
Trevor: I’ve done a lot of these jobs in your area. I can use a special product called
FloodFoundations™. It will ensure that the foundations survive the types of floods we get in
this area but it’s expensive, so have a think about it.
Barry: Sounds good to me. Send through the contract and I’ll sign it.
Trevor sends the contract to Barry. Barry doesn’t read the contract. He signs it and sends it back to
Trevor.
The relevant terms of the contract between FARM and Big Build are as follows:
Clause 3: Big Build must complete the warehouse by 1 May 2021.
Clause 7: The price of the warehouse is $500,000. FARM must pay Big Build $250,000 on 1
December 2021 and $250,000 on 1 May 2021.
Clause 12: This contract can only be varied if agreed in writing and signed by the parties.
Clause 14: This is the entire agreement between the parties.
Clause 17: If Big Build breaches a term of this contract, Big Build’s liability is limited to
$10,000.
Clause 20: If any dispute arises between the parties, one party may serve a notice on the other
party setting out the details of the dispute. The parties must then meet within 5 business days to
negotiate in good faith to seek to resolve the dispute. Neither party may commence
proceedings until they have complied with this clause.
Clause 29: FARM must pay all amounts due and payable under this contract without any set-
off (legal or equitable) or deduction whatsoever.
The contract contains detailed building specifications but does not refer to
FloodFoundations™.
Trevor soon realises that he has seriously underquoted on the job. Big Build starts to run out of
money by April 2021 and it looks as though Big Build will not be able to complete the warehouse
by 1 May 2021. Trevor emails Barry saying that he cannot continue.
Barry, aware that it would take longer to have the warehouse completed if FARM were to engage
another builder and FARM would not be able to manufacture the 25 harvesters by February 2022,
sends an email to Trevor asking whether Big Build can complete the warehouse by 1 May 2021 in
return for FARM paying Big Build an additional $70,000 on 1 May 2021. Trevor responds to
Barry’s email saying that he accepts the suggestion.
Big Build complete the warehouse on 1 May 2021. FARM has paid the amounts in clause 7 but
refuses to pay Big Build the $70,000.
In June 2021, heavy rains cause widespread flooding in Mudgee. FARM’s property is badly affected
and is not accessible for two weeks. The two warehouses on the property are completely flooded and
no work can be done during this time.
When the water subsides, Barry discovers that part of the concrete slab on which the new
warehouse is built has subsided which has made the warehouse unsafe and unusable.
From July to August 2021, FARM closes the new warehouse and ceases operations pending
the outcome of an engineer’s report. The engineer’s report reveals that the concrete slab
subsided due to the negligent preparation and installation of the FloodFoundations™ product.
The cost of rectifying the damage is $100,000.
Due to the closure of the new warehouse, FARM can only manufacture 23 UltraScythe
harvesters by 1 February 2022.
FARM delivers 23 of the harvesters to Crop on 1 February 2022. Julia, the General
Manager of Crop, calls Barry. They have the following conversation:
Julia: Barry, you only delivered 23 harvesters.
Barry: Yes, I know. I’m sorry. It’s been really tough with the floods. I’m pretty sure we’ll have
the last two harvesters over to you by 10 February 2022.
Julia: OK, that’s fine. Just make sure it’s not any later than 10 February 2022.
On 8 February 2022, Julia calls Barry and they have the following conversation:
Julia: Barry, I know I said 10 February 2022 was OK, but I’ve had second thoughts.
Barry: I’m sorry Julia, we’re trying our best.
Julia: Well, your best isn’t good enough. We have two very unhappy customers. The
contract is terminated Barry.
Barry: You can’t do that. With all the problems we’ve had with the floods, I can rely on the
force majeure clause.
Julia: You might want to speak with your lawyer about that. We’ll see you in court.
The following week, Crop serves FARM with a statement of claim in which Crop claims $50,000 in
damages for loss of profits caused by the failure by FARM to deliver two of the UltraScythe harvesters.
Enraged, Barry calls Trevor and they have the following conversation:
Barry: You’re in big trouble Trevor. You promised me that the foundations would survive a
flood and they didn’t. It’s going to cost me $100,000 to fix the problem and I’m also being
sued.
Trevor: I was going to give you a call Barry. You owe me $70,000.
Barry: I don’t owe you anything. You owe me!
Trevor then hangs up the phone.
The following week, Big Build serves FARM with a statement of claim in which it claims $70,000 in
debt. Barry refuses to pay saying that, even if FARM is liable for the $70,000 (which FARM does not
admit it is liable to pay), Big Build owes FARM more than $70,000.
Barry comes to you for advice. You may assume that the law of New South Wales applies.
Advise Barry, giving reasons for your answer. When giving your advice, you must identify
each legal issue that arises and the relevant principles that apply to those issues.
Your answer must be limited to the issues arising under general contract law. Do not consider any statutory rights that the parties may have.
