JUR5260/1260 – English Law of Contract

Please answer both of the following questions. Each of the questions will be given equal weight in the marking of the answer.

1. In January 2009, an English company, Fenced Off Pty. Ltd. (hereinafter “FO”), enters into an agreement with another English company, Homestead Productions Pty. Ltd. (hereinafter “HP”), whereby FO shall install steel security fences around two factories owned by HP in Malaysia at a cost of £30,000. The agreement stipulates that the fences are to be a minimum of 12 feet in height, that the fence around the one factory is to be completed by 1st May 2009 and the fence around the second factory is to be completed by 1st September 2009. The agreement contains a so-called “liquidated damages” clause specifying that breach of the contract by either party will entitle the innocent party to £60,000 in damages. It is further stipulated that the agreement is to be governed by English law of contract.

FO completes installation of the fence around the first factory by the agreed deadline and then begins work on installing the fence around the second factory. Shortly after beginning that work, FO experiences significant difficulties in being able to secure a solid base for the fence. Water lies just underneath much of the ground surrounding the second factory – a fact that is not discovered until the workers engaged by FO begin digging down to secure the base for the fence. FO calculates that the cost of draining the land so that the fence can be properly installed will be in the order of £50,000.

FO then informs HP that it will not proceed with more work on the fence unless HP agrees to cover the cost of draining the land. HP initially agrees to cover this cost and FO begins drainage work. Shortly afterwards, HP changes its attitude and refuses to cover the drainage cost, claiming that unless FO completes the installation of the fence at the originally agreed price of £30,000, HP will sue FO for breach of contract. FO responds by claiming that it is entitled to treat the contract as discharged due to the doctrine of frustration. FO also claims that even if the contract is not discharged due to frustration, it is still entitled to claim the cost of installing the fence around the first factory. HP then closely examines the fence around the first factory and discovers that parts of that fence are only 11 feet and 9 inches high. HP subsequently refuses to pay FO for its work on that fence and claims damages based on “cost of cure”. Independent consultants are called in by HP and they assess the cost of installing a fence at the originally agreed minimum height of 12 feet to be £25,000. In their opinion, the existing fence needs to be completely removed and an entirely new one built. At the same time, the consultants are of the opinion that the existing fence offers substantially the same level of security as a fence that is 3 inches higher. HP argues that even if it is unable to claim damages based on “cost of cure”, it is still entitled to £60,000 in damages. FO rejects this argument.

Advise the parties as to the validity of their respective claims.

2. Discuss the validity of the following statement: “In general, it is clearly more advantageous for a litigant to sue for misrepresentation than to sue for breach of contract”