CASE SCENARIO ANALYSIS

In March 2021, Apollo Development Pty Ltd (Apollo), the Principal, enters into a $98 million construct only lump sum contract with Best Build Pty Ltd (Best Build), the Contractor, for the construction of a 30-storey mixed retail/commercial development in the Adelaide City Centre (Project). The contract was formed using the AS 4000-1997 General Conditions of Contract (with amendments).

Clause 5.4 of the contract conditions has been amended to state:

a) Upon the issue of thecertificate of practical completion, thePrincipal'sentitlement tosecurity(other than in Item 13(e)) shall be reduced by the percentage amount specified in Item 13(f) and the reduction shall be released and returned within 14 days to theContractor.

b) ThePrincipalmust return the remainingsecurity(or, if applicable, the balance remaining after a demand on thesecurity) by the latest of:

i) 14 days afterfinal certificate; or

ii) the resolution of any outstandingdefectsor unresolved claims; or

iii) the payment of any moneys due and payable by theContractorto thePrincipal, including debts, damages and indemnity claims.

Upon thePrincipal'sentitlement tosecurityceasing, thePrincipalshall release and return forthwith thesecurityto theContractor.

a) ThePrincipalshall completeworktaken out of theContractor'shands and may:

If thePrincipaltakes possession ofconstruction plantor other things, thePrincipalshall maintain them and, subject to subclause 39.6, on completion of thework, shall return such of them as are surplus.

b) TheContractormust assign to thePrincipaltheContractor'srights and benefits in all its contracts and agreements in connection with theWorks, warranties and unconditional undertakings, bank guarantees, insurance bonds, othersecurityof a similar nature or purpose and retention held by theContractor, with effect from the date the work remaining to be completed was taken out of theContractor'shands under theContract.

c) TheContractormust consent to a novation to thePrincipalor its nominee of all subcontracts and its other contracts concerning theWorks, as required by thePrincipal. ThePrincipalmay at any time make payments and may deduct, withhold or set-off any amounts to be paid under the novated contracts from amounts otherwise payable to theContractoror from anysecuritygiven on theContractor'sbehalf.

d) TheContractormust do everything and sign all documents necessary to give effect to this clause 39.5, and it irrevocably appoints thePrincipalas its attorney to do this in its name if it fails to do so.

e) TheSuperintendentshall keep records of the cost of completing thework.

Clause 39.5 of the contract conditions has been amended to state:

i) use materials, equipment and other things intended forWUCidentified by thePrincipalas being necessary to have theWorkscompleted; and

ii) without payment of compensation to theContractor,take possession of, and use such of theconstruction plantand other things on or in the vicinity of thesiteas were used by theContractorand as are reasonably required by thePrincipalto facilitate completion ofWUC.

The following provision has been added into clause 39.6 of the contract conditions:

TheSuperintendentmay make provisional assessments of the amounts payable to thePrincipalby theContractorunder this clause and without limiting any other right of recourse, thePrincipalmay demand them against thesecurity.

Item 13 of the Annexure Part A of the contract conditions states as follows:

a)An approved unconditional performance undertaking given by an approved insurance companyb)5% c)N/A

d)28 days after acceptance of tendere)N/A f)50%

Five months after having been given possession of the site, Best Build had fallen 5 weeks behind the critical path on the contract program due to several delay events caused by problems with site management. Furthermore, after receiving a written direction from the Superintendent to rectify defective concreting works to the ground floor slab pursuant to clause 29.3 of the contract conditions, Best Build has failed to act within the time specified in the direction.Concerned that Best Build's poor performance on the project to date mightbe a sign that they are in financial difficulty, Apollo wants to check that Best Build is maintaining the works and public liability insurances it is required to effect under the contract. On 23 August 2021, pursuant to clause 19.1, Apollo requests in writing that Best Build provides satisfactory evidence by 25 August 2021 of the necessary insurances effected and maintained. However, Best Build fails to do so.

On 27 August 2021, Best Build enters voluntary administration. On 28 September 2021, BestBuild's creditors voted to accept a deed of company arrangement proposed by Best Build'scompany directors.

Given the circumstances, Apollo decides that it no longer wants Best Build to continue with the construction works and wants to engage another head contractor complete the work under the contract (WUC).

Question 1(6 marks)

Advise whether Apollo has the legal right to have the WUC completed by another contractor and, if so, what rights it has under the contract to achieve this? Explain how these rights may be of commercial advantage to Apollo.

Question 2(6 marks)

Draft an appropriate notice to show cause for Apollo to give to Best Build.Your 'notice to show cause' should be dated30 August 2021 and will be delivered by hand to Best Build before 4pm the same day.

Question 3(6 marks)

How would your answer to Question 1 differ if Best Build had not committed any substantial breaches of contract prior to entering voluntary administration on 27 August 2021?

After receiving the advice you gave in Question 1, Apollo engages Kewell Construction Pty Ltd (Kewell) to complete the remainder of the WUC. Kewell uses several items of Best Build's construction plant and equipment to complete the works whichApollo took possession of under clause 39.5 a) of the contract conditions. The plant and equipment have an estimated resale value of $1.25 million.

After Kewell completes the WUC on 13 July 2022, the superintendent assesses the total cost incurred by Apollo to complete the remainder of the works was $5.8 million more than if the work had been completed by Best Build. The superintendent certifies this amount as moneys due and payable from Best Build to Apollo.

Question 4(6 marks)

Advise Apollo as to any rights it has under the contract to recover the extra $5.8 million which it cost to complete the works and when it may recover this cost. Your answer should refer to all relevant contractual rights, obligations and procedures that must be followed to recover the money.

On 15 July 2022, Best Build defaults on the deed of company arrangement which its creditors had agreed to and Best Build goes into liquidation.Best Build'sliquidator wants torepossess and sell off Best Build's plant and equipment, which is still in the possession ofApollo, to helppay off Best Build's creditors. Apollo, however, objects claiming that it hascontractual rights with respect to the plant and equipment under clause 39.6 of the construction contract.

Question 5(6 marks)

(a) Advise which party has the legal right to the plant and equipment.

(b) Is there anything Apollo could have done to protect their contractual rights with respect to the plant and equipment. If so, what?