FACTS
In an industrial facility north of Melbourne which houses numerous manufacturing companies were two particular tenants of a large, sophisticated warehouse and factory: Supersurface Pty Ltd (Supersurface), and Tynt Pty Ltd (Tynt). Supersurface was the manufacturer of aerospace grade coatings used in the space, aviation, yachting and automotive industries. Tynt was the manufacturer of industrial dyes for various applications such as signage, road intersections, outdoor basketball and tennis courts, and public spaces. Both Supersurface and Tynt leased space from the owner of the warehouse and factory facility, Provide Holdings Pty Ltd (Provide), on multi-year leases.
Provide owned the site and improvements, and was responsible for security, the provision of power to the factory sufficient for the purposes specified by tenants, and the maintenance of services and structures which formed part of the factory, such as ventilation, and drainage, structural features such as walls, ceilings and rooves, and furnishings such as doors and windows.
Lessees were able to arrange further security with the written agreement of Provide. It was a term of the lease that lessees were not to alter, modify, interfere with, replace or repair (unless the repair was urgent, and then only to the extent that averted destruction of or injury to life or property) the power supply to the factory or the services and structures forming part of the building. Both Supersurface and Tynt have signed leases on standard terms. Supersurface wrote to Provide seeking an upgrade of the ventilation system explaining that given the sensitivity of the manufacturing process in which they were engaged and based on atmospheric analysis conducted at the site, further filtration was required. Supersurface explained that the upgrade could be completed with the addition of internal filters, which they could have added because the filters were accessible from their own interior floor space. At the same time Todd Ibadov, CEO of Supersurface, had a recharging station, the Spock Power Pack, installed in the parking bay at the factory for his electric vehicle without having a written agreement from Provide.
The station was battery based and freestanding, and plugged into the mains, but did not require rewiring. Supersurface has ordered equipment manufactured in the United States by the Milwaukee Centrimix Co Ltd (Centrimix), a company registered and headquartered in Milwaukee. The equipment is installed by Centrimix’s local agent, Centrifix Pty Ltd (Centrifix). One of Supersurface’s major clients is a startup in subterranean transport for people and products, SubTrans Ltd (SubTrans), with which it entered into an agreement in May 2018. Supersurface supplies its premium coating product, ‘Nil’, and provides expertise in its application. The contract with Nil is for US $15m on the following terms: four deliveries of Nil and application oversight at US $3m for the first stage; and US $4m for each subsequent delivery and application. The first instalment was paid up front and expressed as ‘unconditional’. Each subsequent delivery was based on the successful performance of the previous stage of the contract.
In December 2018 Marjorie Ross a Supersurface engineer travelled with a supply of Nil to US to oversee its application. On 19 December 2018 she emailed Todd that the operation went ‘perfectly’, that the vehicle looked ‘like a dream, unreal, fantastical’. She said that she was ‘expecting great things from Nil.’ On 18 January 2019 Todd received the following email from Charles Lafoute, the SubTrans testing engineer: Dear Todd, I don’t know how to tell you this but we are really unhappy with ‘Nil’. When we went through the figures with Marjorie we were really impressed. We applied it to our test vehicle. First runs were almost unbelievable, with almost undetectable friction, the faintest resistance, and greatly reduced thermal load. We normally put the vehicle through a dozen passes of the chute. However, on the third pass the surface started rippling and blistering. We decided to stop testing for fear of possibly destroying both the vehicle and the chute. Please let me know when would be a good time to discuss this.
We are only two months away from launching our first commercial service. Best, Charles Lefoute (SubTrans) Supersurface subsequently received a letter from SubTrans lawyers informing them that SubTrans terminated the contract for the supply of Nil under a clause of the contract providing for fundamental breach, in essentially the same terms as provided under the common law. Todd and Marjorie engage an independent laboratory to urgently examine Nil. Chemical analysis finds that Nil has been contaminated. The analysis concludes that the contamination must have occurred in the manufacturing stage, and, on the basis of a chemical inventory of their own factory, that the contaminant could not have originated there.
On the basis of the nature of the chemical, a chemist’s assessment of possible sources concluding that the chemical is common in a range of industries including the manufacture of plastics, paints, and hospital grade containers, they suspect that the source of the contamination was Tynt’s manufacturing process. An engineer’s report examines the centrimix and finds that under normal operating conditions it would exclude all sources of contamination. However, the report also states that under certain conditions such as power fluctuations, or if the machine was improperly installed, the centrimix may fail to exclude contaminants. The installation of the centrimix took one and half days, ran through a test cycle, and required a slight adjustment one week later, at the time that Supersurface was manufacturing Nil. The centrimix installation team arrived in an electric van which they recharged at the recharging station in Supersurface’s parking bay. Newspapers, internet sources and TV news have started reporting that certain vans have been associated with interferences in power supplies while recharging causing power failures in homes, businesses and hospitals. Under ‘About Us’ on the Centrimix website Todd sees the ‘Team’ posing in front of a van of the make and model identified in the news reports. The vehicle manufacturer has not been made the subject of a Vehicle Recall by Product Safety Australia. Meanwhile some internet based speculation not associated with any new sources has noted that a common feature of many of the incident is the use of a Spock Power Pack. Todd and Marjorie are disappointed to have lost a major client and seek your advice regarding what proceedings they may be able to instigate, if any, and against which party.
ASSIGNMENT TASKS TASK 1
You are acting on behalf of the plaintiff. Prepare a Statement of Claim against the Defendant(s) (15 marks).
TASK 2
You are acting on behalf of the defendant. Draft a defence which includes all available defences.(15 marks)
