Kylie Risk is a self-made woman, who became a wealthy Darwin property investor and landlord through hard work and an “innovative” approach to property renovation. Her most favoured technique is to buy an old elevated house, construct extra bedrooms underneath it, usually without obtaining any approvals under the Building Code and using cheap labour and materials. She then fills the property with as many overseas backpacker tenants as can be fitted in as short-term occupants (without any formal tenancy agreement).
One of Kylie’s properties is an old but spacious elevated house at 37 Swank Street in the up-market Darwin suburb of Fannie Bay. She is making upwards of $2000 per week in rental income from backpackers during the peak tourist season. However, a real estate agent crony Rick Ruby suggests to Kylie that there is a huge opportunity to make a “killing” by selling houses in areas like Fannie Bay for “executive” housing for contractors and subbies attracted to Darwin for work on the huge Inpex natural gas project currently under construction. Rick suggests to Kylie that her somewhat dilapidated Fannie Bay property, which in a normal market would probably sell for $1 million at most, could be sold for close to double that price if renovated cost-effectively to “executive” standard.
Keen to exploit this once-only opportunity but reluctant to depart too far from her finely-honed technique of dodgy renovations built as cheaply as possible, Kylie verbally engages two Peruvian backpacker tenants Julio Galvez and Jaime Iglesias from one of her other properties to undertake the renovation work. They had mentioned to Kylie that they possessed excellent building skills (though no formal qualifications recognised in Australia). Kylie observes that she is sure she can rely on their skill levels to do a good job and advise her appropriately about the work where necessary. She says she will pay them each $12 per hour for the work and supply all necessary materials and tools. The hourly rate is much less than the Australian minimum wage under the Fair Work Act but, being from Peru, Julio and Jaime don’t know this. Moreover, the wet season in Darwin is fast approaching and there isn’t much seasonal work available for backpackers.
Julio and Jaime proceed to build and install new kitchen and bathroom cabinetry and wardrobes using melamine-covered chipboard panelling that Kylie bought cheaply at a suburban lawn sale. Julio and Jaime do indeed prove to be neat and efficient workers and the joinery looks great, but is totally unsuitable for the tropics because chipboard absorbs water and typically swells up from the steamy humidity and begins crumbling and falling apart after two or three years (or much sooner if it gets wet).
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Julio and Jaime also re-line all the internal walls and ceilings with brand new gyprock plaster panelling, and paint the house inside and out with a single coat of the cheapest available paint (again supplied by Kylie) in the most fashionable modern colours. The place looks a million dollars (well, two million dollars, or so Kylie hopes). One slight defect in the work, however, is that the gyprock panelling covered up the existing manhole cover to the roof cavity.
Another problem that Kylie decided she’d better fix (in her own inimitable fashion)is that her backpacker tenants had earlier complained about a few relatively minor water leaks into the premises during the previous wet season, evidenced by a handful of water stains on the ceilings. Up until now Kylie hadn’t regarded that as an urgent issue. The ceilings and walls had until now been lined with fibro, which isn’t damaged by water, and she didn’t see any need to pander to the carping complaints of backpackers who usually only stayed a few weeks anyway. If they didn’t like it they could just “f… off” and stay in a licensed backpacker hostel at more than twice the price. However, the installation of the new executive-standard gyprock plaster panelling was a whole new ballgame. It would swell up immediately and collapse if it got wet.
Consequently Kylie knew she had to get the corrugated iron roof fixed. She certainly didn’t intend getting the place reroofed with new corrugated iron because that would cost a relative fortune (at least by Kylie’s parsimonious standards). Accordingly she contacted “Top End Roof Seal”, a business operated by Terry Dodgy under that registered business name but owned by a small company structure (Hasty No. 27 Pty Ltd). It specialises in spray-painting old iron roofs, mostly for cooling purposes. However Terry also typically verbally represents to prospective customers that Top End Roof Seal’s products will help to waterproof old rusting roofing iron so that owners can get a few more years of useful life out of it, as long as it hasn’t deteriorated too badly. Terry attends at the property on 1 July 2016 and gives Kylie a quote of $2,500 for spray-painting the entire roof with his “premium” roof seal product. This is a fraction of the cost of re-roofing so Kylie is very happy.
Kylie asks Terry about the product’s waterproofing qualities. Terry says: “Look, we don’t give a written official warranty on waterproofing because it depends partly on the condition of the roof itself. But our products will certainly seal moderately deteriorated roofs against water leaks for at least 3-5 years, including sealing where there is a moderate amount of rusting. I can’t see the manhole to access your roof cavity, but there is only a small amount of visible rust on your roof. From my experience you should certainly get a few more good years from this roof if you go with our product.” Kylie remarks casually that she will certainly be relying on Terry’s advice and experience, particularly given her intention to put the house on the market as executive housing. She signs acceptance of the Top End Roof Seal quote and hands it back to Terry, without bothering to read the terms and conditions on the back.
Had Kylie read the terms and conditions she would probably have noticed clause 97(b)(ii) in the small print:
“The customer hereby acknowledges that the product is not intended for waterproofing purposes and may not be of any benefit in reducing leaks or water intrusions into your property or protecting against the development of further leaks. The customer further acknowledges that he/she has not relied on any representations to the contrary. All conditions or warranties as to any waterproofing qualities of the product are hereby excluded to the maximum extent permitted by law.”
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Top End Roof Seal proceeds to do the job a few weeks later and, like all the rest of the work, it looks great. Kylie pays Terry’s bill (in cash for a $500 discount to which he readily agrees) and on 1 August 2013 makes an appointment to see Rick Ruby and list the property for sale. The entire renovation job had cost her less than $10,000 and she stands to gain a clear capital gain of close to a million bucks, or so she thinks.
However that night (1 October 2016) Darwin experiences its first big thunderstorm of the early wet season build-up. Torrential rain falls. The roof of the house at 37 Swank Street, Fannie Bay leaks like a sieve. The new gyprock ceilings and wall linings become totally soaked, sag and then collapse, narrowly missing the hordes of sleeping backpackers underneath. All the cupboards also get soaked, swollen and begin visibly falling apart within days. The property is uninhabitable. Kylie instantly lodges a property damage claim with her insurer Troppo Insurance Pty Ltd. It sends along an assessor, who notes all the unauthorised building work that had been done. The assessor discovers that someone (Kylie) had installed illegal insulation in the ceiling cavity of the house that did not comply with Australian Standards (mandated by the NT Building Code). It was made from Indonesian rain forest waste material and absorbed water like a sponge. Kylie had bought it for $100 a year or so previously and installed it in a token effort to appease tenants who had been complaining that living in her house was like being locked in a fan-forced oven. The insulation worked well in the short term, but it had created a roof cavity environment closely resembling a sauna bath. The roofing iron had as a result rusted from the inside. Although it was not visible from above, many parts of the roof consisted of little more than a thin skin of white paint covering a thick layer of rust. If either Kylie or Terry had bothered to access the roof cavity before respraying it, this would have been instantly apparent. The insurer advises Kylie in writing that it has refused her claim and voided her policy (which included cover for loss of rental income), relying on a covenant whereby the insured promised to keep the property in good and tenantable repair and ensure that all building and repair work on it were in full compliance with the Building Code and all other applicable regulatory requirements.
Kylie nevertheless gets repair quotes from a couple of licensed builders, having concluded that using Julio and Jaime again probably wouldn’t be a great idea. In fact she is actually contemplating suing them, having become aware that both of them have wealthy parents in Peru. Both builders quote in excess of $100,000 to repair the damage and reinstate the property to its former semblance of glory using proper materials complying with the Building Code. However both advise that they can’t start the work for at least 4 months, partly because the Christmas shutdown was imminent and partly because they were tied up with highly lucrative work on the Inpex gas project. No other builder could do the work any quicker. Rick Ruby tells Kylie that the opportunity to sell the property to Inpex contractors at a premium price will probably be gone by the time the work is finished.
Your assignment is as follows:
(1) Assume that Kylie has sought your advice as a prominent Darwin commercial solicitor, to advise on who she should sue. You give her appropriate advice on the possible difficulties with her case, but she nevertheless instructs you to issue proceedings against Top End Roof Seal, Julio and Jaime and anyone else who might conceivably be made liable. Your task is to draft a Supreme Court writ endorsed with a Statement of Claim, pleading any
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and all causes of action you consider might be viable, against any defendants you consider
should be sued.
2. (2) Now assume that you were not the solicitor in (1) above, but instead work for a firm that
Terry Dodgy has consulted after being served with Kylie’s writ. Draft a Defence to the
writ.
3. (3) Now assume that you were not the solicitor in either (1) or (2), but instead that you work
for another firm which is consulted by Julio Galvez (Jaime has fled back to Peru and can’t be served) who has consulted you after being served with Kylie’s writ. Draft a Defence and Counter-Claim for Julio.
4. (4) Now revert to your status as Kylie’s solicitor and draft a Reply and Defence to Counter- Claim in respect of Julio’s pleading.
Omit the formal parts (backsheet and header) in all four pleadings.
