Mr and Mrs Chan enter into an agreement with George to buy the house when it is finished, for an agreed price. George has gone overseas for a few days and Mr and Mrs Chan ask Zak if the roof covering can be changed from long run profiled roof sheeting to concrete tiles. Zak looks up the cost difference between long run steel roofing and concrete tiles, multiplies it by the roof area, and agrees a price for the roof change. When George returns to New Zealand Zak tells him what he has agreed with Mr and Mrs Chan. George is upset because Zak forgot that concrete tiles are heavier than steel roofing and the roof structure will have to be changed to carry the additional weight. This will need the building consent to be changed, the roof structure will have to be redesigned and it will cost more to construct than indicated by a simple difference in price between metal sheets and tiles.

Q5.. George telephones the Chans and tells them he cannot change the roof because Zak had no

authority to agree to the change, so he is cancelling the arrangement. The Chans are upset

and tell George that if he won't agree to change the roof for the agreed price, they will cancel

the contract to buy the house.

5a.. Can George cancel the agreement to change the roof or is he obliged to change it?

5b.. What would you advise George to do and why?

The house is now finished, Mr and Mrs Chas have settled their differences with George, bought the house, paid the agreed price, and moved in. George gives them a written guarantee for six months that all work complies with the building code.

Zak wins two million dollars on Lotto, tells George he does not want to work with him any longer, leaves Auckland, and moves to Sydney.

Q6.. Nine months after buying the house and a month after Zak moves to Wellington, the Chans

contact George and tell him the house cladding is leaking badly and the internal plasterboard

lining is black with mould. A building expert has told them the cladding and internal lining need

replacing which will cost about $100,000.

6a.. George tells them the guarantee has expired, it is no longer his responsibility, and he

has no money. It is true that he has no money but is he correct about not having any

liability, does he or doesn't he and why?

6b.. Does Zak have any responsibility in the matter, would the Chans succeed if they

tried to make him pay for the repairs, and why?

6c.. Explain the difference between standard of care when giving advice compared to

the standard of fitness for purpose, and how it applies to construction work?

George incorporates Great Job Builders as a limited companywhich is now called Great Job Builders Limited. George is its sole director and sole shareholder. He knows he has to trade according to the rules set out in the Companies Act 1993. George decides to avoid both designing and building houses and starts tendering for lump sum 'traditional' tender contracts, and is quite successful.

Q7.. Answer the following questions according to the Companies Act 1993. Explain your answers by

identifying the relevant sections in the Act, extracting the relevant words from those sections

i.e. not what you think the mean but how they are actually worded, and including the actual

words in your answer.

7a..Someone tells George his company needs two directors to 'sign off' any contract his

company enters into. Is that correct? [to answer this you need to consider whether in

law, the agreement must be: a.. drawn up as a deed; b.. must be a simple contract but

needs to be in writing; or c.. can be formed orally]

7b.. George is the sole director of Great Job Builders Limited and is told that if Great Job

Builders Limited becomes insolvent he may be come personally liable for its debts. How

will George know if it is insolvent, even before it actually runs out of money?

7c.. What is George's duty of care as a director of Great Job Builders Limited?

7d.. Explain whether and why George's duty of care under the Act is subjective or objective?

7e.. George, as its sole director mustn't allow Great Job Builders Limited to trade recklessly.

What does it mean to "trade recklessly"?

7f.. Explain whether and why George is or is not trading recklessly in the following situations:

7f.i..Great Job Builders Limited starts to lose money on its tendered contracts so

George deliberately prices new work below cost. Being paid monthly, he can

use the cash flow from new jobs to pay off debts from old jobs. George does

not anticipate that the market will improve any time soon, and even expects

new work to dry up in the next twelve months or so.

7f.ii.. Great Job Builders Limited starts to lose money on tendered contracts so George

deliberately prices new work at cost to improve its success ratio on tenders.

Being paid monthly, he can use the cash flow from new jobs to pay off debts

from old jobs. George anticipates the market will improve in the near future.

George believes it is better to keep Great Job Builders Limited turn-over up,

thereby not losing existing staff and other contacts, because when new work

starts to flow into the market, he can raise Great Job Builders Limited's prices,

and other contractors having 'bought' cheap work will be over-committed to

existing contracts, competition for new work will be less and Great Job Builders

Limited's contracts will be much more profitable.

Q8.. George has heard about separate corporate personality and he thinks that if he only enters

Into contracts in the name of Great Job Builders Limited he cannot be held personally liable for

defective work on site.

Explain to George whether and why he is correct or incorrect in this assumption?