Discharge of Contract in the Construction and Operation of a Theme Park

Background

In September 2015, the democratically elected government of Prudencia invited tenders for the construction and operation of a theme park in its capital, Suncity. Harvey Construction Ltd (HCL) became interested. However, it had little expertise in the construction or operation of theme parks. As such, it sought to partner with Wonder Construction Ltd (WCL) which had greater expertise in theme park construction. Both parties agreed to put in a joint bid for the project which they won.

It was stipulated as a part of the terms of the agreement that HCL was to supply the initial capital required for the project ($1 billion), which included the cost of purchasing the lease of land, and construction costs. WCL, in turn, were expected to supply their expertise in the design and construction phases of the project. In return for their services, WCL were to be paid a sum of $10 million by the end of construction, which sum remains outstanding.

After construction is completed, WCL were to manage the project solely for the first 5 years. During this period, profits (and ownership in the park) were to be shared between WCL and HCL in 10% to 90% ratio. Thereafter, HCL were supposed to undertake 50% responsibility in the operation of the park, and profits (and ownership) shared equally for the remaining 45 years of the lease of the land.

For the first three years of the operation, the theme park turned a healthy profit of $50 million per year. WCL’s cost of managing the park was some $10 million per year. The next reimbursement for the cost incurred was scheduled for August 2019.

In June 2019, a new government was elected which had priorities very different from tourism. It removed all concessions and changed all policies that supported tourism and as a result, tourist arrivals plummeted drastically. During this period, WCL continued to incur costs of $ 500,000 per month in operation costs but the park failed to turn any profits. Before June 2019, the value of the park was estimated at $900 million but as soon as the new government changed its focus and policies, its value fell to $500 million. By September 2019, it became clear that the new government of Prudencia was adopting a ‘closed door’ policy to foreigners and visitors to the park were limited to the odd Prudencians. By then, the value of the park fell to some $250 million.

By the end of September 2019, WCL felt that operations could no longer be sustained and incurred expenses of some $2 million to terminate prematurely the contracts of all its staff as well as several long-term servicing contracts with various other contractors. In mid-October 2019, the government of Prudencia declared that the land upon which the park was built was to be confiscated as a result of the immoral character of the enterprise its owners had permitted it to be used for such as swimming in bikinis.

Answer the following in terms of the various heads under discharge of contract:

1. As at June 2019, WCL is claiming for the sum of $10 million which remains outstanding from HCL

2. WCL is claiming for reimbursement for the expenses of $10 million incurred for the running of the park

3. By the end of September, HCL accuses WCL for breaching the management contract of the Park by terminating the service contracts with various contractors

4. Regarding the confiscation of the Park by the government, the HCL blames WCL for failing to maintain moral standards at the Park, hence that WCL was liable for breach of contract. On the other hand, WCL claims that the contract was frustrated