Business Law and Ethical Issues - Case Study Example

Running header: Law Student’s name: Instructor’s name: Subject code: Date of submission 1. Ethical issues in the scenario Introduction The company develops a new drug expected to significantly reduce rheumatism disease after conducting several tests. However, one scientist is concerned that some of the drug’s side effects have not been tested. As such, the company pays a number of scientists to conduct research on the effects the result of which are kept confidential by the board and the scientists as well. Consequently, the board authorizes the commencement of the drug’s production despite their knowledge that the research has indicated that the side effects do occur though they are statistically small. In so doing, the directors keep the information confidential as they know the drug’s production will significantly increase profits thus making the shareholders happy. The issue The issue is whether ethical principles are applied in deciding to keep the information confidential and continue with production of the drug despite having knowledge of the side effects of the drug no matter how small they are. Was it ethical for the board of directors and hence the company to place profits and hence shareholders’ interests before the need to safeguard the health of the customers who might take the drug and thus suffer from its side effects? The rule Both the common law and the Australian competition and consumer act of 2010 encourage business to ensure that they conduct business in an ethical manner. Section 20 to 24 of the Australian competition and consumer act of 2010 prohibit businesses including companies from engaging in unconscionable conduct1. In this regard, unconscionable conduct refers to acts that are so harsh that they go against good conscience. In determining whether the company has engaged in an unconscionable act and hence unethically, the court would rely on some principles including the extent to which the supplier unreasonably failed to disclose to the customer; i) Any intended conduct of the of the supplier that might affect the interests of the customer and ii) Any risks to the customer arising from the supplier’s intended conduct The conduct of the bank in the case in Vital Finance Corporation Pty Ltd v Taylor (1991) ATPR digest 46-080, the court held that the bank had acted unconscionably in dealing with the customer since they knew the customer would not be able to pay yet it went ahead to led to the customer and also increased repayment rates to the effect that the customer was unable to repay. As such, the transaction was set aside2. On the other hand, the company directors have a duty to act with care and diligence and to act in good faith while avoiding conflict of interest and acting in the best interest of the company while considering the interest of others as was held in James Hardie case and the case of JT International SA v Commonwealth (2012) HCA 303. In both cases, the companies were found of ignoring customers’ interests (related to health) in their conduct in a bid to increase profits and by hiding vital information from the customer that would have influenced their buying decisions in the interest of their health. Analysis In this case, the board of directors acted unethically in keeping the information confidential and deciding to go ahead with the drug’s production. In other words, they failed to act with care and diligence. In hiding the information from the customer, they failed to act in good faith or honestly. Finally, it is understood that their intention of increasing profit was in the best interest of the company. However, they failed to consider the interests of the customers and hence acted to their detriment. This was also to the detriment of the shareholders in future if the acts are unearthed owing to bad reputation and huge compensation to the affected customers. Conclusion Arising from the above analysis, it is clear that the board acted unconscionably by hiding information from the customers. The act was also not in good faith while they failed to act with care and diligence. The board should have either discontinued the production of the drug or made the customers aware of their side effects so that they can make informed purchase decision. Furthermore, the conduct could also not be considered to the best interest of the shareholders since after the act is exposed, the company’s reputation and hence business would be negatively affected while the company would be forced to pay huge compensation to the affected customers. 2. Introduction In this case, Bill promises his 19 year old son Quentin to pay his university fees for the year on condition that he works in the restaurant every Sunday of the year. Quentin is a talented tennis player having been offered a scholarship to undertake tennis coaching to be held every second Sunday. As such, despite being in desperate need to attend the training, Bill also desperately wants his father to pay his university fees. Thus placing his reliance on his father’s promise, he foregoes the training and works every Sunday in his father’s restaurant. Having completed his first year, Quentin takes a year off study to travel overseas. His father is upset at his son taking a year off study and hence refuses to pay his university fees. Issues The issue is whether Bill is bound by the promise he made to Quentin and hence should be compelled to pay for his university fees or not. Another issue is whether the same case would apply if Quentin was 17 years old. The Rule In this case, the determining factor will be whether the parties had intention to create legal relations and hence be bound by the contractual relations thereof. Ordinary, the agreement between a father and son would be deemed to be purely a domestic relationship and hence not legally binding. However, the following principles would be applied in determining whether Bill should be bound by his promise to his son. i) Whether Bill and Quentin had clearly spelt out their rights and obligations towards each other ii) If the agreement required one party to undergo expense or even career sacrifice, inconvenience or substantial detriment as was held in Todd v Nichol, a younger relative who gave up her life and career in Scotland to come to Adelaide to look after an elderly relative4. The following principles as were established by the court in Walton Stores v Maher would also apply in determining whether Bill would be bound by his promise to his son; i) Whether reliance was placed by the plaintiff on the promise5 ii) Whether the defendant had induced the plaintiff to place reliance on the promise iii) Whether the plaintiff acted or refrained from acting as a result of the reliance placed on the promise iv) Whether the defendant knew or intended the plaintiff to act as such v) Whether the plaintiff’s action or inaction was to his detriment if the promise was not fulfilled vi) Whether the defendant failed to act to avoid the detriment It is also worth noting that if Quentin was 17 years old, he would be considered a minor and hence unable to enter into a contractual relationship. It is worth noting that contracts that would benefit a minor would be biding especially educational related contracts that are considered necessary contracts. Analysis Though this can be considered a domestic promise, it is clear that both parties had the intention to be bound by the contract. It is worth noting that Quentin relied on the promise by his father and thus chose to be working in his father’s contract although he had a chance to be attending tennis coach training which would have been more beneficial to him than working at the restaurant so that he can have his university fees paid. In this case, it is clear that he acted to his detriment. In this case, all the above principles are deemed to have been fulfilled and hence failing to fulfill part of his promise to pay his son’s university fees would be detrimental to his son. Conclusion Based on the above analysis, it would thus be fair that Bill fulfills his promise whether or not the son postpones his studies since that was not part of the original contract. Had he been 17 years old, Bill would still be obligated to fulfill his promise since this is a necessary contract. However, Quentin would not be able to postpone his studies in this case. 3. Introduction In this case, Samantha advertises her car for sale for $15,000 and Terrace after looking at it asks whether it the car’s suspension is OK owing to the fact that his friend had had a problem with rusted suspension. He is informed that there is no problem with the suspension and thus agrees to buy the car. A contract is signed though it is silent on the car’s suspension. One week after the purchase contract, Terrence discovers that the car has a badly rusted suspension. Issue The issue is whether Samantha is bound by her oral presentation that the suspension is OK in which case she would be bound to compensate Terrance or the oral presentation does not amount to a term of the contract and hence Samantha would not be bound by it in which case she would not be required to compensate Terrance. The rule The law of contract states that an offer may be written or oral. However, a mere puff is not deemed an offer. In other words, a statement made by the offeror that is clearly exaggerated and which are clearly meant as an advertisement or encouragement to the person hearing them is not an offer as it is a mere puff. This was held in the case in Mitchell v Valherie where one of the presentations about the condition of a house for sale by the agent was ‘Nothing to spend-Perfect presentation’6. The buyer sued for he did incur some cost for some repairs. The court held that the words ‘Nothing to spend-Perfect presentation’ were aimed at attracting interest from potential buyers and hence were mere puffery. In other words, words used in making announcement to make an offer are considered invitation to treat. However, after an offer has been made and accepted, the terms in the contract agreement are biding. It should be noted that words in a written contract are given preference to oral contracts. In other words, if an oral and written contracts referring to the same item differ, then the terms in the written contract would be the biding ones. Analysis The advertisement by Samantha is to be treated as invitation to treat. Similarly, the oral presentation by Samantha that the suspension is OK is to be treated as mere puffery. In other word, Samantha used them in a bid to induce Terrace to buy the car. Though Terrace buys the car believing that the suspension is OK, he is not careful to ensure that this oral presentation is included in the written contract. As such, the condition that the suspension be OK does not become part of the contract. Had it been included in the written contract, then it would be binding on the seller to ensure that it is OK before the car is delivered to Terrance. Conclusion Arising from the above analysis, it is clear that Samantha’s presentation was mere puffery aimed at influencing Terrance to buy the car. As such, Samantha will not be bound by them and hence I would advise Terrance not to sue. However, had he ensured that the terms that Suspension be OK without rust are included in the written contract; he would have been able to sue Samantha and have her deliver the car with a good and OK suspension. Read More