Common Law Exceptions to the Privity of Contract - Case Study Example

?Business Law Table of Contents Question 4 (a)Provide a short account of the commercial background of the case, and key aspects/clauses of the standardized contract in dispute between the parties. 4 (b)Regarding the pivotal clause 7.4, what case law principles governed its ‘proper construction’, in the view of the judges (Jacobson, Lander & Foster JJ) on appeal? 5 (c)What was the nature of the term which the primary judge, Jagot J. had implied into the contract, and on what grounds and case law did the judges on appeal decide that such implied term (of fact) wasn’t required to give ‘business efficacy’ to the contract? 6 (d)Was the appeal decision ‘fair and equitable’ to the chicken growers in light of the dynamic commercial relations existing between the parties? 7 Question2 8 Overview of the Case 8 Common Law 9 Equitable Remedies 10 Specific performance in Equity 11 Common Law ‘Exceptions’ to the ‘Privity of Contract’ 11 Question 3 14 Overview of the Case 14 Civil Liability Act 2003 (Qld) and Its Common Features 15 Professional Liability associated with Dr Zola towards Rubicon Holding Ltd 16 References 18 Question 1 (a) Provide a short account of the commercial background of the case, and key aspects/clauses of the standardized contract in dispute between the parties. The Federal Court of Australia issued its judgement in the case of Steggles Limited v Yarrabee Chicken Company Pty Ltd [2012] FCAFC 91 under the Federal Court of Australia Act 1976 (Cth) of contractual dispute. The joint judgement made by Jacobson, Lander and Foster JJ, agreed that appeal should be duly allowed to Yarrabee (applicant) as against Steggles (plaintiff). In 2004, Yarrabee Chicken Company Pty Ltd was reputed as one of the chicken growers in the Hunter Valley, which had arrived into a contract with Steggles Limited. The contract was in the same form to all other growers including Yarrabee Chicken Company which included Growers to grow chickens with the application of tunnel growing methods. On the grounds of breach of contract, Yarrabee filed proceedings against Steggles under Part IVA of the Federal Court of Australia Act 1976 (Cth) suing Steggles with respect to the confusion raised from a particular contractual term of “extra Shed capacity” which could have implied the assistance to be rendered by Steggles in terms of increased physical capacity to grow more birds or through the facility of growing extra number of birds in the given capacity. The major issues of the case dealt with the specification of clause7.4 articulated in the contract between Yarrabee and Steggles. It was under this particular clause of the contract that Steggles was considered to be liable to offer ‘any extra shed capacity’ to the Growers in preference to any other third party which apparently depicts the occurrence of a contractual dispute. (b) Regarding the pivotal clause 7.4, what case law principles governed its ‘proper construction’, in the view of the judges (Jacobson, Lander & Foster JJ) on appeal? The primary judge affirmed that the phrase ‘extra shed capacity’, as articulated in the clause 7.4 of the contract bound Steggles “to offer to the growers, first and in preference to any third party, the capacity to grow any bird to be processed at the Beresfield processing plant in one of the Growers’ sheds on their farms”. The second judgement with respect to the case affirmed that Steggles had resulted in the breach of contract against the terms articulated in cl 7.4(a) of the contract entered between the Growers and Steggles. In this particular context, Steggles was found to breach the contract against the terms illustrated under cl 7.4 (a) of the contract as the judges concluded that “the evidence makes plain that Steggles distributed chickens to other growers for processing at the Beresfield plant when the Growers had capacity to grow those chickens”. However, Steggles was not satisfied with the above stated findings made by the primary judges and appealed against those findings. Contextually, ‘proper construction’, in the view of the judges (Jacobson, Lander & Foster JJ) on appeal interpreted with the reference of the law principle of objectivity as stated by the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22] and Toll (FGCT) Pty Ltd Alpha pharm Pty Ltd (2004) 219 CLR 165 at [40]. According to this case law, it was ascertained by the judges that contract should articulate texts or phrases considering the circumstances and surroundings that may influence the parties entering into contract as well as the contract should duly represent the purpose of the transaction. Moreover, the judges related the ‘capacity’ as articulated in the cl 7.4 (a) of the contract with Steggles’ capacity to process chickens at Beresfield plant. Thus, the matter concerning with the first refusal was associated with the capacity of Steggles to process extra chickens to be grown by the Growers with the increase in its size or the number of the existing sheds used by the Growers. In other words, it was determined that extra shed capacity related with Steggles shall be grown by the Growers. This construction was recognised as the most appropriate language concerning with cl 7.4 (a) of the contract as well as this construction was considered to be the most acceptable language dealing with the other provisions of the contracts and its related purposes as per the Federal Court of Australia Act 1976 (Cth). (c) What was the nature of the term which the primary judge, Jagot J. had implied into the contract, and on what grounds and case law did the judges on appeal decide that such implied term (of fact) wasn’t required to give ‘business efficacy’ to the contract? Concerning with the first judgement made by the primary judge, the terms of the contract was interpreted on the basis of the statutory commercial and industry background. When the contract was entered into between Steggles and the Growers, the growing for chickens for meat consumption in New South Wales was regulated under the Poultry Meat Industry Act 1986 (NSW). The primary judges referred this Act as one of the basis for ascertaining information of the contract. Similarly, another important basis for proper understand ability of the contract, the primary judge considered few relevant aspects prevailing in the Poultry Meat Industry in the state of New South Wales. The contract was also measured on the grounds of commercial perspectives. To be noted precisely, on these three bases the primary judge accepted the case appeal of the Growers as it was ascertained by her that cl 7.4 (a) of the contract does not make any relevant sense on the part of Steggles. The judgement provided by the primary judge thus recognised “extra shed capacity” as the capacity to grow birds in the shed, which implied that Steggles was obliged to offer the Growers engaged with the agreements first than any other third party. According to the conditions stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20 at 26, adopted by the High Court in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 347, it was ascertained by judges that such implied terms does not provide business efficacy to the contract and therefore, the contract was perfectly effective without such implied meanings. The implied terms into the contract stated by the primary judge, Jagot J which argued that in the absence for the Growers appeal, Steggles would have free access to process birds on its own discretion that would have undermined the entire contract was rejected by the judges. (d) Was the appeal decision ‘fair and equitable’ to the chicken growers in light of the dynamic commercial relations existing between the parties? It was ascertained from the appeal decision based on the proper construction of cl 7.4 (a) of the contract that the Growers have not encountered with any sort of breach of contract or any losses occurring from the performance of Steggles as to the confusions persisting in relation to the term “extra shed capacity”. The appeal decision can be therefore termed as fair and equitable as there was no proper construction of cl. 7.4 (a). Accordingly, with reference to “extra shed capacity” it was ascertained that this phrase lacks proper construction as the word extra fails to depict the actual meaning with respect to the contract. The word fails to answer the question, ‘to what extent’. Moreover the capacity also failed to address its significance concerning with the contract. The word does not explicitly represent as whose capacity is being addressed upon through this term, i.e. whether the capacity of Steggles or those of the Growers similar to Yarrabee. Despite, the difficulties and complexities to construe it can be stated that the decision reached by the court was fair and equitable. Question2 Overview of the Case Mackay Biofuels Ltd (“Mackay”) has been involved in supplying cheap biodiesel fuel to isolated towns, mining firms and settlements situated in western Queensland engaged in electricity generation. The Clairview Shire Council (“CSC”) is referred as the one which is supplied by biodiesel fuel by Mackay. Mackay has entered into the contract with CSC which included two clauses. The Clause 7 which stated that Mackay shall not be liable for any loss or damage caused by CSC’s diesel generator engines concerning with the use of biodiesel that is being supplied by Mackay under the terms of the contract. And the Clause 8 which postulated that biodiesel sold by Mackay to CSC under the terms of this contract shall not be supplied to any other third party without the prior permission of CSC. Accordingly, the non-adherence to this clause would result in the exclusion of contractual terms articulated in the Clause 7. The biodiesel is delivered to CSC by road train by local transport firm, Camira Transport Pty Ltd (“Camira”) under a separate contract entered between the two parties. The primary issue in the case is that in 2012, Camira in the course of transporting fuel to CSC ran out of the standard diesel fuel in the remote area. The driver of the road train made a call to Camira’s head office, CSC and Mackay in order to obtain collective permission to use five drums of biodiesel fuels from the consignment of CSC, subjected to orally amended clause 7. However, due to the malfunctioning resulted in Mackay’s refinery, the biodiesel that was on-sold to Camira was not properly filtered and resulted in the breakdown of Camira’s road train engine. The break down in the engine further followed a cost of $ 40000 to come back again on the road. However, Camira now wants to claim for the damages by suing Mackey. Common Law It is worth mentioning with reference to this particular case example that the provision for ‘privity of contract’ states, only the parties entered into the contract possess the right to take actions against either of the party1. Notably, any other third party does not hold any right to sue the parties involved into the contract under the terms of the contract. In this case, Mackay and CSC can be identified as the parties to the contract also privy to the contract who are eligible to sue either part under the terms of the contract if any breaches of contract is witnessed. However, Camira is not the party under the terms of the contract and thus have no rights to sue MacKay. It can be identified remedy under the common law damages for breach of contract is often granted to a plaintiff. In such circumstances, Camira will always succeed2. Nonetheless, it has been ascertained that the common law deals with the rights of third parties beneficiaries. The third party beneficiary under the law of contract is a person or any other party who holds the right to sue in relation to the terms of contract despite the person (third party) may not originally be the party to the contract terms and conditions. The common law therefore provides opportunity to sue the party to the contract by the third party, based on the factors of relationship and the circumstances under which such relationship was established. Thus, with respect to the case, common law permits Camira to sue Mackay for damages that it has acquired owing to the failure of the contract between MacKay and CSC. Equitable Remedies The remedies available under the common law and the equity often provide varying facilities for the breach of contract. Particularly, there are three principal remedies available to the part under the equity which includes specific performances, injunctions and equitable damages. It is essential that remedies provided under equity are often discretionary. These equity remedies may have contrasting outcomes than the common law damages. Being discretionary, the court plays the role of an arbiter that may decide whether the plaintiff is successful or not. The equitable remedies are usually designed to be ancillary to the common law remedies, wherein these remedies act as supplement to the common law remedies and are appealed where the common law remedy is inadequate to the plaintiff. In Australia there is no equitable right to performance. Nonetheless, on satisfying a court, an equitable remedy for specific performance can be applied and the performance can be compelled 3. Specific performance in Equity Specific performance can be related with an order to do definite thing in order to perform the terms of the contract (Dougan v Ley per Dixon J). Literally, specific performance can be associated with Court’s order seeking the performance of a contract by the parties involved in the contract. Notably, equitable orders are generally flexible and such orders can be made conditional during the occurrence or the non-occurrence of the certain events (Trident General Insurance v McNiece Bros; Beswick v Beswick [1968] AC 58)4. Common Law ‘Exceptions’ to the ‘Privity of Contract’ There are certain general law provisions that facilitate a third party such as Camira in the case example as described above to overcome the losses incurred under the privity of contract law. Correspondingly, some of the key exceptions under which Camira can seek to overcome the doctrine of privity have been illustrated below. Collateral Contract Collateral contract can be identified as the primary contract signed between two parties. Moreover, collateral contract involves either of the parties with any other third party who might be not directly involved in the contract, but is quite likely to witness losses owing to the breach of the contract. In this case, Mackay and CSC have entered into the main contract while CSC has also established collateral contract with Camira which is further recognised to be influenced by the successes and failures of the contract between CSC and Mackay. Accordingly, it can be stated that Camira possesses the right to sue Mackay for the loss incurred owing to the use of the biodiesel supplied by Mackay to CSC under the provision of the privity of contract where its contract with CSC is being affected due to the failure of the contract between CSC and Mackay5. Agency This exception in the common law provision states that any of the parties can lawfully establish a contract as an agent or the principal. It is in this context that parties acting as the agent or the principal in a contract possesses the right to sue other party to the contract causing damages to a third party concerned. With respect to the case, Camira is neither the agent nor the principle so; it cannot sue Mackey to the contract. However, CSC can be regarded as an agent to the contract owing to which Camira can certainly take the assistance of CSC to sue Mackay over the damages caused due to the later party’s negligence5. Trusts The law of trusts often have the capacity that enables the third party to sue other party to the contract. Notably, if Mackey has contracted with Camira, in the capacity trustee of CSC, then it has the right to sue Mackay. However, in the case there was no trustee established, hence Camira cannot sue Mackay5. Suggestions for Camira In Relation To Australian Common Law and Equity With reference to the above discussion, it can be ascertained that Mackay and CSC are privity to the contract while Camira does not have any contractual right as it has not entered into the contract with Mackay directly. On the other hand, Camira has established a contract with CSC for supplying of biodiesel to CSC with which Mackay does not have any obligations. Thus, under the privity of contract, Camira is not eligible to sue Mackay for the damages that it has been encountered being a third party to the contract. It is worth mentioning in this context that Australian Common Law holds some vital provisions for third party beneficiaries wherein, at certain circumstance, the third party is eligible to claim damages arising from the actions of the second party. Additionally, on the basis of Common law exceptions dealing with collateral contracts, Camira owes certain rights to sue Mackay for the losses incurred by the use of biodiesel supplied by Mackay to CSC. Moreover, the common law exceptions dealing with trust also provides certain rights to sue the third party if Camira has contracted with Mackay under the capacity trustee of CSC. However, in this case, no such trustee relation by law was created with Camira which rejects any rights for Camira to sue Mackay for the damages suffered. Additionally, the common law exceptions dealing with agency governs that Camira has the right to sue Mackay if there exists an agent principal relationship with the parties engaged in the main contract i.e. the contract between CSC and Mackay. However, in this case scenario, there exists no such relationship of Camira with any of the parties involved in the main contract which restricts the right of Camira to sue Mackey for any of the losses incurred by it under the terms of the contract. Question 3 Overview of the Case During 2008, Dr. Zoka Zola was hired under a contract of $100,000 to design the concrete foundations for car parking building in Brisbane. This particular area was located near the river side and in a region which was prone to floods as well as unsuitable for above ground construction owing to the underground mining. Even though, this interim plan was drafted by Dr. Zola, she advised Wollemi Properties Ltd, her employer in that point of time, to hire a surveying firm to obtain an exact idea about the ground characteristics that could facilitate her to modify the interim plan. Nonetheless, Wollemi avoided the professional advice rendered by Dr. Zola and terminated the contract that was entered between them, i.e. Wollemi and Dr. Zola for the payment of $100,000. During the year 2009, using the interim plan, Wollemi instigated the construction of at car parking area and on its completion, it was sold to Rubicon Holding Ltd in 2010, at a discount price of $50million. Later, in the month of December of the same year, i.e. 2010, Rubicon had to suffer $1million damage on the car parking foundation owing to ‘on-site subsidence’ concerns. Again, in the month of January 2011, a record flood caused $4million damage to the company, i.e. Rubicon. Owing to its damages, Rubicon wishes to sue Dr. Zola claiming for $5 million damage against the occurrence of professional negligence in approving the interim plan during her contract with Wollemi. Civil Liability Act 2003 (Qld) and Its Common Features The Civil Liability Act 2003 (Qld) incorporates basic statutory protections for professionals executing voluntary work related with community organisations against incurring any personal civil liability. The Act also deals with some fundamental changes concerning to the common law of negligence6. Under the Act, one is liable to compensate the losses incurred by the other party as a result of breach in terms of physical or financial damages. Accordingly, the Act states that a professional should not be accused for the occurrence of a breach of duty relating to his/her delivered professional services, wherein it has been ascertained that the professional has acted in the way which satisfies the requirements of the standards as competent professional practices. On the other hand, in certain circumstances, issue of contributory may arise wherein it is ascertained that whether the person who has been suffered with damages or harm is guilty resulting in contributing negligence that might have been caused from the failure to take necessary precautions against the damage suffered. Notably, the contributory negligence may define the claimant as eligible to 100% reduction on the claim6. The part 2 of the Civil Liability Act 2003 (Qld) which deals with the proportionate liability also postulates that the claim of the breach of duty shall not be made if no personal injury is identified or the damage suffer is less than $500,000. The section 15 of the Act further emphasises on the obvious risks which state that there exists no practical duty to warn another about the prevailing obvious risks. According to the section 14 of the Act, a person getting involved with a contract needs to be aware of the ‘Obvious risk’. In case, the offeree in the contract is able to prove that they were unaware of the obvious risks inherent to the contract, damages can be claimed under Civil Liability Act 2003 (Qld). The Section 16 of the Act further states that there exists no liability arising from negligence if the harm suffered is a consequence from materialisation of such inherent risks made aware by the offeror to the offeree prior to the enforcement of the contract (Lynch v Kinney Shoes Ltd & Ors)7. Professional Liability associated with Dr Zola towards Rubicon Holding Ltd Section 22 of the Civil Liability Act 2002 (QLD) is concerned with standard care related with professionals and states that a professional shall not be considered to establish breach of contract for the duty resulting from the professional service provision. Accordingly, the provision states that a person shall not be liable or accused as against the professional practice, if the practice by a professional is widely accepted in the rational opinion of his/her peers and the professional guidelines. Concerning with the case of Dr. Zola, it can be identified that the damages incurred by Rubicon was not due to her professional negligence; rather it was the negligence conducted by Wollemi by ignoring the professional advice by Dr. Zola to obtain the certification from a specialist survey. Dr. Zola, by no means, can be ascertained to have liability towards the losses incurred by Rubicon Holding Ltd in contract with Wollemi in the year 2010, i.e. after Dr. Zola’s termination from Wollemi. Additionally, the damage that was caused to Rubicon was both due to ordinary issues and obvious risks. For instance, Rubicon had to incur a loss of $1million owing to ‘on-site subsidence’ concerns which was definitely the liability of Wollemi. However, the damage of $4million occurred from a record flood which can be termed as an obvious risk to the contract. Moreover, damages incurred cannot be related with the professional negligence on the part of Dr. Zola in this case scenario where she had already made strong recommendations to Wollemi regarding such issues. Hence, Rubicon cannot sue Dr. Zola as she owes no liability with respect to the damages incurred for a total of $5million owing to the ‘on-site subsidence’ concern and the record flood which can be related with obvious risk inherent to the contract. Hence, under section 16 of the Act, Dr. Zola does not have liability towards Rubicon Holding Ltd. Concerning with the loss of $1million incurred by Rubicon Holding can be associated with the negligence of Wollemi to adhere to the professional advice given by Dr. Zola to undertake a survey for the land in order to ensure adequate safety and precautionary foundations for the car parking construction. Nonetheless, Wollemi terminated the contract with Dr. Zola, which made her free from breach of duty arising afterwards from the performance of Wollemi. Thus, it can be finally ascertained that Dr. Zola does not hold any liability to Rubicon Holding Limited for the damages and loss incurred amounting to a total of $5million. In addition, it cannot either sue Wollemi for the damages amounting to $4million as it was due to the record flood. However, Rubicon Holding limited does have the right to seek claim against Wollemi’s negligence for $ 1 million loss as it was owing to site subsidence which would have been omitted if appropriate survey was conducted and likely foundation were constructed6. References Goldsmith IBS Limited, 2013. “Breach of Contract & Remedies”. “Equitable remedies”. http://www.goldsmithibs.com/resources/free/Breach-of-Contract/notes/Breach-of-Contract-Remedies.pdf Hopkins, Paul & Et. Al. 2013. “Australian Civil Liability Guide (2013)”. Carter Newell Lawyers 1-213. Julie Clarke, 2010. “Privity of contract”. “Law”. http://www.australiancontractlaw.com/law/scope-privity.html Law Commission. 2003. “Privity Of Contract: Contracts For The Benefit Of Third Parties”. Existing Exceptions to, or Circumventions of, the Third Party Rule 1-194. Turner, Clive & Trone, John. Australian Commercial Law 29th Edition. Australia: Thomson Reuters/Lawbook Company, 2013. The State of Queensland. 2012. “Civil Liability Act 2003”. Introduction 1-78. Read More