The Applicability of Common Law and Equity to Contract and Tort of Negligence - Case Study Example

?Research Paper On The applicability of common law and equity to contract and tort of Negligence Business Law Case study: Steggles Limited v Yarrabee Chicken Company Pty Ltd [2012] FCAFC 91 Date: April 2013 Professor: Question 1 Short account of the case (a) This case involved a standard “Broiler Chicken Growing Contract” executed between the said parties. The respondents (growers) role was to rear chicken based in “Hunter Valley Region.” These chicks were supplied to them by the appellants (Steggles) whose processing plant was at Beresfield. When chicks had grown, they were picked and paid for by appellants. The respondents was one of the growers who filed a representative suit claiming breach of clause 7.4 contract and sought damages arising out that breach. The Court of first instance heard the case in two separate hearings. The first one dealt particularly with the rule of construction as applied to the disputed clause but also extended in the second hearing. The Judge held that the clause meant offering to growers’ first priority in growing chicks in preference to third parties. The second part of hearing specifically dealt with breach and the implied term of the contract by interpreting the clause on reasonable and equitable grounds. The Judge held in favour of the growers’ that there was breach of the clause and that the growers’ had the capacity to do so, hence the appeal. The Court of appeal reversed that judgment stating that the word capacity related to the appellant’s business growth and not capacity to rear chicken. It gave wide discretion to the appellants to contract third parties. Other standard clauses of the contract touching the case at hand included but not limited to the general clause 2, giving an over view that the growers were to provide “sealable birds” from any farm location ready to be picked and processed by the appellants. It also defined the payment terms. Clause 5 dealt with appellants delivering chicks to growers’ in unspecified quantity but the growers’ had to be notified of that delivery upon picking. The appellants remained the owner of the birds. Clause 7 set out the fundamental obligations of the appellants including providing assistance for “extra shed capacity” to growers equitably. Clause 8 stated the obligations of the growers’ such as keeping the shed in minimum standard conditions of not less than “$40 per square meter of shed floor space” and allowing access to that shed by appellants. Clause 12 dealt with the manner of collection of birds from the firm by the appellants. Clause 14 was on payments and notifying the growers’ about it upon collection of birds. Clause 20 was on the five years duration of the contract including termination of the contract if the processing plant was closed. Clause 25 provided for substantial amendment of the contract in writing. and all the above accounts for the case at hand. Case law governing the rule of Construction (b) This is predominantly based on clause 7.4 which according to the Court of first instance gave preference to growers’ as the first people to be offered the opportunity of rearing more chicken unless they are unable to do so. In other words, the appellant were in breach of this fundamental condition by offering such opportunity to third parties at the detriment of growers’. However, the appellate Court differed from the above ratio decidendi stating that Jagot, J did not establish whether the growers’ had capacity to rear more chicks at the time, the appellants were allocating the chicks to third parties. Their Lordships made reference to the objective principle enunciated in the case of “Pacific Carriers Ltd v BNP Pariba”1 to the extent that Court must ascertain the intention of parties by subjecting the clause to the test of a reasonable man in ordinary and plain interpretation.2 That in doing so the Court should not rewrite the clause for that would be interfering with the freedom of contract3 hence causing injustice as upheld in “Australian Broadcasting Commission v Australasian Performing Right Association Ltd.4” Besides, is the principle of “common business sense?” In applying the rule of construction, the interpretation “must be made to yield to business common sense” according to the Court in “Maggbury Pty Ltd v Hafele Australia Pty Ltd5 citing Antaios Companios Naviera SA v Salem-Rederiesna 6and ABC v APRA.”7 This is in conformity with the main objective of the parties which was the “rearing of chicken” in ventilated sheds. In so doing, Court must look at the conduct of the parties during the performance of the contract.8 Furthermore, relying on “Royal Botanical Gardens and Domain Trust v South Sydney City Council9, Western Export Services Inc v Jireh International Pty Limited10, and Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd”11, their Lordships observed that any evidence touching the rule of construction should be decided on the principle of “prior agreements between the parties” if any. They were still emphasizing the purpose, objective and or intention of the parties.12 In light of the fore going principles governing the rule of construction, their lordships therefore considered the phrase “extra shed capacity” as a whole with guidance to specific words like “extra and capacity.” To this end they concluded that the clause objective was on “shed capacity” but not of the quantity of chicken.13 In their observation, the word “capacity” referred to the capacity of the appellants and not that of the respondents to be able to process the chicken at their plant in Beresfield.14 Therefore, the language of the clause was not consistent with the growers’ being the first and preferred persons whenever the appellants wished to offer chicks for rearing as suggested by the Court of first instance. It was incumbent upon the respondents to increase the size of their sheds so as to accommodate the appellant’s capacity hence favouring the appellant’s commercial interests. The respondents were robbed of the right of first preference.15 Term implied by Jagot, J (c) The factual construction of the implied term was based on fairness and equity. Her honour implied that “the term must be reasonable and equitable, necessary to give business efficacy to the contract in the sense that the contract is unworkable without it), objectively obvious, capable of clear expression and not contradict any express term.”16 That the clear purpose of efficacy of the transaction was for the appellants to give the respondents a special preference in rearing birds as opposed to third parties. That it only required the appellant to offer to the respondents the opportunity of rearing more chicks and for the growers to accept or refuse the offer. Thereafter appellants are free to offer to the third parties if the offer is rejected by the contractual growers’.17 However, the appellate Court differed from the above construction on the ground that the clause was a fundamental express term of the contract rather than being treated as an implied term of fact. It was unnecessary in giving “business efficacy” to the contract because implying it would defeat the purpose of contract and Court would be unjustly re-writing the contract contrary to the “freedom of contract” according to “Australian Broadcasting Commission and ABC cases.”18 That rather than implying the term, the Judge ought to have asked the growers to establish breach by producing evidence showing that at the material time of Steggles giving the offer to third parties, any grower had capacity to take the birds. Their Lordships relied on the objective principle in “Pacific Carriers Ltd case”19 requiring an ascertainment of the intention of the parties using the test of a reasonable person. The term must be construed to adhere to the intention of parties by giving the construction of the clause a “common business sense” as per “Maggbury Pty case.”20 This would also require respect for “prior negotiations” between parties as upheld in “Royal Botanical Gardens and Domain Trust and Western Export Services Inc.”21 These grounds led to the conclusion that the clause gave the appellants discretion to determine whom to give the offer because capacity related to their plant growth in Beresfield and not the capacity of growers. The Fairness and equitability of appellate decision (d) This decision was unfair and not equitable. Whereas the phrase “extra shed capacity” referred to the appellant’s plant growth as per the appellate Court, It would have been equitable to ascertain whether the growers were incapable of extending the capacity at the material time of alleged breach. The contract was construed on the premise of mutual relationship and therefore it would have been reasonable and fair to first contact the growers’ before offering the opportunity to third parties. The fact that the appellant offered the opportunity to others without the knowledge of the respondents meant a planned and intentional move to destroy the object of the contract. You cannot rely on such unfair term to exonerate Steggles from liability. The question not answered by the appellate Court is whether the growers were incapable of expanding their sheds. Their Lordships ignored this question and only concentrated on the growers’ failure in the Court of first instance to show evidence of alleged breach. This was total bias by their Lordships to concentrate on unfair term of the contract in favour of the appellant. I concur with Jagot, J and disagree with the appellate Court. It was an unfair term that only favoured the appellants at the detriment of the growers, to wit their lordships acknowledge.22 Question 2 Brief facts Mackay Bio Fuels LTD entered into a contract for sale and supply of Cheap Biodiesel fuel with Clair view Shire Council CSC. The two organizations made a standard contract with a clause that was excluding liability for loss or damage sustained by CSC diesel generator engines arising from use of their fuel by a 3rd party. CSC subcontracted Camira Transport pty Ltd to transport the said fuel. Orally, the contract was amended to cover Damage to Camira’s truck when the truck runs out of diesel. Due to the previous malfunction in its refinery by Mackay, Camira’s truck engine was destroyed causing loss in the recovery of the vehicle, repair of the engine and net profit by Camira. CSC’s engines were not damaged due to their superior double filtration systems. . Camira now intends to sue MacKay for recovery of the loss. Issues 1. Whether there was any contractual obligation owed to Camira by Mackay? 2. Whether Camira can recover the cost of the damage? Resolution Issue1. It’s the essence of contract law that parties to the contract are given freedom to contract allows the parties to amicably agree on the terms of a contract. From the facts, Mackay Biofuels Ltd made an undertaking to supply cheap biodiesel fuel to Clair view Shire Council (“CSC”). This undertaking is a contract. A contract is defined by Bryan Garner23 as an agreement between two or more parties creating obligations that are enforceable or recognizable at law. The parties in contention were Mackay and CSC who contracted with each other and made an exclusion clause, excluding Mackay from liability for “any loss or damage sustained by CSC’s diesel generator engines as a result of biodiesel use as supplied under the contract.” This condition governed the relationship between Mackay and CSC and was not supposed to govern any other third party save for that 3rd party who “had been entered contracted by way of assignment by CSC, which assignment was to be communicated to CSC expressly prior to the assignment.” The aggrieved party, Camira Transport Pty Ltd (“Camira”) indeed was contracted by CSC to transport the fuel. The Camira used the fuel in its truck and diesel engine was destroyed. The issue that therefore arose was whether Camira could sue on the contract between Mackay and CSC and also, whether Camira was privy to the contract between Mackay and CSC. It’s trite law that only a party to the contract can sue on the contract hence “privity of contract.” “Privity of contract” is defined as the relationship between the parties to a contract allowing them to sue each other, but preventing a third party from doing so.24 For example, Viscount Haldane in “Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co”25 stated that only a person who was party to a contract can sue on it. This therefore means that a person cannot acquire rights or be subject to liabilities arising out of a contract to which he is not a party. 26 Applying this doctrine to the facts would mean that as a general rule, Camira would have no cause of action because it’s not a party to the original contract between CSC and Mackay. However, the exception is that this action will succeed on the premise of contractual assignment. Camira became a party by virtue of application of clause 8 of the contract where the Biodiesel sold by Mackay to CSC under the original contract was on-sold or supplied to Camira as a third or subsequent party with CSC’s express prior permission. The permission came by way of the call from Camira to CSC requesting use of the fuel for the truck and such a transaction operated by way of contractual assignment. This Camira can sue Mackay on the basis of damage that arouse as a result of use of Mackay’s Biodiesel fuel. In “MacPherson v. Buick Motor Co”27  Judge Cardozo, held that no privity is required when the manufacturer knows the product is probably dangerous or defective where upon third parties or consumers will be harmed because of the said defect, and there was no further testing after initial sale. From the facts, it is clear that the Bio diesel was not correctly filtered during its refinery and consequently damaged Camira’s truck engine. This therefore proves that Camira can sustain a cause of action against Mackay for that damage on grounds of contractual assignment and not privity of contract. Issue 2 It’s my submission that Camira would recover the cost of the damage. The facts state that Camira, out of a contractual assignment used the fuel and its engine was damaged. Consequently, it then took two weeks to recover the vehicle and repair the damage. It cost Camira $6,000 to recover the vehicle, $12,000 to repair the engine and an estimated net profit of $22,000 in freight income whilst the vehicle was out of action. Therefore, Mackay cannot in such an instance rely on Clause 7 of the contract to escape liability since it was also reflected in clause 8 and as a contractual assignment. In contract Law, this is termed as an unfair term of a contract. An unfair term of contract is a term which, if interpreted by every Court will make the term void and the Court will treat the term as though it never existed. Equitably, Camira will have approached Courts of equity with clean hands. In deciding whether a term is unfair, the court will apply the three limbed test for unfairness, thus: Would this term cause a significant imbalance in the parties’ rights and obligations arising under the contract? Is the term not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term? Would the term cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on? From the facts, it’s clear that the exclusion clauses were unfair terms of the contract aimed at unjustly protecting only Mackay, the manufacturer from liability for loss that was arising out of use and consumption of its products with Mackay’s presumed knowledge. This clause is thus void on its construction. In “Donoghue vs. Stevenson”28 Court noted that the aim of such a clause should be to protect the final consumer, who might not necessarily be privy to the contract like Camira. As such, the manufacturer owes a duty of care to the consumer, in that there should be no clause in the contract that limits the liability of the manufacturer out of damage or loss arising out of the consumer’s use of the manufacturer’s goods. From the facts, Clause 7 excluded Mackay’s liability for loss arising out of CSC’s use of the Biodiesel fuel, which clause was extended to third parties through clause 8. As already noted Camira was not privy to the contract and as such could not sue on it but his cause of action is governed by the contractual assignment acknowledged in clause 8. Therefore, Mackay owed a duty of care to Camira as the final consumer, and since Camira indeed consumed the fuel, Mackay should understand that any damage arising out of such use would make Mackay liable to third parties, not only as a contractual assignment but also under the principal-agency relationship. Thus, the exclusion clause was simply a clog on the contract and therefore, Camira could sue for recovery of the loss and damage occasioned from the use of the fuel. Question 3 Brief facts Dr. Zola, an experienced consultant engineer was hired to design the concrete foundations of a “multi- storey car park building.” She drafted the interim plans and strongly advised her client Wollemi to hire a specialist surveying firm to ascertain the exact ground characteristic so as to strengthen the building’s foundation. Wollemi however fired Dr. Zola and neglected her advice but continued to build the car park which got serious foundation- related issues after being sold to Rubicon. The building construction was based on the interim plans. The said Rubicon now intends to sue Dr. Zola in tort. Issues 1 Whether Dr. Zola was professionally negligent in her dealings with Wollemi Properties Ltd (“Wollemi”) 2 Whether Rubicon has a cause of action against Dr. Zola. Resolution Issue 1 No. Dr. Zola was not negligent in her dealings with Wollemi because she advised the client to employee a specialist surveying firm but they did not heed her advice. Instead it’s the employer (Wollemi) who would be liable in negligence for ignoring such a vital advice from a professional that would have saved the company from liability. Professional Negligence is not defined in the “Civil Liability Act”29 but according to the combined sections 20 and 22 of this Act, it means the duty of care exhibited by a professional like an accountant, engineers, doctors and lawyers in the discharge of their duties. If a professional makes a statement which is relied upon by another person knowing it to be true and consequently suffers harm arising from reliance on that statement, then the professional would liable in negligence. Dr. Zola’s advice was ignored. So, it was never relied upon to create the tort of negligence. There must be relevant evidence of "reasonable reliance" as upheld in Hedley Byrne & Co Ltd v Heller & Partners Ltd30 that "Where a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, and a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise." Besides, in “Caparo Industries plc V Dickman”31 the criteria for a duty of care in giving advice was stated in more restricted terms where the advice was acted upon by the advisee which in this case was Wollemi and would have made Dr. Zola liable as the professional adviser if both Wollemi and Rubicon acted upon it. Furthermore following Caparo, the Court of Appeal in “James McNaughton Papers Group Ltd. v Hicks Anderson & Co”32  adopted a more restricted approach, focusing on the adviser's actual and constructive knowledge of the purpose for which the statement was made. Therefore, the duty was to be limited to transactions or types of transactions where the adviser knew or ought to have known that the advisee would rely on the statement in connection with that transaction without obtaining independent advice. It also had to be shown that the advisee did in fact reasonably rely on the statement without using his own judgment or obtaining independent advice. In my opinion, and looking at the cases above and the law cited, Dr. Zola was not professionally negligent as she gave her opinion but the advice was never relied upon. Instead she lost her job for giving such advice and the opinion was disregarded, despite it being an honest opinion that would have saved them from damage. Therefore, she had a duty of care, which duty was dully executed but never considered by the employer. If Wollemi deceived Rubicon to rely on Dr. Zola’s advice, then it was negligent misrepresentation by Wollemi and cannot blame on Dr. Zola. Issue 2 From above submissions Rubicon has no cause of action against Dr. Zola. Their action would legally be against Wollemi for negligent misrepresentation. This is so because a cause of action arises where the plaintiff enjoyed a right which in negligence is “the duty of care”, the right was infringed (breach of the legal duty of care), and the plaintiff suffered damage as consequence of that breach with the defendant being responsible for that injury suffered. In Negligence, these elements would require the test of a reasonable person who in the circumstances would conclude that the Rubicon enjoyed a reasonable enjoyment of the premises in question, that the enjoyment was invaded by Wollemi’s negligent misrepresentation and therefore suffered irreparable damage.33 It’s also important to show the link between breach of the legal duty of care and damage suffered by the Rubicon (causation or proximate cause and the foreseeable outcome of the damage).34 In the current case, this linkage is seen by Wollemi’s neglect to employ a specialist surveying firm to ascertain the exact ground characteristic so as to strengthen the building’s foundation as advised by Dr. Zola causing damage suffered to Rubicon. This linkage does not subsist at all between Rubicon and Dr. Zola because Rubicon was not privy to the contract between Dr. Zola and Wollemi. Besides, a person who has been fired from employment cannot be sued by a third party unless there is evidence of proximate cause between the third party and the fired employee when the employee was still in the course of employment. That exception is not in the current case because the damage is too remote to be attributed to Dr. Zola.35 If in any case Wollemi acted properly on the professional advice of the Dr. Zola, still the cause of action could not lie against Dr. Zola but with Wollemi for negligent misrepresentation. Wollemi would then seek to recover the damages awarded to Rubicon from Dr. Zola. Therefore, Rubicon has no cause of action against Dr. Zola. Bibliography ABC v APRA (1973) 129 CLR 114 Antaios Companios Naviera SA v Salem-Rederiesna [1985] AC 191 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501 Bryan A Garner. Black’s Law Dictionary, 8th Edition: New York: Thomson West, 2004. Caparo Industries plc V Dickman (1990) 2 AC 605 Civil Liability Act 2003 (Qld) Donoghue vs. Stevenson [1932] AC 562 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co [1915] AC 847 G.H Treitel. The Law of Contract, 8th Edition: London: Sweet and Maxwell, 1991 Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465 James McNaughton Papers Group Ltd. v Hicks Anderson & Co (1991) 1 AER 134 MacPherson v. Buick Motor Co 217 N.Y. 382, 111 N.E. 1050 (1916) Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 Pacific Carriers Ltd v BNP Pariba (2004) 218 CLR 451 Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 Steggles Limited v Yarrabee Chicken Company Pty Ltd [2012] FCAFC 91 Wagon Mound No. 1 (Overseas Tankship (U.K.), Ltd. v. Morts Dock & Engineering Co, Ltd, [1961] A.C. 388 Western Export Services Inc v Jireh International Pty Limited (2011) 282 ALR 604 Yarrabee Chicken Company Pty Ltd v Steggles Limited (No 2) [2011] FCA 750 Read More