Business Law in Australia: Type of Contract - Case Study Example

LAWS20028 BUSINESS LAW [Name] [Professor Name] [Course] [Date] Question 1 1) Type of contract It is an expressly written contract. In express contracts, the parties to a contract state the terms orally or written form of terms of the contract at the time of formation of the contract. Based on the facts provided by the case study, it is clear that the contract is a written contract as there is an unambiguous written offer, which the offeree, of the party to whom the offer is made, accepts in a way that clearly shows consent to the contract terms. For instance, Mike, who is a licensed electrician, agrees to install a manufacturing machine recently procured by Frank. For this service, Frank agrees to pay Mike $40,000 for the installation. Rather than just leave the contract to be verbal, Mike prepared a written contract that he presented to Frank to sign. The contract stipulates that Mike’s liability for damages for any claims for breach of contract should not be more than $6,000. The fact that a written statement exists denotes that it is a written contract. Therefore, the contract is bilateral in nature, which implies it is a bilateral contract. This is since there are mutual exchanges and reciprocal promises between the offeror and the offeree, which entails payments for performance of an act. Hence, the promise made by one party constitutes adequate consideration for the promise made by the other1. This is the case in the present scenario. The promise by Mike to install the machine constituted sufficient consideration for Frank to make a payment of $40,000 for the installation services. 2) Whether Frank can establish a breach of the terms of the contract by Mike? A key legal issue would be whether Mike has breached a contract. A breach of contract is an unjustifiable failure to perform a contractual duty or failure of a party to do what he agreed in a contract2. It comes about when that party that has a duty to perform an act fails to do so. Mike breached the contract as he failed to perform as expected. However, to confirm this, four elements have to be considered: whether he entered into a contract with Mike, whether the two parties agreed to a contract, and since it is a written contact, whether Frank has written evidence showing that he entered into a contract with Mike. As demonstrated in the case law of Williams v Roffey Bros & Nicholls Ltd3, it will be reluctant to find that a contract has been breached on condition that the breaching party has a chance to perform his duty. In the case, Mike entered into a contract to install Frank’s new machines. However, since Mike was given an opportunity to install the machine at Frank’s facility and Frank failed to install the machines as expected, then it means that Frank can be successful in a lawsuit against Mike, as Mike failed to perform professionally as expected. Hence, it can be demonstrated that Frank, the breaching party, did not do something as required by the terms of the contract4. Additionally, the complainant has to show that he suffered harm or damages because of the breaching party’s failure to perform. Indeed, Mike can show that because of breach of contract, he suffered significant damages. The harm suffered has to be quantifiable into monetary form. In the case study, Mike wrongly connected the wire. The normal checks would have disclosed that a wire was wrongly connected, which caused fire. The fire damaged Frank’s factory. The cost of repair is $40,000. At the same time, the factory stopped working for three weeks during the repair, leading to loses worth of $20,000 of the trading profits. Therefore, the damage can be quantified into monetary terms, which is $60,000. 2) Whether Frank’s claims of damages is limited to a maximum claim to $6,000 The key issue is whether Frank will be limited to a maximum claim of $6,000 even though he was not aware of it when he signed the contract. Mike cannot claim that he failed to read the contractual terms as a defence. As demonstrated in Duffy & Ors v. Newcastle United Football Co. Ltd (2000)5, where it was demonstrated that a signature makes it difficult for the signatory to successfully argue that the written terms of a contract misrepresent what the two parties agreed to. This also means that when an individual signs a contract, he is assumed to understand what it says, and is, therefore, bound to the terms on the contract6. Indeed, since the agreement between Mike and Frank was ultimately put into writing, then it means that the statement that Mikes liability for any damage should not go beyond $6,000 in the event of any claim for breach of contract, is more likely to be a term of the contract. Additionally, as showed in the case law of L’Estrange v. Graucob Ltd. (1934)7, a general rule would be that the parties should be bound by all the terms specified in a contractual document once it is signed. This implies that the contract is enforceable whether Mike read the terms or did not understand them. Even when an individual is not able to read the contractual terms, he is still bound by the terms. It would be assumed that Mike should have tried to seek an explanation of the content or tried to read it. The only exception would have been that if Mike relied on the explanation of Frank regarding the contents of the agreement and he was justified on relying on Mike, and second, when the explanation Frank made was fraudulent. In the case law of Routledge v. McKay8, it was determined that when a contract is set in writing, then all statements that appear in that written contract will often be considered as a term. Therefore, any prior oral statement that is not repeated in the written agreement would be considered as a representation, because of the assumption that when a statement is not included in a written agreement, the parties failed to consider the statement as significant. Therefore, even though Frank can prove that a breach of contract exists, he is limited to a maximum claim of $6,000 even though he was not aware of it when he signed the contract. 4) Whether Frank can bring an action in tort against Mike for Negligence, rather than an action for breach of contract. The key issue is whether Frank can choose to bring an action in tort against Mike for Negligence, rather than an action for breach of contract. Cause in Fact Under the common law, Frank must prove that Mike’s actions caused the damage. As demonstrated in the case law of Smith v Hughes9, the courts will need to prove that the action would not have occurred if not for the defendant’s actions. In the case study, Mike expected professional work. Hence, the fire accident would not have occurred if Mike read the instructions or listened to his assistant. Duty of care Mike must prove to the court that the defendant (Frank) owed him a duty of care. This facts were determined in the case law of Donoghue v.Stevenson10, where it was determined that in proving negligence, the complainant must show that the defendant owed him a duty of care. The duty of care, as established in the case law of HIH Casualty and General Insurance Ltd v Chase Manhattan11, comes about when the relationship between the parties to a contract is established to be commercial in nature. Consequently, the relationship between Mike and Frank was commercial in nature. Hence, Frank owed Mike a duty of care. Breach of Duty Mike must also show that a breach of the duty of care exists. This duty would be breached when the defendant does not show reasonable care in fulfilling his duties. In the case study, it is clear that Mike failed to exercise reasonable care as he neglected his assistant’s advice that he should check the connections before switching on the machines. However, Mike acted unprofessionally by looking for shortcuts to save time, and switched on the power. Proximate Cause Proximate cause concerns the scope of the responsibilities of the defendant. Here, the defendant is only liable for the damages he could have foreseen and which he failed to prevent. Frank could have foreseen the accident: Donoghue v.Stevenson12. However, Mike wrongly connected the wire. The normal checks would have disclosed that a wire was wrongly connected, which caused fire, despite warnings by his assistant. Damages As determined in the case law of Constantine v Imperial Hotels13, the complaint has to show that the defendant’s breach directly caused damages that can be quantified into monetary terms14. The fire damaged Frank’s factory. The cost of repair is $40,000 to repair. At the same time, the factory stopped working for three weeks during the repair, leading to loses worth of $20,000 of the trading profits. Therefore, the damage can be quantified into monetary terms, which is $60,000. Therefore, Frank can choose to bring an action in tort against Mike for Negligence, rather than an action for breach of contract. 5) Whether facts suggest that this duty was breached or not Since it can be established that Mike had duty of care, it must also be proved that he breached this duty. The central issue is, therefore, whether this duty was breached or not. As demonstrated in the case law of Bolton v. Stone15, the courts will consider whether the behaviour that the defendant displays is not that of a "reasonable man" (the objective test). This test is called the objective test. In skilled professions, such as that of engineering, the courts will determine whether the defendant exercise standard of care of any reasonable engineer. Under this circumstance, inexperience is not a defence, as the defendant is expected to perform the task competently. Based on the facts of the case, Mike failed to exercise standard of care as he failed to consult the manual or listen to his assistant. The facts, therefore, show that Mike breached the duty of care. 6). Quantification of the damages that Frank has suffered. In the case law of Chweidan v Mishcon de Reya [2014]16, the court set out how to quantify and calculate losses in cases of professional negligence. The court held that the court should assess the possible level of damages, as well as assess any documentary evidence on any likely possibility of settlement. Damages consign monetary value on the resulting injury or harm based on the rule of “restitutio in integrum,” which requires that the claimant have to be restored to his original condition. Hence, since a breach of duty has been established, the only requirement would be to compensate Frank. Quantifying the losses would imply calculating the losses Frank suffered. Hence, since the claims for negligence are separate from ‘breach of contract” claims, the courts may not consider exclusion clause in the contract, which limited the amount that Frank can claim. Therefore, since the sum total of the losses is $60,000, he may be given $60,000 for damages. Question 2 2. Legal options Chelsea has against Comfee. The central issue is whether a sales contract exists between Chelsea and Comfee and if so, the legal options Chelsea has against Comfee. When it comes to product liability, the terms of contract are implied for the goods supplied, which do not owe much on voluntary choice. Essentially, sellers are liable for the satisfactory quality implied in the contract by virtue of the Sale of Goods Act. Additionally, the courts can imply terms into the sales contracts. The reason for this form of implication is to provide effect to the apparent intentions of the parties. The court may ‘create’ a contract between the buyer and seller through imposition of an obligation on the seller, who promises or guarantees the buyer quality. For instance, it can establish liability in damages for the seller’s negligent misrepresentation. Section 6 of the Sale of goods Act specifies that a contract of sale of goods denotes a contract in which the seller transfers property to a buyer for money as the consideration. Hence, since Chelsea, as the buyer, bought the pair of shoes from Comfee, the seller, a sales contract exists. According to s. 25 of the Sale of Goods Act, risk as it appears at first sight comes with property. In the case of Chelsea, risk would mean the likelihood injury from buying shoes that are unfit for running. Many jurisdictions in Australia permit contracting out the implied warranties of the Sale of Goods Act based on the specific words used in the contract. While buying the shoes, Chelsea explained that she needed a pair of running shoes to the sales assistant, who selected a pair and said that the brand was good. In the case law of Victorian Alps Wine Co Pty Ltd v All Saints Estate Pty17, the court determined that one was only required to prove that they had been expressly disadvantaged. Hence, Chelsea only needs to prove that she had been injured from buying the shoes selected by the sales assistant. Hence, Chelsea can rely on contracting out the implied warranties of the Sale of Goods Act to claim that Comfee had exposed her to injury. Chelsea may sue Comfee for damages for a breach of warranty. At the same time, the words relied in the sale of goods contract in description of the subject matter also outline the description of the products. In the case law of Beale v Taylor ([1967]18, the court allowed the cliché that a sale by description should exist despite the fact that the buyer buys a product displayed at the counter. Hence, Chelsea may sue Comfee for damages for a breach of warranty under s. 56(1) of the Sale of Goods Act, which provides her with the right to seek damages for breach of warranty. S. 56(4) further permits reduction of price rather than suing for damages. Chelsea may as well establish the breach of warranty in reduction of the price to be paid under a sales’ contract. s. 55 of the Act allows the court to order for remedies of specific performance. According to Australian Consumer Law (ACL) Chapter 3, the consumer has a right to statutory remedies and guarantees. The only qualification is that Chelsea has to be a consumer. According to s. 3(1) ACL, a consumer denotes an individual who pays an amount that does not surpass $40,000 and when the services were normally attained for personal use. Under S. 56 of the ACL, a consumer is provided with the right for guarantee, which relates to the supply of goods based on its description. In the case, Chelsea relied on the description that the Comfee provided. The assistant at Comfee described the shoes as fit and comfortable for running. Hence, Chelsea can make claims for the rights for guarantee under s. 56 of the ACL. Further, S. 236 of the ACL gives consumers the right to take legal actions for damages against the individual whose act or words caused the damages, as well as any other individual caught up in the contravention. Hence, Chelsea can also take a legal action against the assistant who selected the shoes and expressed that they are good and comfortable for running, under s. 236 of the ACL. To conclude, since Chelsea bought the pair of shoes from Comfee, a sales contract exists between them. Therefore, Chelsea may sue Comfee for damages for a breach of warranty under s. 56(1) of the Sale of Goods Act. She may as well make claims for the rights for guarantee under s. 56 of the ACL. Lastly, she can also take a legal action against the assistant under s. 236 of the ACL. Question 3 The central issue is whether MS Beattie can sue the financial expert at Queensland Subprime Bank Ltd for giving her negligent advice leading to her losses, of $400,000, after investing $500,000 when shares were due to crash. In the state of New South Wales, the common law of negligence is integrated in the statute. In particular, the Civil Liability Act 2002 (NWS) deals with negligence. Under s. 5D(3) of the Civil Liability Act, a claimant can bring an action for negligence actions of a professional. It is applicable to claims for damages that come about from negligence, including where the claim is framed in tort, contract or under statute. Under this section, professional negligence claims are concerned with the allegations of negligent advice issued to a plaintiff, leading to his or loss. Under such circumstances, the question as to what the plaintiff would have done had the advice not been given19. Same as under the common law, to determine negligence under the Section 5B Civil Liability Act, the claimant needs to prove that the professional owed him a duty of care, the professional breached that duty of care, the professional caused the damage20. In the case study, the financial expert, who is a professional, advised Ms Beattie to make an investment of $500,000 in the bank, which was a negligent legal advice as the shares of the bank crashed by 80 percent, reducing her shares to $100,000. The financial expert owed Ms Beattie a duty of care. Additionally, his advice caused Ms Beattie to make the investment. As a reasonable person, Ms Beattie would have made such a huge investment when she knew that the shares would crash. Indeed, Section 50 of the Civil Liability Act 2002, describes the standard of care in situations in which the defendant not liable in negligence when he acts in a manner that peer professional opinion broadly accepts in Australia21. In the case however, the Retirement Advisors Trust (“RAT”) warned it its members against promoting high-risk investments in QSB shares. This implies that peer professional opinion would not have approved the advice to Ms Beattie, as held in Chappel v Hart (1998)22 and in Rosenberg v Percival (2001)23. When it comes to causation, Amaca & Ors v Ellis [2010]24 applies the "but for" test, and secondly, whether a defendant is responsible for the damages that his negligence contributed to. These are modified by Section 5D of the Civil Liability Act 2002. Hence, MS Beattie can sue the financial expert at Queensland Subprime Bank Ltd for giving her negligent advise leading to her losses, of $400,000, after investing $500,000 when shares were due to crash. Question 4 4a) Advise Frank, Daniel and Desai, of their liability (if any) to the Fitzroy Pensioners' Society under Australian Tort Law. Frank, Daniel and Desai have a liability for negligence, specifically carelessness and breach of duty. In jurisdictions, such as New South Wales, the vital questions in establishing liability depend on whether they have breached a duty of care. This is contained in s. 5B of the CLA (NSW), which specifies that pertinent principles to establish liability. In the case law of Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Ltd25, the court defined the relationship between section 5B of the Civil Liability Act (NSW) that states that one would not be held to be negligent save for when some conditions are fulfilled and the common law. Therefore, to establish their liability, Frank, Daniel and Desai will be referred to section 5B’s principles, which requires that an individual would not be considered to be negligent unless it is determined that the risk was (a) foreseeable, for instance, it should have foreseen that investing $1 million of FPS fund to a high risk company called West Point would have led to a loss, (b) was not insignificant, for instance, in the case study, the risk is significant, as FDD had failed to insure FPS building, value at $2 million, which burnt down resulting to total loss. Additionally, it had invested $1 million of FPS fund to a high risk company called West Point, leading to a $1 million loss. And (c) a reasonable person in the defendant’s position may have taken such precautions. For instance, it could be argued that no reasonable person would have invested $1 million of FPS fund to a high risk company called West Point. Hence, such a decision may not have been approved by peer professional opinion. 4b) Avenues for limiting or entirely excluding liability for FDD's potential liability under Australian The key issue is whether the defence of “Good Samaritan” or voluntary assumption of risk applies. Similarly, Part 9 of the CLA (NSW) provides defence from civil liability for community organisations. In which case, volunteers do not incur civil liability when they undertake community work in good faith26. In this case, "community work" entails activities that are not for private financial advantages. Rather, they are for cultural benevolent or charitable purposes. In the case, FDD voluntarily manages the financial affairs of FPS at no financial gain. Hence, the good Samaritan or voluntary defence applies. The defence of voluntary assumption of risk is applicable in situations where a claimant freely and voluntarily accepts a certain risk through his actions or words. In the case, FPs voluntarily accepted the risk of its finances being managed on voluntary basis by FDD. The claimant must be fully aware of the risk as determined in the case of Leyden v Caboolture Shire Council27, where the court held that it is complete defence, which denies the claimant any claim, regardless of whether the defendant was negligent. S. 5G(1) of the CLA (NSW) applies an objective standard, where it requires the plaintiff to prove that he was not aware of the risks. Consequently, the plaintiff would be assumed to have been aware of the risks unless he is capable of proving otherwise. Hence, FDD may successfully rely on the defence of “Good Samaritan” or voluntary assumption of risk applies. Reference List Articles, Books and Journals Gergen, M 2003, "Negligent Misrepresentation as Contract," California Law Review, pp.955-965 MacMillan, C & Stone, R 2012, Elements of the law of contract, University of London International Programmes, London Miller, d, Creighton, G & Kaminskas, D 2012, "A user's guide to the Civil Liability Act 2002 (NSW)," Media, viewed 11 May 2015, Motto, M & Schuck, R 2012, "Australian Contract Law," Consult Australia Response to Discussion Paper July 2012 Ricks, V 2001, "Assent Is Not an Element of Contract Formation," Kansas Law Review, vol 61, pp591-653 Sappiedden, C & Vines, P 2007, "NSW Civil Liability Act: Negligence and the International acts of others," Australian Civil Liability vol 4 no 1, pp.1-12 Thomson Reuters 2012, The Law Handbook: Your Practical Guide To The Law In New South Wales, Thomson Reuters, Sydney Case Laws Amaca & Ors v Ellis [2010] HCA 5 Beale v Taylor [1967] 3 All ER 253 at 255 Bolton v. Stone [1951] AC 850, [1951] 1 All ER 1078 Chappel v Hart (1998) 195 CLR 232 Donoghue v.Stevenson [1932] 1 All ER 1 Duffy & Ors v. Newcastle United Football Co. Ltd (2000) HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 Leyden v Caboolture Shire Council [2007] QCA 134 L'Estrange v F Graucob Ltd [1934] 2 KB 394 Chweidan v Mishcon de Reya [2014] EWHC 2685 (QB) Roads and Traffic Authority (NSW) v Refrigerated Roadways Pty Ltd (2009) 168 LGERA 357 Rosenberg v Percival (2001) 205 CLR 434 Routledge v Mckay [1954] 1 WLR 615 Smith v Hughes (1871) LR 6 QB 597 Victorian Alps Wine Co Pty Ltd v All Saints Estate Pty Ltd (BC201202710, [55]), Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 Read More