Analysis of Commercial Law Cases - Case Study Example

Commercial law Student’s name Course code Professor’s name University name City, state Date of submission Question 1 Issue Ellen opens a meditation studio through the signing of a two-year lease with the landlord. Before entering in to the contract she makes enquiries from Burnside Council as to whether there were any building works scheduled to happen close to the premises she had chosen to which she is informed that there is none. Ellen relies on this information and enters into the lease only to later find out that there were building works scheduled next door. Ellen, unable to carry out her business, stops paying rent and moves out of the premises. The landlord therefore threatens to sue her for breach of contract. The issue in this matter is whether Ellen is liable for breach of the contract for the two year lease. Further to this, whether Ellen has a course of action against Burnside Council for the misleading information. Rule Where there is a breach of a contract, the affected party has the right to go to court to seek damages or for the court to issue specific performance against the defendant party. In Hadley v. Baxendale1 the court said that where a party to the contract has breached the terms of the contract, the innocent party may claim damages against that party. The court went on to say that the damages which the party is entitled to must be those that may reasonably considered to arise according to the usual course of things or such damages as may have reasonably been in the contemplation of the parties when entering the contract. (Carter, 1996) The innocent party to the contract also has the right to sue for specific performance of the contract. An order for specific performance compels a party to a contract, who has failed to perform his obligations under the contract, to perform such obligations. (Beswick v Beswick [1968] AC 58) Application Ellen and the landlord enter into a contract for the lease of the premises for the purpose of setting up a meditation studio. According to the facts presented the contract is complete hence an offer and acceptance was made between the parties and consideration offered to complete the contract. Ellen had, prior to the signing of the lease agreement, proceeded to the Burnside Council offices to enquire as to whether there was any construction works scheduled. This information, from the facts available, was not under discussion in the contract for the lease of the premises. The fact that Ellen needed a quiet place for the setting up of the meditation studio was not included as a term of the contract. The contract between the landlord and Ellen was not conditional upon the existence of a serene environment suitable for meditation. Ellen’s decision to proceed to the Council offices was made prior to the making of the contract and was not a term inserted in the contract. The fact therefore that there were construction works scheduled next door and that Ellen’s business could not go on under such conditions, did affect the validity or the enforceability of the contract between Ellen and the landlord. Ellen had an obligation under the contract to pay the agreed rent and any failure to do so would amount to breach of a contract. The failure by Ellen in this case to pay rent was a breach of the contract which allowed the landlord to sue claiming damages and specific performance. (White & Carter (Councils) Ltd v McGregor [1962]) To terminate the contract for the lease would mean that she would be liable to pay damages to the landlord for the breach of the contract between them. The question therefore arises as to whether Ellen could sue the Burnside Council for the loss she incurred as a result of the misleading information given to her by the officer at the council’s offices. The officer had been informed as to the reasons as to why Ellen was seeking to know whether there were any building works scheduled close to her intended choice of premises. The officer also knew that such information was essential because Ellen’s business could not be carried out in a noisy environment. Further, Ellen had informed the officer of the council that the information acquired from him would help her decide whether or not to sign the two-year lease. The officer being well aware of the nature of the enquiries by Ellen informed her that there were no scheduled construction works. This information was false as four months later construction began next door. The issue falls under negligent misstatements, that is, where a person gives inaccurate or misleading information which when relied upon causes pure economic loss to the person who acted on the information. The English Court of Appeal had previously held in Derry v Peak2 that a negligent misstatement is insufficient to found an action since a duty of care could not be established in the absence of an existing contract or a fiduciary obligation. This meant that a person could not recover for losses incurred as a result of negligent misstatements by another person unless there existed a legal relationship between them, for example a contract, that created a duty of care. (Craig, 1976) However the decision in Derry v Peak was overturned in the case of Hedley Byrne & Co v Heller & Partners3. In this case the court held that a person could be liable in tort for negligent misstatements in cases where the person from whom information is sought has some special skill or judgment and that person knows that the person seeking the information will rely on it. This means that where a person seeks information from a person with specialised skill or judgment and acts on that information, any loss that result from such loss can be claimed against the giver of the information. (Craig, 1976) The High Court in Australia applied the above decision in Mutual Life and Citizens’ Assurance Co. Ltd v Evatt4. The court stated that a duty arises where a person gives information to another person and a relationship exists between them such that the giver of information knows that he is being trusted to give the information which would be acted upon by the receiver. In this case the council officer knew that the information Ellen was seeking would help her decide whether or not to enter in to the lease. Further, he knew that the business would not thrive in a noisy environment. With the full knowledge of the nature of the information sought, the council officer negligently gives false information to Ellen. Ellen therefore has a course of action against the council for the negligent misstatement by the officer. Ellen could therefore recover damages for her loss from the business. In L Shaddock and Associates Pty Ltd v Parramatta City Council5 the council in this case was ordered to pay damages to the plaintiff for negligent misstatements made to the plaintiff. Conclusion The decision to move out of the premises and refusal to pay rent by Ellen gives the landlord the right to sue for breach of contract. Ellen cannot terminate the contract unless she pays damages and compensation to the landlord for breaching the contract. Ellen however has a course of action against the council for negligent misstatements made by the council officer. Question 2 Issue The issue is whether Bob has any course of action against the manufacturer of the jumper as a consumer under the Australian Consumer Protection Law. Rule Section 138 of the Competition and Consumer Act 2010 provides for the liability of a manufacturer of a product for the loss or damage suffered by a consumer as a result of the use of such goods. The section provides that a manufacturer is liable to compensate any person who suffers injuries as a result of a safety defect that was in the goods supplied by the manufacturer6. The person injured can recover from the manufacturer the full amount of the loss or damage he has suffered as a result of the defective goods7. Application Bob buys a jumper from a retail store and after wearing it he contracts dermatitis as a result of the sulphur that had been left on the wool during the manufacturing process. The injury caused to Bob in the form of the illness contracted makes the product, in this case the woollen jumper, a defective product. Bob did not however wash the jumper before wearing it and as a result he contracted the disease. According to section 138 of the Competition and Consumer Act 2010, liability accrues against the manufacturer of the product for the defects in the goods. The section entitles Bob to seek compensation for the harm caused to him as a result of the defect in the woollen jumper. Bob would also have had a course of action against the retail business had the defect been such that the seller ought to have known about it and therefore cautioned the buyers about it. However from the facts of the case, the defect in the woollen jumper was not noticeable to the seller or the buyer. The defect was nevertheless as a result of the negligence of the manufacturer who left sulphur residue on the wool used to make the sweater. This means that, relying on the provisions of the Competition and Consumer Act, Bob has a course of action to seek remedies for the injury suffered. The Competition and Consumer Act states that goods will be considered to have a safety defect where the safety of the goods is not the same as people are entitled to expect8. When determining the safety of the goods, the court will look at any instructions or warnings on the product on what the buyer should or should not do in respect to the goods9. This means that goods may not be considered to have a safety defect where the goods have instructions on what to do or what not to do and the buyer uses them without following the instructions causing injury. Bob in this case did not wash the woollen jumper and as a result he contracted dermatitis. Whether or not the product was defective as to give Bob the right to seek damages depends on whether there were instructions on washing the jumper before putting it on. If the instructions were provided and Bob failed to follow them then the manufacturer may not be liable. However if there were no such instructions then Bob has a right to seek remedies. In this case it is clear that the sulphur was left on the jumper as a result of negligence on the manufacturer. The manufacturer had a duty of care to ensure that the goods were safe for the use by the buyer. The goods in this case were not of quality and neither were they fit for the purpose for which they had been bought. (Ramsay, 2012) Conclusion According to the provisions of section 138 and section 9 of the Competition and Consumer Act 2010, Bob is entitled to seek damages and compensation for the injury in the form of illness caused as a result of the use of the woollen jumper which was defective. Section 237 of the Competition and Consumer Act further provides for the right of the injured person to seek compensation for injuries. The manufacturer is liable to pay damages for the defective goods that caused the injury to Bob. References Carter, J. W., Harland, D. J., & Lindgren, K. E. 1996. Contract law in Australia. MICHIE. Craig, P., P. 1976. Negligent Misstatements, Negligent Acts and Economic Loss. Law Quarterly Review, 92(APR), 213-241. Dobbs, D., B. 1973. Handbook on the law of remedies: damages--equity--restitution. West Pub. Co.. Goldring, J., Maher, L., McKeough, J., & Pearson, G. 1998. Consumer protection law. Federation Press. Goodhart, A. L. 1962. Liability for Negligent Misstatements. Law Q. Rev., 78, 107-111. Howells, G. G., & Weatherill, S. 1995. Consumer protection law (No. s 96, p. 4). Aldershot: Dartmouth. McKendrick, E. 2014. Contract law: text, cases, and materials. Oxford University Press. Nottage, L. 2009. Consumer law reform in Australia: Contemporary and comparative constructive criticism. Queensland U. Tech. L. & Just. J., 9, 111. Ramsay, I. 2012. Consumer law and policy: Text and materials on regulating consumer markets. Bloomsbury Publishing. The Australian Competition and Consumer Act 2010. Read More