Business Laws, Common Laws and Equity Principles in Australia - Assignment Example

Business Law This paper aims to examine and understand business laws, common laws and equity principles in Australia, by analyzing them through three cases and answering some questions based on the three cases. The questions aim to address all issues, controversies and discrepancies involved in contracts and related transactions in businesses in Australia. The first case is about a controversial contractual agreement between Dorasett Shire Council and MidCoast Development to develop a 50 hectare surplus council river front land into a new subdivision. MidCoast was to undertake all the actual development work and manage the project entirely through a special purpose subsidiary – Riverview Pty Ltd – with Dorasett’s role largely limited to that of a passive investor and friendly regulator, supplying the land and working capital. Following the start of the project there were several discrepancies and issues because of certain government regulations and amendments to laws. The first question addresses the aspect of termination of contract under the NSW general contract law principles. It questions whether either of the two parties are allowed to terminate the contract due to the new legislations issued by the government. According to Gibson (2006), “A contract is an agreement (or set of promises) between two or more parties involving the creation of legal rights and obligations which will be enforced by the courts”. A contract may be terminated either because of the obligations have been performed, in which case it will be automatic or through an agreement or through frustration or breach. In the case of DCS and MidCoast it is feasible to terminate the contract through contractual frustration. Frustration of a contract can occur if the performance of the contract can render it illegal, impossible or radically different. In this case the contract can be terminated because of frustration as the two changes in law in February 2007 rendered the performance of the contract illegal and financially impossible. The first legislation caused DSC to pay a 10% tax on the sale of council property based on Stamp Duty Act. This required DSC to pay the government $1 million in addition to the $20 million that they were already pumping into the venture. The second legislation made it illegal for DSC to fast track the approval for the project causing it a further delay of six months. These two legislations make it more feasible to terminate the contract base on frustration. The second question addresses the aspect of time and breach of contract. According to the contract DSC agreed to pay MidCoast $10million within two months of signing in order to fund the development work. However Dorasett had trouble obtaining the funds and payed MidCoast only in June 2007 after a 2 month delay. Time is of essence here, since MidCoast had to borrow the $ 10 million in short term capital from the Newcastle Union Bank at a cost of $240,000 and further incurred related costs of $25,000. This transaction caused MidCoast a significant amount of financial damage. MidCoast are eligible to claim damages caused by DSC because of breach of contract. Damages are the common remedy for breach of contract. A breach may be anticipatory or actual. In this case however the breach is actual as DSC has failed to perform their part of the bargain at the agreed time, that is, they have failed to provide the $10 million funding within two months after signing the contract. Once it has been established that MidCoast is eligible to claim damages, the type of damage to be claimed must be decided. In this case DSC will have to pay for Ordinary Damages. Ordinary Damage is the most frequently occurring form of damage. The court will award the damages on assessment of the losses suffered by MidCoast as a result of the breach of contract by DSC. The third question addresses the failure of MidCoast to keep separate books for Riverview Pvt. Ltd., a subsidiary of MidCoast, which was in charge of the development work of DSC’s property. Furthermore MidCoast also used the $10 million as its overall working capital for its other projects as well. According to law, a breach in performance maybe a breach in certain obligations rather than the breach of the entire contract. Breach is generally of an essential term. In this case it is a breach of an innominate or intermediate term. An innominate term is a term that “lies between a condition and a warranty where the court focuses on how serious the effects of the breach are on the contract”. Here MidCoast has engaged in unauthorized appropriation of funds that were to be used for the development of Dorasett’s property. The court will decide the damages payable depending on the how serious the effect of the unauthorized appropriation is. The next question addresses the damages that Dorasett is eligible to claim for unauthorized appropriation of funds by MidCoast. Once it is established that a breach of contract has been made by MidCoast the type of damage and the resultant compensation must be decided. In this context the type of damage is an ordinary one. Ordinary damages are the most common. Here the court will decide how much damage MidCoast has to pay Dorasett, depending on the loss incurred by Dorasett following the misappropriation of funds. This question also aims to address the third part penalty the Dorasett incurred due to the delayed and incomplete submission of annual accounts to the New South Wales Audit Office. Dorasett can claim damages for the additional loss incurred because of the penalty. A penalty, according to the common laws and equity principle in Australia, is a threat to ensure performance. However, only the actual loss incurred by the effective party can be recovered. Under this regulation, Dorasett is eligible to claim the $50,000 penalty it had to pay the NSW Audit Office from MidCoast, due to its late and incomplete submission of accounts. The next point to be ascertained if there is any further agreement or understanding must be drawn in the event of Dorasett and MidCoast jointly deciding to terminate the contract. According to the commercial law in Australia, a contract can be terminated through a subsequent agreement, wherein the cancellation of the original agreement occurs by a mutual discharge. For a mutual discharge of the present contract to occur, the original contract must still be executory. Once a mutual discharge of the contract has been made, no further agreement will be necessary between DSC and MidCoast. The final question presents a hypothesis with a variation of the situation. It aims to find out if MidCoast can make a claim against Dorasett under contract, restitution or unjust enrichment for any amount in the event of both parties fulfilling the contractual obligations and the absence of any changes in law. At the time that the project was declared void the total market value of the property was $80 million. Dorasett had spent $21 million and MidCoast had spent $1 million. Based on these circumstances, MidCoast is eligible to make a claim against Dorasett under the restitution legislation. The primary basis for restitution is in unjust enrichment. There are four primary conditions for a valid restitution, namely, the defendant must receive special benefits, especially at the expense of the plaintiff, it will be unjust for the defendant to obtain and retain the benefit and lastly the defendant has no defences available. Since MidCoast has expended $1 million towards the project. It is only fair that they claim a token amount, for example 25% of the $80 million, which is the total market value of the property in order to recover the amount expended and as a reasonable compensation amount for the project development and work it has done. Although it must be noted that according to legislation, a remedy in restitution is independent of contract and is usually in existence either because there is no specific contract between the two parties in question or because such a contract is void or considered impossible to enforce. Hence although MidCoast can claim form Dorasett as per commercial laws and regulations it will be independent of contract. The second case that this paper will deal with is the advise that has to be given to Jamie Cook, a Queensland investor about what remedies under common law and equity he may have against Kaye Konstruct Ltd in relation to the erroneous representations of its agent Yarra Properties Pty Ltd. In order to provide sound, comprehensive advice to Jamie Cook, it is necessary to analyze all the aspects relating to a contractual agreement such as rules to offer, rules to acceptance, damages, type of damages etc, with reference to the current circumstances. The first aspect to be analyzed is related to offer. According to Woodward et al. (2003), an offer is an invitation to a person or persons to enter into an agreement based on certain specific terms. An offer can primarily be of two types. It can be made to one or more persons at the same time or it can be made by the communication of an offer by the offeror to the offeree. Communication of the offer can be done either through words, written communication or through conduct. In this context, communication of offer has been done through words by word-of-mouth. The representative of Yaara Properties had made two word-of-mouth pre-contractual representations. The first one said that the ten apartments that Jamie had bought would generate high rental income based on an 85% occupancy rate because of the growing demand. The second representation said that the apartments would provide a capital gains growth potential of about 25% over the next two years. Neither of these two representations was authorized by Kaye Konstruct Ltd., as it was given by Yarra’s senior partners. The next aspect is acceptance. Woodward et al., define acceptance as an agreement to a contract on the terms specified in the contract. There are rules to acceptance specified in commercial legislation. Firstly the acceptance must be made only by the person to whom the offer was made. Secondly, acceptance is required to be unconditional and in the methods specified. Thirdly acceptance must be in reliance of the offer and lastly acceptance must be within a certain specified time. In the case of Jamie and Kaye Konstruct Ltd., the acceptance was made in reliance of the offer as represented by the representative of Yarra Properties, namely its senior partner, who video conferenced with Jamie before he invested in the property. The acceptance was also made within the time that was set. Acceptance must also be communicated. However there are some exceptions. Communication of the offer is of essence unless, the offeror has completed the offer with a notification or acceptance assumes the form of the performance of an act or lastly communication ix exempted in situations where the postal rule applies. Hence as per the rules of acceptance, Jamie was in accordance. The most important factor to be considered in this case is the damages and remedies that Jamie is eligible to claim from Kaye Konstruct Ltd., for breach of contract and failure to keep up to the promised offers. Damages are the most logical and obvious remedy for breach of contract, that is failure to perform as stated in the contract or making false claims and promises. Damages are granted to the affected or innocent parties in order to place them in the position they would have been if the contract had been carried out as promised and as originally intended. An instance of this can be seen in the case between the Commonwealth and Amman Aviation Private Limited. Commonwealth wanted to terminate the contract it had with Amman Aviation, but the notice it rendered was invalid thereby making Amman Aviation eligible to choose to terminate the contract and sue them for the damages caused. However for the damaged to be recovered it should not be remote. It should arise naturally due to breach of contract or arise from certain special circumstances where the loss was made known to the innocent party at the time of drawing the contract. Jamie had incurred a loss of $1 million due to contractual misrepresentation. This is a breach of contract and hence Jamie is eligible to claim for damages from Kaye Konstructs Pvt. Ltd. It is very important for Jamie to take certain steps to minimize or mitigate the loss incurred by him due to the breach of contract by Kaye Konstructs. Mitigation is a very vital part of recovery of damages. A person who fails to mitigate is not eligible to claim any part of the loss incurred and this can be attributed as failure to mitigate. However mitigation is based on factual information and it is the prime responsibility of the affected or innocent party to gather proof of breach of contract. The next step is to assess the amount of damages that Jamie is eligible to claim. There are certain criteria to claim damages. Firstly the affected party must show and prove that he has sustained a loss that needs to be compensated for. Secondly, for damages caused due to disappointment, distress, injured feelings of just plain inconvenience, a specific sum or amount of damages are not generally recoverable. In a case between an individual and a company, that is, between Falko and James McEwan and Co., in 1997, under an ordinary commercial contract, Falko sued McEwan an Co., who was an electrical dealer for the cost of installation for an oil heater that he had bought from them as it caused him some amount of mental In this case the damages may not be recoverable. Likewise in a case between Baltic Shipping Company and an individual Dillon in 1993, during a 14-day holiday cruise the ship of Baltic Shipping Company sank. In such circumstances damages are difficult to recover for mental distress or disappointment. Secondly as far as breach of contract is concerned, it can be difficult to specifically ascertain and quantify the loss incurred in monetary terms. For example in dealings of a speculative nature, like loss of chance or opportunity to obtain benefit, it is difficult to quantify the loss incurred in specific monetary terms. An example of this can be seen in a case between Howe and Teefy in1927. The plaintiff, in this case Howe claimed for the loss of profits that he had incurred on bets and stable commissions he would have received on a horse leased out to him by the defendant, Teefy. The defendant had in a breach of contract retaken possession of the horse he had leased out to Howe. Since the loss incurred was based heavily on speculation, quantifying the loss becomes a difficult task. In the case of Jamie however the loss incurred is quantifiable to a certain extent but it was also based on speculation and fluctuation in prices due to the current economic situation. But since the two pre-contractual representations were made by the senior partner of Yarra Properties and was not authorized by Kaye Konsructs, Jamie is entitled to claim loss due to damage caused due to misrepresentation, despite the speculative and fluctuating nature of the property business. Finally it is vital to ascertain the type of damage that is recoverable by Jamie in the current circumstances. Since it has been established that he is eligible to claim for damages as per commercial law, ascertaining the type of damage is of essence. Jamie is entitled to receive ordinary damages which are by far the most common damage claim. This kind of damage is ascertained by the court depending on the loss incurred by the affected or innocent party. Jamie is also entitled to sue for either or both liquidated and unliquidated damages. In this case however, the damages that he can claim are unliquidated in nature. Unliquidated damages are those amounts that are not mentioned in the contract beforehand and are left to be decided by the court based on the loss suffered by the innocent party. Thus Jamie is entitled to claim damages based on the rules of offer, acceptance and the nature of damages that he has incurred, as stated by commercial law, due to misrepresentation of Yarra Properties even though Kaye Konstructs had not authorized them and was unaware of the same. The final case also deals with legal advice. Here it is to be given to Organix Pty Ltd., for a case against RooChew Pty Ltd, a food manufacturer under the Australian Tort laws. Organix Pty Ltd., a manufacturer of green chemicals, accidentally allowed a large volume of toxic chemicals to fall into the Brisbane River close to which its plant is situated. This contaminated water was sucked into RooChew’s cooling intake system, thereby causing physical damage to their plant and bringing them a loss of $ 650,000 to its plant and a loss of $350,000 in production. This part of the paper will engage in advising Organiz Pty Ltd., on the potential liabilities they may have to RooChew due to the damages and loss incurred by them. Firstly the type of Tort law that this case will come under is Negligence. Negligence is a type of tort or delict commonly referred to as a civil wrong. It is a legal notion or concept in common law legal system, usually used for loss or damages incurred to injuries. These injuries do not include accidents. It is however not the same as carelessness. Negligence is usually described as the conduct that is in the wrong, because it falls short of the general standards of normal, reasonable behaviour. A person is negligent when he fails to do what a rational, realistic person would do to ensure the protection of another individual from any foreseeable risks or harm. According to Lord Blackburn, “those who go personally or bring property where they know that they or it may come into collision with the persons or property of others have by law a duty cast upon them to use reasonable care and skill to avoid such a collision”. Using civil litigation, the affected party can prove that the accused party was negligent and caused him loss or injury and claim damages to compensate for his loss. Proving negligence can make the affected party eligible to claim for damages caused to body, mental well-being, property, financial status or relationships. Negligence cases are highly fact dependent and specific. Hence if RooChew can prove that it has incurred a loss because of damage done due to the negligence on the part of Organix Pty Ltd., Organix Pty Ltd., is liable to pay RooChew for the damages caused by its negligence. Negligence cases have been analyzed over time and certain basic elements of negligence claims have been established. Irrespective of the variations in common law jurisdictions, there are four basic elements that are parts of every negligence claim. These four elements include duty, breach, causation and damages. The number of elements can vary from three to five depending upon the precision that the affected party is seeking. According to Professor Robertson of the University of Texas, “The broad agreement on the conceptual model, "entails recognition that the five elements are best defined with care and kept separate. But in practice, several varieties of confusion or conceptual mistakes have sometimes occurred”. The first element of negligence is duty of care. The basic principle behind duty of care is reasonable compensation for foreseeable harm. There are however some pre-requisites for duty of care. For it to be valid for compensation, harm must first and foremost be reasonably foreseeable. Secondly, there must be a certain level of closeness or propinquity between the defendant and the plaintiff and lastly the circumstance must be fair, just and reasonable to be able to impose a compensation claim or liability. Hence Organix may be liable to pay for damages caused because of its negligence to RooChew Pty Ltd. This is because all three pre-requisites with regards to harm are satisfied in the current circumstance. The damage is reasonably foreseeable as toxic chemicals spilt into the river are harmful by nature for all those using the water as it causes damage to health and other property. Secondly, the proximity condition has also been satisfied. The RooChew manufacturing plant is situated only 500 metres from the Organix plant, down the River Brisbane. Facts show that the toxic chemicals are harmless if RooChew plant had been situated one kilometer from the Organix plant. With that distance the effects of the chemical would have worn off. However since RooChew is situated within one kilometer, there was close proximity. Lastly, the claim is considered fair, just and reasonable as RooChew sustained a loss of about $1 million for which compensation is very important. Since all three conditions are satisfied, Organix is liable to compensate RooChew for its negligence under duty of care. The next element of negligence to be examined is Breach of Duty. After it has been established that the defendant owes duty of care to the affected party, it has to be analyzed whether there was breach of duty. If the defendant has either knowingly or unknowingly exposed the plaintiff to a significant amount of risk then it is breach of duty. If he has failed to realize the damaged caused by his action, then it is also breach of duty. Here again Organix has to be watchful as it has breached duty. It has unknowingly and because of negligence caused harm to RooChew and brought about a considerable loss to their property (Plant) and production. The third element of negligence is Causation. In a case of negligence, for the plaintiff to make a damage claim, it must be proved that the particular act in question is the cause for damage or loss incurred. Although the concept of proving the cause sounds easy, the process of proving that one’s breach of duty has brought about harm to another is quite complicated. The most basic way of proving would be to question is the damage would have occurred without the breach of duty on the part of the defendant. Hence in the case between Organix and RooChew, it is the responsibility of RooChew Pty Ltd to prove that the damage and loss caused to them was a result of the toxic chemical contaminated water, which was taken in by their plant. Once this is factually proven, Organix will be liable to pay for damages. It is not just enough for the Plaintiff to prove that the action of the defendant is the cause for his damage. Additionally he must prove that the defendant’s actions have caused him pecuniary loss or injury. Damage is the fourth element of a negligence case. The only way for a plaintiff to obtain a full legal remedy is by proving that he has suffered a pecuniary loss. This can be done by showing a medical bill if he has been physically injured or in case of property damage, he can show loss caused due to that damage or the cost to repair the property. He can either claim the loss amount or the repair amount. The damage can be physical or economic or both. RooChew has incurred $650,000 for physical damages to its plant and $350,000 in lost production due to the damage of the plant. They are entitled to claim either the physical damage loss or production loss. Organix is entitled to pay for damages if RooChew can prove with facts and figures, the amount of loss that it has incurred. Lastly, the damages element places a monetary value on the loss incurred by the affected party. The main idea of paying for damages is to compensate the affected party to put them back in the position that they were in before the issue in question occurred. The type of damage awarded in this case will be ordinary damages, wherein the court decides the amount to be paid after assessing the loss that has been incurred. Hence once the court decides that RooChew is reasonable in claiming damages, it will decide the amount in accordance with the actual loss suffered. Thus if RooChew succeeds in proving negligence through all four elements, namely duty of care, breach of duty, causation and damages, Organix will be liable to pay for the damages and loss it has brought about to RooChew, because of its negligence. References Bali, C J (2007). Australian Commercial Law in Perspective. Leagle Publications, 2007 David, G and Frances, M (1998). Outline of Torts. Butterworths. 2nd Edition. Deakin, S and Angus, J and Basil, M (2003). Markesinis and Deakin's Tort Law. Oxford University Press. Gibson (2006). Commercial Law In Principle. Thomson Regal & Regulatory Limited. 3rd Edition. Heron, L R and Hill, W R and Mayman, G L (1968). Mayman's Australian Commercial Law and Principles. Pitman (Aust.), 1968 Mayman, G L and Hackett, T F (1961). Australian Commercial Law and Principles. Pitman, 1961 Ryan, H and Tamsitt, G and Rigby, S and Turner, C (2001). Companion to Australian Commercial Law. LBC Information Services. Spigelman, J J (2004). Tort Law Reform in Australia. Anglo-Australian Lawyers Society & the British Insurance Law Association. Retrieved May 1, 2009. http://www.courtwise.nsw.gov.au/lawlink/supreme_court/ll_sc.nsf/pages/SCO_speech_spigelman_160704 Trindade, F (2006). The Law Of Torts in Australia. Oxford University Press. 4th Edition Woodward, S and Bird, H and Sievers, A S (2003). Corporations Law in Principle. Thomson Regal & Regulatory Limited. Yorston, K and Fortescue, E E and Turner, C (1990). Australian Commercial Law. Law Book Company, 1990 Read More