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Bui Thi Thuy Linh, 3481585

LEGT 5511 Legal Foundations of Business


TAKE HOME EXAM COVER SHEET
Session 2, 2013

School of Taxation & Business Law


Please attach this coversheet to the front of your TAKE HOME EXAM. Fill in all details on this form. Sign the declaration at the bottom. Title Ms Last Name Bui __________________ First Name Thi Thuy Linh _______

Student Number: 3481585 ___________________________________________________ UNSW E-mail Address: z3481585@zmail.unsw.edu.au __________________________ Number of words: 2501 words excluding footnotes and bibliography

Due: 13th November 2013 Wednesday 5pm Submission is by email attachment to Lecturer-in- Charge Mary IP m.ip@unsw.edu.au
Checklist: Word limit not exceeded Spell check Footnotes Footer on each page [ [ [ [ ] ] ] ]

Acknowledgement: I have read and fully understand the Guide to Written Work and the information on Plagiarism detailed in the Course Outline. I hereby certify by my signature that this is my own work and not the work of others.

Student Signature:

Bui Thi Thuy Linh, 3481585

A. Rossie (R) v Business Department (BD) Issue 1 The issue raised by the question is whether there was a binding contract between R and BD. Law Under the Law of Contract at Common Law, definition of contract emphasizes that a contract usually results from an agreement which gives rise to legal rights and obligations between that parties to it, rights that will be protected and obligation that will be enforced in the courts.1 A valid contract is formed where there are: Agreement (offer and acceptance); Intention to create legal relations; Consideration; Genuine consent; Legal Capacity; Legality/Morality.

Application To determine whether there was a contract formed between R and BD, the 6 elements above have been considered: Agreement (offer and acceptance) The proposal of Allen (A), a program organizer from BD, that R coteaching a legal subject in a postgraduate course is considered an offer. Relying on that offer, R probably had also expressed her acceptance to the offer, which resulted in the appointment letter by BD acknowledging her consent with the teaching engagement. Intention to create legal relations: The two parties intention to create legal relations is the letter of appointment which was sent to R, acknowledging her consent to the teaching engagement. This letter set an implied understanding that the agreement was legally binding.
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Consideration:

Lindgren, Kevia E., Vermeesch and Lindgrens Business Law of Australia, 12th ed. Australia: LexisNexis, 2011 [p.113]. 2

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R showed her consideration by turning down her consultancy work (the price paid by R for the engagement with BD). Indeed, this is a good consideration because R is not contractually bound to BD to perform the obligation. Genuine consent: It is obvious that there was not pressure on either R or BD in Rs teaching engagement. Legal Capacity: As being professionals at University, both R and A, representative for BD, are mentally capable of understanding the contract between R and BD. Legality/Morality: The contract was about a teaching engagement in a legal course, which could be considered legal. Conclusion Since the agreement between R and BD satisfies all elements of a valid contract, it could be concluded that there was a contract formed between R and BD.

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Issue 2 Once there was a contract between R and BD, the next issue needs to be considered is whether the contract has been discharged by breach. If so, would there be any remedies for the breach? Law: Under the Law of Contract, there is one way a contract can be breached when one party indicates in advance that they do not intend to perform any of their obligations under the contract, which would be classified as an anticipatory breach.2 In this situation, the innocent party can terminate the contract so both parties are discharged from any outstanding obligations. If the innocent party has already has suffered from some loss, they are entitled to sue for damages as well as terminating the contract.3 The plaintiff must prove that the breach caused them to suffer some disadvantages that are measureable in monetary terms and should either be reasonably foreseeable or be aware of by the defendant.4 Application According to the facts, three days before the first lecture started, A, as an authorized agent for BD, informed R that her service would not be needed since BD could not afford to engage two lectures for the course. Hence, would BDs act be identified as an anticipatory breach of contract? To answer this question, the case Foran v Wight (1990) 5 could be analyzed. In this case, there was a contract for the sale of land between the sellers and purchasers including a condition that made settlement on a specified date essential. Two days before settlement date, the sellers notified the purchasers that they would settle later. The purchasers failed to perform their side of the contract due to financial shortage. The purchasers were sued for breach of contract. The High Court held: The anticipatory breach by the sellers freed the purchasers from any obligations and the sellers had actually breached the contract.
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Terry, Andrew, Business and the Law, 5th ed., Cengage Learning Australia Pty Limited, Australia, 2009, [p.320]. 3 Ibid. [p.320] 4 Vickery, Roger, Australian business law: compliance and practice, 6th ed., Pearson Education Australia, 2009, [p.402] 5 Foran v Wight (1990) 64 ALJR 1 4

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Applying this case to the given facts, BD claimed it did not have enough monetary capability to perform its obligations under the contract before Rs performance started, which was not consistent with its express term of terminating the contract only when there is a lack of students. Therefore, BD had breached the contract and R was discharged from the contract as well as any other outstanding obligations, including handing over her prepared material to A or BD. The next question arising is that whether R is entitled to any remedies. In order to answer this, it is useful to analyze the case Hadley v Baxendale (1854)6. In this case, Baxendale was hired to transport a broken drive shaft from a mill to a factory where a replacement shaft was to be made. Baxendale took several days to complete his task, however, the mill could not operate during this period. Hadley sued Baxendale for the mills loss of profits. Baxendale argued that he was not told and had no way of knowing that his delay could cause the mill to shut down. It was held that a party who breaches a contract will be liable for two types of losses: 1. Direct losses; 2. Indirect or remote losses. Baxendale was not liable. He could not reasonable have foreseen that this mill would shut down if the shaft was not delivered on time and he had not been informed this could happen when the contract was made. In contrast with the case above, even though A was not informed about Rs refusal on another working opportunity, he actually was aware of Rs preparation for the course and definitely knows that R was a dedicate teacher and a renowned scholar in consumer law whose services were always in demand. Conclusion Under contract law, it is likely that R does not have to hand over her prepared materials to A or BD and could sue BD for its breach of contract with her, which could result in compensation for her preparation and her loss of the other contract.

Hadley v Baxendale (1854) 9 Exch 341 5

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B. Law Department (LD) v Little Nemo (LN) Issue 3 The issue is whether or not there is a discharge by frustration of the contract between LD and LN. Law At common law, one of the ways in which a person may not fully perform their obligations under a contract is when an event takes place after the contract has been formed, resulting in the impossibility of performance.7 Common Law courts also determined some main ways in which frustration of a contract may occur. One of which is the subject matter of the contract is destroyed. Under common law, the rights and obligations of the parties are enforceable up to the time of the frustration.8 Since the case took place in Sydney, New South Wales (NSW), the Frustrated Contracts Act 1978 (NSW) 9 might be applied to consider the outstanding obligations of the two parties. Application In order to resolve the issue mentioned above, the case Taylor v Caldwell (1863) could be analyzed. In this case, a hall had been hired to stage a concert. After the contract was formed and before the night of the concert, the hall accidentally burnt down without any fault of either party. The contract did not indicate how the contracting parties would be affected by such an event. Based on such details, the English Court held that the contract had become discharged on the night of the fire. In particular, neither party could enforce their rights, as the contract had been frustrated by the destruction of the subject matter of the contract.
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Vickery, Roger, Australian business law: compliance and practice, 6th ed., Pearson Education Australia, 2009, [p.392] 8 Ibid. [p. 393] 9 Ibid. [p. 394]. This statute states that any money paid prior to the frustrating event must be repaid, and any benefits received must be paid for. Promises that are due but not yet performed are discharged by the frustrating event. 10 Taylor v Caldwell (1863) 3 B & S 826 6

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In applying this to the facts, the fire at LN on the night of 5 June was merely an accident and could not be anticipated in advance. Furthermore, this contract depends on the existence of the materials that had been prepared for the lunch ordered by R (LD). Since all the materials had been destroyed, this contract would be frustrated and thus, both LD and LN should be discharged of all obligations outstanding at the date of the frustrating event. However, is R obliged to pay $500 to LN? According to the facts, it is unknown that whether there was either any payments made but it is apparent that there was not any benefits received by R before the frustrating event. According to the Frustration Contracts Act 1978 (NSW), no payment is required to be repaid or be compensated for benefits. Conclusion It is likely that that both LD and LN would be discharged from the seafood order and R, on behalf of LD, does not need to pay LN $500 even if LN demanded so.

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C. Law Department (LD) v Big Whale (BW) Issue 4 The next issue raised by the question is whether the case is governed by the Australian Consumer law (ACL). If so, the question needs to be resolved is whether the newly offered price together with the requirement from BW was unconscionable conduct. First of all, a number of elements are considered to determine whether the case would be governed by the ACL. The ACL governs the conduct of person, including legal person and natural person. In this case, the Law Department of the University and BW are legal persons. Besides that, the food order between R and BW is a conduct in trade or commerce which is governed by the ACL. In addition, applying section 3 of the ACL to the facts, it could be stated that the service ordered was not in the course of business (as it was used for the purpose of a research seminar, without any business involved) and the food order made by R cannot exceed $40,000 as implied by the previous facts11 . Therefore, the case between R and BW shall be governed by the ACL. Law Section 21 of the ACL prohibits unconscionable conduct in connection with the supply of goods or services to a person. Section 22 under ACL helps to identify unconscionable conduct. In particular, the court could have consideration on, amongst other cases, whether any undue influence, pressure or unfairness were used against the consumer12. The statutory remedies available in respect of section 21 and 22 of the ACL, which states that a person who contravenes section 21 and 22 is liable to a civil pecuniary penalty of up to $1.1 millions in the case of corporation and $220,000 in the case of other persons (ACL s.224).

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LN demanded R to pay only $500 for the raw materials to cater to the same number of people in Rs seminar. This implies that the service price cannot exceed $400,000) 12 Undue influence is defined as taking unfair or improper advantage of the weakness of another party to make them agree to something.

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Application The analysis of the case St Clair v Petricevic (1988) 13 could help to resolve the issue. In this case, the NSW Court of Appeal set aside a contract of sale of land because the vendor was seriously ill and was subject to significant financial and emotional pressures. Following threats from an adjoining neighbor that he would demolish her verandah encroaching on his right of way, she agreed to sell her house to that neighbor at a price lower than she had originally asked of him. It was held that the contract was unjust in the circumstances and should be set aside. Applying this reasoning to the case between LD (R) and BW, time and choice were, at that time, Rs special disability. Due to the failure of the contract with LN, R, like the vendor in the mentioned case, was put into an urgent situation where she did not have much time and any other alternatives. Taking unfair advantage of Rs weakness, BW raised the price by 20%, which could be considered unfair for R. Additionally, BW even required R to pay for the order in advance, otherwise, he would not take the job. Even though R agreed with all of these requirements, BWs conduct could be considered undue influence and ultimately, unconscionable conduct under this circumstance. Conclusion Under the ACL, R, on behalf of the LD, could sue BW for its unconscionable conduct and BW, in turn, could be liable to a civil pecuniary penalty of up to $220,000.

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St Clair v Petricevic (1988) ASC 55-688 9

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Issue 5 The first question raised by this issue is that whether or not the service provided by BW would be guaranteed. According to the ACL, business must guarantee products and services they sell, hire or lease for: under $40,000 or over $40,000 that are normally bought for personal or household use. As analyzed above, the case R v BW would be governed by the ACL and the service provided, in course of business, by BW shall be guaranteed since it could not exceed $40,000. The issue now is whether there was a breach of the guarantee of acceptable quality which led to the food poisoning suffered by Frank (F) and other participants (OR) in the case. The Law Section 61 on guarantee relating to services, under the ACL states that services provided must be fit for any specified purpose. This guarantees that services will be reasonably fit for any purpose specified by the consumer; and any products resulting from the services are also fit for that purpose. The ACL indicates that when a service fails to meet a consumer guarantee, its provider would be liable for obligations which also depend on whether the failure is major or minor. One of the situation by which a court could identify a major failure is stated in Part 5-4 under the ACL, when the service, and any resulting product, is not of acceptable quality as unsafe and significantly depart from their description, sample, etc. Under the subdivision B, division I, part 5-4, ACL, the innocent party could seek compensation for damages and losses they suffer due to a problem with a service if the supplier could have reasonably foreseen the problem. The consumer may also seek compensation for any consequential or associated loss or damage resulting from the supplier's failure to meet the consumer guarantees. Application According to the facts, R has been informed that not only F but OR also suffered from the food poisoning which was allegedly due to BWs using improperly refrigerated salmon. This has raised a number of issues relating to the service provided by BW. First, the food BW catered was not of a standard expected to achieve a successful seminar as R was looking for. The food poisoning would possibly damage the reputation of R in particular and of the LD in general. In addition, the salmon was actually imported from another
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country instead of originated from Australia as BD advertised. These factors have proved this is a major failure. This service, thus, has failed to be fit for the specified purpose of the seminar conducted by LD. Apart from that, the fact that F, due to his medical condition, had to forfeit an honorarium of $5,000 on another engagement would also be a problem which has been caused by BDs service. Conclusion Under the ACL, R, on behalf of LD, could sue BW for its major failure in providing services and probably get a refund (S263 (4) (a) (b)). Besides that, R could also advise F to sue BW for his consequential loss (S259 (4)) as he had to forfeit an honorarium on another engagement.

Bibliography
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Lindgren, Kevin E. Vermeesch and Lindgren's Business Law of Australia 12th ed. Australia: LexisNexis, 2011 Terry, Andrew and Des Giugni, Business and the Law Australia: Cengage Learning Australia: 2009 Vickery, Roger, Australian business law: compliance and practice, 6th ed., Pearson Education Australia, 2009

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