BUSINESS LAW IN AUSTRALIAN CONTRACT ACT

QUESTION

LAWS20028
Business Law
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Term 1 – 2012
Assessment Information
Objectives
Answer the following questions with reference to the relevant common law and equity principles operating in Australia concerning
contracts and related transactions. Do not consider the effects of legislation potentially applicable other than that any specifically
identified. Students may make whatever additional factual assumptions are necessary or convenient. Students should write about
3500-4000 words, about 400 words per 10 mark allocation.
Please also note that:
Additional readings relevant to this assignment may be made available to students via the library. If so, students will be
advised of this on the course website which all students should access on a regular weekly basis.
Whilst this assignment counts for 40% of the total assessment for the course, for convenience of grading, the assignment
questions are allocated a total of 100 marks. Your aggregate notional score out of 100 marks will then be scaled back to a
mark/score out of 40 for the assignment.

Assessment task

Question One                                                                                                 50 Marks
In early January 2011, Kuja Cattle Pty Ltd (“Kuja”) entered into a verbal ‘hand-shake’ agreement to sell Livestock Exports Pty Ltd
(“Livestock”) 3,000 head of  breeding stock a month for six months (April to September 2011) at AUD $1,000 perDroughtmaster
head, or $3 million per monthly contract, payable by bank transfer a month in advance, with delivery to the Port of Townsville for
live export. In negotiations, Livestock specifically advised Kuja it was buying these cattle for the export market, to fulfill a parallel six
month contract it had obtained with Cavite Stock Imports (“Cavite”) a Manila, Philippines’ firm. Also, that it would be specially
chartering a livestock ship each month to deliver the cattle to Subic Bay Port, near Manila. The Cavite contract was expressly
made subject to Queensland law. Clause 25 of the contract required Livestock to pay Cavite agreed damages as follows:
$500,000 for failing entirely to deliver any of the promised six shipments.
$250 per head in the event of delivering less than 3,000 head of cattle in a shipment.
$65,000 per day penalty for late delivery to the Port of Townsville up to a maximum of 7 days, with Cavite having the right
thereafter to cancel that month’s shipment, with such option triggering application of 25(1) above.
Then after a sharp 25% rise in cattle prices across Australia, Kuja advised Livestock by email just 21 days before it was due to
supply cattle in September 2011 that, unless Livestock agreed to a $250 per head price increase, then Kuja would not be supplying
any cattle under the final, September installment.  Following Kuja’s advice, Livestock had little option but to purchase
Droughtmaster cattle in the open market. With demand far exceeding supply, it was able only to purchase 2,500 at an average
price of $1,350 ($3.375 million in total). As a result of these changed arrangements:
It cost Livestock an extra $250,000 to recharter the livestock ship which it had initially cancelled on Kuja’sPrima Donna
advice of refusal to supply.
Delivery of the 2,500 cattle to the Port of Townsville for live shipment, was six days late.
Required:
Advise Livestock as to its legal rights and remedies under Australian common law (including equity) in relation to the following
possible claims against Kuja.
(a) $250,000 being the extra costs associated with cancelling and then rechartering the . Prima Donna (10 marks)
(b) $875,000 being the additional cost of purchasing 2,500 Droughtmaster cattle in the market ($1,350 versus $1,000).  (10 marks)
(c) Reimbursement of $125,000 and $390,000 respectively under agreed damages Clause 25 as payable to Cavite.  (10 marks)
(d) $125,000 being for loss of profits on 500 cattle based on Livestock’s average profit of $750,000 per shipment of 3,000 cattle.
(10 marks)
(e) Recovery of the $3 million advance payment to Kuja for the final September installment of Droughtmaster cattle. (    10 marks)

Question Two                                                                                                25 Marks
Dr Anka Bakana owned a prime real estate site – inherited from her late parent’s estate – in central Bundaberg, a thriving coastal
Queensland town. Following protracted negotiations, she granted the Queensland supermarket chain Barina-Carina Pty Ltd
(“BCP”) an irrevocable, non-assignable option to purchase the property for $1.25 million on payment of a non-refundable $125,000
deposit, the balance payable within one year. The contract expressly provided that to exercise the purchase option, BCP had to
obtain timely approval from the Bundaberg Regional Council (“BRC”) for supermarket construction. But approval was delayed due
to planning objections from local residents. One month before its option was due to expire, BCP asked Dr Bakana for a one year
extension in order to submit a new much improved application it had already prepared, to the BRC accommodating those
residents’ quite reasonable objections. After a series of lengthy telephone conversations with BCP’s lawyers, Dr Bakana reluctantly
agreed to this extension, and for no additional payment. But six weeks later – by which time BCP had spent a further $25,000 on
consultant’s fees in connection with its revised application – she received an unconditional written $2 million cash offer from a rival
national supermarket chain, Jingella Foods for acceptance within 28 days.
Required:
Advise Dr Bakana, who plans to donate the proceeds of sale to a local educational charity, whether she can accept Jingella’s offer
or if she is still bound (or estopped) under contract to sell the property to Barina-Carina Pty Ltd or could otherwise avoid the
contract by offering to repay BCP its $125,000 deposit which she had placed on initial receipt in a trust account with the Bundaberg
Credit Union.  (25 marks)

Question Three                                                                                              25 Marks
Read the recent High Court of Australia case [2011] HCA 16 (see )Insight Vacations Pty Ltd v Young http://www.austlii.edu.au/
together with any other relevant material you care to consider, and answer the following questions.
(a) Provide a summary account of the material facts of the case and its progression through the Australian court hierarchy.
(5 marks)
(b) What do s 74(2A) (Cth) and s 5N (NSW) provide, and how do they interactTrade Practices Act 1974 Civil Liability Act 2002
vis-à-vis the appellant’s potential liability for breach of warranty and the exemption clause?  (10 marks)
(c) What is the of the case? (not a case summary). ratio decidendi (10 marks)
Assessment Tasks
WRITTEN ASSESSMENT
Assessment Title
Written Assessment
Assessment Due Date
Week 9 Tuesday (01-May-2012) 05:00 PM AEST
Return Date to Students
Week 12 Tuesday (22-May-2012)
Weighting
40%
Assessment Condition
Must Submit You
must submit this item to be eligible to pass the course
Size
Approximately 3,500 to 4,000 words.
Referencing Style
Harvard (author-date)
Submission
Hard copy
EXAMINATION
Outline
Complete an examination
Date
During the University examination period
Weighting
60%
Length
180 minutes
Details
Law dictionaries, Business and Law dictionaries (discipline specific dictionaries) are
authorised.
No Calculators Permitted
Open Book

SOLUTION

1. 1.    

(a)  $250,000 being the extra costs associated with cancelling and then re-chartering the Prima Donna:

As per the given facts of the case Kuja Cattle Pty Ltd (“Kuja”), enters in to a verbal handshake agreement with Livestock Exports Pty Ltd for sale of 3,000 Droughtmaster breeding stock for every month for six months at AUD $ 1,000 for each or $3 million monthly payment. Livestock made it clear to Kuja the reason behind entering the contract that it was buying these cattle for the export market to fulfill the six months contract it had obtained with Cavite Stock Imports (‘’Cavite’’) and Kuja accepted all the norms. The Cavite contract was expressly made based on the norms of the Queensland Law and Cavite in its clause 25 of the contract bound Livestock with damages to be paid on breach of the contract such as:

-$500,00 for failing in any of the delivery in the six months.

-$250 each for less than 3000 cattle heads

-$65,000 penalty for each day in delay in delivery of goods after the given grace time of 7days.

Later based on 25% rise in cattle prices in Australia Kuja demanded additional $250 for each cattle and also that Kuja would not be supplying any cattle under final September installment. Without further option Livestock under the advice of Kuja had to purchase stock in open market, which resulted in a greater loss for Livestock. Because of these sudden changes in the rise of cattle price and also last moment demands of Kuja Livestock had to pay additional charges of $250,000 for cancelling and re-chattering Prima Donna. As per its contract with Cavite, clause 25 Livestock had to associate these additional charges and these charges were result of sudden changes in the contract by Kuja.

These sudden changes by Kuja had created a lot of loss to Livestock thus as per Contract Law it can claim damages from Kuja. As per the law of contract damages can be claimed against the non-performing party if the consideration of the contract is not fulfilled. Being the party suffering the damage Livestock can claim the damages from Kuja because while entering into the sale of stock contract Livestock made it clear to Kuja about the reason behind it entering to the contract and also the damages it may incur on breach of the said conditions under clause 25. As livestock had to re-chatter Prima Donna for shipping of the stock after canceling, it had to incur additional damage of $250,000. This damage was incurred because Kuja denied to supply the stock as per the entered agreement. Even if the agreement was oral and hand shake still an agreement whether accepted orally or written is a contract thus as Livestock even Kuja is bound to the contract, thus livestock can claim damages from Kuja based on the given data. Breach of contract can act as the basis for argument in the trial. Livestock being the party which had suffered by the performance of the act of the other party can claim remedies or punitive damages so that they act as substitute to performance, consequently putting the suffering party in that position it would have been if the contract would have been performed properly. Thus, based on this argument he can claim damages from Kuja.

(b)  Due to increase in price of cattle by 25% Kuja started demanding more than the actual price of the cattle, because of which Livestock had to incur additional damages, as Kuja had breached its contract with Livestock in purchase of the stock, denial of which resulted in additional expenses for Livestock. As per the said facts and the rule of breach of contract, Livestock can also claim damages from Kuja on the basis that they made additional demand than the said price of the cattle. As per the norms of breach of contract the affected party can claim damages and remedies such that the parties affected by this contract would be in the same position as if the damage had not happened to them. Apart from breach of contract there was even frustration in the performance of the contract which had resulted in additional costs to Livestock of $875,000 as additional cost of purchasing 2,500 cattle in the market which was supposed to be bought for $1,000 had to be bought for $ 1,350, also Livestock had to pay additional $250 on each cattle to Cavite as per second condition of clause 25 i.e., additional payment of $250 on each cattle if delivering less than 3,000 in the shipment. With the basis of this argument Livestock can even claim damages from Kuja.

(c)   Livestock has the right to claim all the reimbursement charges from Kuja as per the above stated facts. As there is breach and frustration of contract from Kuja, Livestock can claim the reimbursement charges of $125,000 and $390,000 respectively as per the damages under clause 25 as payable to Cavite. Thus, Livestock can claim remedy from Kuja such that it can make the reimbursement payments to Cavite. In short Livestock has the right to claim reimbursement charges from Kuja for breaching its contract in the last moment and forcing it to purchase the cattle in the open market, because of which it had to incur additional expenses. As Live stock is bound to make payment to Cavite as per the contract it can claim damages from Kuja reimbursement charges which it can in turn pay to Cavite.

(d)  As per the facts it can be noted that for 3000 cattle Kuja claimed $1,000 per head but with increase of 25% in the cost of cattle Kuja declined its offer to Livestock until it paid an additional of $250 on each cattle, they also denied for supplying cattle in the final month of the contract for which Livestock had to purchase cattle at $1,350 each and could purchase only 2500 cattle, thus incurred loss on 500 cattle for $125,000. Livestock can claim damages from Kuja under the Damages and liquidated remedies stated under the Australian Contract Law. Under this remedy Livestock has to claim damages from Kuja because of its denial in the final stage had resulted Livestock in incurring these losses. If only Kuja could have continued its contract than declining it in the last moment and accepted the additional $250 on each cattle then Livestock would had no reason to pay damages to Caviet and also it could have had no claim against Kuja, but here the situation is different, Kuja had denied its performance of the contract and also had advised Livestock out of the contract for each it had to incur loss and damages and also had to pay for the damages with Caviet. Thus, as per the observations Livestock can claim money from Kuja for the losses it had incurred.

(e)  Apart from the payment for supply of 3000 cattle monthly there was even another clause that Livestock can pay either $3 million to Kuja or $1,000 on each cattle, based on this Livestock had made advance payment of $3 million to Kuja for the month of September as well, but as per the discussed facts Kuja denied supply of cattle in the last month, so Livestock can claim back the advance payment it had made to Kuja for the month of September for which Kuja had not supplied any cattle and hhad already denied it before the commencement and completion of agreement.  With demand exceeding supply Livestock could purchase only 2500 cattle with additional expence of $375,000 above the expected rate. Thus, Livestock can claim the advance payment from Kuja.

As discussed in all issues it is to be noted that breach and frustration of contract from Kuja had resulted in a lot of loss to Livestock which it can claim from Kuja. With the given observations Livestock can claim all its losses from Kuja may be not to fuller extent but to such extent which could get Livestock back into its position if the damage not occurred.

This case is mere breach of contract and trust from one party towards the other party. This breach can be compensated with damages as per the Australian Contract Law.

REFERENCE:

• Australian  Contract Law
• Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130

2.

Dr. Anka Bakana inherited a prime real estate site from her parents. She granted the Queensland super market chain Barina-Carina Pty Ltd (BCP) an irrevocable, non-assignable option to sell the property for $1.25 million on payment of $125,000 non-refundable deposit, with payment of balance in one year. The contract expressly provided the term that BCP has to obtain timely permission from Bundaberg Regional Council (BRC) for super market construction, without the permission of this council BCP had no legal right for constructing the super market. But the planning drafted by BCP was restricted by the local residents with the view that it would create disturbance for them. So before the expiry of the norms of the 1 year contract the BCP asked Dr. Bakana for one more year extension in order to submit in a new much improved application which it had already prepared to BRC keeping in view the resident’s objection. After lengthy conversations Dr. Bakana reluctantly accepted the offer for no additional payments. But after six weeks, Dr. Bakana received an unconditional written $2 million cash offer from a rival supermarket chain Jingella Foods with a period of 28 days for acceptance, by then BCP spent $25,000 on consultation fees in relation to the revised agreement.

Advise:

Dr. Anka Bakana being the owner of the estate wanted to give the proceeds to educational society and thus she has every right to enter into any contract for selling her property as she is the owner of the property, but as per facts she had already sold the real estate to BCP a super market chain for a contract of one year, and she had to reluctantly accept the offer for no profit but if the offer is delayed for another 1 year then she would have to wait in giving her charity. Also, she had accepted the contract reluctantly thus, as per the norms of contract acceptance from the person should be received without any force but in this case it was received reluctantly. Thus as the acceptance was not received with free consent Dr. Bakana is not bound to the contract. Also, there should be mutual understanding between the parties to the contract.

With the request of the BCP for an extension of another year there was a gap in mutual understanding between the parties. As per the facts she had reluctantly accepted the offer of extension with BCP, to accept the offer from other super market chain she has to prove that the acceptance made by her was subject to reluctancy and not with free consent. If this is proved then she can freely accept the contract from the other supply chain. But here BCP after receiving approval from Dr. Bakana had spent $25,000 on consultation for the contract purpose thus there are eager in completing their contract with her. So, as her acceptance is given to the contract she is bound to and estopped to BCP and could not enter the contract. If Dr. Bakana still feels eager to enter into the contract with Jingella Foods super market she can pay compensation to the BCP super market of the non-refundable deposit and also the consultation fees of $25,000. As she is the maker of the offer she can avoid the contract because she had rightly stated in the norms of the contract sale of the real estate that the money of the estate should be paid within one year from the date the contract commenced and also that the super market has to be constructed basing on the acceptance from the BRC. As the BCP could not fulfill both the conditions she has the right to avoid the offer, however with her acceptance to the offer either reluctantly or with free consent she is bound to make payment of compensation to the BCP for avoiding the contract and accepting the other contract. As per the contract act she can claim for avoiding the contract based on the above mentioned facts by compensating the non-refundable amount and also the consultation fees the BCP had spent. The reason that she can avoid the offer is the breach of contract by the BCP in completing the norms of the contract they have entered into. Even though she had entered reluctantly into the contract she can avoid the contract on the basis that the actual considerations made for the performance of the contract have not been satisfied. Although the BCP have extended their contract agreement for more one year yet they are liable to the client as they have delayed in the work performance which has resulted in loss for the client. As the norms of the contract were not properly devised and the trust of the client has been broken BCP cannot claim the money and Dr. Bakana is not bound to pay the compensation if she claimed justice from these observations. But if the arguments run round the reluctant acceptance of the contract then she can opt out of the contract by paying its compensation and the BCP cannot bind her into the contract as she had made the compensation payment. Once she had paid the compensation Dr. Bakana is free to get into any other contract if she can incur more profit. As per law of contract party to the contract cannot make same offer to two different parties or enter in to agreement with two different parties on same consideration thus in the present case Dr. Bakana to enter into contract with Jingella has to opt out of the contract with BCP and she better make the compensation as she has accepted the second offer of BCP even if it is made reluctantly, without any profit. I advise her to better repay the compensation of non-refundable deposit which she had placed on initial receipt from trust, along with the consultation fees to avoid the contract and accept the other contract. She can avoid the contract only on the basis of break of contract and payment of compensation.

REFERENCE:

• Craig v. Varon (Tex.App.- Houston [1st Dist.] Dec. 3, 2009.

3.

(a) Material facts of the Insight Vacations Pty Ltd v Young [2011] HCA 16:

• Case related to Contract, Negligence, Trade Practice, Statues.
• The respondent (Mrs. Young) decided to go to Europe on a Holiday with her husband. She chooses the package provided by Insight Vacations (Insight). While on the trip in London she fell and injured herself as she got out of her seat to get something from bag and the coachman braked suddenly.
• After returning from the trip she filed a suit against Insight Company for the act of negligence from their side which resulted in her injury.
• Insight Company claimed that as per the norms of the contract that neither the operator, coach man or the co-operator are liable for any injury if the passengers travel without the seat belt at the time of the accident.
• Mrs. Young’s claim was heard in District Court of New South Wales. The judgment was given in her favor for$22,371 with costs.
• Insight later appealed to the court of appeals of the Supreme Court of New South wales against the judgment of the District court with regards to the quantum of damages claimed by the respondent in the trial. Insight’s appeal against the liability was dismissed by majority at the trial.
• The issues identified in the appeal were application of sec 74(2A) of the Trade Practice Law, and the state law which meets the description given in the subsection.
• If the said issue is approved then question arises as to how sec 5N of the Civil Liability Act meets with the description of sec 74(2A)?
• If sec 5N meets with the description of sec 74(2A) is it applicable to the issue of supply of recreation services mentioned in this contract?
• If sec 5N is engaged and if Insight relies on its exception, does the clause really operate on its real construction to answer Mrs. Young’s claim.
• In any case sec 5N is not applicable with the events of this case because this sec is limited only to the services provided within New South Wales. As Insight promised in providing recreational services outside New South Wales, it cannot opt for the exemption clause because the clause has to be applied only when the passenger is sitting and not when they are standing or moving about in the coach. If only the exception clause omitted the word “seat” it might have been possible to apply this exemption clause and get the sentence in favor of Insight as Mrs. Young was not sitting in her seat when she fell.
• As the exemption clause does include the word “occupies motor coach seat”, it cannot be applied in the current situation and thus the appeal of Insight should be dismissed with costs for breach of warranty.
• This case is a reminder that the courts will give narrow interpretation to any clause that seeks to limit liability and as per Australian hierarchy the appeal was dismissed both at the district court and the Supreme Court of New South Wales.

(b) Sec 74(2A) Trade Practice Act and Sec 5N Civil Liability Act – their provision in relation to present case.

Sec 74(2A) of the Trade Practice Law was inserted in the Act by the Treasury Legislation Amendment Act 2004. This sec deals with the breach of warranty that exists in the contracts which were commenced after the application of this section. The law of State and Territory are proper law of contract under this context. This law applies to limit or preclude liability for breach or recovery of the contract and also applicable for breach of any other terms of contract. Thus, Sec 74(2A) deals with breach of contract not only the warranty but also other terms related to the contract. The conditions stated in the sub-sections of this section met the requirements of the respondent’s claim and it can be concluded that the law of New South Wales is the proper law of contract.

Above being the way sec 74(2A) operated in this case, now we need to check if it had operated alongside Sec 5N of the Civil Liability Act. For that purpose we need to first understand the actual meaning of Sec 5N and its applicability.

Sec 5N of the Civil Liability Act is applied in reference to recreational services. Point 1 under Sec 5 states that, despite a written or unwritten law terms of contract for provision of different services may restrict, exclude any liability which is applicable for breach of the warranty that the services will be rendered with great skill and reasonable care.

Sec 5N point 2 states that nothing in the written law of New South Wales renders such term of the contract not enforceable or gives authority to the courts to refuse the applicability of those terminologies.

As per the given case we have to see that on what basis Sec 74(2A) picks up Sec 5N. Sec 74(2A) of the TPA hinged the application of state or territory law as surrogate federal law. It applies to limit or preclude liability for the breach of contract, or any terms of contract. Sec 68B of the TPA defines the recreational services which are different from those mentioned in the civil liability act and was mentioned by neither of the parties in the trial.

As already defined and indicated in the reasons Sec 5N of the Civil Liability Act does not apply to the particulars of the contract made in the current case. As per the section the term recreational services are subject to geographical limitations, whereas in the present case even though the services are provided under the law of New South Wales the services are provided holly outside the state.

A contract for the supply of transportation services to tourist on a holiday is known to be the contract of services with warranty and these services are to be provided to the tourists with reasonable care and skill. Thus, under any circumstance these two sections would not have been applicable to said event of the case and thus the appeal of Insight was dismissed.

(C ) Ratio Decidendi:

Ratio Decidendi is the maxim which means stating the reasons behind taking decision in a particular case. In the given case the respondent plans for a vacation and goes on a tour package to Europe through the Insight Vacation Company. During the course her journey in London she fell and injured herself when the coach suddenly braked, on her return to New South Wales she made an appeal of compensation for her injury. The district court gave the judgment in favor of respondent. Insight filed a claim in Supreme Court, and the court dismissed the appeal. The reason for dismissal of appeal includes the argument of the Insight Company on the basis of an exception clause. This clause included the terminology that the agent or sub agents are not responsible for any injury faced by the tourist in the absence of seat belt while travelling in motorcar coach. This exclusion clause can be termed as the main reason behind the dismissal of the Insight appeal because this exception clause contained the term “seat” and thus there was no reason why the tourist cannot claim damages if they are injured in case of journey and also the counsel of Insight took into view Sec 74(2A) of the Trade Practice Law and Sec 5N of the Civil Liability Act.

As discussed earlier these acts are not applicable to the acts or as answers to the claim of Mrs. Young, because there is applicability of liability or preclude liability for recreational services. As per the given sections recreational services are limited to the geographical area where the law is applicable, whereas under this case these are to be provided outside the state and thus the appellant is bound to provide the services with reasonable care and skill. But, the appellant denied this and argued their case only on the basis of the exception clause and the given two sections.

The elements of the clause as set out earlier states that, “where the passenger occupies the seat in the motor coach with a safety belt”. That element of the clause should be given its original meaning. In the given exception clause the time of application of this exemption is not properly mentioned. It is not mentioned when actually this clause is applicable, is it while the passenger sits or when they enter the motor coach. The contract of the carriage also did not remind the passenger to be always seated and can get out of their seat at their will and wish. Mrs. Young the respondent did not sit in the seat when she fell therefore the exemption clause did not apply. Also, the argument with support of Sec 74(2A) and Sec 5N have also been dismissed by the jury.

Therefore, based on the above given reasons the appeal of Insight was dismissed at both District and Supreme Court.

REFERENCE:

• Young v Insight Vacations Pty Ltd (2009) 8 DCLR (NSW) 369.
• Insight Vacations Pty Ltd v Young [2010] NSWCA 137; (2010) 268 ALR 570.
•  s 3 and Schedule 1, item 8A.
• Australia, Review of the Law of Negligence: Final Report, September 2002.

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