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 martedì (01-mag-2012) 05:00 PM AEST
Return Date to Students
Week 12 martedì (22-mag-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
A) For the first solution Livestock can argue against Kuja based on below observations, Kuja Cattle Pty Ltd (“Kuja”) entered into a verbal agreement with Livestock Exports Pty Ltd in selling 3000 Droughtmaster cattle for each month till six months for $1,000 each or advance payment of $3 million per monthly contractual basis. In the process of negotiation Livestock made it clear that the reason behind the contract is to fulfill the contract with Cavite Stock Imports (“Cavite”) and also that under clause 25 of the contract with Cavite, Livestock as to undergo much compensation in breach of its contract with Cavite. With sudden rise in cattle price by 25% Kuja emailed Livestock that it would fulfill the final installment of contract only if Livestock would pay an additional of $250 for each cattle and also advised that it would not be fulfilling the final installment, because of which Livestock had to purchase the stock in the open market and for additional $350 on each stock ($1,350 for $1,000). Also, it had to undergo additional charges of $250,000 for re-chartering the prima donna. Livestock had to undergo this additional expense because Kuja had in the final stages advised out of the contract because of which it had faced this situation, the denial of Kuja in the final stage made Livestock to re-charter the prima donna which it had cancelled. Kuja’s denial at the final stage is a kind of breaching the agreement which it had entered with Livestock and also that even if one concept or provision of the contract is frustrated that would result in breach of contract. On the basis of the Australian Contract Law, Livestock has all the legal rights to claim the compensation from Kuja for its denial at last stage, Livestock can claim compensation of $250,00 along with additional costs for the damages it suffered. The reason for claiming damages is that there is breach of trust from Kuja as they denied the provision of stock in the final stage of the 6 months contract. This denial resulted in additional expenses to Livestock thus this breach resulted in breach of contract and based in this Livestock can claim from Kuja. On the basis of the Australian Common Law Livestock can claim its damages such that the remedy provided would help them in getting back into the same position that they would have been if not for the breach by Kuja in the final stage. Thus, Livestock as the right to claim damages along with costs because it has to pay an additional compensation to Cavite for breaching the first norm of Clause 25 of the contract.
B) As per the facts it is noted that Kuja denied for the final delivery of the cattle and demanded additional $250 for each cattle and also denied the final installment for which Livestock had to purchase the stock in the open market for $1,320 to $1,000 its actual price, with this Livestock suffered additional expenses than planned for the purchase of the stock and also only 2500 to 3000 required. As per the norms under the clause 25 of the contract with Cavite Livestock had to pay additional $250 on each head if less than the actual 3000, thus this also can be termed as an additional cost for livestock apart from purchasing the stock for an additional $350 more. Therefore, it is perfect for Livestock to place its claims based on the above mentioned arguments. As per the observation of the fact the norms of the negotiation Livestock clearly mentioned all the facts and reasons behind entering into this contract. But Kuja for its self-gain breached the contract in the final month and demanded additional pay on each head of the cattle denied the supply for the final installment if the additional cost is not paid. This resulted in Livestock incurring extra expenses with purchase of stock in the open market and also payment of compensation to Cavite for breach of terms of the contract such as delay in the delivery of the shipment of the cattle, where Cavite has the right to cancel its shipment. With the cancelation of shipment Livestock incurs heavy losses thus; therefore it can claim damages from Kuja even for these expenses. As stated earlier apart from breach of contract there is frustration of performance of act which was promised while, entering into the contract thus, Livestock under the regulations of the Australian Common Law and the contract law it can claim compensation and damages from Kuja for its breach of the performance of the promise. Livestock can demand additional cost along with $875,000 because it had incurred the damages by paying compensation for breaching the contract with Cavite. The reason for demanding this compensation is such that Livestock can cope up with the damages it had incurred. Therefore, Livestock has all the legal ability to file claim against Kuja and get back the damages it had incurred.
C) Under the circumstances of the case it can be understood that Kuja had breached the trust of Livestock by breaching the contract. The facts clearly state that Kuja denied the delivery of final installment which resulted in heavy damages for Livestock. Because of which Livestock can claim damages for the same. In the beginning of the agreement Livestock made it clear to Kuja that the reason behind it entering in to the contract was basically for making export delivery for the monthly contract it had entered with Cavite. So there is complete disclosure of all the facts to Kuja and it did enter into agreement with Livestock by accepting to all its norms. When all the norms have been agreed upon then it is the duty of Kuja to perform the contract or in the absence of performance it has to face the consequence of paying the compensation to Livestock. If Kuja would have accepted to make the offer with demand then it would be on safer side and also Livestock also would have been in good position, but absence of this understanding had made Kuja liable to pay compensation to Livestock. The compensation that Livestock is claiming for Kuja is the damages compensation it had paid to Cavite under breach of clause 25 of the contract. The basic reason for claiming the reimbursement is that even after knowing the facts Kuja denied the delivery of cattle for the final installment and this resulted in creating problem to Livestock such as purchasing the stock in open market with additional price, payment of $250 for shipment of cattle below the count of 3,000 and also the shipment charges. Livestock is advised to claim the damage because it had clearly mentioned the reason behind entering into contract to Kuja and Kuja had accepted it with the given provisions, therefore Livestock can claim damages from Kuja for paying reimbursement to Cavite or in short to compensate for the loss it had incurred to Cavite. Livestock has all the rights to claim damages from Kuja in turn to pay it as a reimbursement to Cavite for breaching the provisions of clause 25 of the contract. Therefore, Livestock can claim damages from Kuja as it obliged and liable to pay damages to Cavite and it has all the rights to get it legal share which was lost because of breach of performance of Kuja.
D) In the given facts it can be understood that Kuja entered in to agreement of providing $1,000 for each head of 3000 cattle. This offer was accepted by Livestock with disclosure of the reason behind entering into this contract. Even after knowing the facts Kuja denied the performance of the contract in the final stage because it demanded increase in the price of the cattle as the price of the cattle increased with 25% all over Australia. Under clause 25 of the contract with Cavite Livestock had to pay compensation for denying the performance of the provisions of the contract, which are payment of $250 each if the number of cattle sent in shipment are below the number of 3000 and also the loss of shipment towards the expected profit. The reason behind the loss is the advice of Kuja in not sending the cattle for the final installment because of which Livestock could purchase only 2500 of cattle with heavy cost than the cost expected, this additional cost along with the compensation for shipment of cattle below 3000 weighed heavy towards the profits of Livestock, thus it can claim damages from Kuja for frustrating the performance of an act and also for breaching the trust in the final stage of the contract perfornce. Because of this breach of contact Livestock can claim damages from Kuja under the term of liquidated remedies as specified in the regulations under the Australian common law and the laws related to contract in Australia. As per the norms of this regulation stating the liquidation remedies Livestock can claim damages from Kuja as it had denied the performance of contract just giving 21 days of time for the final performance of the contract and also when there was sudden increase in the price of the cattle in the market leaving Livestock with no option except to purchase the cattle in the open market, so as to perform the contract with Cavite but still it incurred losses because it could purchase only 2500 than 3000 and for a cost of $1,350 for 1,000. This unexpected liability has given Livestock all the legal rights to claim compensation from Kuja. Kuja cannot deny the payment of compensation to Livestock because it has denied the performance of the contract and also with evidence is against them. Therefore, Livestock is advised to file a claim against Kuja for payment of compensation for the additional coast it had incurred in the purchase of the contract. It can claim the compensation money it had spent on the cattle purchase and it had paid to Cavite compensating the damages. With all observations in its favor Livestock as all the rights to file claim against Kuja.
E) The norms of the contract between Kuja and Livestock included the clause that either $1,000 to be paid for each head of the cattle for 3000 or advance payment of $3 million for the performance of the contact. As Kuja denied the supply of cattle in the final September month it had left Livestock without other option than to purchase the cattle in open market with additional cost incurring losses. Basing on this fact Livestock can claim back its advance payment made for the month of September. It has the right to claim abck the advance as Kuja did not perform the contract for the money it had taken in form of advance for the month of September. Thus, it can be advised that Livestock has all the rights to claim back its advance payment from Kuja. Kuja cannot deny the payment because the advance payment was made through a bank transfer and with the evidence of this transfer Livestock can claim back its advance from Kuja. The money Livestock is claiming from Kuja is not a damage or compensation but payment made in advance as the act for which the payment made had not been performed. Thus, with all the evidences in hand Livestock can claim back its advance from Kuja; As per the regulation of the laws of contract the party which has taken advance payment in performance of the act, is bound to pay back the money because the act for taking the advance have not been performed and thus Kuja is bound to make the payment of advance with interest if any to Livestock.
From all the observations and the advice given for Livestock it can be noted that this case is referred and based on the regulation of breach of contract due to frustration of one or more of the provisions in it and also explains remedies given to parties which have suffered with the breach of contract. Here the suffering party is Livestock and is eligible from all the observations to claim the damages it suffered and also the advance it had paid.
Answer 2
Dr. Anka Bakana cannot accept the offer made by the jinglla foods, even if she has decided to donate the sale proceeds to local educational charity. Once Dr. Anka Bakana granted one year extension to BCP despite of the fact that BCP has failed to complied with the terms of the contract for any reason, and now when she received the offer which is more beneficial then the offer made by BCP she cannot shun the contract with BCP as specified by law of Estoppel . Law of Estoppel is a doctrine which may be used in certain circumstances where a person is prevented from relying on the facts which are different from the earlier facts. The Law of Estoppel is very much applicable in the facts and circumstances of Dr. Anka Bakana’s case, As in this case, earlier Dr. Anka Bakana entered into an contract with Barina Carina Pty Ltd, a Queensland supermarket chain company, for selling the property inherited by her from her late parent’s estate situated at Central Bundaberg, a thriving coastal Queensland town, for a total consideration of $1.25 million, subject to obtain timely approval from Bundaberg Regional Council(BRC) for supermarket construction by BCP. The BCP paid $125,000 at the time of contract to Dr. Anka Bakana which was non-refundable and agreed to pay the remaining amount within a year time. The BCP failed to obtain approval from BRC within the stipulated time and asked for one year extension to Dr. Bakana ,earlier Dr. Bakana refused to grant extension but after BCP’s genuine request Dr. Bakana granted one year extension to BCP without charging any additional fees. After receiving one year time from Dr. Bakana, BCP again start working on the application for approval from BRC and spent almost $25,000/- on it. Now after granting extension of one year to BCP, if Dr. Bakana wishes to terminate the contract with BCP and willing to enter into contract with other company on the ground that some other company is offering handsome amount for the same property, so as per law of estoppel she cannot enter into contract with other company. The law of Estoppel by representation is applicable in the case of Dr. Bakana, which specifically defined that if one person made a representation of fact to another person in words or by any act or conduct or by silence with the intention and with the result of inducing the other person to alter his position based on that representation then the person is estopped from taking back his words or change his mind so that the other person should not suffer damages because of the representation of a first person. In this case also Dr Bakana clearly granted one year time to BCP by making a representation by words and BCP believes on the Representation made by Dr. Bakana further spent $ 25,000/- and start working on application for approval from BRC and hence after getting any offer of handsome amount from some other company Dr. Bakana cannot terminate the contract with BCP and enter into contract with Jigalla Foods.
Answer:3 a.Summary –
Mrs. Young entered into a contract with Insight Vacations Pty Ltd. (hereinafter “Insight”) a European tour company on purchasing a tour package from insight. While travelling by the motor coach in London she suffered injuries as she got up during the travel. Insight argued that their contract contained a clause that agent or sub agents are not liable if the members suffer from injuries if they are not wearing their seat belt. Thus it claimed that due to this reason that passenger did not wear a seat belt while travelling Insight argued based on this clause.
Mrs. Young filed a case against Insight claiming damages before District Court of New South Wales on the basis of sec 68 of the Trade Practice Act, 1974 which states that breach of implied warranty is void because this contract relates to recreational services which are needed to be provided with reasonable care and breach or modifying the provision of these services makes the contract void, the insight rebutted the arguments of Mrs. Young and made his arguments based on s74 (2A) of the TPA and sec 5N of Civil Liability Act stating that the liability is precluded or limited for breach of the contract or any other terminologies stated in the contract and thus claimed that the exception clause should be applied and the claim of Mrs.. Young has to be dismissed. The District court of New South Wales viewed that Sec 74(2A) and sec 5N cannot be applied in the given pre-context and gave the judgment in favor of Mrs. Young with compensation of $22,371 with cost.
The Insight further appealed in Supreme Court on the basis of the same appeal and its appeal was dismissed with a majority because the Sec 74(2A) and sec 5N based on which the insurer filed his claim are not applicable in the current situation because the exception clause of Insight had specifically mentioned the word “seat” in the clause and stated that they are not liable if the customers suffer injury by not wearing the seat belt while sitting in the seat coach. This clause did not mean that the travelers could not move even for nature calls during their journey. Thus the appeal of Insight was dismissed by Supreme Court. As per the hierarchy of the courts the appeal of Insight was first dismissed in District Court, then the Supreme Court and even the High Court where the appeal was made on special leave.
Answer 3 (B)
The section 5N of Civil Liability Act defines the exemption or waiving the liability of the services provider for recreational activity.
Section 5N of the Civil Liability Act deals with recreational services where it specifies that recreational services are the services provided during journey to its travelers and it validated the liability on breach of warranty whether it is expressed or implied because recreational services are those services to be given with responsible care and skill. Here, the recreational services are defined as those services provided to the customers for their enjoyment.
Section 5N of the Act, does not mention what is required for an effective waiver and states that under sub section 1 that despite the terms of the contract the provisions of different services which are applicable for breach of warranty that the services have to be rendered with better skill and good care. Thus, question arises as to the applicability of this section in the given circumstances.
Thus, it can be noted that Sec 5N of the act cannot be applied in present circumstance because the recreational services which are to be given with in the geographical limits, but in the current scenario they have been provided outside the limit so they have to rendered with better skill and proper care.
Section 74(2A) define1s the warranties in relation to supply of services to consumer. The section clarify that when any services are made to the customers other than the professional services then during the process the customer may request the agents to provide services as per their requirements, then in such situation the warranty of service is implied and under the contract the services rendered to the customers are reasonably fit to serve the needs of the customers or the nature of it satisfies in providing required services to the customers. Under this section the rendering of services can be wither expressed or implied such that the needs of the customers are satisfied. Exception to this would arise when the customer does not rely on the services of the provider and feels them unreasonable. As per the discussions and definitions provided under Sec 74(2A) and sec 5N, the exceptional clause which Insight used as a basis for their basis of argument and as a evidence does not fall under the provisions of these sections and thus the claims of Insight were dismissed
Answer 3 (C)
RATIO DECENDI OF THE CASE
The Hon’ble High Court of Australia dismissed the appeal by special leave filed by the Insight and ordered/directed to insight to pay damages alongwith cost to Mrs. Young . The chief reason for making the decision/judgment in favour of Mrs. Young is delivered by the Hon’ble High Court of Australia is that 74(2A) of the Trade practice Act can be applied as surrogate federal law and its applicability in the present situation along with the provisions of Sec 5N of the Civil Liability Act. In given situation the exceptional clause contained the statement “where the passenger occupies the seat in the motor coach with a safety belt,” stating that neither agent nor the sub agents can be held liable if the passenger gets injured in the course of the journey and that element of clause if given the original meaning it would mean that the passengers should not move in the course of the journey and if so there would be no provision of recreational rooms at the end of the coach, but as there were provisions of the same it is proved that the applicability of the clause is only when the passenger is seated and if in case the passenger is moving then the Insight company is liable to compensate the passengers. Thus based on this observation the claim of the Insight based on the exception clause is dismissed by the Hon’ble High Court and other courts.
The Hon’ble High Court of Australia further held that the exemption clause itself had no application to Mrs. Young Case, as mentioned above this condition of that the agents are not liable if the passengers get injured by not wearing the seat belts while sitting in the motor coach because Mrs. Young suffered injuries when she was not sitting. Thus based on all the above mentioned reasons the particular decision in favor of Mrs. Young has been taken by all the courts dismissing all the claims of Insight.
REFERENCE:
- Australian Common Law
- Australian law of Contract
- Bunge Corp v Tradax Export SA [1981] 2 All ER 513
- Section 5N of Civil Liability Act 2002
- Section 74(2A) of Trade Practice Act 1974
- Case law – Insight Vacations Pty Ltd v Young [2011] HCA 16 of High Court of Australia
Ø common law estoppel by representation” in Halsbury’s Laws of England, vol 16(2), 2003 reissue.
Ø The Law relating to Estoppel by Representation, 4th edition, 2004 at para I.2.2, Spencer Bower
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