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 Droughtmaster breeding stock a month for six months (April to September 2011) at AUD $1,000 per 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 Prima Donna which it had initially cancelled on Kuja’s 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
DrAnkaBakana 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 DrBakana 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, DrBakana 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 DrBakana, 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 Insight Vacations Pty Ltd v Young [2011] HCA 16 (see 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) Trade Practices Act 1974 (Cth) and s 5N Civil Liability Act 2002 (NSW) provide, and how do they interact
vis-à-vis the appellant’s potential liability for breach of warranty and the exemption clause? (10 marks)
(c) What is the ratio decidendi of the case? (not a case summary). (10 marks)
SOLUTION
Answer 1
It is important firstly to understand whether the contract that existed between the Kuja Cattle Pty Ltd(“Kuja”) and Livestock Exports Pty Ltd (“Livestock”) was an enforceable binding agreement or not. The nature of the agreement was verbal ‘handshake agreement’ which is an enforceable binding agreement only when it could be proved that offer made by a first party was accepted by the other party and all the conditions of the contract were clear in the mind of the parties. It is also important to prove that consideration was also received by the party in lieu of the services or product rendered by it in any form whether by way of down payment, advance payment, deposit or any other mode.
When we legally speak on the validity of a contract then it is required to understand as to how and what makes a promise a legally binding enforceable document. Promise is a word given by a person to do or not to do something if the opposite party also agrees on to perform or not to perform certain acts. A contract is a bundle of those promises only which are legally binding in nature and can be enforced in the court of law. There are certain factors and upon fulfilment of those factors only then a legally binding contract is formulated. We will study whether those factors were satisfied in the current case in our hands or not:
(i) Offer made by a party to another: an offer was made to buy 3,000 in number Droughtmaster breeding stock of cattle for one month and in all for six months (from April to September 2011) at Australian $1,000 per head, or $3 million of month wise payment by way of bank transfer by Livestock
(ii) Acceptance of the offer by the other party: in 2011 through a verbal handshake agreement Kuja accepted the offer made by Livestock as is clear from the reading of the case.
(iii) Certainty in the terms and conditions of the agreement: Livestock made all the terms clear to Kuja. It was cleared that payment will be made through bank transfer a month in advance, with delivery to the Port of Townsville for live export. It was also made specifically clear that cattle that it is buying is for the export market and a contract is running parallel to this contract with Cavite Stock Imports (“Cavite”) a manila, Philippines firm. Moreover it was also stated that a ship be chartered every month to deliver the cattle to the Subic Bay Port which is near Manila.
(iv) Consideration: Both the parties were at consensus for the consideration of AUD$1,000 per head, or $3 on monthly basis. It was also agreed that the payment will be made through bank transfer a month in advance, before the actual delivery is made to the Port of Townsville for live export.
(v) Intention: there need to be a clear intention of the parties to forge a legal relationship. In this case there was a clear intention to establish the legal relationship as both the parties were performing the contract and it was only in the last delivery that the dispute arose.
(vi) Capacity: Both the parties were companies and are well capable to enter into a contract. Section 124 of the Corporations Act 2001 gives this right to the companies.
(vii) Formalities: other than a few exceptions verbal contracts are fully enforceable and legally binding. The current case in our hand does not fall within the category of those exceptions hence it complies with all the formalities.
From the above reading it is very evident that the contract between Kuja and Livestock is fully enforceable and binding in nature and hence any breach of it falls under the purview of contract act. Now with this in mind we move forward to answering various claim issues.
(a) $250,000 extra costs because of cancelling and then rechartering a ship to export the Prima Donna
Livestock can claim $250,000 from Kuja as the acts of Kuja only made Livestock to bear so much extra cost. Once a contract is entered, it is final and can be amended with the consent of both the parties. Kuja was very well aware that the Livestock is for export purposes and there is another parallel agreement running between Livestock and Cavite still it tried to take advantage of the flourishing market and just 21 days before the final delivery of the shipment kept a condition before Livestock to increase price to $ 250 per head and also threatened that if not done then delivery for the September month will not be made. The condition is totally inequitable and selfish on the part of Kuja. As all the terms and conditions and what can be the consequences that can be borne by Livestock was clearly known to livestock. It is a provision of law that when a party to a contract breaks it then the suffering party is entitled to receive from the party who broke the contract an amount in the form of compensation for any loss or damage which is caused to the party. The loss caused is in the usual course of things and the parties were aware of it when they entered into the contract. It has already been stated above that Kuja was aware of the consequences of its acts and hence is liable to pay damages by way of compensation to Livestock so that it can be placed at the position where it would have been if the contract would have been performed by Kuja properly. In order to claim this amount from Kuja it becomes important to prove as to whether the act of Kuja was remotely or proximately related to the loss suffered by Livestock. Kuja refused to deliver the September delivery because of which ship was cancelled and later droughmaster cattle was purchased from the open market and Prima Donna was hired to deliver it. All these are proximate causes and hence Livestock can definitely claim $250,000 being the additional costs associated with cancelling and then rechartering the ship for export Prima Donna.
(b) $875,000 being the extra cost of purchasing 2,500 the cattle in the market ($1,350 versus $1,000)
(c) Livestock had to purchase droughmaster cattle from the open market at a very high cost and at that time when supply was less than demand. This step was taken by Livestock as Kuja refused to deliver it the September delivery. The cost per head was agreed as $1,000 with Kuja but due to changed market conditions there was 25% jump in the price and on refusal of Kuja to deliver September delivery on non fulfillment of an unreasonable condition that is to add $250 per head. Livestock was left with no choice but to purchase drougmaster cattle from open market at exorbitant price so that those can be delivered to Cavite. The Livestock incurred an extra cost of $875,000 which is solely due to the acts of Kuja of not delivering the September delivery droughmaster. In order to claim this amount from Kuja it becomes important to prove as to whether the act of Kuja was remotely or proximately related to the loss suffered by Livestock. Kuja refused to deliver the September delivery because of which droughmaster cattle was purchased from the open market at a very high price incurring an additional cost of $875,000. If Livestock could have received the delivery from Kuja as per the agreed terms of contract price of droughmaster per head would have been $1,000 but because of Kuja’s unreasonable condition for September delivery droughmaster was purchased from open market at a very high price. Keeping in mind the above it is very much clear whatever loss is happening to Livestock it is because of the acts of Kuja and all these are proximate reasons and not the remote reasons for the loss suffered by Livestock hence Livestock can definitely $875,000 being the extra cost of purchasing 2,500 droughmaster cattle in the open market ($1,350 wheras $1,000) so that it can maintain its status as it would have been if agreement would not have been breached by Kuja.
(d) $125,000 for loss of profits on 500 droughmaster cattle based on Livestock’s mean profit of $750,000 per shipment of 3,000 droughmaster cattle
If agreement would have been performed in its true spirit then Livestock would not have incurred these extra costs and would have been in a position to earn a $750,000 per shipment of 3,000 cattle. Though it is seemingly a remote damage but it is caused by the acts of Kuja. To elaborate on this point we can study a very famous case of Hadley v. Baxendale the facts of the case are as below:
The mill of one party to the contract had to stop working as a crankshaft was broken. The crankshaft could only be repaired by makers in Greenwich. The carrier agency was given the task to carry the crankshaft to Greenwich. It was not informed to the carriers that the mill party do not have any other crankshaft because of which the work of the mill will be stopped completely as in the urgency of the matter was not at all explained to the carrier. The carrier was just aware that the crankshaft can be repaired only in Greenwich and nothing more than this. Because of the carriers negligence the carrier was delayed and hence the crankshaft could not reach Greenwich on time hence it was delayed. During all this time the mill was completely close and incurred losses. Mill challenged the carrier in the court of law because of the profits it could not earn in the prolonged absence of the crankshaft.
The rules as derived from the Hadleys and Baxendale case are as below:
(1) Those damages can be claimed by the suffering party which are the natural consequence of the acts of the other party i.e in the usual course of things; and
(2) Those damages can also be claimed which could have been contemplated by the parties at the time of entering into the agreement.
In this case it was decided by the court that millers can claim only the compensation for the delay caused in taking the crankshaft to Greenwich and not for those profits which it could not incur because of the total shutdown of the mill.
In the present case in our hand Kuja could contemplate the profit that Livestock could have earned as it was aware of even the parallel agreement between Livestock and Cavite hence $125,000 for loss of profits on 500 droughmaster cattle based on Livestock’s mean profit of $750,000 per shipment of 3,000 cattle can be claimed from Kuja.
(e) Compensation for the $3 million advance payment to Kuja by Livestock for the last September delivery of droughtmaster cattle
This claim is possible without any doubt as advance payment of $3 million was made by Livestock to Kuja but Kuja didn’t perform its part of the obligation. In part performance one party is doing its duty and fully obliging with its part like in this case Livestock performed its part of the obligation that is to make payment on time and that it is by way of advance payment for September delivery but Kuja failed to perform its duty to deliver droughmaster cattle for the September month leading to unnecessary loss which was incurred by Livestock.
As in this case Kuja failed to perform its part of the duty then liability also lies on him to compensate Livestock and bring it back to the position where it was before entering into any agreement with Kuja who miserably failed to be trustworthy and tried to make benefits out of market situation without even thinking of the other party in the contract and the loss that it will suffer. Hence a compensation for the $3 million advance payment to Kuja by Livestock for the last September delivery of droughtmaster cattle can be claimed from Kuja.
Answer 2
A contract arises upon mutual understanding of the parties to its terms but in certain cases a person is bound to perform the act not because of his contractually responsibility but because of the law of promissory estoppels. When a promise or an assurance is given by one person to another and that the other person acts believing that assurance to be true then the person who made such type of promise becomes responsible by the law of promissory estoppels.
A promise has been made by Dr Barkana to the Barina Carina Pty ltd. and they have acted on that promise and tried their level best to get the approval of the Budaberg Regional Council for supermarket construction. Barina Carina acted on that promise and filed an application to Budeberg Regional Council though it could not be approved because of several reasons. Bairna Carina Pty Ltd is very interested and because it could not get the approval for the construction of supermarket it tried to convince Dr Barkana for extension to receive the approval from the authority. Dr Barkana was convinced and finally extended the term agreeing to the request of the Barina Carina Pty Ltd. Based on that extension provided to Barina Carina Pty Ltd it started the process of filing an application with the Budeberg Regional Authority and incurred a cost of $25,000 which it paid as consultation fee for the construction of supermarket. Now when Dr Barkana has a better offer from Jingella she cannot back out on her promise already made to Barina Carina Pty Ltd per the law of estoppel as Barina Carina is taking a lot of efforts in the direction to get the approval from the Budeberg Regional Council for the construction of supermarket.
Answer 3
(a) The respondent was on a recreational tour and while travelling by a motor coach she got up to take out some material from the overhead shelf and at the same time the driver of the coach suddenly applied brakes leading to injury being caused to the respondent as she fell backward on the sudden application of brakes. In the contract that respondent has entered with the appellant it was clearly mentioned that in case a motor coach has fitted seat belts for safety purposes then it is not the liability of the appellant to make sure that the seat belt is worn but that of the respondent to wear the seat belt. The case was first filed in New South Wales District Court and the appellant relied in the exemption clause that saved them from being liable which stated that in case where a passenger is in a seat of that motor coach which is fully equipped with a seat belt than the travelling agency, the operator, or any other cooperating organization cannot be held liable for any harm being caused to the passenger because of any accident or incident which arises because of not wearing of the seat safety belt but the District Court of New South Wales decided in favour of the respondent and she was asked to be compensated by $22,371 with costs. Not satisfied with the district courts judgment the appellant filed an appeal to the Court of Appeal of the Supreme Court of the New South Wales against the amount of compensation to be paid to the respondent. The appeal of the appellant was dismissed and it was clearly stated that it was their responsibility to take proper care and apply proper skill in case of their passengers whatever be the terms of the contract.
Hierarchy of New South Wales judicial system that is the system of court ehich is at the top of pyramid and which is the last also come into picture in this case. A case is first filed in the District Courts of New South Wales and then if parties are not satisfied with the judgment of the district courts than matter can be filed before the Court of Appeal of the Supreme Court of New South Wales.
(b) Section 74(2A) of the Trade Practices Act states that when there is any breach of any implied warranty that is a part of a contract and in that State or Territory law is the Proper Law of the Contract then the law of the state will apply in the similar fashion as it will apply to limit or prevent any other liability for breach of any other term which is part of the same contract. That in simple words means that in all cases if proper law of Contract is there then it will be applicable in case of any implied warranty in the same way as it is applicable to any other term of the contract.
Section 5N (1) of the Civil Liability Act provides that even if there are other law written or unwritten, a contract having a term on recreation services can keep out, put restriction or alter any responsibility to which it applies and that result is an outcome from the breach of any express or implied warranty, services need to be rendered with sufficient care and skill. Simply put it means that all services need to be rendered with reasonable skill and care.
Section 5N(2) of the Civil liability Act provide that no written law can render any term of a contract void, not enforceable or cannot even authorize any court to refuse to enforce that term or to declare that term void or to change the term.
The appellant is held responsible for the act of negligence because it failed to take reasonable care and show enough skill which was an implied warranty on his part as per the terms of the contract irrespective of the exclusion clause which stated that if seat belt is available in the motor coach then passenger themselves responsible to tie it and any accident happening because of seat belt not being worn then operator or its agent will not be held liable.
(c) Ratio decidendi that is the main law point involved in the case Insight vacation Pty Ltd V Young is that operator needs to show proper care and skill as it an implied warranty on his part to be performed irrespective of the exclusion clause being present in the contract. Proper law will have prominence in all cases.
KE15
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