Lawcomm 401 Commercial Law : Assessment Answers

7. Albert works as a gardener for a large company, and has worked for this company for 35 years. He has a limited understanding of business activities. The company has offered its employees shares in the company for $4.00 per share.

The company has offered each employee 500 shares. If they accept the shares they will pay for them by a deduction from their pay of $50 per week until the shares are paid for.

Unknown to the employees the company is in financial trouble and cannot raise money from banks. The shares have a value of less than 10 cents per share. Albert buys the shares.

Required

Explain the law of undue influence bargain and apply the law to these facts.

8. Camilla buys a house which needs to be completely redecorated before she can move in.  The house is close to her work and very close to a child care centre for her daughter. She has enrolled her daughter with the child care centre and paid the fee for November.

The location of the house will make it possible for Camilla to walk to work, and take her daughter to the centre, rather than making a long train trip every day to get to work.

She makes a contract with Tim to do the decorating, and the contract states that the work is to be completed by 1 November.  She tells Tim about her plans to walk to work, but does not tell him about her daughter and the nearby child care centre.

Tim does not complete the work until 28 November. As a result of this delay Camilla is seeking damages.

She wants clarification regarding the following:

1. The cost of renting an expensive apartment for the period 1-28 November. The apartment is some distance from her house, but is the only accommodation option available to Camilla.
2. The amount of the fee for the childcare centre which Camilla has paid for November.  Camilla finds it too difficult to get her daughter to the centre, and instead arranges for a family member to look after her during the day.
3. Substantial damages for the emotional distress Camilla has suffered because of the late completion of work to the house.  

Answer: 

1: Jason and Calum

1.For a claim of negligence, the claimant must demonstrate;

• A Duty: The claimant must establish that the defendant owed a duty to the claimant.
• Breach of the Duty: The claimant must also demonstrate that in addition to owing a duty of care, the defendant breached that duty.
• Causation: The harm that the claimant suffered must be reasonably arising from the breach of duty. They must not be too remote.
• Damages: The damages that the claimant seeks to recover must reasonably arise from the breach. Again, they should not be too remote.

2. Jason will bring the legal action against Beta Company since Calum was an agent of Beta Company and the company was the principal. The damages that Jason wish to recover are all direct damages hence the claim will succeed. For example, in (Mainguard Packaging Ltd v. Hilton Haulage Ltd, 1990), the court found that all damages arose directly from the breach made by Hilton.

3. In recovering losses, Jason will sue for compensatory damages and punitive damages. Compensatory damages include special damages and general damages. Special damages will cover all economic losses such as IRD penalty, the new accounting system and time lost in contacting suppliers, creditors and debtors, and lost earnings. General damages will cover noneconomic damages such like emotional distress, pain and suffering.

2: Alan

Issue: Rules of revocation of contracts via electronic system.

Rule: As explained in (Latec Finance Pty Ltd v. Knight, 1969, l. 81), the general rules in contract law is that there must be communication of offer, its acceptance or its revocation. The same rules that apply for in the communication of offer and acceptance apply to the communication of revocation of an offer.  In (Carlill v. Carbolic Smokeball Co, 1892), the law requires the offerors or the offerees to communicate their revocation or acceptance. The rules that apply to the communication of acceptance and revocations through email are contained in section 11 in (Electronic Transactions Act, 2002, sec. 11). At 11(a) communication is deemed valid when the electronic communication enters the addressee’s information system, or (b) when it comes to the notice of the addressee.

Application: On application, the law will test whether the communication was given as in (Carlill v. Carbolic Smokeball Co, 1892). This rule is certified when Alan sent the message of revocation to both Bertha and Clara at 2.00pm. The next step would be testing the rules as to when the revocation is deemed to have validly reached the addressee. In this case, SEC 11 states that the valid time is when the email reached the recipient’s communication system or when the email came to the notice of the recipient. Therefore, revocation reached both Bertha and Clara at 2.00 pm. Any acceptance after that would be invalid.

Conclusion:

Alan’s revocation was valid and enforceable in law.

3:

(i) David and Edwina.

Issue: Whether past consideration is enforceable.

Rule: Where an act has already been executed, any subsequent or future promise to pay for the same act would not enforceable in the law of contracts held in (Roscorla v. Thomas, 1842). On the other hand, a promise to pay for a past service has implications to pay if both parties contemplated that there would be paid after the service as stated in (In re Casey’s Patents, 1892).

Application: On applying the rules to the case of David and Edwina, the Court will look to see when David provided his consideration. If the consideration came after the service, the rule in (In re Casey’s Patents, 1892) would require that both parties should have contemplated about the payment of $150 at the time of the formation of the agreement. In this case, the payment came to the notice of Edwina only after she had won the case. In this case, the amount is not enforceable.

Conclusion: David cannot recover $150 since it is a past consideration.

(ii) Bruce and Joan.

Issue: Allocation of risk

Rule: The general rule is that the party that promises to provide something for a fixed price is the one that bears the risk. In (North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, 1979), the threat to stop work due to price increase was interpreted as an economic duress since the party the shipbuilders had impliedly agreed to take the risk.

Application: While Bruce was promising to offer the service, the law expected that he impliedly agreed to take the risk of the price increase as seen in (North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, 1979). The law will therefore not enforce the increment of the price.

Conclusion: Joan is not obliged to pay.

4.

Issue: Duty of the lessee

Rule: In hire purchase, the customer hires the goods with a promise to possess the goods once the final payment has been made. According got (Lilleholt et al., 2009, p. 257), any lease control has an implied duty for the lessee to take care of the goods. There is also express duty to submit payments in installments as agreed. Any failure of the two would cause the seller to sue for damages.

Application

Harriet had a duty to take care of the goods as stated in (Lilleholt et al., 2009). She cannot bring an argument that the motorcycle should have been cheaper after damaging it.

Conclusion: Harriet must pay for the total sum of the installments.

5: Bodo, Wilhelmina, and Luther.

• Misrepresentation has occurred. This is innocent misrepresentation which occurs when a party makes a false statement but the party believes that the statement is true, and causes the other party to change position.
• Whether or not damages can be claimed?

The provisions for misrepresentation are contained in section 6 and 7 in (Contractual Remedies Act, 1979). Under subsection 6(a), a party to the innocent misrepresentation may receive damages as though the misrepresentation was a term of the agreement. However, subsection 6(b) states that the innocent party cannot receive damages under the tort of deceit.  Bodo and Wilhelmina may receive any other remedy as though the statement “plant being free from viruses or infections” was a term. Like in (Contractual Remedies Act, 1979), Bodo and Wilhelmina cannot bring a claim under the tort of deceit.

• Whether contract can be cancelled

Section 7 provides the remedy for either innocent or fraudulent misrepresentation where the innocent party has a choice for rescission. A clarification by (Emma, 2011) states that the representee cannot recover damages, but the court may allow him to either rescind or perform the contract with no compensation due to the loss caused by the misrepresentation. Bodo and Wilhelmina may choose to treat the statement as a term or not, and then choose whether they would rescind the contract.

6: Vinod and Angela

Issues: Application of restraints of trade clauses (RTC).

Rule: According to Lord Macnaghten in (Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd, 1891) RTCs are unenforceable since they are contrary to public interests. The main exception to this rule regards the reasonableness of the clause which is assessed in terms of a legitimate interest, the reasonable duration for the clause, and a reasonable geographical coverage.

• An RTC must protect a genuine interest such as confidential information, client details, trade secrets, and details of the employer’s staff. In (Two Lands Services Pty Limited and 1 Ors v Gregory Robert Cave, 2000)an RTC preventing an employee from working for a competing company for one year to protect the employer's legitimate interest.
• The time should be reasonable. Time assessment differs with the facts of each case. In most of the cases, the court will consider 2 to 3 years reasonable. For instance, in (Southern Cross Computer Systems Pty Ltd v Palmer (No 2), 2017), 4 years clause was enforced. In (Cream v. Bushcolt Pty Ltd, 2004), a 10 years clause was enforced.
• An RTC must cover a reasonable geographical area. Again, the area differs from the facts of each case. The Court in (Herbert Morris Ltd v Saxelby, 1916)stated that the only distance that the court would allow is the one which sufficiently protects the employer’s interests.

Application: On application, the court would look at the employer’s interests, time of the clause, and geographical area. Like as mentioned in  (Two Lands Services Pty Limited and 1 Ors v Gregory Robert Cave, 2000), the clause must protect legitimate interests for it to stand. As persons who had access to this information at Vinod confidential information, the clause would apply.

As of time, two years for both Angela and Colleen was reasonable. In the Southern Cross case, 5 years was held to be reasonable. Again, on the matters of distance, the court in (Jaddcal Pty Ltd v Minson [No 3] 2011) explained that a reasonable area is one where the former employer’s customer cannot access the employee’s business. In regard to three kilometers from Vinod’s office, the Court would be likely to state that the area is within the operation of the clause.

For the case of Vinod training Jane in new accounting software which Vinod had developed, and plans to sell to the accounting profession, the situation was explained in the Court in (Wright v. Gasweld Pty Ltd, 1991, para. 291) that the status of confidentiality of information would depend on whether (i) the learned skills were given to allow the employee easier access to the company’s information; (ii) Whether the employer jealously defended the information; (iii) Employee was informed on the confidentiality of the information; (iv) The manner in which the information can be used. Since we are told that Jane was trained on an accounting software that Vinod had developed, the clause would apply.

Conclusion:

The clause would apply to all the cases and the employee would not be allowed to work for another company for the stipulated time.

7: Albert and the Bank

Issue: Undue influence and unconscionability in transactions due to inequality of the parties bargaining power.

Rule: In (Contractors Bonding Ltd v Snee, 1992), Richardson J, explained undue influence involve the stronger party acquiring an unfair transaction by using its power unconsciously to influence the weaker party. In the ruling of (Gustav & Co Ltd v Macfield Ltd, 2008), the Supreme Court explained that Equity seeks to intervene in situations where one party acquires a transaction unconsciously by taking advantage of the other. The Court explained that Equity comes to protect the innocent parties enter in the state of a disability, and the stronger party decides to take advantage of that disability. The Court further explained a qualifying disability as a condition which significantly weakens a party's capacity to assess its best interest best interests.

Application: While applying these rules, the fact that Alberta acquired the shares at a very low price, and the fact that the bank was vulnerable to exploitation due to lack of funds will be enough grounds for the unconscionable transaction.

Conclusion: The transaction can be set aside due to unconscionability.

8: Camilla and Tim

(i) Cost of renting an alternative apartment and legal rules regarding damages

In a delayed completion, the action constitutes a breach which allows the owner to seek damages. However, the rule of remoteness requires that both parties must contemplate on the liabilities involved in case there is a breach. For example, in (Victoria Laundry v Newman Industries, 1949), the claimant recovered the profit they would have earned had there been no delay. In the case of Camila, she would be able to recover the loss she underwent due to the delays. All that is needed is to prove that Tim was aware that Camila required the house for November. This loss would include the reasonable cost incurred on rents for the alternative house.    

• Duty to mitigate

A duty to mitigate requires that the innocent party would try its best to prevent unreasonable loss. For example in (Brace v. Calder, 1895), the claimant could not recover damages for the breached contract since he refused to take an alternative contract that had similar terms. Despite that, the innocent party does not have to risk further or do something extraordinary to mitigate the loss. By seeking the help of a family member, Camila has already done her best, but she would also receive compensation for the fee paid in childcare.

• Damages for the emotional distress

The general rule regarding non-pecuniary damages was stated in (Addis v Gramophone Co Ltd, 1909) that these are non-recoverable. However, an exception to this rule is the situation where the contract was made for the purpose of pleasure and enjoyment as held in (Watts v. Morrow, 1991). Another exception is where mental distress from the breach causes physical discomfort as in (Hobbs v. London and South Western Railway Co, 1875).

Camila be compensated for non-pecuniary damages since the agreement was for the enjoyment of the house so the case falls within the rules in (Watts v. Morrow, 1991).

References:

Addis v Gramophone Co Ltd, AC 488 (1909).

Brace v. Calder, 1895 QB 2 (1895).

Carlill v. Carbolic Smokeball Co, 1892 EWCA Civ (1892).

Contractors Bonding Ltd v Snee, 2 NZLR 157 (CA) (1992).

Contractual Remedies Act (1979).

Cream v. Bushcolt Pty Ltd, 2004 WASCA (2004).

Electronic Transactions Act (2002).

Emma, B. (2011). Should an Innocent Half-Truth be an Actionable Misrepresentation under the Contractual Remedies Act 1979. Retrieved from https://www.nzlii.org/nz/journals/NZLawStuJl/2011/6.html#fn33

Gustav & Co Ltd v Macfield Ltd, NZSC 47 (2008).

Herbert Morris Ltd v Saxelby, 1 AC 688 (1916).

Hobbs v. London and South Western Railway Co, 10 QB (1875).

In re Casey’s Patents, 1892 Ch. 1 (1892).

Latec Finance Pty Ltd v. Knight, 1969 NSWR 2 (1969).

Lilleholt, K., Victorin, A., Fötschl, A., Konow, B.-E. R., Meidell, A., & Bjoranger-Torum, A. (2009). Lease of Goods. Walter de Gruyter.

Mainguard Packaging Ltd v. Hilton Haulage Ltd, 1990 NZLR 1 (1990).

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd, AC 535 (1891).

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, QB 705 (1979).

Roscorla v. Thomas, 3 QB (1842).

Southern Cross Computer Systems Pty Ltd v Palmer (No 2), 460 VSC (2017).

Two Lands Services Pty Limited and 1 Ors v Gregory Robert Cave, NSWSC 14 (2000).

Victoria Laundry v Newman Industries, 1949 KB 2 (1949).

Watts v. Morrow, 1991 WLR 1 (1991).

Wright v. Gasweld Pty Ltd, 22 NSWLR (1991).

Brace v. Calder, 1895 QB 2 (1895).

Carlill v. Carbolic Smokeball Co, 1892 EWCA Civ (1892).

Christensen, S. A., & Duncan, W. D. (2009). Sale of Businesses in Australia (2nd ed.). Federation Press.

Contractors Bonding Ltd v Snee, 2 NZLR 157 (CA) (1992).

Contractual Remedies Act (1979).

Cream v. Bushcolt Pty Ltd, 2004 WASCA (2004).

Derry v. Peek, 14 App. (1889).

Electronic Transactions Act (2002).

Emma, B. (2011). Should an Innocent Half-Truth be an Actionable Misrepresentation under the Contractual Remedies Act 1979. Retrieved from https://www.nzlii.org/nz/journals/NZLawStuJl/2011/6.html#fn33

Gustav & Co Ltd v Macfield Ltd, NZSC 47 (2008).

Hadley v. Baxendale, 9 Exch. (Supreme Court 1854).

Herbert Morris Ltd v Saxelby, 1 AC 688 (1916).

Hobbs v. London and South Western Railway Co, 10 QB (1875).

In re Casey’s Patents, 1892 Ch. 1 (1892).

Latec Finance Pty Ltd v. Knight, 1969 NSWR 2 (1969).

Lilleholt, K., Victorin, A., Fötschl, A., Konow, B.-E. R., Meidell, A., & Bjoranger-Torum, A. (2009). Lease of Goods. Walter de Gruyter.

Mainguard Packaging Ltd v. Hilton Haulage Ltd, 1990 NZLR 1 (1990).

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd, AC 535 (1891).

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, QB 705 (1979).

Roscorla v. Thomas, 3 QB (1842).

Southern Cross Computer Systems Pty Ltd v Palmer (No 2), 460 VSC (2017).

Two Lands Services Pty Limited and 1 Ors v Gregory Robert Cave, NSWSC 14 (2000).

Victoria Laundry v Newman Industries, 1949 KB 2 (1949).

Watts v. Morrow, 1991 WLR 1 (1991).

Wright v. Gasweld Pty Ltd, 22 NSWLR (1991).