Commercial Law Assignment: Case Of Sally And Ethan

Question

Task: The answers should use the IRAC method as a structure- Issue, Rule, Application, Conclusion and remedies.
The IRAC method- Issue, Rule, Application, Conclusion and remedies- requires you to set out clearly and in an organised way these matters:
-Identify the common law legal issues in dispute. What are the broad areas of contract law that are relevant here?
-Explain the principles of law, the rules, that apply and which are relevant to deciding the issue
Apply the relevant law to the facts. You may need to consider more than one approach here. There is not always one clear way.
- Conclusion and remedies- after the above stages reach a conclusion on the facts of the problem. Be sure to consider possible remedies for the innocent party.

Background Facts
Sally needed money urgently and her business was doing poorly. In June 2017 she sold her North 2
Melbourne suburban convenience store to her cousin Ethan, the first buyer she could find, for $155,000, which included $25,000 for the goodwill in the business. Ethan had no experience in business matters. Before the sale Sally showed the buyer trading figures for the previous three years. They showed strong profits and growth. The trading figures were not true and accurate. In the contract of sale that was written by the lawyers for the buyer, Ethan, there was a clause that stated, “The seller shall not commence or purchase a convenience store within a 100 kilometre radius of the existing convenience store sold for ten years.” Almost one year later in May 2018 Sally decided to start another convenience store in South Melbourne within 20 kilometres of the old one sold in 2017.

Before Sally completed the purchase of the new store she visited the new store and business site on July 4 owned and operated by David and while she was inspecting the new store premises she slipped on the wet and slippery polished floor and injured her back causing her to spend two weeks in hospital.

After she left the hospital Sally visited a medical company, Good Health Help Pty.Ltd., whose staff member provided written advice on August 21 that Sally should have special back surgery but the advice was based on incorrect information and x-rays. The operation made Sally’s injuries much worse.

Provide the following answers to these questions using the IRAC structure and support your analysis with case and statute references where appropriate.

PART A
Sally started her new store. A dispute arose when Ethan found out that Sally had done this. Within six months Ethan realised that his business had few customers and trading was very weak.

1. How would a court determine whether there was an intention to create legal relations in the agreement between Sally and Ethan? You should support your analysis with case references.
2. If this sale of business contract dispute between Sally and Ethan goes to court how would a court assess the representations made by Sally before the parties reached agreement about the sale? What remedies could be awarded to Ethan should he be successful? You should support your analysis with case references. Only discuss the common law in the answer. Do not discuss statute.
3. Would a court view as reasonable in the circumstances the restraint of trade term in the agreement between Sally and Ethan? What possible remedies could be granted if Ethan was successful in legal action against Sally’s starting the new store? You should support your analysis with case references. Only discuss the common law in the answer. Do not discuss statute.

PART B
What action could Sally take against Good Health Help Pty. Ltd under the Australian Consumer Law legislation? Include the issues of remedies and consumer guarantees in the analysis.

PART C
Explain whether Sally could take legal action in negligence against David for the accident on July 4 based on common law and state legislation legal principles.

Answer

Part A
Question 1: Issue In the given set of facts and circumstances Sally and her Ethan enter into an agreement for the sale of her convenience store. Ethan purchases the same from her. The issue here in this commercial law assignment

is to determine if there was an intention to create legal relationships in such a situation.

Rule Intention to create legal relationships is an essential of contracts and the same would not be enforceable in the absence of the same. Thus an agreement would not become a contract in the absence of this essential element. As laid down by the court in the landmark judgment in Balfour v Balfour in case of an agreement between family members the court would be inclined to infer that there was no intention to create legal relationships. However the final determination of the same would depend on the facts and circumstances of each case.

Application Applying the rule laid down by the court in Balfour v Balfour there would be a presumption that an intention to create legal relationships was not present however judging by the commercial nature of the transaction and the due diligence involved an inference of such intention could be made.

Conclusion A court would apply the rule laid down in the landmark judgment in Balfour v Balfour to determine if an intention to create legal relationships was present. The circumstances and nature of transaction would also be a part of such assessment.

Question 2
Issue: When Sally and Ethan were entering into the contract relating to the convenience store various financial statements were displayed by Sally showing profits for the last three years. These financial statements however were all false and fraudulent. The issue here is to determine if such a case went to court how the court would assess such representations made by Sally and the various remedies that may be available to Ethan.

Rule: In an agreement that becomes a contract an offer is made and an acceptance is tendered to commence such relationships. However if the mode of obtaining or soliciting such acceptance is tainted it may lead to grave consequences for the offer or trying to solicit the same. Misrepresentation is one such form of tainting the offer. Misrepresentation can be defined as a representation or statement which is made prior to the commencement of the contract and is false. It may or may not be fraudulent. However, in this case of commercial law assignment, a misrepresentation is indeed fraudulent the court would be inclined to award much higher damages than in other cases of misrepresentation. The definition of fraudulent misrepresentation can be traced back to the judgment of the court in Derry v Peek . In this case of commercial law assignment the court held that fraudulent misrepresentation occurs when the person making the representation is aware that they are false and yet makes such misrepresentations regardless of the same. It would even occur if the person accepting the contract has sufficient reason to believe that the statements are true even if they are false.

In case fraudulent misrepresentation is found by the court, the innocent party would have two specific remedies available. The first would be rescission thus rendering the same voidable as per the judgment in Long v Lloyd . The second remedy available is damages that may be awarded by the court as laid down in Doyle v Olby (Ironmongers) Ltd .

Application: Sally had made representations that her convenience store runs at the profit by disclosing false financial statements. This is a representation that is made to solicit the consent of a particular party to enter into a contract of sale for the same convenience store. Thus, Sally was aware of the veracity of the documents being disclosed and revealed false information regardless of the same. Thus, the court would be inclined to infer that the same was a fraudulent misrepresentation as per the rule laid down in Derry v Peek. Thus, considering the fact that there was fraudulent misrepresentation in the transaction there would be two remedies available for Ethan to employ. He could rescind the contract as evinced in the landmark judgment in Long v Lloyd this would render the same void or damages could be awarded by the court as per the judgment in Doyle v Olby (Ironmongers) Ltd.

Conclusion: To conclude, Sally would be guilty of fraudulent misrepresentation and Ethan would be able to either rescind the contract or demand damages for the same.

Question 3
Issue: In the transaction between Sally and Ethan there was a clause in the contract dictating that Sally would not be allowed to open a similar store within a radius of 100 Kms. However Sally opens a similar store the next year within a radius of 20 Kms. The issue here mentioned in this commercial law assignment is to determine if such agreement in restraint of trade is reasonable and if so the remedies available for the breach.

Rule: Agreements in restraint of trade are agreements governing the commercial conduct of the parties to a contract outside the same. These primarily refer to a restriction placed on either party or both. In order to be reasonable such a term would have to be certain and by this a certain degree of commercial certainty is required as laid down by the court in Bulldogs Rugby League Club Ltd & anor v Williams & ors . Thus, for an agreement in restraint of trade to be reasonable the same must be certain from a commercial perspective. In case of a breach of such a contract the court would be inclined to award damages as evinced in John Fairfax Publications Pty Ltd v Birt .

Application: In this case the agreement in restraint of trade restricted Sally from opening a similar convenience store within a radius of 100 Kms for a period of 10 years. Sally however acts in breach of the same and opens a shop within a radius of 20 Kms. Since the agreement was time bound the court would infer that the same was reasonable and commercially certain as per the rule laid down in Bulldogs Rugby League Club Ltd & anor v Williams & ors. Due to such breach Ethan would be able to get damages if he pursues such a claim in court as per the judgment in John Fairfax Publications Pty Ltd v Birt.

Conclusion: To conclude, the agreement in restraint of trade would be reasonable and thus valid. Thus Ethan would be able to claim damages in court as a remedy to the same.

Part B
Issue: Sally had slipped during a business trip and had injured herself. She had to be subsequently hospitalized for two weeks. After her discharge from the hospital she visited a medical company for advice called Good Health Help Pty. Ltd. This company provided her with incorrect advice which led to her undergoing a surgery which aggravated her condition. The issue here discussed in this commercial law assignment is to set out the consumer guarantees she would have under Australian Consumer Law and the remedies for breach of the same.

Rule: A consumer is the ultimate procurer of a good or service in the market. As the product is designed for the ultimate use by the consumer certain protections need to be provided which ensure consumers purchase products that meet their needs. The Competition and Consumer Act, 2010 (Cth) deals with and regulates consumer protection laws within the territorial jurisdiction of Australian Commonwealth. Thus Schedule 2 of the act, which deals with consumer law, also provides for the consumer guarantees provided for under law. However a transaction falling within the ambit of the act must be inferred first. The act applies to transactions which are within the financial limit of AUD $40,000 and are for personal, domestic and household use . In case of services the consumer guarantees relating to the same are set out in the act itself. The first consumer guarantee relating to service is that a certain degree of due care and skill will be applied while using the same . This ensures a degree of diligence to be adhered to by the professionals providing the services. The second guarantee is the guarantee of fitness which states that the service would be fit for the purpose sought by the consumer . The third consumer guarantee is that the services will be rendered within a reasonable time . In case of a failure to observe these guarantees the consumer may terminate the contract or claim compensation in case the failure cannot be remedied or seek damages for the same .

Application: In case of the transaction between Sally and Good Health Help Pty. Ltd. it is evident that Sally was acting in the capacity of a consumer. This is because she would be ultimate user of the service and was using it for her personal need. Thus the consumer guarantees embodied in Sections 60-62 of the Competition and Consumer Act, 2010 (Cth) would have to be observed. However, as the advice provided to Sally by Good Health Help Pty. Ltd. was incorrect and the same made her medical condition worse it can be inferred that the service was not delivered with care thus being in breach of Section 60 of the Act. Moreover, the service provided was certainly not fit for the required purpose and further aggravated her condition thus being in breach of Section 61 of the Act. Thus two major failures to observe consumer guarantees can be evinced in the transaction. This is a breach which cannot be remedied and is further is a major failure to observe consumer guarantees . Thus Sally would be able to demand compensation and claim damages for the injury caused to her in the capacity of a consumer as per the provisions of Section 267(3) of the Competition and Consumer Act, 2010 (Cth).

Conclusion: Good Health Help Pty. Ltd. are in breach of consumer guarantees and Sally would be able to claim compensation and damages for the same.

Part C
Issue: Sally, while visiting her new store for inspection slips on a puddle of water and injures herself. She has to be hospitalized for two weeks due to the same. The store was being managed and operated by David at the time. The issue mentioned here in this commercial law assignment is to determine is an action for negligence can be made against David in this case.

Rule: Although there are four primary essential elements to establish a claim of negligence the most important aspect of such a claim is a duty of care owed to another person. This is the core of such a claim. When a duty of care is owed all foreseeable risks must be mitigated by the person owing such a duty as observed by the court in Donoghue v Stevenson . Thus the first essential element of negligence is the duty of care. The second element which must be established is a breach of such a duty. In case such a duty is ultimately breached a legal injury must ensue and the same would have to be established as the third essential element. The final ingredient in an action for negligence mentioned in this commercial law assignment is the establishment of damages which are being claimed for the injury caused by the breach. This was reiterated by the court in the judgment in Anns v Merton London Borough Council . Thus if these elements may be established a claim for negligence can be made against a person.

Application: In the given set of facts and circumstances it may be seen that Sally is a visitor on the premises of the store and the duty of management and operations of the same is entrusted in the hand of David. The store has a slippery area where a visitor may slip and face a serious injury. The operator would thus be in charge of ensuring that such an incident does not happen and the risk is mitigated. Thus following the judgment laid down in Donoghue v Stevenson it may be inferred that a duty of care was owed by David to all visitors on the premises including Sally. Thus by not mitigating such a risk the duty was breached by David. This breach consequently led to the injuries faced by Sally and her being hospitalized for two weeks. Thus a conspicuous legal injury can be inferred which would translate into damages. Resultantly applying the judgment of the court in Anns v Merton London Borough Council it is evident that damages can be claimed by Sally in such a situation. Thus an action for negligence would be maintainable. This would mean that a court would be likely to uphold such an action and would be inclined to award damages for the same.

Conclusion: Thus, an action for negligence would be upheld by the court in this case of commercial law assignment due to the clear presence of all elements of a claim for negligence. Resultantly due to the presence of all the ingredients for a claim for negligence Sally would be able to demand damages for the injuries suffered by her.

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