Commerical

SECTION A

QUESTION ONE

Khaled is a retired motor mechanic who has a passion for collecting antique jewellery and precious stones. Khaled has a very basic English language skills and he also has a medical condition called myopia, which requires him to wear glasses every day. On 1 August Khaled saw an advertisement:
“Rare Siberian diamonds for sale. $5,000 for one carat. Interested? Call Julia on 123 456 or email [email protected]”.
Khaled tried to call Julia but she did not answer her phone, so instead Khaled emailed Julia on 1 August offering to buy diamonds worth $50,000. Two days later, still no email from Julia, so Khaled decided to call Julia again offering to buy $50,000 worth of diamonds. Finally, on 3 August Khaled managed to meet Julia and buy diamonds. Julia also introduced herself as a professional jewellery trader and expert and owner of a small business called “Diamonds are Forever”. Khaled and Julia became good friends. Julia knew that Khaled did not have good English language skills and she promised to help Khaled in case he needed help.
Two months later on 3 October Khaled saw another advertisement from Julia
“One rare antique diamond brooch from Queen Victoria’s time for $10,000 or the nearest offer. Interested? Call Julia on 123 456 or email [email protected]”.
Khaled was excited about buying this rare diamond brooch and promptly called Julia offering to buy it.

On 4 October on his way to meet Julia, Khaled realised that he left his glasses at home, but due to time constraints, he decided not to go back. When Khaled met Julia he was hesitant to buy the brooch because he did not have his glasses on, but Julia was very adamant and sounded reassuring and trustworthy. Julia said to Khaled “I guarantee that this brooch will make your collection richer and you will always be able to sell it for a double price because it is such a rare item.” Moreover, she told Khaled that the brooch belonged to her grandmother, who supposedly inherited it from her distant relative from Queen Victoria’s time. Khaled did not understand what Julia was saying and asked her to repeat it again. Julia also told him that the brooch had an antique seal dated back in 1860.
Khaled was still a little bit hesitant, and Julia knew that Khaled could not see properly without glasses and could not understand English well so she kept on telling Khaled that he was getting a really good deal and so on.
After one hour of deliberation Khaled bought the item and he came home to proudly inspect his new purchase. However, when he looked closely at the brooch through a magnifying glass, he discovered that this item was made from zirconium, not diamonds and the date sealed was 1960, not 1860. Khaled called Julia immediately and now he wants to return the brooch and get his money back. Julia refuses to cooperate.

REQUIRED

Advise Khaled of any common law claims he can successfully make against Julia, citing relevant Australian law.

(15 marks)

ANSWER GUIDE

Julia’s first advertisement is an invitation to treat, there is also subsequently offer and acceptance. But, formation of contract is not an issue here, so there is no need to analyse this. Julia’s second advertisement – offer and acceptance are again not at issue.

Are Julia’s statements terms or not?
Oscar Chess v Williams – consider the factors. If a term, what type of term has been breached: condition, warranty or intermediate term? Associated Newspapers v Bancks, Bettini v Gye, Hong Kong Fir Shipping. Better student mentions consequences of type of term breached, and measure of remedies (Hadley v Baxendale)

Misrepresentation
: The elements of misrepresentation should be discussed: (1) – Julia is making a false statement of fact about the subject matter – the brooch (2), and it is addressed to Khaled (3); moreover Julia is reassuring Khaled that the brooch is a genuine item etc; there is an inducement (4) –Khaled is hesitant to buy the brooch and Khaled would not have bought the brooch if the false statement was not made – he is unlikely to be interested in buying a fake item for $10,000. Students should discuss the types of misrepresentation that may apply on the facts. Fraudulent: Derry v Peek – rescission and damages. Negligent Misrepresentation: Shaddock v Parramatta City Council; Esso Petroleum v Mardon – rescission and damages. Innocent misrepresentation does not look likely, but if it were to succeed, Khaled may terminate the contract: Whittington v Seale-Hayne. Better students compare and contrast options.

Unilateral mistake
: may be argued on the basis that the year of the brooch is a fundamental matter and Julia sought to take advantage of the mistake: Taylor v Johson.

Unconscionable dealing
: Khaled has special weakness, Julia knows and takes advantage of it: Amadio.

Undue influence
: not a recognised relationship between Khaled and Julia, so Khald must establish that that she as the stronger party had a controlling influence over him: Johnson v Buttress.

QUESTION TWO

Gaslight Pty Ltd is a company that supplies and installs domestic gas appliances for its customers. All of the products supplied by Gaslight Pty Ltd are manufactured by city-based company, Fuel and Gas Products Ltd.
Zhiwang has just moved into his newly bought two-storey brick unit and has undertaken a thorough renovation of the premises. One of his prime concerns was the replacement of the house’s antiquated hot water system. He signed a contract with Gaslight Pty Ltd for the supply and installation of a brand new Triple Deluxe model water heater. The contract contained a clause statin that:
“the only guarantee applicable to the purchase of any products supplied by Gaslight Pty Ltd is the guarantee given by the manufacturer and Gaslight Pty Ltd shall not be liable whatsoever for any loss or damage caused by any defective product supplied by it.”
Attached to the contract was a brochure issued by the manufacturer containing the following statement:
“the manufacturer guarantees this product against defects for a period of three years and its liability is limited to the replacement and repair of any defective product”
On the first night after the installation of the Triple Deluxe model, Zhiwang was woken by the fire alarm. He rushed out of his bedroom to find that the laundry, where the hot water system was installed, was engulfed in flames. He was able to extinguish the fire but suffered extensive burns and was not able to work for six weeks. The laundry walls and ceiling were damaged by the fire, resulting in a $5,000 repair bill. It was discovered that the fire was caused by a manufacturing fault in the hot water system.

REQUIRED

Advise Zhiwang as to his rights under the Australian Consumer .
(15 marks)

Answer guide:

Zhiwang is a consumer – s 3 ACL – even if the hot water system costs less than $40,000, it is goods of a kind ordinarily acquired for person, household or domestic use.

The ACL consumer guarantees are non-excludable – acceptable quality: s 54; fitness for purpose: s 55; compliance with description: s 56.

Exclusion clauses are void: 64. Therefore he can sue the retailer for remedies for breach of these sections.

It is a major failure, providing for broad range of remedies: ss 259 and 260.

Zhiwang may also sue the manufacturer under s 271 where the consumer guarantees (ss 54 and/or 56) are not complied with. Section 272 provides damages. Section 276 renders the manufacturer’s exclusion clause void.

The manufacturer is also liable for loss resulting from safety defects (defined in s 9) to anyone injured (s 138) and for damage to other goods (s 140) and for damage to buildings (s 141). Section 150 renders the manufacturer’s exclusion clause as to liability under these sections void.

SECTION A

QUESTION ONE

Farah and Zhao went to the Exotique Teas Ltd shop as Zhao was particularly fond of tea. Oscar, the store manager, assisted them. Zhao began looking around for some specialised teas to help cure him of some of his physical ailments.
Zhao asked Oscar what type of tea would help his aching bone joints. Oscar quickly recommended turmeric and ginger tea. Oscar assured him that all aching bone joints would quickly disappear and additionally the tea would also assist with muscle aches. Zhao said he didn’t really care about the muscle aches as his muscles were fine.
Zhao then enquired about what type of tea would help him get rid of the ugly warts on his arms and hands. Oscar responded, “I have the perfect tea for you. This Tree tea has been known to remove all warts of all types. It will definitely remove those warts from your arms and hands.” Zhao was very delighted to hear this.
Zhao then immediately bought 10 kilos turmeric and ginger tea and 20 kilos of Tree tea for the total price of $3,000.
Zhao and Exotique Teas Ltd executed a basic contract which stated the type of teas, quantity and price. No other details were mentioned in the contract.
Zhao drank the two teas for a period of a month and began feeling quite ill. Farah rushed Zhao to the hospital and after extensive tests, discovered that the teas were actually harming Zhao. Zhao developed blood and colon problems and had to stay in the hospital for over a week to get all of the teas out of his system.
Additionally, his aching bone and joints were still a problem and none of his warts has disappeared. Zhao is extremely upset and want to sue Exotique Teas Ltd.

REQUIRED:

Advise Zhao as to his legal rights against Exotique Teas Ltd under both common law and the Australian Consumer .

(15 marks)

Guide to Answer to Question One

In common law, Zhao may sue Exotique Teas Ltd in negligence and in contract:
· Negligence in manufacture of teas: Donoghue v Stevenson – Duty of Care (“neighbour test”), Breach (reasonable person test), Damage caused by the Breach (causation – ‘but for’ test – and remoteness – Wagon Mound case)
· Negligent misrepresentation in advice/information about the teas: Zhao must establish (a) duty of care (Shaddock v Parrammatta City Council), (b) breach (reasonable person test, likelihood of injury – Bolton v Stone, gravity of harm – Paris v Stepney Borough Council, cost of eliminating the risk – Latimer v AEC), (c) causation and remoteness. Remedies in rescission and damages
· Fraudulent misrepresentation (Derry v Peek): rescission and damages
· Innocent misrepresentation (Whittington v Seale-Hayne): rescission only
· Breach of Contract: the promise regarding health qualities of the teas is a term of contract – either as a condition (Banks case) or warranty (Bettini v Gye). However, as the contract was in writing, need to deal with the parol evidence rule. The contract may be seen to be partly in writing and partly oral: Van den Esschert v Chappell) or the promise regarding the health qualities may be a collateral contract (De Lassalle v Guildford). Depending on whether condition or warranty breached, remedies include rescission and damages.

Under the Australian Consumer :
· Zhao is a consumer under s 3 of the ACL and may sue Exotique Teas Ltd for breach of s 54 (guarantee as to goods being of acceptable quality) and s 55 (guarantee as to fitness for purpose of teas)
· If Exotique Teas Ltd is the manufacturer of the teas, Zhao may also sue Exotique Teas Ltd under s 138 if Zhao can show that his injuries were caused by a safety defect in the teas. A safety defect is defined in s 9 of the ACL (goods not as safe as a consumer would expect them to be having regard to their marketing, packaging, time supplied, etc). If the defect did not exist at the time the teas were supplied by Exotique, Exotique would not be liable: s 142 of the ACL

QUESTION TWO

Zhen How and Ming Lui, a husband and wife, mortgaged their property to Central District Bank as security for a loan by the bank to Zhen How’s parents. Zhen How and Ming Lui subsequently divorced. Zhen How’s parents defaulted and the bank claimed possession of Ming Lui’s interest in the property.
Ming Lui said that she was induced to sign the mortgage because of Zhen How and her father-in-law’s influence on her and that she put trust and confidence in Zhen How and her father-in-law in relation to her financial affairs and followed their advice. She said that the bank was aware of this which put it on notice that the transaction was not for the benefit of Ming Lui, and that her father-in-law exercised control over the property in his children’s hands. Ming Lui wants a declaration that the mortgage is void and unenforceable.

REQUIRED:

Advise Ming Lui of any legal rights that she may exercise against Central District Bank.
(8 marks)

Guide to Answer to Question Two

The legal issue is genuine consent to enter into a contract. Ming Lui may claim that the bank acted unconscionably, knowing of her special weakness or disadvantage in relation to her father-in-law when she signed the mortgage. For unconscionability the following requirements must be met:
1. One party has a special weakness or disadvantage.
1. The other party knows of this weakness or disadvantage.
1. The other party uses or takes advantage of the weakness or disadvantage.
A special weakness or disadvantage may include age, emotional attachment and lack of education and ignorance of important facts:
Commercial Bank of Australia v Amadio
;
Bridgewater v Leahy
;
Louth v Diprose
. Ming Lui may also claim unconscionabiity under ss 20 and 21 of the Australian Consumer .
Another ground for voiding the mortgage is undue influence:
Allcard v Skinner

; Johnson v Buttress.
For undue influence, the following requirements must be met:
1. The parties to a contract are in a pre-existing relationship such that one party has controlling influence over the other.
1. The stronger party takes advantage of that influence such that the weaker party is not exercising their independent judgment when entering into the contract.

Ming Lui may also have a claim in economic duress. However this requires a threat to her economic or financial wellbeing to pressure them to enter into a contract. This is not evident on the facts but may potentially be implied from the controlling influence that her former father-in-law had. Duress requires that
1. One of the parties expressly or impliedly threatened the other party with (financial) harm;
1. The threat of the (financial) harm contributed to the threatened party’s decision whether or not to enter into the contract.
If this can be established the contract is voidable:
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd

.

QUESTION THREE

Tanika opened an accounting business and contracted with Millenium Computers Co. Ltd to supply her with a 2018 computer system by no later than April. The punctuality of delivery and installation of the system was a term of the contract.
Millenium Computers Co. Ltd was one month late in delivering and installing the system. Whilst the company was aware that Tanika would lose $20,000 in ordinary revenue if the system was late, it was unaware that Tanika had signed a contract to review the accounting systems of two other large companies. Tanika had entered this agreement with the expectation that the new computer and accounting software would be available to her.

REQUIRED:

Advise Tanika as to her right to damages for the lateness of the delivery and installation of the 2018 computer system.
(7 marks)

Guide to Answer to Question Three

Whether Tanika can succeed against Millenium Computers Co. Ltd for breach of contract for late delivery and installation of the 2018 computer system depends upon determining the issue of remoteness of damages.
This is covered by the rule in Hadley v Baxendale which allows a plaintiff to claim damages for breach of contract if either of the following two limbs is satisfied. Damages may be claimed:
1. where they naturally arise from a breach of contract or occur in the usual course of things; or
1. as may reasonably be supposed to have been in the contemplation of both parties at the time when they made the contract.
Thus, Tanika is likely to succeed in relation to $20,000 damages for the loss of ordinary business, but is unlikely to succeed in recovering damages for the loss of income relating to reviewing the accounting systems of the two large companies.
LAW2446 Commercial (SIM) Final Examination – Semester 2, 2017 1

LAW2446 Commercial (SIM) Final Examination – Semester 2, 2017 7