Answer Guide for Past Exam for Revision MLL219 Week 11 31.8.23-combined
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Jan 9, 2024
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MLL219 Answer Guide to Past Exam for Revision Week 11 This is a guide to the legal issues that needed to be identified and some of the legal principles and authorities that needed to be discussed. However, students would need to elaborate on the relevant law and its application to the facts in an exam answer. 1)
Identify and discuss any claims and defences that Greg and Harris might make and any remedies they might seek against each other
(20 marks)
•
Greg may sue Harris for repudiation and/or breach of the contract for refusing to pay the annual rent under the lease and seek termination of the lease and payment of damages (discussed further below): o
A party has a right to terminate a contract if the other party repudiates their contractual obligations by demonstrating, through their conduct or words, that they are either not ready and willing or not able to perform their contractual obligations when performance is due (
Shevill v Builders Licensing Board
) o
To constitute an actual breach of the contract justifying its termination, the breach must be serious and must be a breach of a term that is either a condition (
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd
) or an intermediate term that, if breached, would deprive the innocent party of substantial part of the benefit for which they contracted (
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd
). •
Harris may argue that Greg engaged in misleading or deceptive conduct in breach of s 18 of the ACL by not providing full information about the problems with the septic system and the council’s order:
o
To be liable, the party must be a person/corporation, engage in conduct, conduct must occur in trade or commerce, conduct must be misleading or deceptive or likely to mislead or deceive o
Conduct is misleading or deceptive if it has the capacity to lead into or cause error and a statement that is literally correct can constitute MDC if it misled the party to whom it was directed because it is only part of the truth (
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd
)
o
Although Greg told the truth when he said that a plumber had inspected the property, he did not tell the whole truth, which is that the plumber said that the septic system did not work. •
Harris may argue that their agreement for him to buy Greg’s pa
inting is void due to his unilateral mistake in assuming that Tom Roberts was the artist who painted it (though Greg may argue in response that Harris should bear the risk of loss because Greg did not know the artist either). o
A unilateral mistake arises when one party is mistaken about an aspect or aspects of the contract. o
A unilateral mistake as to the quality of the subject matter of the contract generally will not render the contract void if there was no specific contractual term relating to this, and the unmistaken party did not contribute to the mistaken party’s mistaken belief (
Smith v Hughes
) o
Need to consider whether this mistake renders the subject matter essentially different from that which the parties believed it to be (
Bell v Lever Bros Ltd
) o
Harris is unlikely to succeed on this ground. •
Remedies –
Greg may seek damages equal to his loss in value (i.e. whatever Harris does not pay in rent) minus his costs and loss avoided (i.e. whatever he can obtain from leasing the property to someone else): o
To recover substantial, compensatory damages for breach of contract, the innocent party must prove: they suffered a compensable, measurable loss; t
he guilty party’s breach of contract caused that loss; and the loss suffered was not too remote from the breach of contract (
Hadley v Baxendale
). Plaintiff cannot recover damages in respect of loss that they avoided or that was avoidable through mitigation (
British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd
) 2)
Identify and discuss any claims and defences Harris and Ernest might make and remedies they might seek against each other (15 marks)
•
Ernest might sue Harris for breach of contract, as Harris broke his promise to pay him $500 a day for the installation work when he purported to terminate the contract and did not pay him anything.
•
Harris may argue that his promise to pay is not enforceable because it was induced by MDC (
Ernest’s inaccurate claim that the rate of $500 was fair). o
Ernest may respond that his statement about fairness was merely an opinion or a puff (
General Newspapers Pty Ltd v Telstra Corp
) •
Remedies: Ernest
’
s statement, “I will seek full payment as a remedy if you improperly end the contract” indicated that Ernest will seek liquidated damages equal to $500 per day times the number of days that Fiona worked. o
Harris could argue Ernest cannot recover full payment because that would amount to a penalty (a sum stipulated in a contract to be paid in the event of breach of contract that is not a genuine pre-estimate of the likely damage that would be caused by it: Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd
).
o
Although the number of days the work would take to complete was uncertain when the contract was formed, full payment would be unreasonably high in comparison to actual or anticipated damages given that he hired Fiona to do the work for a lower price. •
Damages rules as above: Ernest will seek damages equal to his loss in value ($500 times the number of days it took Fiona to do the work) minus costs avoided ($300 times the number of days it took Fiona do the work). 3)
Identify and discuss any claims and defences Harris and Fiona, might make and remedies they might seek against each other (15 marks) •
Harris might sue Fiona for breach of contract as she installed the electronic equipment improperly (upside down). Harris could argue that the contract to install the equipment is an entire contract (
Cutter v Powell
). The Court is likely to find this is an entire contract. •
However, Fiona may argue that she has substantially performed the contract: o
A party can recover the contract price if they have not fully, but have substantially performed their obligations, but the other party has the right to cross-action or counterclaim for damages as compensation, which will reflect cost of carrying out remedial work to complete the contract and rectify defects/omissions in their performance (
Hoenig v Isaacs
). Harris could seek damages of $1,500 (to remedy the defective installation).
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•
Fiona may respond by arguing that $1,500 is grossly disproportionate to the probable loss in value to Harris because the electronic equipment functions properly and no facts show that Harris would care much about the defective appearance. •
Fiona may argue that the contract was frustrated in any event because it is impossible to find windows that would meet the requirements of the council’s regulation: o
Need to explain doctrine of frustration (
Davis Contractors Ltd v Fareham Urban District Council
; Codelfa Construction Pty Ltd v State Rail Authority of NSW
) o
A supervening event may not frustrate a contract where, at the time when the parties formed their contract, it was foreseen or was reasonably foreseeable by them that this event would occur (
Davis Contractors Ltd v Fareham Urban District Council
) •
Fiona may argue that performance of the contract is impossible, but Harris may argue that there has been no supervening event, the facts that the property is heritage-listed and there were regulations applying to its renovation were foreseeable, and the difficulties or expense associated with performing the contractual obligations are not frustrating events.
Page 1 of 4 PRACTICE EXAM QUESTIONS 1 ANSWER GUIDE This is a guide to the legal issues that needed to be identified and some of the legal principles and authorities that needed to be discussed. However, students would need to elaborate on the relevant law and its application to the facts in an exam answer. QUESTION 1 - Discuss all the possible grounds on which Belle might be able to rely to seek to recover damages from Dee and whether Belle is likely to succeed on each of them Issue (terms/breach of contract): did D’s pre
-contractual statement about personally introducing B to her customers constitute a term of the contract that she has breached? Note: terms and collateral contracts were covered in Contract A and are not examined in Contract B. A court would probably admit evidence of D’s
pre-contractual statement and regard it as a collateral contract, which D has breached. Issue (remedy): would B be entitled to damages as a consequence of D’s
breach of the collateral contract? Rules to discuss: a party who claims substantial damages for breach of contract has the onus of proving: they suffered a compensable, measurable loss; there was a causal connection between the breach of contract and the loss; and the loss suffered was not too remote from the breach of contract. A plaintiff cannot recover for avoidable or avoided loss, but can recover for loss incurred in their reasonable attempts to mitigate their loss. B could claim loss of a chance of future profits due to D’s breach of her contractual obligation to introduce her personally to her customers (
Chaplin v Hicks
; Howe v Teefy
). The profit could be estimated based on D’s previous earnings from the business. Although B’s loss may be partly caused by D’s breach, it is also attributable to B’s closure of the shop for a month during one of its most profitable periods during the year. The loss of profits may be considered to have arisen naturally from the breach or been within the parties’ reasonable contemplation when they made
the contract as the probable result of the breach, so was not too remote from the breach (
Hadley v Baxendale
). D made the promise to induce B to enter the contract, implying that this would help B retain the customers and thus the profits, and D or a reasonable person in her position would have realised such loss was sufficiently likely to result from the breach. B told D of her lack of business experience, which was a special circumstance that might have caused her more loss if D did not personally introduce her to her customers than if she had this experience. B attempted to mitigate her loss by telephoning the customers, but D could show that B did not mitigate her loss by closing the store for a month during its busiest season. Damages are usually assessed on the date on which the plaintiff’s
cause of action arose, which is usually the date of the defendant’s
breach of contract, but if assessment on that date would not fairly compensate the plaintiff for the loss caused as a result of the breach, another date may be used (
Hoffman v Cali
). B could argue that damages should not be assessed on the date on which D failed to introduce her to the customers, but a month later when the impact of that failure was reflected in the fact that some of the customers were buying their flowers from the nearby nursery. A court would be able to estimate the loss, but would probably find that it was mostly
Page 2 of 4 attributable to B’s
closure of the store during wedding season, so was avoidable, and B did not avoid this loss. A court would therefore be unlikely to award B damages on the basis of D’s breach of the collateral contract. Issue (terms): did D’s
pre-contractual statement that it was unlikely that B would have any competition in the area constitute a term of the contract that D has breached? Note: terms were covered in Contract A and are not examined in Contract B. This was a mere representation, rather than a term of the contract, as it did not comprise a promise, so D did not breach the contract as a consequence of the fact that it proved to be inaccurate. Issue (misleading or deceptive conduct): is D liable for contravening the prohibition on misleading or deceptive conduct in section 18 of the Australian Consumer Law on the basis of her statement that B would be unlikely to have any competition in the area? Need to refer to s 18 ACL and definition of MDC, and cases regarding expression of opinions, sales puffs, representations as to the future, and silence/non-disclosure D’s statement that it was unlikely B would have any competition in the area was an expression of an opinion, which she represented was based on reasonable grounds by referring to the difficulty of growing orchids and the consequent scarcity of suppliers. It was unclear whether D actually held this opinion, as she knew that a large nursery had opened in a nearby suburb. It was more than a sales puff (D would not have expected B to form her own opinion). D was silent about the opening of the nearby nursery, while she provided information about the suppliers. An ordinary and reasonable buyer would expect D to mention the nursery in discussing potential competition with her business. This was a statement about the future and D would have difficulty adducing evidence that she had reasonable grounds for making it and she did not qualify her prediction by noting the opening of the nursery nearby. A court would probably find that D engaged in MDC. Issue (damages for MDC): is B entitled to damages for D’s
breach of s 18 ACL
? Refer to s 236(1) ACL (anyone who suffers loss/damage as a result of a breach of s 18 ACL can recover compensatory damages from the person whose conduct caused it), but must prove the loss was caused by the MDC. If the defendant’s
MDC ‘materially
contributed’
to the loss/damage, it will be regarded as a cause of it (
Henville v Walker
). It is no defence to a claim for damages for loss/damage for MDC to show that the other party ‘should have made its own inquiries and that, if it had done so, it would have found out the true position’: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd
. However, if a party suffers economic loss only partly as a result of the other party’s MDC and partly because of their failure to take reasonable care, then the damages they can recover are reduced (
Competition and Consumer Act 2010 (Cth) s 137B). B could claim that she lost profits as a result of D representing she would be unlikely to have competition in the area because this representation induced her to buy the business and she assumed she could close the store temporarily to improve it without risking another business poaching its regular customers. B could argue that, had D not made that representation, she might have kept the store open and therefore not suffered loss of profits. However, the loss of profits was also caused by B’s closure of the store for a month, the
competition from the
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Page 3 of 4 nursery and perhaps D’s failure to introduce B personally to the customers. D might argue that B should have undertaken her own investigations of the local area and, if she had done so, would have discovered the large nursery nearby. However, B’s failure
to verify the accuracy of D’s representation does not prevent D’s liability arising if
B was misled by it. B could have mitigated her loss by opening the florist immediately, particularly because it was one of the business’s most profitable months of the year, so any damages she may be awarded for D’s MDC may be reduced as a consequence in proportion to her contribution to this loss. There is no evidence that D intended to cause B’s
loss or was fraudulent. While B may be entitled to some damages, they would probably be reduced in proportion to her responsibility for the business’s loss of profits.
QUESTION 2(a) - would a court require Belle to pay Enid any money for the fresco? Issue (breach/termination of contract): does B have a right to terminate the contract on the basis that E is guilty of a repudiation/anticipatory breach of the contract? Rules to discuss: need to explain that a party will have a right to terminate a contract if the other party repudiates their contractual obligations by demonstrating, through their conduct or words, that they are either not ready and willing or not able to perform their contractual obligations when performance is due (
Shevill v Builders Licensing Board
). Anticipatory breach occurs if a party repudiates the contract by showing they are unable or unwilling to perform their contractual obligations before their performance is due
, but the ‘
breach must be fundamental
’ (
Foran v Wight
)
, e.g. if it deprives the innocent party of ‘substantially the whole of the benefit of the contract’: Federal Commerce and Navigation Ltd v Molena Alpha Inc
. Anticipatory breach only brings a contract to an end if the innocent party elects to terminate the contract before arrival of time for performance. If the innocent party elects to terminate the contract, rights and obligations the parties already acquired/accrued under the contract continue, but rights and obligations due to arise after termination date are ended and the innocent party can claim damages (
McDonald v Dennys Lascelles Ltd
). E has indicated her intention not to complete the painting by the due date or indeed at all, so E seems to have repudiated the contract and B has not affirmed it. However, E has completed much of the fresco, so may not have deprived B of substantially the whole of the benefit of the contract. Nevertheless, if E’s repudiation does justify termination of the contract, B will no longer have an obligation to pay E for the fresco. Also, B will have a right of action for damages and E will need to pay B compensation for loss B suffered as a result of her failure to complete the fresco. It is possible to argue both ways, but a court would probably find that E has not engaged in an anticipatory breach of the contract that justifies B having a right to elect to terminate the contract because E has completed a substantial part of the fresco. B therefore could not forgo her obligation to pay E on the basis of her anticipatory breach of the contract. Sub-issue (performance): has E performed her contractual obligations sufficiently to be entitled to any payment? Rules to discuss: the general rule is that, for a contract to come to an end through performance, parties must have performed their obligations fully, strictly and completely, unless the contract is divisible, or the doctrine of substantial performance applies.
Page 4 of 4 E needed to perform her obligations to paint the fresco completely for the contract to come to an end through performance of it. A court’s
objective interpretation of the parties’
intentions would probably conclude that they intended that the contract was entire because B was waiting for the fresco to be completed before re-opening the florist, E understood that she needed to finish it, and the parties agreed that B would pay E a lump sum on completion of it. E has finished more than half of the fresco (she has completed the charcoal drawing and three-
quarters of the painting), so a court would probably consider that the doctrine of substantial performance applies. A court would probably require B to pay E the $5,000 minus an amount that she would need to pay another artist to complete the fresco. Alternately, B could pay E $5,000 and cross claim for compensation/damages. QUESTION 2(b) - are there any remedies to which Belle might be entitled as a consequence of Enid quitting? Issue (damages): is B entitled to damages for E’s
anticipatory breach of the contract? Rules: as noted above. Anticipatory breach only occurs if the innocent party elects to rescind the contract and, if they affirm it, they cannot claim damages unless and until the guilty party is in actual breach of the contract. If B rescinds the contract, B could seek damages for the amount charged by another artist to complete the fresco (though it might be difficult to find someone who has E’s
unique skills and is able to complete it to E’s design). If B affirms the contact, she could only claim damages if E does not complete the fresco by the due date of 2 January. Issue (specific performance): could B obtain an order for specific performance in response to E’s anticipatory breach of the contract?
Rules: need to explain when a court will order specific performance, which directs the guilty party to perform the contract as agreed (
Price v Strange
). Courts rarely grant specific performance if this order would require the court to supervise the parties’ performance of their contractual obligations constantly (
JC Williamson Ltd v Lukey and Mulholland
). B is entitled at least to nominal damages for E’s anticipatory breach of the contrac
t, damages would be an inadequate remedy for the breach and specific performance would provide a more adequate remedy because E is a renowned botanical artist and B requires her unique skill to complete the painting. It would also be fair to order E to complete the fresco. There would be mutuality (if B did not pay E for completing the fresco, E could obtain an order for specific performance), there is no evidence of B delaying, specific performance would not cause E undue hardship, there was no mistake or misrepresentation, there was adequate consideration, and B has not breached the contract. An order for specific performance would not require the court to supervise performance of the contract as this is a one-off painting. A court would probably exercise its discretion to order E to complete the fresco.
PAST EXAM QUESTIONS 2 ANSWER GUIDE This is a guide to the legal issues that needed to be identified and some of the legal principles and authorities that needed to be discussed. However, students would need to elaborate on the relevant law and its application to the facts in an exam answer. QUESTION 1: Part A
•
Clause 9 is a restraint of trade clause. •
General rule is that such clauses are contrary to public policy and presumed to be void. •
Need to consider whether F, as the party for whose benefit the restriction is imposed, can rebut that presumption by proving the restraint is reasonable, having regard to the parties’ interests at the time the transaction was entered into
, is no more restrictive than is reasonably necessary to protect his legitimate interests, is not injurious to the community, and relates to a protectable interest (e.g. goodwill, confidential information, customer bases): Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Company Ltd [1894] AC 535. •
M may argue that the clause is contrary to the public interest (e.g. it prevents healthy commercial competition) and F cannot establish there are ‘special circumstances to justify it’ (
Lindner v Murdock’s Garage
(1950) 83 CLR 628) •
If the clause is found to be against public policy, the general rule is that neither party can sue to enforce it, so F would not be able to enforce it (
‘
ex turpi causa non oritur actio’
). •
However, if a court was to find that clause 9(a) was against public policy, but clause 9(b) was reasonable, F could argue that clause 9(a) could be severed from the contract, so that clause 9(b) could be enforced. F will need to establish that the clauses are not so connected with each other and they can be separated without changing the nature of the contract, only its extent: Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432; Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391 Part B •
As noted above, the general rule is that, if a contract is contrary to public policy, neither party can sue to enforce it and loss lies where it falls •
However, even if a court found that the restraint of trade clause was unenforceable, F could argue that it is possible to sever clause 9 from the contract because it is not connected to the other clauses of the contract and its removal would not change the nature of the contract, so the rest of the contract is enforceable. Part C •
Need to consider whether the preconditions for the recovery of substantial damages have been met:
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o
F can show that M breached the contract and prove on the balance of probabilities that he suffered a quantifiable and measurable loss as a result of the M’s breach, namely, loss of chance of profit (
Chaplin v Hicks
), M’s breach caused that loss, and the loss was not too remote from the breach. F may seek reliance/wasted expenditure damages, but M may be able to rebut the presumption that F would have recouped the money invested in the business if M had not breached the contract (
Commonwealth of Australia v Amann Aviation
). Need to consider F’s possible mitigation of loss (e.g. might be able to remain in the premises for a time, but may not be able to afford costs of lease and employment of staff on his own).
Repudiation vs Anticipatory Breach The term repudiation is sometimes used to describe a breach of contract which gives the innocent party a right to terminate the contract e.g. breach of an essential term. More narrowly, repudiation refers to the behaviour of one party, whether through words or conduct, that they will not or cannot perform the contract. In this context, repudiation occurs before the time that the performance of the contract falls due in the form of an anticipatory breach rather than an actual breach i.e. it is unnecessary for the innocent party to wait until the time of performance falls due before they can elect to terminate. Practice Exam 1 As there has been a breach of the contract, B is entitled at least to nominal damages at common law. An award of equitable damages is discretionary and generally would be awarded in circumstances where the court refused to grant specific performance, or it would be necessary to award damages as well as specific performance to compensate for the loss due to the breach of contract, or damages are only available in equity and not at common law. In this case, damages would be available at common law and the court would probably grant specific performance. Even if the court granted specific performance, there might be a small loss for B, as you have identified, if B chose to keep the shop closed for longer while E completes the fresco. However, B can mitigate that loss by opening the shop while E completes the fresco, so if B did not keep the shop open, a court might refuse to grant her more than nominal damages because she has not mitigated her loss.