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Legal Framework for Forming a Contract

Kelly is a recent graduate from Le Cordon Bleu, and she decides to open her own coffee house with her mother as a partner. She purchased an old coffee house. In order to improve the coffee house image and hopefully her business, she decides to give the coffee house ‘a lift’. Accordingly she contacts GG, a decorator and interior designer. GG visits Kelly’s premises and after inspecting the interior, he tells to her that she would be better to do everything ‘in one go’. It is agreed that the coffee house will be painted and new furniture will be purchased. GG tells Kelly that he will take care of everything. Kelly replies: ‘Please do it right. This is important for my business. I don’t want second-rate workmanship. GG says: ‘You can rest assured this will never happen. I only choose the best of everything. Besides, I always guarantee my work’.

The parties subsequently enter into a written contract, which Kelly glances at briefly, and signs. The contract provides that the work is to be done for $ 100,000. Upon completion of the work, Kelly visits the coffee house for an inspection. To her horror, she notices that the paint, which is already beginning to peel, is obviously of inferior quality and that the low quality furniture covered with cheap cloth. She consults the contract which she signed and notices a clause which provides that no guarantee is given for the quality of any work undertaken. Kelly consults another interior decorator and is advised that it will cist a further $100,000 to re-paint and replace the furniture. To make the situation worse, her mother found out what had happened and demands her money back.

Kelly seeks your help. Advise Kelly as to the legal grounds which may be available to her and which may form the basis of an action against GG. Also advise what Kelly can do about her mother’s demands. Indicate Kelly the likelihood of success or otherwise with respect to each. Give detailed reasons for your answer.

Bennie’s fire is a restaurant in Adelaide famous for its fabulous desserts. Fire bomb is its most popular sweet with its meringue covered ice cream doused all over in brandy liqueur and served with the lights turned down low while the chef flames it up. The restaurant owner, Benny, has given his 10 employees strict instructions on fire safety in the preparations and presentation of this and other flaming desserts and drinks in conformity with the OHS regulations relevant to restaurants and cafes. These regulations recommend that alcohol should never be added to a pan or burner and that the cook should always use long fireplace matches in contact with flammable substances.

Cyrill has been a part time chef at the Bennie’s fire for nearly two years. Last Saturday night, Cyrill was ridiculously busy preparing one Fire bomb after another. Finally he used up the last of the matches in the kitchen and all of the usual brandy liqueur. Undeterred, Cyrill improvised. Being a smoker, he had a cigarette lighter in his jacket pocket and he also managed to find sine rum, which he knew, was also a highly flammable spirit.

He received a request to flame up the dessert at the table of a special birthday guest, Ruby, whose hair colour matched her name, He put the Fire bomb in the middle of the table, drenched it in the rum and using his lighter, set fire to the alcohol. With an almighty roar, the dessert exploded in flams and the blast hit Cyrill on the face and arms. The blast also set fire to Ruby’s hair as she leaned forward in anticipation of the spectacle.

Cyrill and Ruby were taken to hospital for treatment. The doctors have indicated that Cyrill will need several months of rehabilitation following some reconstructive surgery to his face and skin grafts on his arms. Ruby has lost most of her hair and will need to wear a wig for the time being.

Benny is furious over the incident and the bad publicity it has generated for his restaurant. He has issued Cyrill with a dismissal notice effective immediately citing his violation of the fire safety regulations as his reason for sacking him. He has also told Cyrill that he was on a frolic of his own and should never set fire to the Fire bomb at Ruby’s table. Cyrill believes he has been treated unfairly and harshly in the circumstances and that not only should he be reinstated immediately but that he is entitled to receive his weekly wage while he is away from work. In the past, on special occasions Cyrill has flamed up desserts at patrons’ tables as part of his duties as a chef. With respect to her injury, Ruby is considering bringing an action against Cyrill for common law negligence.

Advise each of the parties of the merits of their claims and/or defences.

Legal Framework for Forming a Contract

Issue

The key issue raised in this case is whether Kelly can hold GG liable for breaching the terms of the contract and whether her mother can claim back her money?

A contract is a legal document which binds its parties to comply with its terms. After forming the contract, they enter into a legal relationship based on which they have to comply with the terms of the contract. The contract can be created by parties in both written and oral format as long as its essential elements are fulfilled by them (Gibson, 2017). Firstly, an offer is made by a party to another regarding performance or non-performance of certain actions. In Harvey v Facey (1893) UKPC 1 case, the court provided that the offer must have the authority to bind the offeror into a legal agreement right after it is accepted. The acceptance given by the party must be certain, and it must be communicated within appropriate time; changes in the terms of acceptance forms a counter offer after which the original offer cannot be accepted by the party as given in Hyde v Wrench (1840) 49 ER 132 (Turner, 2014, p. 48). The parties must have the capacity to form the contract which means that must not be unsound mind, insolvent or minor. The intention of parties is another key element without which the contract cannot be formed. The agreement formed by parties in social settings did not constitute a valid contract due to lack of intention of parties as given in Balfour v Balfour (1919) 2 KB 571 case.

Lastly, a valid consideration must be given by the parties in order to form a contract. A party can be held liable for misrepresentation in case such party made a statement which is false to another party in order to induce the party into signing a contract. The party making the false statement must know that it is untrue and another party must suffer a loss due to relying on such statement (Gibson, 2017). While forming a contract, the contracting parties can include an exclusion clause in terms of the contract in order to eliminate their liability which arises from the contract. It is the general rule of exclusion clause that it must be brought to the attention of the contracting party while the contract is formed or before its formation as given by the court in Olley v Marlborough Court (1949) 1 K.B. 532. Thus, it is important that the exclusion clause is bringing into the attention of the party or else the term is not considered as accepted by the party (Stone, 2013). However, in case of a written contract, the parties are bound by the exclusion clause irrespective of the fact whether it was brought into their attention or not as provided by the court in L’Estrange v Graucob (1934) 2 KB 394 case.

The collateral contract is referred to a separate contract which is formed between parties beside the main contract. In this contract, the parties promise to enter into another contract. It is an independent contractor that is separate from the main contract, however, this contract is related to or addition to the main contract. In Heilbut, Symons & Co v Buckleton (1913) AC 30 case, the court provided that there must be consistency in the main and collateral contract or else the party can enforce the terms of the collateral contract which becomes part of the main contract (Monaghan and Monaghan, 2013, p. 44). The parol evidence rule provides that once parties form and execute a written agreement, then its terms cannot be annulled or altered based on any oral evidence which contradicts with the terms of the written contract. Based on this rule, the verbal communication between parties which never form a part of the contract cannot be used to terminate the contract or its terms (Gibson, 2017). However, there are certain exceptions in which the parol evidence rule did not apply. For example, if there are any errors in the contract due to fraud, duress or mistake, then this rule cannot apply. In partnership business structure, partners have a fiduciary duty towards each other because they can act as the agent for other partners while engaging in the ordinary course of business.

Exclusion Clause and Misrepresentation

In the given case study, Kelly purchased an old coffee house with her mother to start her own business. She hired GG to redecorate the coffee house, and GG told Kelly that he always guarantees his work, and he will provide the best quality work. Both signed a written contract as well in which GG added an exclusion clause based on which he provided that he did not take the guarantee of the work. The parties fulfil all the essential elements of a contract based on which they have entered into a valid contract. GG can rely on the parol evidence rule to provide that Kelly cannot rely on the oral statement made by him earlier since it is not a part of the contract.

On the other hand, Kelly can rely on the exceptions of parol evidence rule and argue that GG has misrepresented facts to induce her into signing the contract. GG was in the position to know that facts, however, he made the false statement to convince Kelly to sign the contract, thus, based on misrepresentation, Kelly can remove the exclusion clause and held GG liable. Kelly can also argue that the oral agreement was a collateral contract formed between the parties based on which the main contract was formed, thus, the inclusion of exclusion clause contradicts with the main contract. Furthermore, the mother of Kelly cannot demand her money back because both of them are in a partnership and Kelly acted as her agent while conducting the ordinary course of business. Therefore, she cannot claim her money back from Kelly.

Conclusion

In conclusion, GG cannot rely on the defense of the exclusion clause because of misrepresentation and the collateral contract formed between the parties, thus, Kelly can hold him liable for refund. Kelly’s mother cannot claim her money back since both of them are partners, and Kelly acted as her agent.

Issue

What claims can be made by Benny, Cyrill and Ruby and what are the merits of their claims and defenses available, if any?

The Fair Work Act 2009 is established by the Australian government to provide various rights to employees, and it governs the legal relationship between the employee and the employer (Gibson, 2017). As per this act, an employer has to pay workers’ compensation to its employees for the work performed by them. The employer is also vicariously liable for the tortious actions of the employees which are taken by them during the ordinary course of business as given in the case of Hollis v Vabu Pty Ltd (2002) HCA 44. The act provides that after the formation of the contract of employment, the employer has the duty to pay the agreed remuneration, provide work and ensure the safety of the employee at the workplace. As given in Latimer v AEC Ltd (1953) AC 643 case, the court provided that an employer should take all necessary measures to ensure that safety of the employee even if it incurred huge costs due to shutting down the factory (Greene, 2013, p. 15). Furthermore, the employer should specify the provisions of a safe system of work by showing employees how the job is done and how to use the equipment to avoid causing harm adequately.

Collateral Contracts

On the other hand, the employees also have duties to ensure that they work in a skillful manner and obey the safety commands which are given by the employer. There are certain ways in which a contract of employment can be terminated. It can be terminated on death, bankruptcy, redundancy or sale of the business. Moreover, it can be terminated by frustration of time period, by giving notice to employees or without giving notice. However, the employer is requiring maintaining care and ensuring that the actions of employee are justified to dismiss him without notice. The court awarded $170,000 to the employee due to unfair dismissal by the employer in the case of Rankin v Marine Power International Pty Ltd (2001) VSC 150 (Gibson, 2017). Work Health and Safety regulations are implemented by the government to protect the people in a workplace whether they are employees or not. As per section 3 (1) of the Work Health and Safety Act 2011, the employer is liable to ensure the safety of workers and other individuals from harm by taking appropriate safety measures in the workplace.

Section 19 imposes a primary duty of care on the employer to ensure the safety of workers and the people who are affected by their actions. Section 28 provides that the workers have a duty to ensure that they take reasonable care regarding their health and safety while at work. They should avoid taking any actions which could have an adverse effect on their health and safety of other people as well in the workplace. Section 29 provides that customers and other people at the workplace should also ensure their personal safety by taking reasonable steps for care (Gibson, 2017). The act also applies on the Workers’ compensation; the employer is liable to pay compensation for the acts arising out of employment, outside its course, injury suffered in the place of employment, injuries arising during lunch and protected journeys. A party can hold another person liable for negligence by not maintaining a standard of care which is expected of him which results in causing injuries to the party. The tort of negligence provides a remedy to the parties who suffer an injury due to the failure of another person to take a reasonable standard of care.

In Donoghue v Stevenson (1932) AC 562 case, the court provided that an owner or business has duty of care towards customers to ensure that did not suffer personal injury by consuming its products (Martin, 2014, p. 29). Firstly, the party must owe a duty of care which is established by the court through ‘Caparo test’ which evaluated the proximity in the relationship of parties to determine whether a duty of care existed or not as given in the case of Caparo Industries PLC v Dickman (1990) 2 AC 605. The party against whom the suit is filed must owe the duty which is breached by him due to failure to maintain a standard of care (Gibson, 2017). The causation element must be present which means the injury must be caused directly due to negligence and the damages suffered by the party must not be too remote as established by the court in the Wagon Mound no 1 (1961) AC 388 case.

In the given case study, Cyrill has a good case against Benny under the Fair Work Act and Work Health and Safety Act based on which he is likely to succeed. As per the provisions of Fair Work Act, Benny did not have justified reason to terminate the contract to Cyrill based on which Cyrill can be reinstated by the court, and he can demand damages from Benny for terminating him without proper notice. Benny is liable under section 3 (1) of WHS towards Cyrill and Rudy who were present at the workplace. Benny also has to pay the weekly wage of Cyrill and pay compensation till he is in the hospital. Benny can rely on the defense under section 28 to provides that Cyrill did not take appropriate measures to ensure his and customers safety by using cigarette lighter and sine rum to prepare the dessert based on which the amount of damages can be reduced by the court. Rudy can hold Benny liable under vicarious liability for negligence of Cyrill because he owed a duty of care which was breached by him due to which Rudy suffered personal injury.

Conclusion

In conclusion, Benny is liable toward Cyrill to pay his salary and compensation while he is in the hospital, and he has to reinstate him back to his job because he fired him without giving proper notice. Rudy can also claim compensation as per the tort of negligence, and he can hold Benny liable as per vicarious liability to demand damages from him for the injury suffered by him.

References

Balfour v Balfour (1919) 2 KB 571

Caparo Industries PLC v Dickman (1990) 2 AC 605

Donoghue v Stevenson (1932) AC 562

Fair Work Act 2009

Gibson, A. (2017) Business Law. Sydney: Pearson Australia.

Greene, B. (2013) Course Notes: Tort Law. Abingdon: Routledge, 15.

Harvey v Facey (1893) UKPC 1

Heilbut, Symons & Co v Buckleton (1913) AC 30

Hollis v Vabu Pty Ltd (2002) HCA 44

Hyde v Wrench (1840) 49 ER 132

L’Estrange v Graucob (1934) 2 KB 394

Latimer v AEC Ltd (1953) AC 643

Martin, J. (2014) Key Cases: The English Legal System. Abingdon: Routledge, 29.

Monaghan, C. and Monaghan, N. (2013) Beginning Contract Law. Abingdon: Routledge, 44.

Olley v Marlborough Court (1949) 1 K.B. 532

Rankin v Marine Power International Pty Ltd (2001) VSC 150

Stone, R. (2013) Q&A Contract Law 2013-2014. Abingdon: Routledge.

Turner, C. (2014) Unlocking Contract law. Abingdon: Routledge, 48.

Wagon Mound no 1 (1961) AC 388

Work Health and Safety Act 2011

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[Accessed 29 May 2024].

My Assignment Help. 'Legal Grounds For Kelly's Action Against GG And Handling Her Mother's Demands' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/blo1105-business-law/advise-what-kelly-can-do-about-her-mother-demands.html> accessed 29 May 2024.

My Assignment Help. Legal Grounds For Kelly's Action Against GG And Handling Her Mother's Demands [Internet]. My Assignment Help. 2020 [cited 29 May 2024]. Available from: https://myassignmenthelp.com/free-samples/blo1105-business-law/advise-what-kelly-can-do-about-her-mother-demands.html.

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