Legal Issues With Contract Liability And Exclusion Clauses Essay.

You must write an answer to the problem-type question below, using the ILAC (Issues, Law, Application, Conclusion) format, a worked example of which is in the Resources folder.

If you think you may need and extension for this assignment, please read the rules relating to extensions in the Subject Outline before applying for an extension.

Mulan has just bought a new power drill made by MacTools Ltd. Mulan lends the power drill to his neighbour, Aurora. He gives her the box containing the drill, along with the instructions. The instructions include a safety warning saying that users of the drill should wear protective goggles. Aurora does not read the instructions.

After Aurora had used the drill for ten minutes it catches fire and explodes. As a result of the explosion, Aurora loses an eye. MacTools Ltd was aware of the fact that there was a 1% chance that a short-circuit might occur if the drill was used for longer than 5 minutes, but that it decided not to do anything, because a recall of the drills would have cost the company $ 500 000.

The fault in the drill also led to an interruption on the electric power supply in the street where Mulan and Aurora live, just at the moment when Jessie, who is a glass worker, was making a glass vase. The vase, which is worth $ 1 000, is shattered when the power goes off.

Advise MacTools Ltd as to its legal position, citing relevant legal authority, using the ILAC format.

This assessment item will allow you to demonstrate your ability to engage in legal research;

Identify the legal issues arising out of novel factual situations, to analyse the applicable law and to differentiate between which rules are applicable and which are not and then apply the law to the problem;

Explain and summarise the applicable law in such a way as to create a report for a client which states what liabilities arise from novel factual situations

The Key Elements of Contract Formation

The key issue in this case revolves around the liability of breach of contract of Airbus towards Qantas and the validity of the exclusion clause.

The best manner of defining a contract is an agreement having legal validity where the parties made a promise to pay consideration and carry out the contractual obligation. There are two key ways of forming a contract, i.e., by orally stating the terms creating an oral contract and the written contracts are formed when the terms of the contract are written down and the parties of the contract sign this document (Mau, 2010 p. 5). When the parties wish to create a contract, they need to ensure that the contract formation requirements are met, which includes the presence of six different elements, and these are offer, acceptance, capacity, intent, clarity and consideration (Miller and Cross 2015, p. 257). Clarity is a key component as the terms of the contract are the base of the contract (Blum 2007, p. 2).

In such cases where the terms set out under the contract are deliberately not undertaken by one of the parties to the contract, the contract is deemed to have been breached. And when such happens, the aggrieved party gets the option of initiating a legal action against the breaching party. The available remedies for the breach of contract include the monetary remedies and the equitable remedies. The former one takes the form of monetary damages and the latter are in form of specific performance, injunction and rescission (McKendrick and Liu 2015, p. 431).

The liability for breach of contract and the other liabilities arising out of the contract can be limited or restricted through the exclusion clauses. These are such clauses by the use of which, the liability can be reduced or extinguished by the contracting parties. There are certain requirements for an exclusion clause to be considered as a legally valid one. The first and foremost one in this regard is that the exclusion clauses have to be inserted properly into the contracts. Secondly, there is a need for the exclusion clause to be conveyed to the other party and their attention has to be brought towards the same. As a best practice, this should be done even when the same is covered under a contract which is to be signed. Even though these clauses can limit the liability arising out of the contract, these clauses cannot restrict the same for the ones which are raised through the statutory or common law and also cannot go against them in a manner to make them invalid. Where any attempt is made through the exclusion clause to do so, it would automatically be deemed as invalid (Legal Services Commission, 2011).

Breach of Contract and Available Remedies

The exclusion clause is also not valid in such cases when it is inserted in the main contract after it had been formed and signed by the parties. The case of Olley v Marlborough Court Ltd (1949) 1 KB 532 helps in establishing the same. In this case the exclusion clause was created after the original contract had already been formed, which led to the invalidity of the clause (Stone and Devenney, 2017, p.206). Further, if the exclusion clause is referred at another place and is again not brought to the attention of the parties, it is deemed as invalid (Poole, 2016, p. 223). Another key point is that the exclusion clause would be given the validity when the same is inside a contract, which is signed by the parties, even when they have not read the exclusion clause and the prime example of this is L'Estrange v Graucob [1934] 2 KB 394 (Gibson and Fraser, 2014, p. 501).

It is also a requirement that the exclusion clause is properly brought to the attention of the party against which it is being inserted for the same to be valid. Thornton v Shoe Lane Parking Ltd (1971) 2 WLR 585 was a case where the exclusion clause was stated at the back of the parking ticket which the parties got at the time of entering the parking lot, as a receipt of the payment of the parking fare. As a receipt is not bound to contain the exclusion clause and the same was contained at the back side, in addition to not being brought to the attention of the parties, the exclusion clause was held as invalid (Stone and Devenney, 2017, p.206). The same incident took place in the case of Chapelton v Barry UDC (1940) 1 KB 532 (Poole, 2016, p. 223).

The facts of this case study make it very clear that a contract was formed between Airbus and Qantas on set terms. For the signing of the contract, the contract was sent in a big pile by Airbus with a new clause, where the exclusion clause was covered and through which, Airbus restricted its liability at the value of $300,000. This is the main point of the entire case study, i.e., to test the validity of this clause.

The given exclusion clause does not contradict, restrict or oppose any laws, which would fulfil this particular criteria, and give it legality on the basis of this criteria. Coming to the applicability of Thornton v Shoe Lane Parking Ltd, Qantas could not have reasonably foreseen that Airbus would include a new clause in the stash. Since this new clause was not brought to the attention of the parties, it would be deemed as invalid. Coming to the applicability of Chapelton v Barry UDC, again, the exclusion clause was not properly brought to Qantas’s attention making it invalid. Applying the case of Thompson v London Midland & Scottish Railway, mentioning the clause of a different document would not be deemed as having met and even if they sign the main contract, the exclusion clause, for being referred at another place, would not be valid. And L'Estrange v Graucob would also not give it validity as the exclusion clause is not a part of the main contract.

Limitations in Liability through Exclusion Clauses

It is very clear that the term 455 was breached and as the exclusion clause is invalid, the restriction of limit of Airbus’s liability would not be applicable. Thus, Qantas can claim a higher amount as damages.

Conclusion

So, it can be concluded that Airbus would have to compensate Airbus for breach of contract, and the exclusion clause would not restrict the amount of liability.

There are three main issues in this case, which relates to the liability of Frank against Gemma, Frank against Bob and Frank towards Angela owing to Bob’s actions.

Certain obligations have been imposed on the employees of all the companies as per which they have to be loyal towards the employee and refrain from working for their own benefit. They also have the obligation of doing the work in best manner possible. Where these duties are not fulfilled, the employer can take action against the employee and the gravity of action depends upon employee’s breach (Walsh, 2013).

One of the requirements of terminating an employee is to give them a notice period or a notice in lieu of notice. The Fair Work Regulations, 2009 (Cth), through regulation 1.07 provides the definition of serious misconduct. When an employee poses a threat to the business of employer, a case of serious misconduct can be made. Included in serious misconduct are intoxication, fraud, theft, assault and employee refusing to work in a lawful manner and as per the terms of the contract of employment (Federal Register of Legislation, 2009). Upon establishing the presence of serious misconduct, the employee can be dismissed summarily and after a proper investigation is conducted to prove the allegations, the employee can be terminated (K&L Gates, 2013).  And in such cases, there is no need of paying the notice period or the pay in lieu of notice (Walsh, 2013).

Agency law is a common law whereby for the actions undertaken by agent, the principal is made liable towards the third party, owing to the authority present with the agent to do the work. Actual authority and ostensible authority are the two forms of authorities given to the agents and the actual authority is again divided into express and implied (Thampapillai et al, 2015, p. 141). Under express authority, the individual is expressly given the permission to undertake a particular task and under the implied authority, the virtue of the position held by the agent gives him the requisite authority (Kleinberger, 2008, p. 30).

Validity of Exclusion Clauses

Ostensible authority is also known as apparent authority and is used most commonly under the agency law (McLaughlin, 2015, p. 311). When the conduct or the words of the principal form such an impression that a prudent individual would form a view that the agent has the authority needed to do the particular task, it is the case of apparent authority, as the same is “apparent”. And for the acts of agent, the principal is held accountable (Griffiths, 2005, p. 245). The reason for holding the principal liable is that the third party is not aware of the presence or absence of the real authority with the agent (Stone, 2005, p. 162).

Hely-Hutchinson v Brayhead Ltd (1967) 1 QB 549 was a case where the contract was entered into with Brayhead by Richards and the permission from the board of the company was not taken. Ultimately, the court concluded the presence of ostensible authority and implied authority with Richard due to the conduct of the board in the previous years as Richards was acting out as the company’s CEO (Vanuatu, 2016). Watteau v Fenwick (1893) 1 QB 346 saw the judges concurring that the principal had to be made liable towards the third party for selling the cigar even when the agent lacked the required authority (H2O, 2016).

Vicarious liability is a principle born out of the agency law and due to the applicability of this principle, for the work of the subordinates, the superiors are held accountable towards the third party (Faure, 2009, p. 134). Owing to these reasons, the employer has to be made liable to the third parties (Giliker, 2010, p. 22). The company was made liable for the acts of the company secretary in Panorama Developments (Guildford) Limited v Fidelis Furnishing Fabrics Limited [1971] 2 QB 711 due to vicarious liability (French, 2014, p. 625).

Gemma

Frank had bear a personal loss of $50 due to the acts of Gemma and even when there was a clear offer from Tom to buy the product for $350 instead of the offer of $300 by Frances. This conduct was undertaken as Gemma wanted to make profits for herself, which resulted in the breach of the common law duties on Gemma’s part. There was also a breach of the statutory regulations. This is because Gemma indulged in fraud by benefiting her niece and not paying heed to the profits of Frank. This would allow Frank to make a case against Gemma and dismiss her summarily for the fraud being serious misconduct. And he would not have to pay her any notice or pay in lieu of notice of termination.

Applying Legal Principles to a Case Study Involving Qantas and Airbus

Bob

Bob was highly indisciplined and came late and in intoxicated condition. This took place despite the warnings given by Frank to him for improving the condition. Applying Regulation 1.07 Bob’s conduct would be deemed as serious and he could be summarily dismissed for the same and not terminated. If he terminates Bob before the investigation is conducted, the regulations would be breached. Hence, first the investigation has to show that a serious misconduct took place and only then can Bob be fired.

Angela

Bob in this case had the implied authority as the conduct of Frank was such which showed that Bob had the requisite authority. This authority was present in the past and Angela was not aware of the fact that Bob had been dismissed; hence, the implied actual authority would be present. Also, Frank would be liable for Bob as he was Frank’s employee and the principle of vicarious liability would bind Frank. Hence, Angela would have to be delivered the machines or repaid her money by Frank.

Conclusion

To sum this up, Gemma can be made liable for serious misconduct; though, it will be favourable for Frank to dismiss Bob summarily instead of firing him. And lastly, Frank would have to give the amount back to Angela or give her the ordered machines.

References

Blum, BA (2007). Contracts: Examples & Explanations, 4^th ed, New York: Aspen Publishers.

Faure, M (2009). Tort Law and Economics, 2^nd ed, Northampton: Edward Elgar.

Federal Register of Legislation. (2009). Fair Work Regulations 2009. Retrieved from: https://www.legislation.gov.au/Details/F2017C00559

French, D, Mayson, S, Mayson and Ryan, C (2014) Mayson, French & Ryan on Company Law, 31^st ed, Oxford: Oxford University Press.

Gibson, A, and Fraser, D (2014). Business Law 2014, 8^th ed, Melbourne: Pearson Education Australia.

Giliker, P (2010). Vicarious Liability in Tort: A Comparative Perspective, Cambridge: Cambridge University Press.

Griffiths, A (2005). Contracting with Companies, Oxford: Hart Publishing.

H2O. (2016). Watteau v. Fenwick 1 QB 346. Retrieved from: https://h2o.law.harvard.edu/collages/1557

K&L Gates. (2013). Doing Business in Australia Employment Law. Retrieved from: https://www.klgates.com/files/Upload/DoingBusinessInAustralia_Employment_Law.PDF

Kleinberger, D S (2008). Agency, Partnerships, and LLCs: Examples and Explanations, 3^rd ed, New York: Aspen Publishers.

Legal Services Commission. (2011). Exclusion Clauses. Retrieved from: https://www.lawhandbook.sa.gov.au/ch10s02s06.php

Mau, S D (2010). Contract Law in Hong Kong: An Introductory Guide, Hong Kong: Hong Kong University Press.

McKendrick, E and Liu, Q (2015). Contract Law: Australian Edition, London: Palgrave.

McLaughlin, S (2015). Unlocking Company Law, 3^rd ed, Oxon: Routledge.

Miller, R L and Cross, FB (2015). The Legal Environment Today, 8^th ed, Cengage Learning, Stanford, CT.

Poole, J (2016). Textbook on Contract Law, 13^th ed, Oxford: Oxford University Press.

Stone, R (2005). The Modern Law of Contract, 6^th ed, London: Cavendish Publishing Limited.

Stone, R, and Devenney, J (2017). Text, Cases and Materials on Contract Law, 4^th ed, Oxon: Routledge.

Thampapillai, D, Tan, V, Bozzi, C, and Matthew, A (2015). Australian Commercial Law, Melbourne: Cambridge University Press.

Vanuatu. (2016). Hely-Hutchinson V. Brayhead Ltd., And Another. Retrieved from: https://www.vanuatu.usp.ac.fj/courses/LA313_Commercial_Law/Cases/Hely-Hutchinson_v_Brayhead2.html

Walsh, P (2013). Australia: Termination of Employment in Australia: Best Practice Guide. Retrieved from: https://www.mondaq.com/australia/x/257796/employee+rights+labour+relations/Termination+of+Employment+in+Australia+Best+Practice+Guide