Legal Issues In Two Contract Scenarios

Scenario 1 - Susan's Contract with Prestige Designs

1. Susan had been a manager at a number of successful bars over the last five years and had decided to finally open her own bar.  She contracted with Prestige Designs, a well-known Melbourne company doing interior design and finishing work to design and build the interior of her bar.  Susan believed that having the right internal design was essential for having a successful bar, and communicated this to Prestige Designs in the course of negotiations.  The contract called for all work on the interior of the bar to be completed by December 28^th, so that Susan could hold a special opening party for the bar on December 31^st.  In anticipation of this event, Susan paid the airfare for four of her closest friends from university from Brisbane to attend the opening evening.  Given feedback from social media, Susan expected a large crowed at the opening event and expected to turn a significant profit.  The total amount that Susan agreed to pay Prestige Designs was $40,000.  

Unfortunately, many of the employees working for Prestige Designs turned out to not have proper permission to work in Australia. The managers of Prestige Designs claimed not to know this, but when approached by Australian Immigration and Border Protection Officials, it became clear that a significant percentage of the workers did not have proper employment authorization, and were therefore prohibited from working.  Because of heightened scrutiny, Prestige Designs was unable to hire sufficient new employees in time, and had to inform Susan on December 22^nd that it would not be able to finish the job on time.  

Fearing that she would not be able to open the bar on time, Susan told her friends from Brisbane to not come and canceled their tickets.  In order to do this, she had to pay a $200.00 cancelation fee for each of the four tickets.  

Susan was, after significant effort, able to find another company to finish the job.  However, she had to pay the new company twice as much money as she had expected to pay Prestige Designs to finish the work on the short time frame – approximately $10,000 rather than the $5,000 the remaining work would have been valued by Prestige Designs.  

The Opening was also significantly less successful than Susan had hoped, earning only a small profit.  Susan suspected that the uncertainty around the completion of the bar contributed to the less than expected turnout.  

The manager of Prestige Designs contacted Susan shortly after the opening, asking to be paid under the contract, claiming that it was not his fault that the work wasn’t done, but rather the fault of the government for preventing his workers from working.  He claimed that Susan had breached the contract by finding another company to do the work, as Prestige Designs would have finished the work when it had a chance to hire new employees, after the start of the new year.  In response, Susan told the Prestige Designs that they would never get a since penny from her, and in fact they should expect to hear from her lawyer.  She then called you.

Advise Susan to whether Prestige Designs has any valid claim for payment under the contract, and if so, on what grounds. 

Advise Susan as to whether she can sue Prestige Designs for the money spent on cancellation fees for the flights for her friends. 

Assuming that Prestige Designs would be found to be in breach of contract, advise Susan as to what damages she would likely be able to collect, and briefly explain any difficulties she would have in collecting other damages.  

Please use case law and statutory provisions to support your answer.

2. ALDO, a major supermarket, is selling ALDO Green Action Flushable Bathroom Cleaning Wipes (50pk) in its current catalogue.

Steve, the managing director of FOOLWORTHS (one of ALDO’s biggest competitors), is worried that these new (and cheaper) flushable cleaning wipes will reduce sales of his competing product, FOOLWORTHS Ultimate Flushable Cleaning Wipes (50pk).

He decides to purchase a packet of ALDO’s brand of wipes that night to test them and see if they really compare. Steve found the wipes to be of great quality. However, as he found himself standing in a pool of water on his bathroom floor, he realised that wipes were, in fact, not flushable.

There are legal three issues which have been identified in the scenario which are

1. Whether Prestige Designscan claim the contractual amount from Susan under the principles of breach and discharge of contractual obligations under contract law
2. Whether Susanwould be able to claim damages from Prestige Designs for the flight cancellation bases in the principles of remoteness of damages in contract law
3. Where the contact is assumed to be violated what damages can be claimed by Susanunder the provisions of damages in contract law

In the case of Hochster v De La Tour (1853) 2 E&B 678  deals with the provisions in relation to anticipatory breach of contract. According to the principles provided by this case a party has the right to repudiate the contract and claim damages before the date of contract performance where it is sure that the other party would not be able to perform the contractual obligations.

In the case of Taylor v Caldwell [1863] EWHC QB J1 it had been ruled by the court that a contract can be discharged through the doctrine of frustration if the parties to the contract have no control in relation to the circumstances.

According to the principles of Hadley v Baxendale (1854) 9 Ex Ch 341 a party to the contract can only recover damages which reasonably arise naturally from the breach of the contract or those damages which are generally expected by the parties at the time of formation.

According to the principles of the case of Addis v Gramophone [1909] AC 488 when the contractual right of a person is violated it is the purpose of damages to restore the position of the party which it would have been in if the contract would not have been entered.

There is a duty of the claimant to mitigate the loss which may arise out of the contractual breach and they must not allow the loss to mount up as provided in the case of Payzu v Saunders [1919] 2 KB 581.

In the case of Chaplin v Hicks [1911] 2 KB 786 it was ruled by the court that if it is reasonably foreseeable the claimant is going to suffer losses in relation to the breach of contract.

In relation to the first issue Susan has the right to repudiate the contract under the principles of anticipatory breach. This is because she is sure that Prestige Designs would not be able to finish the work on time. She also has the right to claim damages for such breach from Prestige Designs.

On the other hand under the principles of equity Prestige Designs could have made a claim for compensation if the position was out of their hand and the government had imposed new polices. In the given situation they have no right to claim under the contract.

It’s reasonable not foreseeable for Prestige Designs to assume that Susan would have to cancel the fight if the work was not completed on time. Thus Susan is not entitled to claim the damages.

Where the contract have been violated by Prestige Designs the court would restore the position of the aggrieved party which was before the contract had been entered into. Thus any loss which has occurred to Susan and was foreseeable has to be compensated by Prestige Designs in the event of breach. this includes the loss of net profit under the Principles of speculative damages discussed above in addition Susan had complied with her duty to mitigate the loss by cancelling the flight tickets. Prestige Designs Also has to compensate her on the additional cost incurred by Susan towards procuring a new deal  to complete the work at twice the cost. The difficult she may face in relation to making the claim is to provide the court with evidence about future losses.

Scenario 2 - ALDO's Sale of Flushable Cleaning Wipes

Conclusion

Thus Susan does not have to pay Prestige Designs. Prestige Designs is not liable to compensate Susan for cancelation of flight tickets. Prestige Designs have to pay the above mentioned damages to Susan.

The rights of Steve under the provisions of Australian Consumer Law related to sale by description provided in Schedule 2 of the Competition and Consumer Act 2010 has to be determined.

The ACL is applicable on any product or services purchased in Australia for a household or domestic and under value of $40000.

According to section 56 of the ACL when the goods are sold to the consumers through a particular description, the goods must comply exactly with such description. This description could either be verbal, through labeling or on packaging. The section is not applicable on goods purchased at auctions and they must have been brought relying upon the strength of the description.

In addition section 18 of the ACL provides that no person should in the course of business indulge in an act which is misleading or deceptive or is likely to mislead of deceive.

In case of the breach of section 56 of the ACL the consumer warranties of the consumers are invoked and they are entitled to repair, refund or replacement.  Where the provisions of section 56 are violated the court under section 224 may order the wrongdoer to pay penalty to the commonwealth. The person amy also be disqualified to manage a corporation for a certain period under section 248 of the ACL.

Under section 239 of the ACL the Australian Competition and consumer Commission may apply to the court to redress the loss or damage suffered, or likely to be suffered, by non-party consumers.

In the case of ACCC v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181 the ACCC imposed a hefty penalty on the defendant for the breach of section 18(1) of the ACL.

In the gen situation it has been provided that ALDO has made an advertisement for the sale of ALDO Green Action Flushable Bathroom Cleaning Wipes in its catalogue. The managing directors of FOOLWORTHS the largest competitor of ALDO, Steve is worried about the fact that the product can reduce the sales of his company. He purchases the wipes to test them and finds that the wipes are not getting flushed.

Under the provisions of ACL Steve is a consumer as he has made a purchase of a household product which cost less than $40000. Therefore the provisions of ACL would be applicable in the scenario. It is expressly provided by section 56 that goods must comply with the description which has been provided by them. In this case the name of the product contains the term “Flushable Bathroom Cleaning Wipes”, where in reality they are not flushable and found by Steve.

In addition under section 18 it is the duty of the company not to indulge in misleading or deceptive conduct. The name of the product is however misleading as it is not flushable. In the given situation ALDO has violated section 18 of the ACL.

Steve can therefore take his claim to the ACCC who can commence proceedings against ALDO in relation to the violation of the provisions of ACL. ALDO would have to pay the penalties for such violation.

Conclusion

Steve can take his claim to the ACCC who can impose a penalty upon ALDO.

References

ACCC v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181

Addis v Gramophone [1909] AC 488

Australian Consumer Law Schedule 2 of the Competition and Consumer Act 2010

Chaplin v Hicks [1911] 2 KB 786

Hadley v Baxendale (1854) 9 Ex Ch 341

Hochster v De La Tour (1853) 2 E&B 678  

Payzu v Saunders [1919] 2 KB 581.

Taylor v Caldwell [1863] EWHC QB J1