COMMLAW 1004: Commercial Law - Australian Consumer Law - Assessment Answer

Commercial Law Assignment

Assignment Task

Task: 1

In March 2016, in response to an advertisement, Ryan went to MG’s Fitness Centre and inspected the premises. During that visit Ryan was persuaded to sign an annual membership which cost him $450 and for which he is able to use any of the equipment at MG’s Fitness Centre as often as he wants during the next 12 months. One evening in July, after work, he was bench pressing some weights at the fitness centre when the bench he was leaning on collapsed and as a result Ryan was badly injured when the weights fell onto his leg. Inspection revealed that the bench was unsafe as a result of a failure by the Fitness Centre to maintain it properly largely due to the Fitness Centre buying cheap badly worn equipment and benches to save costs.

MG’s Fitness Centre deny any liability and are seeking to rely on the following clause in the signed agreement that Ryan signed in March 2016.

The member hereby absolutely releases MG’s Fitness Centre, its employees and agents from any claim howsoever arising either during the term of this agreement or at any time thereafter by reason of the Member suffering any personal injury sustained by the Member in or about the Fitness Centre premises including any claims for personal injuries arising from and out of any negligence of any other member or any other person using the Fitness Centre premises and the Member hereby acknowledges that he or she uses the premises and all its facilities entirely at his or her own risk.

Ryan does not think this clause is fair and explains that it was never brought to his attention when he signed the written agreement to become an annual member of the MG’s Fitness Centre and that he did not in fact read this clause as he was in too much of a hurry to start using the fitness equipment. Ryan is seeking compensation for his medical injuries, which amount to $20,000 and also a refund of all of the $450 membership fee as he does not wish to use MG’s Fitness Centre any more.

You are required to advise Ryan and MG’s Fitness Centre of their legal rights and obligations in regard to this dispute. In your answer consider separately the position under first the common law and then second also under the Australian Consumer Law.

Task: 2

Bob was 84 years old and had been a farmer all his life. Tom was his nephew and Bob liked Tom very much as Tom reminded Bob of what he was like when he was younger.

One evening after Tom had done some work on Bob’s farm, Tom asked Bob what he was planning to do with the farm after he was no longer here. Bob said he wasn’t sure but that he would like to keep the farm “in the family”. Tom immediately replied saying he would like to own it one day but that as he had just lost his fulltime job he did not think he could ever afford it. Bob decided there and then and he said “well look, I think you can have the farm and we can talk price later”.

The next day Tom went to his lawyer friend, Marvin, and told him to prepare a sale of land contract with the price for the sale of the land being $150,000 and for settlement to be “one month after Tom goes to live in a nursing home”. Tom told Marvin, “it’s okay as Bob said he wants me to have the farm”. The very next day Tom brings Marvin with him to Bob’s farm and mentions their discussion about the sale of the farm the other day and whether Bob was serious about what he said (meaning did Bob really want Tom to have the farm)? Bob said yes he wanted the farm to stay in the family as long as he was taken care of.

Thereupon Tom handed Bob the sale contract for the farm and said to Bob, “don’t worry about anything as you know Marvin, as he is your lawyer also, and he prepared everything”. Bob didn’t think to ask what price was mentioned for the sale as he trusted his nephew and Marvin and so Bob signed the sale of land contract along with Tom and Marvin signed as a witness. Marvin did not suggest that Bob receive any further independent legal advice.

Six months later Tom is admitted to full-time care in the local nursing home as his arthritis and dementia have now deteriorated so much so that he can no longer live on the farm.

A month after this time Tom seizes his moment and transfers $150,000 to Bob’s bank account and the bank, with some reluctance, hands over to Tom the Certificate of Title of the farm land making Tom the new legal owner of this farm land.

A short time later, Bob’s 2 adult daughters (Kath and Kim) are shocked to hear of the transfer of their dad’s farm land especially in view of the price paid ($150,000) as the farm land has only recently been subject to a professional valuation showing that the current market value of the farm land is now $800,000 and so they seek to challenge this transfer of the farm land in court.

Based only on common law principles you are required to advise the two daughters (Kath and Kim) and the nephew (Tom) as to whether or not this transfer of the farm land can be legally challenged and if so on what grounds.

Task: 3

Frank is a builder and he has agreed in a signed written contract to undertake some renovation work for Mr. Smithers. The agreed fee for the completion of the work is $50,000. Frank knows that Mr. Smithers rents out the house and that the renovations are being carried out in order to attract better tenants to the rental house.

After starting the work, Frank realises that he underquoted on this job as he failed to take into account the recent increase in the price of building materials. As he now realises that he will now make only a very small profit on this job (or perhaps even a small loss) he advises Mr. Smithers that he will not undertake any further work on this rental property owned by Mr. Smithers unless Mr. Smithers pays him a further $10,000 (on top of the $50,000 already agreed to be paid for this job).

Mr. Smithers is desperate to get the work done as he knows that he cannot rent the rental property in its present condition since Frank has already started the renovation work and as a result some walls have already been partially knocked down and there is also rubble strewn throughout the house.

Reluctantly Mr. Smithers signs a new written contract to agree to pay Frank this additional $10,000. Immediately after the work is completed Mr. Smithers advises Frank that he will not be paying him the additional $10,000.

Advise both Frank and Mr. Smithers about their legal rights in connection with the payment of this additional $10,000.

1. What kind of contract is made by Ryan?
2. Whether Ryan can sue the MG Fitness Centre for the injuries suffered by them?

Relevant Law

The raised issue is resolved by the application of exclusion clause both under common law and Australian Consumer Law.

Common Law

In common law, an exclusion clause is defined as such a clause which is relied upon the parties to limit or exclude the liabilities which may arise because of negligence or breach of contract. Whenever anyone party to the contract wants to exclude or limit his liability then it is necessary that such exclusion clause must be valid in law. (The Law Teacher, 2016)

An exclusion clause is valid when the same is made part of the contract amid the parties. The clause can be made part of the contract by various means, such as: (The Law Teacher, 2016)

1. By signature – Whenever any contract is signed by the plaintiff which contains an exclusion clause then the plaintiff is abode by such exclusion clause like any other term of the contract. In L'Estrange v Graucob [1934]. The court held that the plaintiff is bound by the clause even when the same is not read or understood by him. But, if the clause is made part of the contract by misrepresenting then plaintiff can held the clause inoperative and is held in Curtis v Chemical Cleaning Co [1951].
2. By notice – The defendant can rely on the exclusion clause provided the clause is brought to the knowledge of the plaintiff by reasonable notice. Normally when the clause is made part of an unsigned contract or when the same is made part of any receipt or ticket, then, the defendant has an obligation to bring such a clause within the notion of the plaintiff by all reasonable means which a normal prudent man will take in the like situations and is analyzed in Chappleton v Barry UDC [1940]. It is necessary that the defendant must bring the existence of the clause in the knowledge of the plaintiff before or at the time of the formation of the contract and is held in Olley v Marlborough Court [1949]. It is not necessary that actual notice should be given, a reasonable notice is valid and is held in Thompson v LMS Railway [1930].
3. By course of dealing – An exclusion clause can be made part of the contract when the parties are in regular course of dealing and in such situations the exclusion clause is presumed to be within the knowledge of the plaintiff and is discussed in McCutcheon v MacBrayne [1964]. Past transactions are also considered as an event of course of dealing and is held in Hollier v Rambler Motors [1972]. Trade and usage are also undertaken to define course of dealing (British Crane Hire v Ipswich Plant Hire [1974]).

The exclusion clause which is made part of the contract must be clear and unambiguous and if any ambiguity occurs then it is upon the party who is relying on the clause to give true interpretation to the clause and is discussed in Houghton vTrafalgar Insurance Co(1954). If the liability for negligence is to be excluded then the wordings of the exclusion cause must be very clear and unambiguous and is held in White v John Warwick [1953]. (Russell, 2012)

However, an exclusion clause is also dealt under Australian Consumer Law apart from Common Law.

Australian Consumer Law

In Australian Consumer law, reference is made to the application of exclusion clause and is defines as a clause which does not make a party responsible for the liabilities which may arise upon happening upon a contingent event. However, in ACL, the clause is considered to be valid provided the same is part of the contact and is not contrary to law (Thornton v Shoe Lane Parking Ltd. (1971).

Further, schedule 2 of the Competition and Consumer Act 2010, has laid down provisions which deals with the application of exclusion clauses. The same are:

1. As per section 64A, any implied conditions or warranties which is established by Australian Consumer law cannot be excluded;
2. As per section 64A, any remedies of rights which are established by Australian Consumer law cannot be excluded;
3. As per section 60, an implied warranty under Australian Consumer law that the services provided by the company must be cater with all due care and skill cannot be excluded and such kinds of exclusion clause are void;

Application of Law

Ryan and MG’s Fitness Centre entered into an annual membership @ $450 where Ryan can use the equipments of the centre. However, once he was injured while using the equipments and he made the centre negligent in keeping the bench safe which was the main reason for the injury.

The centre is denying the liability on the basis of the exclusion clause made part of the contract according to which ‘No claim can be made during the term of the agreement or thereafter if any personal injury is caused by any negligent acts of any other member or any person who is using the centre.

Now,

Issue a

Since Ryan and the MG’s Fitness Centre entered into the contract by signing the annual membership which contains all the terms and conditions of the contract. thus, there is a written contract that can be established amid the parties.

Issue b

Under common law

It is submitted that the exclusion clause was made part of the contract which was signed by Ryan. Thus, Ryan must abide by the terms of the contract including the exclusion clause even when the same is not read by him (L'Estrange v Graucob).

If a written contract is entered amid the parties, then all the parties are binding regardless whether they are in the knowledge of the parties are not.

Thus, under common law, Ryan cannot deny the application of the exclusion clause and must abide by the same.

Under Australian Consumer law

Further, as per section 60 of Australian Consumer law, all the services which are provided by the company must be provided with all due care and skill and this term cannot be excluded even with the help of the exclusion clause. Since, the fitness centre has not provided the services with all due care and reasonableness as the bench was already worn off when the loss was caused to Ryan, thus, this responsibility of the centre cannot be excluded.

Conclusion

Thus, Ryan has every right to sue the centre under the Australian Consumer law as the exclusion clause is not binding upon both of them.

However, under common law, Ryan has no legal right as the exclusion clause was made part of the written contract and all the terms of the written contract are binding upon the parties thereby making the exclusion clause applicable even when the same is not read by the parties.

Solution 2

Issue

The two main issues are:

1. Whether Kath and Kim have any claim against Tom?
2. Whether the transfer of the farm land can be legally challenged?

Relevant Law

The legal principle that is applicable in the given situation is undue influence and Unconscionable conduct.

When the dominant party uses his influence which is undue upon the weaker party and persuades him to establish a contract with him then the contract is based on undue influence and will render the contract void.

When the dominant party imposes undue pressure or act unfairly and pressurizes the weaker party to make a contract with him and the weaker party enters into a contract without any fair and independent judgment then the undue influence is express (Johnson v Buttress (1936)). But, when the parties hold the relationship of trust, confidence and honesty and then the dominant party deprives the weaker party to use his sense of judgment then there is presence of presumed undue influence. For instance the relationship amid the guardian and ward; young and old etc. Bigwood, 2003)

In order to make the contracts based on undue influence void, it is necessary to prove that the contract was made without free will. When the weaker party is weak minded and illiterate the presumption of undue influence is very strong.

When the dominant party takes undue dotages of the disability of the weaker party, such as, old age, illiteracy, etc) and establishes contract with him then such contracts are suffered from UC (Louth v Diprose (1992) 175 CLR 621. The contract must be oppressive and harsh on the weaker party so that the same can be avoided on the ground of Unconscionable conduct (Kakavas v Crown Melbourne Ltd [2013] HCA 25. (Clark 2013)

Application of Law

Bob (84 years) likes his nephew (Tom). Bob intends to transfer the land to his family. Bob wishes to sell the farm to Tom at an agreed price provided he can take care of the farm. Tom along with Marvin (lawyer) prepared a contract @ $150,000. Bob signed the contract on the trust of Bob and Marvin and is not aware of the price and that Bob is going to nursing home. Later Kath and Kim challenged the transfer.

It is submitted that Bob intends to transfer the farm on the pre condition that Tom will take care of the same. Tom is not aware that Bob is going to nursing home. Also, Tom has used his influence upon Bob and did not tell him about the price. He took disadvantage of Bob age, illiteracy and the fiduciary relationship aid the two.

Conclusion

So, Kath and Kim can avoid the contract on the basis of Undue Influence and Unconscionable conduct.

Solution 3:

Issue

Whether Frank can sue Mr. Smithers for the increased consideration of $ 10,000?

Relevant Law

In law, the main contractual elements to make a valid contract are offer, acceptance, consideration, intention and capacity of the parties.

Consideration makes an agreement binding in nature. It is mainly the benefit/gain/support which is provided for the promises which are made by the offeror and the offeree. If there is no consideration, then, the promises are not enforceable in law. A consideration must be sufficient in order to be valid. (Clark, 2103)

Further, when there is an existing obligation which is required to be performed by the parties then any consideration is not a good consideration unless and until there is some extra promises which is performed by the promisor in order to support such extra consideration. Existing obligations can arise when there is an already existing contract with the promisor or public duty or any existing obligation with the third party (Pao Onv Lau Yiu Long [1979]). (lawexamNotes, 2010)

Further, if any variation is made to the term of the contract then there moist be some consideration to support the same in order to make such variation valid (Stilk v Myrick(1809). But, if the variation is supported by consideration but is under duress then such consideration is not valid and the promise is not enforceable (TA Sundell &Sons Pty Ltd v Emm Yannoulatis (Overseas) Pty Ltd (1956). But, if there is no duress and there is some kind of practical benefit which is achieved then the promise is enforceable (Williams v Roffey Bros (1989). Practical benefit signifies that there is some kind of actual benefit which originates from the new consideration which is promised. If there is no actual benefit then there is no practical benefit thus is not enforceable in law.

Application of Law

Frank agreed to do renovation work for Mr. Smithers @ $50,000. Frank is aware that the renovation is required to attract better tenant. Later Frank ask Mr. Smithers to pay extra $ 10,000 if he needs the work done. Mr. Smithers agreed in desperation.

It is submitted that the extra consideration of $ 10,000 which is promised by Mr. Smithers was under duress and is for already existing duty. There is no new benefit which can be attained by Mr. Smithers.

So, the consideration is not for any new promises.

Conclusion

Thus, Frank cannot sue Mr. Smithers for $ 10,000 as the same was for an already existing duty. The consideration promised does not resulted any new benefit, thus, Frank has no claim.