Negligence and Contract Law PDF

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Assessment Two: Research AssignmentHerry Gurmawan – STotal Word Count: 2718 words1. INTRODUCTIONThere are two legal hypothetical problems that requires advice, the first case is about negligence and the second case is about contract law. In the first case, a business owner (Leroy) accused the accoun...

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Assessment Two: Research Assignment Herry Gurmawan – S3598885 Total Word Count: 2718 words

1. INTRODUCTION 1

There are two legal hypothetical problems that requires advice, the first case is about negligence and the second case is about contract law. In the first case, a business owner (Leroy) accused the accountant and tax agent (Sally) who offered to provide advice on his personal investments without charge. Leroy is now asking whether he would be successful for any claims against Sally as she may have violated her duty of care to Leroy. In the second case, a motel owner (Justine) who was looking to renovate her motel hired the service of a company owned by Leroy and a contract was formed after Justine orally agreed to use their service. Not only the products were different from what was orally promised, but the fences also didn’t meet with the regulatory requirements. Justine suffers $40,000 loss to rectify the fence and $25,000 in income while she was forced to close her motel because of the service from Leroy and his company. She is now asking for advice on whether she has any access to any remedies and whether she has any obligation to pay Leroy.

2. HYPOTHETICAL PROBLEM ON NEGLIGENCE 2

2.1 Did Sally owe a duty of care? The first person (Sally) owes a duty of care toward the second (Leroy) if they have an established relationship. In this case, the first-person acts as the second’s qualified accountant and tax agent for business purposes. There is similarity in the Mutual Life & Citizens’ Assurance Co Ltd v Evatt with this case, as there is an automatic relationship established in both cases. Unlike the case of the Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968), the plaintiff gave incorrect information and advice about the defendant’s personal investment securities. In accordance to Wrongs Act s 58, a standard of care is expected for individual informing the recipient on important matters. Even though Sally was hired to provide accounting and tax services to Leroy’s business, this was not business matters and Sally did not request for payment neither did Leroy provide consideration for the advice. The most important thing to look at is Sally offering Leroy advice for his personal investments, not Leroy seeking for it. According to Donoghue v Stevenson (1932), it is expected that the relationship between Leroy and Sally was a professional relationship. In this instance, when Sally provided advice for Leroy’s personal financial investments this was not in the scope of her employment as a business accountant. In addition, Sally was not a financial advisor who would usually be the expert in investments of securities. Moreover, when Sally was providing financial advice it was unclear on whether the advice was intended to be relied upon by Leroy as Leroy did not inform Sally that he would action her advice.

2.2 Did Sally breach the duty of Care? The first-person breaches that duty of care to the second if the second failed to take due diligence as a reasonable person would have done in the same circumstances: Bolton v Stones (1951). As for this case, Sally gave personal investment advice where a reasonable person would expect Leroy to conduct his own research before investing $250,000.According to Rowe v McCartney (1976), the burden of eliminating risk is expected in a given context. Thus, Sally did not breach her duty of care as Leroy failed to take precautionary measures on his own accord to support Sally’s proposition. A reasonable person would also infer that due to the highly volatile nature of the stock market, high losses may eventuate from trading and is it the responsibility of the investor when making the trade as it is from their free will as opposed to claiming damages from their financial adviser whenever they suffer large losses.

2.3 Did the breach caused damage? In order to determine whether the breach had caused the reasonable harm, the second person must establish that the careless act directly or indirectly caused the harm: Yates v Jones (1990). According to s 53 of the Wrongs Act, a risk should be obvious to a reasonable person in that position.

2.4 Was the damage foreseeable and not to remote?

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Damages that occur should be foreseeable and not too remote. According to Chapman v Hearse (1961), the harm was foreseeable and not remote. The facts of this case are different because Sally did not know that Leroy was going to put a large capital outlay. In this case the harm that occurred was the $250,000 loss, liver problem and medical visits. But the only harm that was not too remote was the $250,000 loss, not the liver problem and medical visits. The investment did cause the loss of $250,000 and eventually caused Leroy to have depression, but basically, Sally would not be liable for Leroy’s expenses for drinking alcohol due to the probability being too remote, because it really is Leroy’s fault.

2.5 Conclusion In essence, there was a duty of care owed and economic loss which resulted however there was no consideration and proof that Sally’s advice would be relied upon Leroy for a large investment. Furthermore, due to the nature of the investment in high risk assets it is unlikely that Sally has breached her duty of care and would be liable to Leroy for damages. A potential remedy for Leroy would be suing Sally for damages of $250,000 as this was a result of her advice on his personal investments. However, due to the nature of this case a reasonable person would not have sued Sally as personal investments in the share market is a risky decision and therefore Sally would not be liable to pay Leroy for damages.

3. HYPOTHETICAL PROBLEM ON CONTRACT LAW 4

3.1 Was there a false misrepresentation? 3.1.1 Relevant common and statute law According to Australian Consumer Law s 18, no party should deceive in trade or commerce, and Australian Consumer Law s 29 (1A) stated that a person in trade or commerce, in connection with supply of goods and services or in connection with the promotion must not make a misleading representation that the goods provided are of a particular quality, standard, grade, value, composition, style or model or had a particular history of previous use. 3.1.2 Contract Formation An agreement is formed when the offeror has made an offer to the offeree, then the offeree accepted the offer and state the acceptance toward the offeror. The offer can be offered verbally and/or in writing. The offer can only be accepted by the individual or group to whom the offeree made the offer to. In this case, Leroy acts as the offeror and Justine acts as the offeree. An agreement between Justine and Leroy must be established before the contract was formed. Justine told Leroy that she would like to replace all of the tiles and carpet in each of her ten motel rooms, she also told Leroy that she was looking to spruce the pool with new fence because her current fence at that moment had already deteriorated and started to rust. Leroy came and showed Justine samples of tiles and carpet for her to consider, and eventually she chose to go with the regal red wool carpet and timber-look porcelain tiles that was shown to her. Although Leroy did not have any samples for fencing to show Justine, Leroy showed a photo of what supposed to be one of his previous instalments for another client which was a glass balustrade type fence that caught her attention. Justine emphasised that the materials used for the renovation must be of the highest quality and, most importantly, meet all required standards and regulations. Leroy assures Justine by stating “only the highest-grade materials and a lifetime warranty on all works”. Thus, Justine came into agreement with the contract believing that the service and materials provided by Leroy is going to be of the standard that he promised verbally to Justine prior to her signing the contract. After accepting the offer, they have come to an agreement and Leroy prepared a standard form of contract. The terms of the contract are for Leroy to install 240m2 of “red carpet”, 60m2 of “matt natural-look timber tiles” and 45 meters of “pool barrier fencing” (with no further description). Justine only glanced at the cost of the service and materials then she signed the contract immediately without reading the whole term of the contract.

In the case Oscar Chess Ltd v Williams (1957), the offeror has violated the Australian Consumer Law by providing false information about the product. The similarity in this case 5

is that Leroy also had violated the Australian Consumer Law s 18 and s 29 1A by stating “only the highest-grade materials and a lifetime warranty on all works”. Leroy violated the Australian consumer law by providing false misrepresentation of his offers, because of the fact that he installed a maroon coloured carpet and ceramic tiles which are cheaper and harder to clean in comparison to porcelain, Justine also discovered that the pool fence that was installed by Leroy is made of cheap acrylic Perspex rather than glass which is not what was verbally agreed on before the contract signing. Although the materials used for the renovation was similar to the verbal agreement between Justine and Leroy, but it is not what Justine agreed on. The statements that were given on the verge of forming a contract is more likely to be a term of contract rather than just a representation: Harling v Eddy (1951). Therefore, the oral representation provided by Leroy prior to the contract signing that he only uses highest-grade materials were crucial for Justine to sign the contract in the first place. Although a written contract is supposed to have all of the terms written in it and any further evidence may not be accepted, in the City & Westminster Properties v Mudd (1959) case, facts of the case proved a collateral contract which the defendant could plead to claim for breach of contract. Being the owner of the building construction company that was hired by Justine, Leroy is expected to have complete knowledge of the materials that were going to be used for Justine’s motel renovation, but he gave false statements about the materials. Before signing a contract, a reasonable person would have read the terms and disclaimers written in the contract. The fact is that Justine is also at fault for not fully reading the written contract’s terms, she failed to read the remaining portion of the standard agreement and missed the terms in the contract that Leroy J’s Building Constructions does not provide warrantee or guarantee that the materials supplied will be of a satisfactory quality, match or comply with any sample, or be fit for any purpose, howsoever described or disclosed. This shows that Leroy J’s Building Constructions are ready to cover for false representation and prevent any damage claimed from the purchased materials. Although warranty for a specific period of time is not a requirement for a company, companies generally still provide warranty for customers’ security reasons. With Leroy J’s Building Constructions withdrawing warranty in the contract’s term, it gives them an advantage in the contract formed and ensures that they are not responsible for the materials used. With the facts in this case, it is clear that Leroy has violated the Australian consumer law and he has committed a false misrepresentation towards Justine.

3.2 Was there a legally enforceable contract? 6

In accordance with Australian Consumer Law s 20(1), it is prohibited for a person to trade or commerce, engage in conduct that is unconscionable within the meaning of unwritten law, from time to time. In the case of Commercial Bank of Australia v Amadio (1983), if one party was in a disadvantaged position and the other party took advantage of the weakness, the contract was deemed unconscionable. As in this case, Leroy knew the situation that Justine was in and took advantage of it, knowing that Justine’s motel needed a renovation as soon as possible. Justine who operates a small motel that received some bad reviews online regarding the outdated décor of her motel is in desperate need to renovate her motel. Leroy took advantage that situation and provide false statements in order to get Justine interested in the verbal offer and accept it quickly. The contract can be considered as unconscionable because Leroy used materials that are not in the verbal agreement and the fence he installed is only 1000mm high when the regulations require it to be at least 1200mm, if there is under performance, would Justine still be liable? In accordance with Maddison v Alderson (1883) where the performance must be unequivocally, and in their own nature referable to some such agreement as that alleged. Therefore, there are no legally enforceable contract.

3.3 Conclusion 3.3.1 Does Justine have any obligation to pay Leroy? Leroy might be able to argue that Justine is liable as she signed a written contract agreeing on the written terms in the contract, but Justine has a strong facts that could back up her argument that she does not have any obligation to pay Leroy for the service and materials he provided. As a matter of fact, Justine has all the right to terminate the contract with the arguments stated above. Justine can argue that Leroy has violated the Australian Consumer Law s 18 and s 29(1A) by providing misleading representation as in the Oscar Chess Ltd v Williams (1956). Furthermore, Justine can argue that the contract is unconscionable due to the unjust situation where Justine was deceived by Leroy. Therefore, Justine is not bound by the contract and she can terminate the contract making her not obligated to pay Leroy. 3.3.2 Does Justine have any access to any remedies? To see what Justine can claim but for the reason if she did not use the service from Leroy, she would have used the service of other companies that provides better materials for the renovation. By doing so, Justine could prevent the loss that she incurred because she would have never had to pay the extra $40,000 to rectify the pool fence and she will not have to close her motel that resulted to her indirect loss of $25,000. Due to the contract being formed with vitiating factors of false misrepresentation and unconscionable contract as discussed above, Justine can argue to claim for all the damage of $40,000 for rectifying the pool fence and $25,000 in income while she was forced to close her motel. All of her losses are due to Leroy’s false misrepresentation, if Leroy had told the truth about the materials used in his service Justine would have never accepted the offer and signed the contract. As discussed above, according to Australian Consumer Law s 18, 20, and 29, Leroy has committed a false misrepresentation and he has formed an unconscionable contract. Therefore, Justine would be successful in suing Leroy for damages. 4. CONCLUSION

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After analysing the first case in accordance with the relevant law, the first hypothetical case on negligence where the financial and tax agent (Sally) who offered the client (Leroy) advice on his personal investment, the facts of the case shows that Sally is not liable for the medical condition that Leroy suffers. Leroy will not be successful in all of the claims. In the second hypothetical case on contract law where the offeror (Leroy) who offered the offeree (Justine) high-quality materials for the renovation of her motel, the facts of the case show that Justine will be able to claim for all of the losses that she suffers due to Leroy’s misrepresentation.

BIBLIOGRAPHY Bolton v Stone [1951] AC 850 8

Chapman v Hearse [1961] 106 CLR 112 City & Westminster Properties v Mudd [1959] Ch 129 Commercial Bank of Australia v Amadio [1983] 151 CLR 447; [1983] HCA 14 Competition and Consumer Act 2010 Donoghue v Stevenson [1932] AC 562 Harling v Eddy [1951] 2 KB 739 Maddison v Alderson [1883] 8 App Cas 467 Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; [1968] 122 CLR 556 Oscar Chess v Williams [1957] 1 WLR 370 Rowe v McCartney [1976] 2 NSWLR 72 (CA) Yates v Jones [1990] Aus Torts Reports 67,632 Wrongs Act 1958

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