This document contains practice hypothetical legal problem questions to help you with your revision and preparation for your second assessment task:  Compulsory Online

Test 2. Compulsory Online Test 2 is comprised entirely of hypothetical legal problem questions, is marked out of 20 marks, and is worth 20% of your overall result in your  unit.

Please ensure that you have read and understood your detailed test instructions that are available on Moodle, ahead of sitting your test.

The weighting of the questions on Compulsory Online Test 2 will not necessarily be the same as the weightings indicated on these practice questions. Please refer to your test instructions for confirmation of the weighting of your questions on your test this semester.

Please ensure that you have completed your tutorial questions first, as your tutorial questions are very good practice and revision for your test.

An issues guide for each question is included at the end of this document. To get any benefit from these revision questions, please attempt your answers before looking at those issues guides! You will obtain limited or no benefit from simply looking at these questions, and then reading the answer guides. Attempting these questions under self-   imposed test conditions is the best way to check your understanding and to prepare for  your test in a meaningful way.

When setting self-imposed test conditions, it is recommended that you set yourself a time limit for each question (as a rough guide, allow approximately 4.5 minutes per mark), that you work on your own and in a quiet space, and that you use the resources that you expect to use in the test itself.

The issues guides provided at the end of this document are intended to direct you to the key issues and legal cases/legislation that are relevant, and to identify and briefly explain what the main issues are. They are not model answers. You are required to write your answers in full for your online test, and in doing so, you might find the IRAC method helpful. You must write using full sentences and paragraphs, with your reasoning fully explained and your conclusions justified.

You should not use dot points for your answers unless the particular circumstances require (eg. you are listing elements, or you are running out of time and need to get some key points down before the test finishes). The quality of your answers will depend upon how well you have studied and learned your course content. Ensure you do this first. If you would like assistance and direction as to what a model answer might look, and how you might go about employing the IRAC method on your test, please refer to your Skills Assistance materials under the ‘ Support Resources ’ tab on Moodle.

The issues guides presented here will help you to identify how complete your attempted answers are. You may also discuss your attempted answers during student consultation   times.  Your tutor can give you general feedback but cannot grade your practice answer  (ie. you will not be given a mark).

All the very best of luck with your study, and for your test preparations!

Question 1 (5 marks)

Camilla’s financial advice firm provides you (her client) with advice regarding the  establishment of an online business supplying mail-order coffee beans to customers around Australia. Your written (and signed) contract contains the following clause:

Camilla’s firm agrees to provide you with financial advice on the terms set out in this contract, but under no circumstances shall Camilla be liable for any loss or damage caused by negligence or in any other way whatsoever.

You start up your business, on the basis of the advice you receive, but it quickly fails after incurring very large debts. The advice provided by Camilla’s firm was negligently prepared.  It turns out that Camilla had delegated preparing the advice to a very junior   (and inexperienced) colleague. When they weren’t sure what to do, they flipped a coin   to decide whether or not to advise in favour of starting up your business. You contact

Camilla seeking compensation, but she refuses, pointing to the exclusion clause set out above. This takes you by surprise. You hadn’t read the contract before signing it (you   were in a hurry at the time), and you didn’t know that the exclusion clause was in there.

You are concerned about the legal consequences of the situation mentioned and seek advice from a Generative AI system regarding its contract law implications. The AI   system responds with the following advice:

‘The main issue is whether the exclusion clause in the contract is enforceable in this situation, given that the client did not read the contract and was unaware of the clause at the time of signing. In contract law, exclusion clauses are terms in a contract that seek to limit or exclude one party's liability for certain types of loss or damage. The enforceability of exclusion clauses depends on several factors. The enforceability of the exclusion clause in Camilla's contract is uncertain in this case. Several factors, including the lack of notice to the client and the attempt to exclude liability for negligence, could weigh against its enforceability. ’

Part A - Using the Generative AI produced response above, identify the elements of the IRAC method that are reflected in this response. That is, identify which sentence(s) addresses the issue, rule, application, and conclusion steps of the IRAC process.

Part B - The Generative AI response provided is incorrect and lacks identification of all legal issues. Additionally, it does not accurately apply the law to the facts.

Your task is to present a clear overview of the legal situation. You are therefore required to write a new response that explains whether Camilla’s financial advice can firm rely on the exclusion clause, according to the law of contract? Explain why or why not. Refer to relevant legal cases to support your analysis and ensure that you fully explain the legal position you have taken. This question is worth 5 marks.

Question 2 (5 marks)

Sherlin is an expert in business law. She enters into a contract with you, to provide two   professional development presentations for your accounting firm. Your contract requires each of her presentations to be one hour in length, and also requires Sherlin to provide print- out copies of her PowerPoint slides for your staff. It is particularly important that  Sherlin’s presentations are one hour long, since this is a requirement of the Australian    Accountants ’ Association for staff professional development activities. Sherlin is aware of this.

Due to a family emergency, Sherlin needs to leave the first presentation 15 minutes early. Her presentation only goes for 45 minutes, so does not count for staff accreditation. In addition, she didn’t provide printouts of her PowerPoint slides, as her local printing business was unexpectedly closed. You are disappointed that Sherlin has    breached two different terms of her contract, and you wonder whether you can terminate the contract ahead of the second presentation.

You are concerned about the legal consequences of the situation mentioned and seek advice from a Generative AI system regarding its contract law implications. The AI   system responds with the following advice:

‘Can the contract with Sherlin be terminated for breach in performance?In contract law, a fundamental principle is that both parties must perform their obligations as specified in the contract. When one party fails to do so, it constitutes a breach of contract. In this case, Sherlin's failure to provide a one-hour presentation as required by the contract is a breach of the contract. You have a legal basis to terminate the contract for breach in performance. ’

Part A - Using the Generative AI produced response above, identify the elements of the IRAC method that are reflected in this response. That is, identify which sentence(s) addresses the issue, rule, application, and conclusion steps of the IRAC process.

Part B - The Generative AI response provided is incorrect and lacks identification of all legal issues. Additionally, it does not accurately apply the law to the facts.

Your task is to present a clear overview of the legal situation. You are therefore required to write a new response that explains whether you can terminate Sherlin’s contract for breach in performance, according to the law of contract? Explain why or why not, in relation to both of the contract terms that have been breached. Refer to relevant legal cases to support your analysis and ensure that you fully explain the legal position you have taken. This question is worth 5 marks.

Question 3 (5 marks)

Bruno operates a small suburban printing business from his home. He contacts your courier   company    as    his   Flexoprint    high-volume    multi-function   printer has malfunctioned and needs to be transported back to its manufacturer for repair. Your contract with Bruno requires you to pick up the printer from his home office on Wednesday, and then deliver it back to him.

(After it has been repaired) on Friday. Because you are busy with other jobs, you don’t pick up the printer until Friday, and because of the weekend, it isn’t returned to Bruno until Tuesday of the following week.

Although you didn’t know this when entering into your contract with Bruno, it turns out that the Flexoprint machine is Bruno’s only printer. Because of the delay in its repair, Bruno loses $2,000 in profits from his regular business. He also misses out on a particularly lucrative (but unusual) contract printing high-end restaurant menus for a global hotel chain. That contract would have generated $10,000 in profit.

You are concerned about the legal consequences of the situation mentioned and seek advice from a Generative AI system regarding its contract law implications. The AI   system responds with the following advice:

‘Can Bruno claim damages for his lost profits due to the courier company's delay in transporting his printer? In contract law, a breach occurs when one party fails to perform its contractual obligations. Damages may be recoverable if the breach results in foreseeable losses that were within the contemplation of the parties when the contract was formed. Bruno can likely claim damages from the courier company for his $2,000 in regular business profits lost due to the delay. This loss was a direct consequence of the courier company's breach, and it was reasonably foreseeable that Bruno would suffer such damages when they entered into the contract. ’

Part A - Using the Generative AI produced response above, identify the elements of the IRAC method that are reflected in this response. That is, identify which sentence(s) addresses the issue, rule, application, and conclusion steps of the IRAC process.

Part B - The Generative AI response provided is incorrect and lacks identification of all legal issues. Additionally, it does not accurately apply the law to the facts.

Your task is to present a clear overview of the legal situation. You are therefore required to write a new response that explains if Bruno can claim damages from you for his two sets of lost profits, according to the law of contract? Explain why or why not. Refer to relevant legal cases to support your analysis and ensure that you fully explain the legal position you have taken. This question is worth 5 marks.

Question 4 (3 marks)

Lisa and Ruby are sisters. Ruby is considering relocating from Melbourne to live in

Sydney.  On May 1, Ruby offers to sell Lisa her houseboat on the Yarra River in

Melbourne for $500,000. They discussed all the relevant terms of the offer. Lisa accepts Ruby’s offer on May 1 and pays her a $10,000 deposit. Ruby makes plans for her move  to Sydney and incurs costs and expenses in doing so. However, Lisa later changes her mind and wants her deposit back. Ruby refuses.

Advise Lisa whether she has any rights under the law of contract. Please cite relevant cases/legislation in support of your arguments.

Question 5 (12 marks)

Ms Li Pang was negotiating the purchase of a house from Foakes. They had agreed on all the main terms but, before signing the contract, Ms Pang enquired of the agent for

the vendor whether the house was sewered or not. The agent assured her that it was

sewered. He genuinely believed the property was sewered, but he was negligent in not   making sure. After receiving the assurance, Ms Pang signed the contract. The contract   did not mention sewerage.  When she took possession of the house Ms Pang discovered that the house was not in fact sewered. She now wishes to sue for breach of contract.

(a) Please advise Ms Pang of any rights she may have under the law of contract. Please cite relevant cases in support of your arguments. (6 marks)

(b) Assume for part (b) only that there is an exclusion clause in the contract that: ‘excludes the liability of the vendor or its agents for loss or damage resulting

from any breach of contract’. Ms Pang was unaware of the clause. Advise Ms Pang whether this clause is likely to protect the agent. (6 marks)

Question 6 (7 marks)

Lynda lives in Melbourne and is a world-famous painter. Her paintings are displayed at exhibitions all around the world and are very popular with art collectors. Lynda enters   into a contract with Taylor, who runs an art gallery. The contract requires Taylor to

display Lynda’s paintings in her gallery, and to sell them on Lynda’s behalf. Taylor  receives a commission for each painting sold, and Lynda receives the rest of the sale proceeds.

The contract requires Taylor to display at least two of Lynda’s paintings in her gallery’s front window at all times. Unfortunately, when renovations lead to a shortage of space   in Taylor’s gallery, Lynda’s paintings are displayed on an inside wall of the gallery

instead, for six weeks in a row. Lynda tells Taylor that she is terminating the contract, but Taylor insists that their contract should continue. Lynda is concerned that she has  lost sales as a result of her paintings not having a prominent place in Taylor’s front

window. As a world-famous artist, with an international reputation to protect, she is feeling very distraught and deeply disappointed.

(a) Can Lynda terminate the contract? (2 marks)

(b) Assume Lynda has lost sales as a result of Taylor’s breach of contract. Is

Lynda entitled to recover damages for her lost profits, and for her distress and hurt feelings?  (5 marks)

Question 7 (12 marks)

Justine owns and operates a successful waffle café in South Yarra called ‘Pass the

Syrup’.  Customers love Justine’s famous waffles which are made with a special type of buckwheat flour. Justine has a written contract with Priya for the supply of the

buckwheat flour, which is signed by both Justine and Priya. It is a term of the contract that the buckwheat flour be delivered every Thursday.

Priya calls Justine on Thursday morning and explains that she is unable to supply the  buckwheat flour that week. The reason for her inability to deliver the buckwheat flour was due to temporary main road closures around her factory and detours in place

through small suburban streets. To deliver the flour, Priya would need to hire small

vans to transport the buckwheat flour to South Yarra, as her usual trucks were too big to travel on the small suburban streets. Priya had received several notifications about  the road closures. Priya decided that the hiring of the small vans, and extra people to   drive them, would result in too many additional costs being incurred by her.

Justine is unable to make and sell her normal quantity of waffles without the flour

delivery and suffers a loss of profit. She wants to claim her losses from Priya and sue Priya for damages for breach of contract. However, there is an additional term in the  written contract between Justine and Priya: “Under no circumstances will Priya be

responsible for any loss or damage unless the loss or damage could be foreseen and avoided by the exercise of due diligence by Priya.”

Justine argues ‘there is no way that this term applies to our situation. If I didn’t read it before I signed it, how can I possibly know about it?’

(a) Can Priya rely on the term in the contract to avoid liability? (5 marks) (b) Does Justine have the right to terminate the contract? (2 marks) (c) Does Priya have a legal excuse for not performing the

contract? (5 marks)

Question 8

Melbourne Movers operates a business hiring bikes to members of the public. It is

especially popular with tourists. While on holiday, Mike hired a bike from Melbourne  Movers to ride along the Yarra River and around the Royal Botanical Gardens. He was also hoping to ride to Williamstown for lunch. Unfortunately, the brakes failed, and he fell, breaking his arm. When he hired the bike, he was given a ticket after making his    payment, which he put in his pocket without reading it. On the back of the ticket, it

states:

“Melbourne Movers will not be liable for any accident or damage arising  from the hire of bicycles, whether caused by the negligence of Melbourne Movers or otherwise.”

Can Melbourne Movers rely on the statement on the ticket to avoid liability? Question 9

Melanie is an enthusiastic rock climber and is keen to practise. She has found an indoor rock-climbing centre, Cliff Climb, and is excited to try out their impressive facilities.

When Melanie arrives at the centre, she is asked to complete and sign a form, which has the following statement above the space for her signature: “Please read Conditions of

Climbing (overleaf) prior to signing.” Melanie did not read the Conditions of Climbing  before signing the form. While climbing, Melanie falls and breaks her shoulder. Her fall was caused by another climber who panicked and grabbed on to Melanie, causing her to lose balance and fall. When Melanie tries to ask for a refund for her session and

reimbursement of her medical expenses, Cliff Climb refers Melanie to the clause on the back of the form which states:

“Cliff Climb will not be liable to any person whether in contract, tort, under statute or otherwise for any injury, loss, damage, death, or economic loss,

whatsoever suffered by you by participating in the rock-climbing activity,

whether resulting from your actions or the action, omission or negligence of others.”

Can Cliff Climb rely on the statement on the form to avoid

liability? Question 10

Smoking Grill is a gourmet barbeque restaurant that specialises in organic, grass-fed

beef, which is extra flavoursome. The menu includes burgers and steaks. Smoking Grill is open for lunch and dinner. Smoking Grill has a contract with Farm Meats under

which Farm Meats is to supply 100 kilograms of organic, grass-fed beef. Unfortunately, after the beef is delivered, it is discovered that the beef is not organic, grass-fed beef,

and Smoking Grill is unable to serve it over the busy weekend period. Smoking Grill

tries to arrange supplies from four alternative suppliers but is only able to have 40

kilograms delivered at such short notice. As a result, Smoking Grill, while able to open on Saturday, is forced to close on Sunday, and loses a total amount of profits of $2,400 for the two days.

What damages, if any, can Smoking Grill recover from Farm Meats in relation to this breach of contract?

ISSUES GUIDE

Question 1

Addresses exclusion clauses: need to address both steps, incorporation and interpretation.

Incorporation by either signature or reasonable notice. Contract is in writing and signed so signature rule (and not reasonable notice rule) applies here. Term

incorporated into contract because it is part of a signed contract: eg. Toll.

Even if incorporated, exclusion clause needs to be interpreted to determine whether it

covers events that have actually occurred. Exclusion clause is broadly worded, but

actions of the junior employee were highly unusual. Broadly worded clauses can be

effective (eg. Securicor case) but exclusion clauses will also often be interpreted so as

not to cover events outside of the scope of the contract (eg. Council of the City of

Sydney v West). Two approaches to be balanced and conclusion reached on the basis of either view, provided properly explained.

Question 2

Termination for breach in performance requires breach of condition (eg. Associated

Newspapers v Banks) or serious breach of innominate term (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha) but is not allowed where only a breach of warranty (Bettini v   Gye).

Duration term: Probably a condition. Goes to the heart or root of the contract because duration is important (and Sherlin knows this) as a result of professional accreditation requirements. Breach allows termination.

Print-outs term: Probably a warranty. Still legally binding but a term of lesser   importance.  Does not impact upon the main point of the contract, ie. the actual presentation or its qualification for accreditation status. Breach does not allow   termination.

Question 3

Four steps of the damages process required: measure, causation, remoteness, mitigation.

∙ Measure: Expectation damages. Damages are to put the innocent party in the

position they would have been in had the contract been performed. Expectation damages are the lost profits (both types).

∙ Causation: Breach must cause the loss, ‘but for’ test. Both types of lost profits pass this test; need to explain why.

∙ Remoteness: Apply the two-limbed test from Hadley v Baxendale and can draw an analogy with Victoria Laundry. Regular lost profits might fall within first limb    of Hadley v Baxendale but note facts of Hadley itself where regular lost profits   couldn’t be recovered allowing for the possibility of spare parts. Special lost profits do not fall within the first limb, and also don’t fall within second limb, as the unusual contract wasn’t drawn to attention at time contract formed.

∙ Mitigation: Need to take reasonable steps to mitigate damage. Purchasing a new printer likely unreasonable but need more information to see if there are any    other alternative reasonable steps that could have been taken to reduce or eliminate the loss.

Question 4

Important fact here is that Lisa and Ruby are sisters – there is a family relationship between them. This raises the issue: was there was an intention to create a legal

relationship? Need to discuss the presumption that applies in personal, family or private matters – no intention to be legally bound (Balfour) and then discuss the circumstances  when the presumption can be set aside (Merritt, Todd, Ashton).

Can the presumption be rebutted in the circumstances? The presumption can be

rebutted by evidence which might include the specificity of the agreement (compare Ashton v Pratt) and also cost and inconvenience (Todd v Nicol).

Taking everything into account, it is likely that a reasonable person may decide that there was an intention to be legally bound and that there is sufficient evidence to rebut the presumption, including:

∙ such a significant transaction ($500,000)

∙ all terms agreed upon.

∙ a $10,000 deposit paid (supporting seriousness)

∙ the inconvenience that it would cause to Ruby – she has incurred cost and inconvenience in planning her move to Sydney.

As a result, a binding contract would exist. Lisa is not entitled to her deposit back and must go ahead with the purchase.

Question 5

Part (a) (6 marks)

This question involves a written and signed contract, accompanied by an oral    statement. The key issue is whether or not the oral statement is legally binding.

Position under the parol evidence rule? The parol evidence rule provides that where a written contract appears to be complete, oral evidence cannot be given to show that the agreement of the parties was different to what is contained in the written contract. If this rule is applied, then the oral statement is not part of the written contract, so can’t be legally binding.

Would an exception be made? Is there a collateral contract? However, the oral

statement might form a collateral contract – a separate contract containing just one term (the statement about the sewerage). The case is quite similar to Van Den Esschert in

which a collateral contract was found. For a collateral contract to exist, there must be a

promissory statement, which is not inconsistent with the main contract, and consideration must be provided (usually entering into the main contract).

Apply the reasonable person test to see whether the statement would be classified as

promissory or not – consider timing of the statement relative to when the contract is

made (Van Den Esschert), the importance of the statement (Van Den Esschert), the

skills, knowledge or expertise of the person making the statement (Oscar Chess; Dick   Bentley). It is likely that the statement about the sewerage will be a collateral contract, and so legally binding. Ms Pang may sue for damages for breach of collateral contract.

Part (b) (6 marks)

To be effective, exclusion clauses must be incorporated into the contract, and interpreted so as to cover what has occurred.

Has the exclusion clause been incorporated in the contract? The exclusion clause is

validly incorporated – it is included in a written and signed document – and Ms Pang will be bound by her signature even though she is not aware of the clause / did not

read it (Toll v Alphapharm). Document here is clearly contractual in nature: LeMans.

Does the exclusion clause protect against the event that occurred? Courts tend to

interpret exclusion clauses narrowly especially in consumer contracts (eg. Insight;

Alameddine; contra proferentum rule). Here, the exclusion clause specifically protects against liability for breach of contract – however, what happened here is a case of

negligence.

While the exclusion clause is part of the contract, it probably does not cover the events that have occurred - need clear words to protect against negligence:

Alameddine, so will not protect the agent. The agent may be liable for damages.

Question 6

Part (a) (2 marks)

How  would  the  term  breached  be  classified?   Condition  or  warranty?  Discuss classification of the term – apply the test from Associated Newspapers v banks – likely a condition – breach gives rise to a right to terminate the contract and claim damages.

Part (b) (5 marks)

When discussing an entitlement to damages, the following steps must be considered:

1. What is the measure of damages? (Robinson v Harman)

2. Was the loss caused by the breach? “But-for test”: Reg Glass

3. Is the loss caused too remote from the breach? Identify and consider the two limbs

of the test established in Hadley v Baxendale – does the loss come within either of these?

4. Is the loss one that the innocent party should have taken steps by way of mitigation?  (Payzu v Saunders)

Explain the aim of an award of damages. The loss of profits is an expectation loss, that was caused by the breach, and comes within the first limb of Hadley v

Baxendale, so is reasonably forseeable and not too remote. Terminating the contract would prevent further losses, but is this enough to mitigate the losses? What else

could Lynda have done?

Damages for distress and hurt feelings would not be recoverable: Baltic Shipping; Falko.

Question 7

Part (a) (5 marks)

Is the exclusion clause a term of the contract? Consider – written contract between the parties and signed – terms in a signed contract are binding even if they have not been   read (Toll v Alphapharm). Incorporated by signature (and no need for reasonable

notice). Exception in Le Mans case not applicable here.

Does the exclusion clause cover the breach? Courts tend to interpret exclusion clauses   narrowly, especially in consumer transactions (eg. Insight; Alameddine). The exclusion clause here is quite similar to the one in Photo Productions v Securicor. In Photo

Productions the event could not have been foreseen or avoided by due diligence,

therefore the exclusion clause applied to protect them, even though there was a

fundamental breach of contract.  However, the circumstances are different in this case – the loss or damage could be foreseen (Priya had advance notice of the road closures)