Australian Contract Law

Instructions
You must answer both Question 1 and Question 2.
Word limit: 6000 words (not including footnotes and bibliography which must only contain
properly cited references to case law)
Reference Style: AGLC4
You may use headings, subheadings and, where appropriate, bullet points.
You are being examined on both what you know and when to apply that knowledge to a given
situation. The scenario may or may not involve all areas of law considered in the course. You need
to decide, based on your studies of the course material, what areas or topics are relevant to the
scenarios and why. Do not assume that every topic considered in the course is relevant to dealing
with the scenario in the assignment.
The problem questions require you to advise Barry (in Question 1) and Hassan (in Question 2). When
drafting your response, please write in the third person, not the first person. In other words, your
response should refer to Hassan and Barry, it should not be an advice written to Barry and Hassan. That
is you should say “Hassan is entitled to…” rather than “You are entitled to…”.
With respect to Question 2, the reference to “Olivia” and “Julia” are to the same person.
Before commencing your response, I strongly suggest that you read [HT-12]-[HT-22] (at pages 552-558)
of Carter’s Guide to Australian Contract Law (4th edition).
Question 1
Farming And Rural Machinery Pty Ltd (FARM) is a manufacturer of farming equipment. FARM
owns a property in Mudgee, New South Wales. The property is 5 acres with a large warehouse in
which FARM manufactures its goods. The goods include tractors, harvesters and excavators.
FARM’s business is booming. In December 2020, FARM contracted with Crop Pty Ltd (Crop) to
supply Crop with 25 of FARM’s new model harvesters known as the UltraScythe. Crop is a retailer
of farm equipment and intends to re-sell the harvesters to local farmers.
The relevant terms of the contract between FARM and Crop are as follows:
Clause 2: FARM must deliver 25 UltraScythe harvesters to Crop by 1 February 2022.
Clause 4: If FARM does not deliver all of the harvesters by 1 February 2022, it must pay a
penalty of $2,500 to Crop for each day that it has not complied with clause 2.
Clause 13: Time is of the essence under the contract.
Clause 19: Standard force majeure terms apply.
Barry, FARM’s CEO and managing director, realises that FARM will need to build a second
warehouse on the property to be able to manufacture 25 UltraScythe harvesters for Crop by 1
February 2022.
In January 2021, FARM contacts Big Build Pty Ltd (Big Build), a local construction company.
Barry speaks with Trevor, the CEO of Big Build. During their conversation, they say the following:
Barry: It’s really important that the warehouse is completed on 1 May 2021 as I have to get
25 harvesters manufactured by 1 February 2022.
Trevor: No worries. We can definitely meet that deadline.
Barry: One thing you need to know is that the property is flood prone, so the new warehouse will
need foundations that are designed to survive a flood.
Trevor: I’ve done a lot of these jobs in your area. I can use a special product called
FloodFoundations™. It will ensure that the foundations survive the types of floods we get in
this area but it’s expensive, so have a think about it.
Barry: Sounds good to me. Send through the contract and I’ll sign it.
Trevor sends the contract to Barry. Barry doesn’t read the contract. He signs it and sends it back to
Trevor.
The relevant terms of the contract between FARM and Big Build are as follows:
Clause 3: Big Build must complete the warehouse by 1 May 2021.
Clause 7: The price of the warehouse is $500,000. FARM must pay Big Build $250,000 on 1
December 2021 and $250,000 on 1 May 2021.
Clause 12: This contract can only be varied if agreed in writing and signed by the parties.
Clause 14: This is the entire agreement between the parties.
Clause 17: If Big Build breaches a term of this contract, Big Build’s liability is limited to
$10,000.
Clause 20: If any dispute arises between the parties, one party may serve a notice on the other
party setting out the details of the dispute. The parties must then meet within5 business days to
negotiate in good faith to seek to resolve the dispute. Neither party may commence
proceedings until they have complied with this clause.
Clause 29: FARM must pay all amounts due and payable under this contract without any setoff (legal or equitable) or deduction whatsoever.
The contract contains detailed building specifications but does not refer to
FloodFoundations™.
Trevor soon realises that he has seriously underquoted on the job. Big Build starts to run out of
money by April 2021 and it looks as though Big Build will not be able to complete the warehouse
by 1 May 2021. Trevor emails Barry saying that he cannot continue.
Barry, aware that it would take longer to have the warehouse completed if FARM were to engage
another builder and FARM would not be able to manufacture the 25 harvesters by February 2022,
sends an email to Trevor asking whether Big Build can complete the warehouse by 1 May 2021 in
return for FARM paying Big Build an additional $70,000 on 1May 2021. Trevor responds to
Barry’s email saying that he accepts the suggestion.
Big Build complete the warehouse on 1 May 2021. FARM has paid the amounts in clause 7 but
refuses to pay Big Build the $70,000.
In June 2021, heavy rains cause widespread flooding in Mudgee. FARM’s property is badly affected
and is not accessible for two weeks. The two warehouses on the property are completely flooded and
no work can be done during this time.
When the water subsides, Barry discovers that part of the concrete slab on which the new
warehouse is built has subsided which has made the warehouse unsafe and unusable.
From July to August 2021, FARM closes the new warehouse and ceases operations pending
the outcome of an engineer’s report. The engineer’s report reveals that the concrete slab
subsided due to the negligent preparation and installation of the FloodFoundations™ product.
The cost of rectifying the damage is $100,000.
Due to the closure of the new warehouse, FARM can only manufacture 23 UltraScythe
harvesters by 1 February 2022.
FARM delivers 23 of the harvesters to Crop on 1 February 2022. Julia, the General
Manager of Crop, calls Barry. They have the following conversation:
Julia: Barry, you only delivered 23 harvesters.
Barry: Yes, I know. I’m sorry. It’s been really tough with the floods. I’m pretty sure we’ll have
the last two harvesters over to you by 10 February 2022.
Julia: OK, that’s fine. Just make sure it’s not any later than 10 February 2022.
On 8 February 2022, Julia calls Barry and they have the following conversation:
Julia: Barry, I know I said 10 February 2022 was OK, but I’ve had second thoughts.
Barry: I’m sorry Julia, we’re trying our best.
Julia: Well, your best isn’t good enough. We have two very unhappy customers. The
contract is terminated Barry.
Barry: You can’t do that. With all the problems we’ve had with the floods, I can rely on the
force majeure clause.
Julia: You might want to speak with your lawyer about that. We’ll see you in court.
The following week, Crop serves FARM with a statement of claim in which Crop claims $50,000 in
damages for loss of profits caused by the failure by FARM to deliver two of the UltraScythe harvesters.
Enraged, Barry calls Trevor and they have the following conversation:
Barry: You’re in big trouble Trevor. You promised me that the foundations would survive a
flood and they didn’t. It’s going to cost me $100,000 to fix the problem and I’m also being
sued.
Trevor: I was going to give you a call Barry. You owe me $70,000.
Barry: I don’t owe you anything. You owe me!
Trevor then hangs up the phone.
The following week, Big Build serves FARM with a statement of claim in which it claims $70,000 in
debt. Barry refuses to pay saying that, even if FARM is liable for the $70,000 (which FARM does not
admit it is liable to pay), Big Build owes FARM more than $70,000.
Barry comes to you for advice. You may assume that the law of New South Wales applies.
Advise Barry, giving reasons for your answer. When giving your advice, you must identify
each legal issue that arises and the relevant principles that apply to those issues.
Your answer must be limited to the issues arising under general contract law. Do not consider any
statutory rights that the parties may have.
Question 2
Hassan is the owner and operator of HiNutrition Pty Ltd (HiNutrition), a company that develops and
manufactures infant formula for sale in third world and developing countries.
Julia is the owner and operator of SteriSafe Pty Ltd (SteriSafe), a company that manufactures and
leases products for use in healthcare and food manufacturing.
HiNutrition uses an autoclave as part of its manufacturing process for sterilising infant formula.Hassan
wants to upgrade HiNutrition’s autoclave and contacts Julia to discuss leasing an autoclave from
SteriSafe.
Julia and Hassan meet. During their conversation, they say the following:
Hassan: I’m after an autoclave that can sterilise 1 tonne of base formula in 24 hours.
Olivia: That would be the Autoclave5000.
Hassan: I’m after an autoclave that is energy efficient as energy costs have gone through
the roof in the past few months. Does the Autoclave5000 use less than 185Kwh/day? It’s
really important that the Autoclave5000 doesn’t use more energy than because it won’t be
possible for me to make a profit because of the increased costs of production.
Olivia: Relax Hassan, the Autoclave5000 is the best on the market.
Later that week, Olivia sends Hassan a contract for the lease of the Autoclave5000 which contains
the following relevant terms:
Clause 2: This lease commences on 1 April 2022 and expires on 31 March 2027.
Clause 3: HiNutrition must pay monthly instalments of $3,000 on the first day of each month for
the term of this agreement.
Clause 8: SteriSafe warrants that the Autoclave5000 has a maximum energy consumption of
172Kwh/day.
Clause 9: SteriSafe accepts no responsibility for any deficiencies in the Autoclave5000.
Clause 15: This agreement constitutes the entire agreement between the parties and
supersedes all previous discussions, correspondence, negotiations, assurances,
representations and understandings between the parties, whether written or oral, relating to
its subject matter.
Hassan starts using the Autoclave5000 which can only sterilise about 800 kilograms in a 24 hours
period. He then receives his monthly power bill. Hassan is shocked at the amount owing, which is
around 20% greater than he expected.
Hassan does some research and discovers that the maximum energy consumption of the
Autoclave5000 is 206Kwh/day. It is because of the Autoclave5000’s energy consumption that his
power bill is 20% higher.
Hassan calls Olivia and they have the following conversation:
Hassan: The Autoclave5000 has an energy consumption of 206Kwh/day.
Olivia: Really? That’s no good.
Hassan: No, it’s not good. You need to come and pick up the Autoclave5000, I don’t want it
anymore. At 206Kwh/day, it’s costing me about $500 extra per month than if it operated at
172Kwh/day.
Olivia: You can’t return it because your lease runs for another five years. How about
SteriSafe reduces the monthly rental by $500 per month?
Hassan: No, you need to pick it up.
Julia: I’ll need to speak with head office. I’ll give you call later this week.
Julia does not call back. Hassan calls Julia repeatedly the next week and sends her emails but she
does not answer.
Hassan then sends an email to Julia which states that he has terminated the contract because of
deficiencies in the Autoclave5000. Julia responds by email in the following terms:
Dear Hassan,
We refer to your email in which you purport to terminate the lease agreement.
There is no deficiency in the Autoclave5000. We accept your repudiation and hereby
terminate the lease agreement.
You are now liable to us for our loss of profit for the remainder of the term of the lease. We
will write to you separately once we have calculated our loss which we expect will exceed
$60,000.
In the meantime, SteriSafe reserves its rights.
Yours sincerely,
Julia
Hassan then contacts SteriSafe’s competitor ProClave Pty Ltd (ProClave). ProClave only sells
autoclaves, it does not lease them. Hassan meets with ProClave’s sales representative, Ling. After
some negotiation, HiNutrition signs a sale agreement with ProClave for the purchase of a PC-7 for
$80,000. The sale agreement contains the following clause:
This agreement is subject to HiNutrition being able to raise the money at satisfactory rates in
the next four weeks.
Over the next three weeks Hassan’s wife becomes seriously ill and is admitted to hospital. Hassan
takes time off work to care for her. Hassan only managed to visit the Commercial Bank branch in
North Sydney and speak to one of the lending officers. He thought at the time the rates they were
offering for a loan were a bit high. Reading the April 2022 online edition of Food Manufacturers
Monthly, he saw a large banner advertisement for the credit provider Equipment Finance. Had he
clicked on the banner, he would have found finance for the amount he needed for 1.5% less than the
Commercial Bank were offering. Equipment Finance allows for online applications and loan approvals
and promises a 48-hour turnaround on applications.
At the end of four weeks, Ling calls Hassan and Hassan tells her what’s been going on over the past
four weeks. Ling offers to give Hassan some more time to find finance but Hassan says, “No thanks,
I’ve found a cheaper autoclave online.”
Some months later, business is going well then Hassan gets a call from Albert at Mother’s Milk
Pty Ltd (Mother’s Milk), one of HiNutrition’s major customers. Albert explains that he has
become aware that the products supplied by HiNutrition to not meet the nutritional standards
required by the supply contract between HiNutrition and Mother’s Milk.
The supply contract between HiNutrition and Mother’s Milk contains the following clauses:
Clause 28: If Mother’s Milk suspects that HiNutrition has not complied with its obligations
under this agreement, Mother’s Milk may give HiNutrition a notice requiring HiNutrition to
attend a meeting at which HiNutrition must show cause as to why the contract should not be
terminated. If HiNutrition fails to show reasonable cause at the meeting, Mother’s Milk may
by written notice to HiNutrition terminate the contract.
Clause 43: Any notice under this contract may be sent by pre-paid post and will be deemed
to be received by the other party 3 business days after posting.
Mother’s Milk gives HiNutrition a notice under clause 28. Hassan attends the meeting. At the
start of the meeting, Hassan and Albert have the following conversation:
Albert: Hassan, I really don’t care what you say.
Hassan: Well just give me a chance to explain what happened.
Albert: I’m over it Hassan. Our relationship is finished.
Hassan: Fine, if you’re going to be like that, this meeting is over.
Hassan then leaves the meeting. A short time later, Albert emails Hassan a notice that states
that the supply contract has been terminated.
Hassan comes to you for advice. You may assume that the law of New South Wales applies.
Advise Hassan, giving reasons for your answer. When giving your advice, you must identify
each legal issue that arises and the relevant principles that apply to those issues.
Your answer must be limited to the issues arising under general contract law. Do not consider any
statutory rights that the parties may have.