BTC1110 Commercial Law

Mid-semester test A
Issues Guide
Introduction: to assist you as you consider your mid-semester test paper we are providing below an
‘issues-based’ answer guide that indicates the main issues we were expecting you to discuss, with
supporting authorities. Obviously your mark reflects not only whether you focused on the relevant
issue(s) but also the quality of your answer and your use of cases supporting your answer. Your tutors
were also able to recognise and reward answers that did not discuss these issues (or did not do so in
sufficient detail) but raised alternate arguments that were plausible, coherent and well-supported.

PART B - 15 Marks

Question 1 (8 marks)
Giuseppe arranges for Gordon to deliver and install his new AGA triple oven wood-burning
combustion stove in his Italian restaurant. The agreement states that delivery and installation
must be completed by July 1. However, Gordon is running behind schedule and does not
deliver the oven until July 4. As a direct consequence, the July 2 ‘gala’ launch of the ‘AGA
pizza’ has to be delayed meaning the glossy advertising flyers that cost him $1000 are useless
and a new set has to be printed. Many customers are disappointed and he estimates he lost
approximately $12,000 in profit because of the delay. Furthermore he had to cancel a booking
on July 3 made for the Italian Ambassador who was visiting Melbourne at the time and wanted
to taste the pizzas that only an AGA oven can produce. He estimated he lost $10,000 in profit
because of this cancellation.
(a) Advise Guiseppe (i) whether he could have terminated the agreement when the installation
was delayed and (ii) what damages, if any, he may now be entitled to (5 marks)

Answer Guide: Formatted: Font: Bold

(i) Students were expected to discuss the circumstances under which termination of a contract
can occur. Please note that the statement in question is clearly a term so there was no need to
discuss whether it was a term or a representation. Students expected to indicate that P can
elect to terminate a contract only where the term breached is either a condition or,
alternatively, an innominate term (with serious consequences). Students to discuss the
meaning of both, citing Bancks and/or Bettini and Hong Kong Fir Shipping or Koompahtoo,
and then discuss which label should be applied to this term. It is clear that time clauses are
not generally regarded as conditions unless time is made ‘of the essence’ (or essential to) the
contract. For this reason, the time clause here is more likely to be regarded as a warranty,
breach of which would enable Guiseppe to sue for damages only. It is also a legitimate
argument that the clause could be regarded as an innominate term but, since the consequences
of the breach are not serious, it is unlikely to be regarded, ex ante, as a condition. On this
analysis, G is not entitled to terminate the contract for the breach of the term. (Although this
is the most likely application of the law and conclusion, some students may differ and argue

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that it is a condition. However, although the conclusion differs the analysis of the law would
be the same).
(ii) Students should have noted that the general objective of an award of damages for breach
of contract is ‘to put P in the position he or she would have been in if the contract had been
performed as promised’: Robinson v Harmen. This is the compensatory principle. The two
elements that must be proven before compensation can be awarded to a plaintiff is that the loss
is caused by the breach and not too remote from it. Causation is obvious here, so there is no
need to discuss this. Remoteness: requires a discussion of the principles of Hadley v
Baxendale or Victoria Laundry (ie here students must show an understanding of the two limbs
– (i) damages ‘arising naturally’ or (ii) damages that do not ‘arise naturally’ but of which the
defendant has ‘reasonable notice’). Then, having discussed the relevant legal principles,
students should apply to this scenario and conclude that the $1000 (wasted on the flyers) and
$12000 (lost profit) are damages that would be granted under the first limb (‘arising
naturally’) and the $10,000 (loss of profit from cancelling the ambassador) would be a second
limb claim that would fail because Gordon was not given ‘reasonable notice’
(b) Assume, for the purposes of part (b) only, that Gordon was unable to deliver the AGA at all
because of a new ban (enacted after the agreement) on the sale of solid fuel combustion stoves
(like the AGA) because of the toxic emissions they produce. Advise Gordon in relation to this
development. (3 marks)
The main issue here is whether or not Gordon’s breach of contract (failing to deliver the AGA
on time) is excused because of a frustrating event (the change in the law banning the sale of
solid fuel stoves). Students to discuss the concept of frustration (excuse for breach of contract)
and the court’s approach to the concept (very restrictive) and the reason for that approach
(maintain contractual certainty) and the (limited) circumstances in which it applies citing
Codelfa/Davis. When applied to this scenarion, students likely to conclude that the change in
the law is likely to be regarded as a frustrating event because, as a direct result, it is no longer
possible to perform the contract. This goes beyond mere inconvenience or increased cost
(Tsakiroglou). On this analysis, the breach would be excused and Gordon would not be liable
to pay the damages caused by the breach. (Students may differ at the application/conclusion
stage but the discussion of the concept of frustration and the legal principles that underpin it
would be the same)

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Question 2 (7 marks)
Sophia operates a large transport business. Drillers Ltd is a large oil and gas rig operator in
Western Australia. Drillers Ltd has used Sophia many times in the past. This time, Drillers Ltd
asks her whether she would transport some very expensive rigging equipment from Perth to
Broome. Sophia agrees to do the job for an agreed price. She is aware of the value of the
equipment she is carrying. When Sophia arrives to pick up the goods, she provides an
employee (as usual) with an invoice that he signs. On the reverse side of the invoice there is
the following exclusion clause:
“All goods are handled, lifted or carried at the owner's risk. The Contractor (Sophia) shall not
be liable for any loss or damage of property and/or goods of the Client (Drillers Ltd) whether
such damage was caused by any act, default or negligence on the part of the Contractor, and/or
his servants.”
Although Drillers Ltd has used Sophia many times, the company is unaware of the existence
of the exclusion clause.
All goes well on the long drive until Sophia decides to spend a couple of hours swimming with
the dolphins at Monkey Mia. Unfortunately she leaves the truck unattended and, during her
swim, some of the equipment is stolen.
Advise Drillers Ltd of any contractual rights it may have.

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Answer Guide

The main question here is whether the exclusion clause is effective in protecting ie – whether
it’s incorporated and, if so, whether, as a matter of construction, it works. Good students
should indicate awareness that the traditional judicial antipathy towards exclusion clauses is
reserved for consumer contracts (not commercial ones) so, at both the incorporation and the
interpretation stages, the general principles of interpretation apply…what would a reasonable
person say in respect of this (commercial) contract?
Incorporation – it is important that students identify that the critical factor in determining
whether the clause has been incorporated is to determine when the contract is formed (students
to explain why this is important – notice (actual or constructive) must be given at or before the
time when the contract is made - citing Olley or Thornton etc).
The facts here indicate that the contract has been formed when the parties communicated - as
they have a prior course of dealings/conduct and have agreed on the main terms, including
price and goods, it is reasonable to argue that a contract is made at that time and not when the
invoice is signed. On this analysis, notice is too late and the clause would be not included:
Olley/Thornton/Almeddine.
The alternate approach is to focus on the effect of the signature on the invoice. We put quite a
bit of emphasis on this point (citing Toll etc) and it is acceptable for students to argue that the
signature on a written contract constitutes assent to the contract, including the exclusion clause
that appears on the invoice: Toll/L’Estrange. Alternatively, again focusing on the signature
as the crucial moment, students may argue that a signature does not constitute assent where
the document that is signed is not a contractual document but, rather, an invoice or similar
(Causer/Illiadis).
Students who argue either line (coherently and with case authority) on the issue of
incorporation were rewarded.
Interpretation – if clause is incorporated, does it cover breach of this kind causing property
loss? On the face of it the clause only covers this loss but the issue here is whether Sophia’s
actions (in swimming at Monkey Mia) constitute a fundamental breach or breach of the 4
corners rule (as in Sydney CC v West)….it is more likely than not that the detour and the
lengthy swim would be conduct outside the scope of the contract, and if this is so, the clause
would not protect Sophia.