Australian Commercial Law: Rules and Applications

This article discusses the rules and applications of Australian Commercial Law. Part A talks about the development of a constitution by a South American tribe. Part B compares the legal systems of England and Australia. Part C discusses the right of a landlord to obtain damages in case of a breach of an essential term of the agreement. Part D talks about fraudulent misrepresentation and its application in an insurance case. Part E discusses the enforceability of contractual terms.

Australian Commercial Law
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Part A
A tribe of South American people live in forests, and its members have never seen modern
civilisation in their life. This tribe is controlled by elders who made the rules in the tribes
which favour everyone. Generally, these rules are proposed by the elders, and they are
implemented based on what the group agrees, thus, it was an informal process. Now the
tribe is developing a constitution in order to make rules regarding protection of members
from violence and make the whole process formal. The constitution provides rights to each
member based on which they are protected from violent acts of other members. The
members who use violence are punished by imprisonment for a period based on the
seriousness of their crimes. Furthermore, the tribe also punished the members by imposing
fines on the parties by taking their belongings or land.
The purpose of these rules is to formalise the process of holding people liable for their
violent actions against other tribe members. This constitution complies with the three-part
legal system developed by Herbert Lionel Adolphus Hart. Firstly, the Rule of Recognition
provides that the law should be certain and their validity should be clear1. The constitution
which held tribe members liable for their actions is applied over the whole tribe. All the
members know about these regulations, and they are aware regarding the punishments for
different violent crimes. The rule of change principle also applies to the constitution because
a process is given in the tribe to change the policies of the constitution based on majority
votes. The rule of adjudication is present as well because the judgement is given by specific
members who did not have an interest in the case and rely on principles of natural justice.
1 HLA Hart, Herbert Lionel Adolphus Hart and Leslie Green, The Concept of Law (Oxford University Press, 2012).
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Part B
The English Criminal Law which applies in England considered the crimes as wrongs against
the whole society rather than only the private individuals. The legal system provides that
the state is responsible for controlling, managing and preventing crimes to bring justice in
the country. The main objective of the legal system in England is to prevent crimes rather
than punishing the criminals2. The penalties which imposed by the courts in a person who
found guilty of criminal offense include custodial sentences, fines, discharges and life
imprisonment. The Criminal Justice Act3 governs the sentencing decisions made by the
courts. The sentencing and fines are based on the seriousness of the crimes committed by
the person. Hart’s three-part legal system applies to the legal framework in England. For
example, the rule of recognition applies because all the rules are clear because they are
included in the constitution and legislation.
The rule of change also applies because the process of amending, replacing, deleting and
adding the laws are clearly defined in the legal system of England. The rule of adjudication
applies as well because criminal matters are handled by criminals courts which are divided
based on geographic locations and seriousness of punishments. In comparison with
Australia, the policies are similar because most of the policies are adopted from the English
legal system. The Crimes Act4 imposes various penalties for criminal acts such as
imprisonment, fines, community sentences, discharge and life imprisonments. Hart’s three-
part legal system applies in Australia as well. The rule of recognition applies because rules
are mentioned in the constitution and legislation5. The rules of changes are included in the
constitution. The rule of adjudication is clearly defined as well which applies based on
geographic locations and seriousness of crimes.
2 Charles Rembar, The law of the land: The evolution of our legal system (Open Roan Media, 2015).
3 Criminal Justice Act 2003
4 Crimes Act 1914
5 ABS, Crime and Justice: The Criminal Justice System (2018) ABS < http://www.abs.gov.au/ausstats/abs
%40.nsf/0/A4D719473BE50FDFCA2570EC001B2C95>
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Part C
Issue
The key issue is associated with the right or landlord to obtain damages including loss of
bargain damages in case the tenant breaches an agreed essential term of the agreement?
Rule
The lease documents created between parties are not treated differently from other
commercial documents. The rent payable in a contract of lease is an essential term in a
contract which is considered as consideration for such contract. In case the party breached
this term, then the contract for lease can be terminated by the landlord. Furthermore, a
contract binds its parties into the terms of the contract based on which each party can hold
each other liable for violating the terms of the contract and demand for damages. A
contracting party can claim for damages in case the contracting party breaches any terms of
the contract.
Application
In Gumland Property Holdings Pty Ltd. V Duffy Bros Fruit Market (Campbelltown) Pty Ltd 6
case, Transit Management Pty Ltd (Transit) gave its shopping centre on a 15-year lease to
Duffy Bros Fruit Market (Campbelltown) Pty Limited (Duffy). Due to falling short of paying
the rent, Duffy entered into a contract with Transit to sub-let the property to a sub-tenant.
Transit sold the property to Gumland Property Holdings Pty Ltd (Gumland) in 2001 along
with the rights of the lease7. The lease of sub-tenant was expired in 2002, and it decided not
to exceed the lease, and it started paying only half the rent which was given under the sub-
lease. Gumland filed a claim against Duffy regarding breach of the lease along with the deed
and demanded payment of all arrears. The damages include arrears in rent, loss of bargain
and reinstatement damages and the lease was terminated by him. Duffy argued that the
payment of rent was not an essential term based on which the lease agreement cannot be
terminated.
6 (2008) 234 CLR 237
7 HCourt, GUMLAND PROPERTY HOLDINGS PTY LTD v DUFFY BROS FRUIT MARKET (CAMPBELLTOWN) PTY LTD,
FERDINANDO PISCIUNERI AND NATALE PISCIUNERI (2008) High Court of Australia <
http://www.hcourt.gov.au/assets/publications/judgment-summaries/2008/hca10-2008-03-27.pdf>
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Duffy also argued that Gumland could not claim the loss of bargain because its right only
arises in case Duffy repudiated the contract. The High Court allowed the claim made by
Gumland and awarded the damages to it which include arrears of the rent and loss of
bargain damages. The court provided that the deed is not separate from the lease instead it
varied the terms of the lease. Since Duffy agreed to the essential term of the lease, it is
liable to pay the rent in full. The term included in the lease document regarding payment of
rent is an essential term, and the lease can be terminated in case of breach of this term 8.
The judgement of this case is relevant because it provides a compelling example regarding
provisions of a leasing documents breach of which leads to legal consequences. This
judgement showed that leasing documents are not treated differently from other
commercial documents, thus, it is crucial that parties focus on the wording and effect of the
provisions of the document.
Conclusion
In conclusion, the landlord has the right to demand damages in case the tenant breaches an
essential term of the contract. Furthermore, the landlord can also demand the loss of
bargain in case an essential term is breached, and the landlord has suffered financial loss.
The remedies given by the High Court, in this case, include awarding damages of $2,096,514
to Gumland which also include the loss of bargain which was the difference between the
outgoings payables and the rent. Furthermore, the court allowed Gumland to terminate the
lease contract based on the breach of the tenant.
8 Justin Lethlean, Australia: A Landlord´s Right To Recover Loss Of Bargain Damages (2008) Mondaq <
http://www.mondaq.com/australia/x/62514/landlord+tenant+leases/A+Landlords+Right+To+Recover+Loss+Of
+Bargain+Damages>
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Part D
Issue
Whether the insured that relies on fraudulent misrepresented and omitted the information
about him regarding the structural soundness of his residence claim for cover when the
residence was damaged by fire?
Rule
When a party made a false statement regarding a fact or law in order to induce another
party to enter into a legal contract, it is called misrepresentation. Thus, misrepresentation is
referred to an untrue statement or omission of information based on which a party forms a
legal relationship with another party. In case of misrepresentation, the contract becomes
voidable which can be set aside by the innocent party based on his/her discretion.
Fraudulent misrepresentation is referred to a civil tort in which a party made a false
statement to another party in order to induce him into signing a contract. Based on
fraudulent misrepresentation, the innocent party has the right to set aside the contract
since it becomes voidable. Furthermore, the innocent party can demand damages from the
defendant based on fraudulent misrepresentation. The elements of fraudulent
misrepresentation include the party marking the statement knows that it is untrue, the
objective is to induce another party to sign the contract, and other party suffered a
substantial loss due to reliance on such statement. The Australian Consumer Law provides
provisions regarding the protection of consumers from fraudulent misrepresentation by
corporations. Section 18 of the Competition and Consumer Act 2010 provides provisions
regarding misleading or deceptive conduct. The law provides that a person is prohibited
from engaging into any trade or practice which is misleading or deceptive or is likely to be
misleading or deceptive.
Application
In Kalabakas v Chubb Insurance Company of Australia9 case, the provision of fraudulent
misrepresentation was applied by the court. In this case, Mr and Mrs Newlands entered into
a contract with Ratcliff Building Group (RBG) in order to build a dwelling to lock up stage.
9 (2015) VSC 705
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The design specifications were given by CBG Consulting Engineers Pty Ltd (CBG)10. Later it
was found out that there are problems with structural beams of the property and Newlands
received damages of $400,000 from CBG and RBG regarding such issues. Such property was
purchased by Mr Kalabakas, and he insured the company by answering various questions of
the insurance agent. Later, the property was destroyed by fire, and the insurance company
rejected the claim based on fraudulent misrepresentation and non-disclosure. Mr Kalabakas
filed a suit against the insurance company for breach of contract. The court provided that
Mr Kalabakas made false claims regarding completion of the construction of the property,
and he also knew about the settlement between Newlands and RBG and CBG11. He also
knew that there are serious structural defects in the property relating to dwelling, and he
had not retained the structural engineer to remedy those defects. The court provided that
based on fraudulent misrepresentation and non-disclosure, the insurance company did not
have to pay the claim money to Mr Kalabakas.
Conclusion
In conclusion, if the party made a fraudulent misrepresentation and did not disclose proper
information regarding the structural soundness of the property, then the insurance
company can terminate the insurance contract and eliminate its duty to pay the insurance
claim. The remedies given by the court is that the insurance contract becomes voidable and
the insurance company was able to set aside the contract. The insurance company avoided
its liability to pay a sum of $1.721 to Mr Kalabakas based on the principle of fraudulent
misrepresentation.
10 Jade, Kalabakas v Chubb Insurance Company of Australia (2015) Jade < https://www.jade.io/article/421006>
11 HWL, Burning down the house: Underwriting evidence required to establish a fraud defence (2016) HWL
Ebsworth < https://hwlebsworth.com.au/burning-down-the-house-underwriting-evidence-required-to-
establish-a-fraud-defence/>
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Part E
Issue
Whether Pedro can enforce the contractual terms on Lisa?
Rule
A contract is a binding agreement which formed between parties to bind them in the terms
of the contract. It creates a legal relationship between parties based on which they can
legally enforce each other to comply with the terms of the contract. In case any of the
contracting parties violate its terms, the innocent party can hold them liable for the breach
of contract and demand performance of the terms of the contract or damages12. Certain
elements are required to be fulfilled by the parties in order to form a valid contract between
them. Firstly, an offer must be given by a party to another which has the power to bind the
offeror into its terms right after it is accepted by the offeree as given in Harvey v Facey13
case. The offer must be accepted by the offeree without changing its terms. In case the
terms of the offer are changed by the offeree, then it forms a counter offer after which the
original offer cannot be accepted by the offeree as given in Hyde v Wrench14 case.
Furthermore, consideration must be given in the agreement which is referred as the bargain
for the contract; it must have a certain value in the eyes of the law. Moreover, the parties to
the contract must have the capacity to form a legal relationship between each other. Parties
such as minor, insolvent and unsound mind person are not competent to form a contract on
their own15. Lastly, the parties to the contract must have the intention to form a valid
contract with each other. In social and domestic contracts, parties did not have an intention
to form a legal obligation based on which their terms are not enforceable by the court as
given in the case of Balfour v Balfour16. Presence of these elements forms a valid contract
between parties which is enforceable by the law. There are different remedies available for
the parties in case the party breaches the contractual terms. The remedies include
injunctions, specific performance, damages, rescission, and repudiation.
12 Ewan McKendrick, Contract law: text, cases, and materials (Oxford University Press, 2014).
13 (1893) UKPC 1
14 (1840) 49 ER 132
15 John Carter, Cases and materials on contract law in Australia (LexisNexis Butterworths, 2012)
16 (1919) 2 KB 571
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Application
In the given case study, a contract is formed between Lisa and Pedro to purchase the
business of Lisa. One of the terms of the contract is that Lisa will not start any business
relating to the sale of imported French jewellery anywhere in Australia. This restriction is
imposed on Lisa for a period of two years. All the elements of the contract are presence in
this case based on which it is a valid contract, and both the parties are bind by its terms.
After one year of selling her business, Lisa started a new retail business in Cairns,
Queensland regarding selling of French jewellery. Based on the terms of the contract, Lisa
cannot start this business until two years have elapsed since the contract is formed between
her and Pedro. Thus, Pedro has the right to legally enforce Lisa to shut down her business as
per the terms of their contract.
Conclusion
In conclusion, Pedro has the right to enforce Lisa to shut down her business as per the term
of the contract formed between them. Pedro can apply for the remedy of specific
performance in this case in which the court can order Lisa to comply with the terms of the
contract and close her new business.
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