Application of Vicarious Liability

The assignment content discusses the concept of vicarious liability, which holds the principal liable for the actions of their agent or employee. The presence of ostensible authority and implied actual authority are key factors in determining liability. The case of Hely- Hutchinson v Brayhead Ltd (1967) 1 QB 549 is cited as an example of how a principal can be held liable for their agent's actions. Additionally, the cases of Gemma and Bob are discussed, highlighting the importance of investigating serious misconduct before taking disciplinary action.

Running Head: PART BASED 1
Business & Corporation Law
September 6
2017
Case study based on aspects of contract law and negligence Assessment 3

PART BASED 2
Part A
I: Issues
The key issue in this case revolves around the liability of breach of contract of Airbus
towards Qantas and the validity of the exclusion clause.
R: Rules
The best manner of defining a contract is an agreement having legal validity where the
parties made a promise to pay consideration and carry out the contractual obligation. There are
two key ways of forming a contract, i.e., by orally stating the terms creating an oral contract and
the written contracts are formed when the terms of the contract are written down and the parties
of the contract sign this document (Mau, 2010 p. 5). When the parties wish to create a contract,
they need to ensure that the contract formation requirements are met, which includes the
presence of six different elements, and these are offer, acceptance, capacity, intent, clarity and
consideration (Miller and Cross 2015, p. 257). Clarity is a key component as the terms of the
contract are the base of the contract (Blum 2007, p. 2).
In such cases where the terms set out under the contract are deliberately not undertaken
by one of the parties to the contract, the contract is deemed to have been breached. And when
such happens, the aggrieved party gets the option of initiating a legal action against the breaching
party. The available remedies for the breach of contract include the monetary remedies and the
equitable remedies. The former one takes the form of monetary damages and the latter are in
form of specific performance, injunction and rescission (McKendrick and Liu 2015, p. 431).

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The liability for breach of contract and the other liabilities arising out of the contract can
be limited or restricted through the exclusion clauses. These are such clauses by the use of
which, the liability can be reduced or extinguished by the contracting parties. There are certain
requirements for an exclusion clause to be considered as a legally valid one. The first and
foremost one in this regard is that the exclusion clauses have to be inserted properly into the
contracts. Secondly, there is a need for the exclusion clause to be conveyed to the other party and
their attention has to be brought towards the same. As a best practice, this should be done even
when the same is covered under a contract which is to be signed. Even though these clauses can
limit the liability arising out of the contract, these clauses cannot restrict the same for the ones
which are raised through the statutory or common law and also cannot go against them in a
manner to make them invalid. Where any attempt is made through the exclusion clause to do so,
it would automatically be deemed as invalid (Legal Services Commission, 2011).
The exclusion clause is also not valid in such cases when it is inserted in the main
contract after it had been formed and signed by the parties. The case of Olley v Marlborough
Court Ltd (1949) 1 KB 532 helps in establishing the same. In this case the exclusion clause was
created after the original contract had already been formed, which led to the invalidity of the
clause (Stone and Devenney, 2017, p.206). Further, if the exclusion clause is referred at another
place and is again not brought to the attention of the parties, it is deemed as invalid (Poole, 2016,
p. 223). Another key point is that the exclusion clause would be given the validity when the same
is inside a contract, which is signed by the parties, even when they have not read the exclusion
clause and the prime example of this is L'Estrange v Graucob [1934] 2 KB 394 (Gibson and
Fraser, 2014, p. 501).

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It is also a requirement that the exclusion clause is properly brought to the attention of the
party against which it is being inserted for the same to be valid. Thornton v Shoe Lane Parking
Ltd (1971) 2 WLR 585 was a case where the exclusion clause was stated at the back of the
parking ticket which the parties got at the time of entering the parking lot, as a receipt of the
payment of the parking fare. As a receipt is not bound to contain the exclusion clause and the
same was contained at the back side, in addition to not being brought to the attention of the
parties, the exclusion clause was held as invalid (Stone and Devenney, 2017, p.206). The same
incident took place in the case of Chapelton v Barry UDC (1940) 1 KB 532 (Poole, 2016, p.
223).
A: Application of rules
The facts of this case study make it very clear that a contract was formed between Airbus
and Qantas on set terms. For the signing of the contract, the contract was sent in a big pile by
Airbus with a new clause, where the exclusion clause was covered and through which, Airbus
restricted its liability at the value of $300,000. This is the main point of the entire case study, i.e.,
to test the validity of this clause.
The given exclusion clause does not contradict, restrict or oppose any laws, which would
fulfil this particular criteria, and give it legality on the basis of this criteria. Coming to the
applicability of Thornton v Shoe Lane Parking Ltd, Qantas could not have reasonably foreseen
that Airbus would include a new clause in the stash. Since this new clause was not brought to the
attention of the parties, it would be deemed as invalid. Coming to the applicability of Chapelton
v Barry UDC, again, the exclusion clause was not properly brought to Qantas’s attention making
it invalid. Applying the case of Thompson v London Midland & Scottish Railway, mentioning the
clause of a different document would not be deemed as having met and even if they sign the

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main contract, the exclusion clause, for being referred at another place, would not be valid. And
L'Estrange v Graucob would also not give it validity as the exclusion clause is not a part of the
main contract.
It is very clear that the term 455 was breached and as the exclusion clause is invalid, the
restriction of limit of Airbus’s liability would not be applicable. Thus, Qantas can claim a higher
amount as damages.
C: Conclusion
So, it can be concluded that Airbus would have to compensate Airbus for breach of
contract, and the exclusion clause would not restrict the amount of liability.
Part B
I: Issues
There are three main issues in this case, which relates to the liability of Frank against
Gemma, Frank against Bob and Frank towards Angela owing to Bob’s actions.
R: Rules
Certain obligations have been imposed on the employees of all the companies as per
which they have to be loyal towards the employee and refrain from working for their own
benefit. They also have the obligation of doing the work in best manner possible. Where these
duties are not fulfilled, the employer can take action against the employee and the gravity of
action depends upon employee’s breach (Walsh, 2013).

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One of the requirements of terminating an employee is to give them a notice period or a
notice in lieu of notice. The Fair Work Regulations, 2009 (Cth), through regulation 1.07 provides
the definition of serious misconduct. When an employee poses a threat to the business of
employer, a case of serious misconduct can be made. Included in serious misconduct are
intoxication, fraud, theft, assault and employee refusing to work in a lawful manner and as per
the terms of the contract of employment (Federal Register of Legislation, 2009). Upon
establishing the presence of serious misconduct, the employee can be dismissed summarily and
after a proper investigation is conducted to prove the allegations, the employee can be terminated
(K&L Gates, 2013). And in such cases, there is no need of paying the notice period or the pay in
lieu of notice (Walsh, 2013).
Agency law is a common law whereby for the actions undertaken by agent, the principal
is made liable towards the third party, owing to the authority present with the agent to do the
work. Actual authority and ostensible authority are the two forms of authorities given to the
agents and the actual authority is again divided into express and implied (Thampapillai et al,
2015, p. 141). Under express authority, the individual is expressly given the permission to
undertake a particular task and under the implied authority, the virtue of the position held by the
agent gives him the requisite authority (Kleinberger, 2008, p. 30).
Ostensible authority is also known as apparent authority and is used most commonly
under the agency law (McLaughlin, 2015, p. 311). When the conduct or the words of the
principal form such an impression that a prudent individual would form a view that the agent has
the authority needed to do the particular task, it is the case of apparent authority, as the same is
“apparent”. And for the acts of agent, the principal is held accountable (Griffiths, 2005, p. 245).

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The reason for holding the principal liable is that the third party is not aware of the presence or
absence of the real authority with the agent (Stone, 2005, p. 162).
Hely-Hutchinson v Brayhead Ltd (1967) 1 QB 549 was a case where the contract was
entered into with Brayhead by Richards and the permission from the board of the company was
not taken. Ultimately, the court concluded the presence of ostensible authority and implied
authority with Richard due to the conduct of the board in the previous years as Richards was
acting out as the company’s CEO (Vanuatu, 2016). Watteau v Fenwick (1893) 1 QB 346 saw the
judges concurring that the principal had to be made liable towards the third party for selling the
cigar even when the agent lacked the required authority (H2O, 2016).
Vicarious liability is a principle born out of the agency law and due to the applicability of
this principle, for the work of the subordinates, the superiors are held accountable towards the
third party (Faure, 2009, p. 134). Owing to these reasons, the employer has to be made liable to
the third parties (Giliker, 2010, p. 22). The company was made liable for the acts of the company
secretary in Panorama Developments (Guildford) Limited v Fidelis Furnishing Fabrics Limited
[1971] 2 QB 711 due to vicarious liability (French, 2014, p. 625).
A: Application of rules
Gemma
Frank had bear a personal loss of $50 due to the acts of Gemma and even when there was
a clear offer from Tom to buy the product for $350 instead of the offer of $300 by Frances. This
conduct was undertaken as Gemma wanted to make profits for herself, which resulted in the
breach of the common law duties on Gemma’s part. There was also a breach of the statutory
regulations. This is because Gemma indulged in fraud by benefiting her niece and not paying

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heed to the profits of Frank. This would allow Frank to make a case against Gemma and dismiss
her summarily for the fraud being serious misconduct. And he would not have to pay her any
notice or pay in lieu of notice of termination.
Bob
Bob was highly indisciplined and came late and in intoxicated condition. This took place
despite the warnings given by Frank to him for improving the condition. Applying Regulation
1.07 Bob’s conduct would be deemed as serious and he could be summarily dismissed for the
same and not terminated. If he terminates Bob before the investigation is conducted, the
regulations would be breached. Hence, first the investigation has to show that a serious
misconduct took place and only then can Bob be fired.
Angela
Bob in this case had the implied authority as the conduct of Frank was such which
showed that Bob had the requisite authority. This authority was present in the past and Angela
was not aware of the fact that Bob had been dismissed; hence, the implied actual authority would
be present. Also, Frank would be liable for Bob as he was Frank’s employee and the principle of
vicarious liability would bind Frank. Hence, Angela would have to be delivered the machines or
repaid her money by Frank.
C: Conclusion
To sum this up, Gemma can be made liable for serious misconduct; though, it will be
favourable for Frank to dismiss Bob summarily instead of firing him. And lastly, Frank would
have to give the amount back to Angela or give her the ordered machines.

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PART BASED 10
References
Blum, BA (2007). Contracts: Examples & Explanations, 4th ed, New York: Aspen Publishers.
Faure, M (2009). Tort Law and Economics, 2nd ed, Northampton: Edward Elgar.
Federal Register of Legislation. (2009). Fair Work Regulations 2009. Retrieved from:
https://www.legislation.gov.au/Details/F2017C00559
French, D, Mayson, S, Mayson and Ryan, C (2014) Mayson, French & Ryan on Company Law,
31st ed, Oxford: Oxford University Press.
Gibson, A, and Fraser, D (2014). Business Law 2014, 8th ed, Melbourne: Pearson Education
Australia.
Giliker, P (2010). Vicarious Liability in Tort: A Comparative Perspective, Cambridge:
Cambridge University Press.
Griffiths, A (2005). Contracting with Companies, Oxford: Hart Publishing.
H2O. (2016). Watteau v. Fenwick 1 QB 346. Retrieved from:
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K&L Gates. (2013). Doing Business in Australia Employment Law. Retrieved from:
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Kleinberger, D S (2008). Agency, Partnerships, and LLCs: Examples and Explanations, 3rd ed,
New York: Aspen Publishers.

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Legal Services Commission. (2011). Exclusion Clauses. Retrieved from:
http://www.lawhandbook.sa.gov.au/ch10s02s06.php
Mau, S D (2010). Contract Law in Hong Kong: An Introductory Guide, Hong Kong: Hong Kong
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McKendrick, E and Liu, Q (2015). Contract Law: Australian Edition, London: Palgrave.
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Poole, J (2016). Textbook on Contract Law, 13th ed, Oxford: Oxford University Press.
Stone, R (2005). The Modern Law of Contract, 6th ed, London: Cavendish Publishing Limited.
Stone, R, and Devenney, J (2017). Text, Cases and Materials on Contract Law, 4th ed, Oxon:
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Thampapillai, D, Tan, V, Bozzi, C, and Matthew, A (2015). Australian Commercial Law,
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Vanuatu. (2016). Hely-Hutchinson V. Brayhead Ltd., And Another. Retrieved from:
http://www.vanuatu.usp.ac.fj/courses/LA313_Commercial_Law/Cases/Hely-
Hutchinson_v_Brayhead2.html
Walsh, P (2013). Australia: Termination of Employment in Australia: Best Practice Guide.
Retrieved from:

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http://www.mondaq.com/australia/x/257796/employee+rights+labour+relations/
Termination+of+Employment+in+Australia+Best+Practice+Guide