Assessing Liability in Contracts: Misrepresentation and Exclusion Clauses

Summary: The assignment discusses two cases, one involving Airbus and Qantas, and the other involving Gemma, Frank, and Bob. In the first case, Airbus attempted to exclude liabilities by introducing an exclusion clause without notifying Qantas. This attempt was deemed invalid as it did not meet the requirements of the contract. As a result, Qantas can claim compensation for damages exceeding $300,000. In the second case, Gemma induced Frank into selling a dishwasher to Frances at a lower price than its original value by making false statements. This is considered an act of fraudulent misrepresentation and Frank can claim compensation from Gemma. Furthermore, Bob's actions in selling washing machines to Angela while being drunk and late for work are also considered an act of misrepresentation and Bob must compensate Frank for the damages caused.

Running head: BUSINESS LAWS
Business Laws
Name of the student
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Author note

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QUESTION 1
Issue
The main concern of discussion here is to determine the legal position of Qantas Airlines Ltd.
(Qantas) on their contract with Airbus Corporation Ltd. (Airbus).
Rule
It is essential to have a legitimate offer and the acceptance of the parties involved in order to
make a binding agreement, as in the case of Wakeling v Ripley.1
It is needed of the parties involved to agree on the contractual terms in a similar way as with the
other parties, as seen in the case of Riches v Hogben.2
It is to be noted that once the contract papers and its terms are signed by the parties, the contract
is legally bound, not changing when the said parties were unaware of the terms and conditions
written on it, as noticed as stated in L’Estrange v Graucob 3 case.
A party in the contract has the power to limit, meaning that its ‘Contractual Liabilities’ can be
included in the ‘Exclusion Clause’. The same cannot be said the the case of ‘Legal Liabilities’
though, lawed by Chapelton v Barry Urban District Council. It is not need that a binding
contract to always be signed expressly, it’s validity is totally up to the agreement of the said
contract in the first place.4 That’s what proves it valid, legally.
1 (1951) 51 SR (NSW) 183
2 [1986] 1 Qd R 315
3 (1923) 2KB 394
4 (1940) KB 532

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It is necessary that any new contractual term that has never been used before by the parties be
notified to the other parties immediately and brought into their attention in order for it to be
legal, as shown in the case of Causer v Browne.5
When a term of contract is not given into the awareness of the detriment party, then that contract
is branded as legally invalid, as stated in the case of Thornton v Shoe Lane Parking Ltd.6
A contract when formed always stays the same. The contracted when formulated and signed
cannot be changed or modified in any way, as given in the case of Interphoto Picture Library v
Stiletto Visual Programmes Ltd.7
If any breach of the contractual terms and conditions are broken, the parties can go for
repudiation of the said contract and claim any damages that were resulted by the breach in any
possible way
A ‘Warranty’ is a word that too belongs in the terminology, used to signify those contractual
terms that do not, in any way authorize the releasing an aggrieved party from the liabilities of a
contract by itself. They are said to be of less significance in a contract as they play no important
part in the formation of its subject matter. Even if the warranties of a contract do not comply
with the situation of the suffering party, the compensation for damage can be claimed
nevertheless in case if there is a breach.
The principals of Damage, contract law empower the court of justice to bestow damages in
compensations to the suffering party. It is expected of the court to pass absolute justice and
rightful decisions, such that the compensation is enough for the aggrieved party to restore its
former position if a violation or a breach in terms are noticed. The compensation is inclusive of
any loss that the party might have suffered due to the unforeseen damages caused by the breach
5 (1952) VLR 1
6 (1971) 2 QB 163
7 (1988) 2 WLR 615

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in contract whether ‘Warranty’ or ‘Conditional’, as provided by by Tabcorp Holdings Ltd v
Bowen Investments Pty Ltd.8
Application
To determine the contractual situation of Qantas and Airbus, it is necessary for to see whether
valid offer and mutual acceptance was undertaken between the above parties in the first place.
It is seen that it was rightfully decided by the two parties to agree on 545 clauses incorporated in
the agreement in order to fulfill the contract, this further proves the point that the parties must
have had made a valid offer and mutual acceptance. This would mean that the parties decided to
agree on all the said terms and conditions by their own free will and in the same way as the
other. Hence, a contract binding both parties is formed.
But, it is further seen that Airbus sent a number documents to Quantas, which was inclusive of
the said contract, colour scheme along with certain limitations of the liability clause that were not
in the contract to begin, after the signing of the legal binding was done. It was provided on the
Liability clause that the liabilities in the company are to be restricted to $300000.
As said previously, it can be concluded that a party involved in a contract is given the ability to
precede an exclusion clause to reduce its liabilities.
But, as stated in the Causer case, it was necessary for Airbus to notify Qantas of any such new
exclusion clauses and bring them to their knowledge. Hence, the newly formed exclusion clauses
can in no way be a part of the contract what so ever as provided in the Thorton case, since, the
knowledge of it was not expressly revealed by Airbus to Qantas. The consent of both the parties
are required of a new term is to be incorporated in the the said contract, hence, Airbus’s attempt
8 [2009] HCA 8

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to slander the terms of contract by not bring the exclusion clause in notice was legally invalid
and unacceptable.
It was so stated in the contracted that Airbus will provide Qantas with a plane of fine quality,
fully equipped with video entertainment accessories providing a range of 36 channels. Due to
certain technical failures, it was then noticed that Airbus could only provide them with 34
channels in all. Referring to the matter of the subject, it can clearly be considered as a breach in
contract, entitling Qantas to a compensation and repudiation of the contract.
As stated in the said principles of damage in the the contract, Airbus is liable for breaching
which resulted in damage, entitling Qantas to a compensation. When the losses amount more
than $300000, Airbus has to remit the amount as the exclusion clause will be left invalid.
Conclusion
Qantas can safely claim a compensation of more that $300000 from Airbus if their losses exceed
the estimated amount.

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QUESTION 2
Issue
In the following scenario, Frank’s legal position will be determined in respect of his given
situation.
Rule
A statement that is false when stated to intimidate a party into joining a legal binding contract is
called ‘misrepresentation’, as seen in the Edgington v Fitzmaurice case.9
There are clear differences between misrepresentation and ‘Puffery’. Puffery is a process of
exaggerating multiple facts in order to advertise oneself or an organisation. Such actions attract
no legal liability, as provided in Dimmock v Hallett.10
Misrepresentation is seen when a party establishes false statements and comments on in order to
attract another party as to bind a legal contract. An example of such uncanny reliance is stated in
the case of Hill v Rose.11
As seen in the Lockhart v Osman case, a suit of misrepresentation can only be filed when the
suffering party was not aware of its existence and the lies involved in it at all, whatsoever.12
Which means the party has no true sense of judgment over the act. Thus, it is clearly seen that
misrepresentation has to have the ability to forcefully induce and persuade an individual to enter
9 (1885) 29 Ch D 459.
10 (1866) LR 2
11 [1990] VR 129
12 [1981] VR 57

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a legal contract. Silence cannot be taken as a part of misrepresentation, all facts provided must be
true and justified in every way possible.
For example, if seller were to tell a consumer that a certain product was tested but intentionally
avoids discussing the outcome of it, can be considered as misrepresentation.
In ‘Fraudulent Misrepresentation’, it was then ruled by the judges that if an action takes place
with the person stating facts knowing it full well that the facts stated are false, it can be termed as
fraudulent misrepresentation, in the case of Derry v Peek.13 The parties affected by it are
subjected to compensation and rescission.
As provided in the leading case of Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty
Ltd, the principal responsible for the conduct that his agents carry out. Such rules are only
applicable if the said person has the rightful claim and has implied, apparent or an authority that
is expressly provided.
In the case of Cropper v Cook, 1867, the court opined that if the given concerned authority was
not granted by the principle to the agent and another party believes that there should be an
authority in an implied sense, then the principle must act according to the agent’s demands.
It was ruled by the court of law, in the Watteau v Fenwick case, that if no authority has been
provided by the principle to the agent, then their relationship ceases to exist.14 The principle is
bound to set a contract with a third party who is not aware of such termination of authority.
Application
In the above case, it is given that Gemma has appointed Frank for a sales job in her appliance
shop. It is given that a second hand dishwasher was on display for sale for $350. A customer,
13 (1889) 14 App Cas 33
14 [1983] 1 QB 346

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Tom, told Gemma that he was interested purchasing it for the given price. Gemma knew that
Frances was in need of a dishwasher and promised her that he would urge Frank so that he sells
it to her for $300. So, to induce frank into selling the product to France, she lied to him that the
particular dishwasher would never procure $350 if sold. Frank, being a hired salesperson, was
easily convinced by Gemma and sells the product to Frances for $300. It was later found out that
Frank was ready to pay $350, in the first place.
It was seen that Gemma filled Frank with wrong information knowing it full well that the facts
she stated were based lies and thus induced him on selling it below it’s original rate to Frances.
Gemma had committed an act of Fraudulent Misrepresentation and has to compensate Fanks
with an amount of $50 which can be taken as the cost of damage.
Bob was also a salesperson who worked for Frank. He was responsible for inducing Angela in
respect of sales of Washing Machine. In his case, it was seen that he was always late for work
and remained drunk for most of the time. Due to this, he was laid off by Frank and was requested
to leave.
Bob, then draws up a contract involving Angela, who had no knowledge of his previous tussle
with Frank. It was decided that Bob would sell ten washing machines worth $1000 each, and
deposited $1000 in Bob’s private account to settle her part of the contract. But, instead of doing
his job, Bob withdraws the money thereof, from his Home Appliance Specialist account in the
bank and flies overseas. Since Angela was ignorant of the connection between Bob and Frank, it
falls under frank to compensate 10 machines for her. Frank though, can redeem his damage from
Bob.
Conclusion

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It can be safely concluded that Gemma induced Frank into a false sales by virtue of fraudulent
misrepresentation.
Frank suffered from the liability inflicted on him by Bob’s misrepresentation and has to supply
the machines to Angela who had no knowledge of it. Bob, on the other hand has to compensate
Frank for the damages caused by him on the account of his Fraudulent Misrepresentation.

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Bibliography
Causer v Browne (1952) VLR 1
Chapelton v Barry Urban District Council (1940) KB 532
Derry v. Peek (1889) 14 App Cas 33
Dimmock v Hallett (1866) LR 2
Edgington v Fitzmaurice (1885) 29 Ch D 459.
Hill v Rose [1990] VR 129
Interphoto Picture Library v Stiletto Visual Programmes Ltd (1988) 2 WLR 615
L’Estange v Graucob (1923) 2KB 394
Lockhart v Osman [1981] VR 57
Riches v Hogben [1986] 1 Qd R 315
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8
Thornton v Shoe Lane Parking Ltd (1971) 2 QB 163
Wakeling v Ripley (1951) 51 SR (NSW) 183
Watteau v Fenwick [1983] 1 QB 346