Commercial Law: Contract Issues and Liability

This document discusses the legal issues related to contracts, breach of contract, exclusion clauses, and liability for defective goods and injury caused by defective products. It provides an analysis of the relevant laws and their application in different scenarios.

COMMERCIAL LAW
PROBLEM SOLVING QUESTION
INTRODUCTION
The case scenario raise issues of nature of contracts entered into by family members, breach of
contract, effect of exclusion clauses, liability for defective goods and liability for injury caused
by defective products. All the above mentioned legal issues are discussed below in details
including the relevant laws applicable and their analysis.
1. Issue
Whether the contract between Toan and his father can be enforceable?
Relevant laws
The agreement between Toan and his father ideally was supposed to be a contract. A close
analysis of the agreement shows that the contract failed to meet some of the required elements
which are, offer, acceptance, consideration, intention to create legal rights and obligations among
others. The first four mentioned elements were present except consideration which the father
refused to take from his son. Common law considered contract between father and son as not
having intention to be bound to any legal rights and obligations but rather rely on Kinship ties.1
The above principle was illustrated in the case of Jones v padavatton.2 The common presumption
is usually based on a rationally that agreements between kinsmen are usually gentleman’s
agreement not negotiated or bargained. The above presumption is however not the current
position since it can be rebutted by evidence proving that the family members intended to be
legally bound to the contract. John McCamus argues that commercial arrangements between
family members may be legally enforceable.3
Application
1 J W, Carter, Contract law in Australia, (7th edition Lexis Nexis Australia 2018)
2 Jones v padavatton (1969) 2 All ER 616 at 621(CA)
3 J, McCamus, The law of contract, (2nd edition Irwin Law 2012)

This is however not the case in Toan and Manh contract. Manh did not negotiate the contract. He
readily accepted to grant 50% shares of interest on duress thinking that if he did not do so, his
son Toan and his partner Huong would leave him and go. It can be seen clearly that Manh did
not intend to be legally bound to the contract; furthermore even if there were legal relations
created, the contract was already vitiated by duress. Contract vitiating factor such as duress have
the effect of rendering a contract null and void even if they were not the main reasons for
entering into the contract as illustrated in Barton v Armstrong.4
Conclusion
It can be concluded that the contract between Toan and Manh was null and void abinitio.5 Toan
cannot therefore go to court to enforce the contract against his father after being kicked out of the
farm. Manh was the victim of duress and he exercised the appropriate remedy of rescission.
2. Issue
Whether Truong violated his contractual obligations and the remedies available for the breach?
Relevant law
In the contract between Truong and Manh, there was offer and acceptance concerning the kind of
machines to be used in the firm custom seeding. Manh wanted Japanese equipment for quality
and timely completion of work which Truong assured him. Their contract was initially valid with
a consideration of $38 per acre, and intention to create legal rights and obligations that each
party had to fulfill.
Truong having a shortage of farm machinery was not a concern to Manh but rather his main
concern was delivery of quality work in a timely manner. The use of Chinese equipment which
could not work well in heavy rains was a breach of the set contractual terms and conditions. As a
result of the breach, Manh suffered loss and damage in his farm because the crops did not grow
well.
Application
4 Barton v Armstrong (1973) UKPC 27, [1976] AC 104
5 Civil Law Articles, Contracts in Australia, www.gotocourt.com.au (accessed 14 May 2019)

Truong on the other hand might decide to raise the disclaimers and exclusion clauses written in
the contract in small font with an intention of not making Manh see them at the time of signing
since he knew very well the ailing condition that Manh was in. He therefore took the advantage
of the situation to have these clauses excluding him from liability. Manh can however raise a
defence of ‘non est factum’ which means ‘not my deed’ because he was very ill the night before
signing of the contract and was under the influence of sedative medicine hence unable to read the
whole contract before signing. This therefore implies that the signing was made by mistake and
as a result the contract was void. The requirements necessary for a plea of non-est factum to
succeed were brought out in the case of Saunders v Anglia Building Society,6and applied in
Petelin v Cullen;7 they include:
i. Persons who at the time of signing without fault of their own are unable to understand the
purpose of the document being signed due to illiteracy, blindness or some other
disability. They hence rely on the other party for advice as to what they are signing.
ii. Fundamental mistake as to the nature and practical effect of the contract being signed
iii. The document must have been totally different form the one the signatory intended to
sign.
The above elements can be easily verified in the above case scenario hence Manh claim of non-
est factum will succeed as illustrated above.
Conclusion
Due to the above breach Manh has two legal options. He can institute a suit against Truong for
material breach of the contract claiming damages for loss suffered due to poor crop seeding. He
can also decide to repudiate the contract alongside the damages since Truong breached a
condition that goes to the root of the contract by not delivering as he had promised.
3. Issue
6 Saunders v Anglia Building Society [1971] UKHL 4
7 Petelin v Cullen [1975] HCA 24

Whether Truong can sue Farm Machines Ltd for misrepresentation of liability of defective goods
under the ACL?
Relevant laws
It is only under the Australian Consumer Law (ACL) as stated under schedule 2 of the
Competition and Consumer Act 2010 where a party to a contract cannot exclude any condition or
warranties as to consumables supplied to consumers.8 Exclusion clauses and disclaimers are
however valid in the Australian common law of contract if they are reasonable and agreed upon
by the parties.
Application
The statements of sales staff claiming that the machine could work well under any whether
condition cannot be relied on for suit by Truong as misrepresentation. The sales staff assurance is
an opinion statement as held in the case of Bisset v Wilkinson,9 or a mere trade puff.10 Contract
also had extended terms and conditions posted on their website concerning product details and
relevant exclusion clauses.
Conclusion
Truong’s claim against Farm Machines Ltd cannot succeed because of the liability exclusion
clause that was contained in the contract under the product details page on the website which
Truong was supposed to read carefully before signing but he was too busy to even check the
information.
4. Issue
The party liable to compensate the driver for the electric shock suffered after the machine
became faulty?
Relevant law
8 International Comparative Legal Guides (ICLG) on product liability laws and regulations in Australia,
https://iclg.com (accessed 15 May 2019)
9 Bisset v Wilkinson [1927] AC 177
10 Legal Services Commission of South Australia, Exclusion Clauses and the Australian Consumer Law,
https://lawhandbook.sa.gov.au (accessed 14 May 2015)

According to Workers Compensation Act,11employers are liable for compensation of medical
expenses incurred by employees after they have suffered injuries at the work place. The
employer therefore has a duty to provide safe working conditions to avoid employees in order to
avoid risk of injuries.
Application
Suppose Truong had read the information on the website, he would have known that the
machines would become faulty during heavy rain season hence might cause injury.12 Truong
would therefore have taken precaution to protect the driver from shock. He therefore failed in his
duty as an employer to ensure his employee work under a safe and healthy condition. The
machine manufacturing company is neither liable for the injury of the driver nor liable under
liability for defective product because of the disclaimer about the product safety during heavy
rains.
Conclusion
Truong as an employer of the driver is liable to compensate the driver for the injury suffered for
failure to provide a safe working condition to the driver pursuant to section 70 of the Workers
Compensation Act of 1951.
CONCLUSION
In the above case scenario, Toan cannot enforce the contact entered into with his further due to
duress, lack of consideration and absence of intention to be legally bound by the promising party.
Truong is liable for breach of contract between him and Manh. He breached the condition as to
the quality of work to be done and the equipment to be used making Manh to suffer loss and
damages. Manh can therefore repudiate the contract and sue for damages. The Farm machines
Ltd is not liable for breach of contract to Truong since the contract contained a disclaimer on the
additional information on the website which was not read by Truong. The driver as the employee
of Truong can sue Truong for compensation of injury suffered from shock because Truong as
employer failed to provide a safe working condition to his employee.
11 Workers Compensation Act 1951 s 70(1)
12 Consumer Complaints and Queries, Frequently Requested information www.australia.gov.au (accessed 15 May
2019)

QUESTION TWO
BNMB Transport pty Ltd v Mercedes-Benz Australia/pacific pty Ltd & Anor
Introduction
The case in question was called BNMB Transport pty Ltd v Mercedes-Benz Australia/ pacific
Pty Ltd & Anor. It matter was heard and determined in an Australian federal circuit court . The
case was adjudicated and decided by Judge Wilson. Both parties had legal representation. Mr.
T.Sowden appeared as the lawyer for the plaintiff while Counsel P. Miller appeared on record for
the defendant. The judgement was entered in favour of the defendant.
The plaintiff was a public transport company by the name BNMB Transport pty Ltd (BNMB)
while the defendant was a motor vehicle company by the name Mercedes-Benz Australia/Pacific
pty Ltd (Mercedes Benz). The problem was about the vehicle sold to the plaintiff by the
defendant. Two months after the plaintiff had purchased the vehicle; one of its parts developed a
mechanical problem. The incidence occurred while the warranty was still lasting the defendant
refused to repair the vehicle citing driver’s misuse as the cause of suspension failure.
The plaintiff argued that the cause of the rear suspension collapsing was due to a manufacturing
problem of the vehicle since he had not subjected the vehicle to high acceleration or harsh
driving. The defendants on the other hand maintained its position insisting that bad driving
resulting from high acceleration of the vehicle caused the failure.
The primary issue was to determine the cause of the failure of the vehicle’s rear suspension and
the party that could have occasioned it. In order to determine the above central issue, other legal
issues had to be determined first. There was necessity to have two expert witnesses giving the
expert evidence. Both experts agreed as to the cause of failure. The two nuts had failed due to
fatigue causing a crack to develop within each of the nuts until the remaining portion was too
small to support the load of the rear suspension. After determining the part that failed and fatigue
being the cause, the experts sought to answer the following questions;
a) What caused the fatigue?
b) When did the failure occur?
c) Why did the failure occur?

In trying to answer the above questions, the experts had different expert opinions. The
defendant’s expert Dr. Casey attributed the failure to harsh driving conditions by the plaintiff.
The plaintiff’s expert gave a contradicting view by associating the failure to assembling error by
the defendant.
The plaintiff relied on the following while claiming compensation or damages under the
Australian Consumer Law (ACL) and breach of contract of sale:
a. Statutory guarantee as to acceptable quality of products sold13
b. A warranty as to repair of defects expenses within three months of sale.14
Mercedes-Benz filed a cross-claim seeking payment of monies due from the plaintiff and denied
liability relying on statutory defenses of section 54(6) of ACL and 54(4) of MCTA.
The court analysed the expert witness on the cause of the collapsed rear suspension of the car
and relied wholly on the evidence of the defendant’s expert to decide the case. The reasoning of
the judge in this case was not logic. He was biased towards one expert. Using academic
qualification as a ground to discredit the plaintiff’s expert evidence is not a proper way to go. As
a result the judge errored in law and fact in terms of handling the expert evidence. His analysis
was not convincing since he did not consider the statutory legal arguments raised by the parties
but rather he discredited Mr. Malkoutzis expert witness report on flimsy excuses and solely
based on Dr. Casey’s report whom he even praised for having done a good report to which is un
acceptable conduct on the part of the judge since it shows lack of neutrality and impartiality.15
Due to the above explained reason I therefore strongly disagree with the determination and
would recommend for an immediate appeal.
Conclusion
I strongly disagree with the decision of the judge in the above case. The determination was
arrived at haphazardly with the court ignoring all the other issues raised in the case except one
13 Australian Consumer Law as contained under schedule 2 of the Competition and Consumer Act 2010 s 54
14 Motor Car Traders Act 1986 s 54
15 Expert Evidence Practice Note (GPN-EXPT, Federal court Website, www.fedcourt.gov.au (accessed 15 May
2019)

report of the expert witness. This is not the correct way to decide a case on merit. Every aspect of
the case must be upheld or discredited by proper and well reasoning of the case. The above case
is a typical example of biasness, incompetence, lack of impartiality and neutrality on the part of
the judge. An appeal on the grounds of mistake of law and facts is highly recommended or
alternatively a judicial review to compel the court to explain in details how it arrived at such a
sham decision.
References
Jones v padavatton (1969) 2 All ER 616 at 621(CA
Barton v Armstrong (1973) UKPC 27, [1976] AC 104
Saunders v Anglia Building Society [1971] UKHL 4
Petelin v Cullen [1975] HCA 24
Australian Consumer Law as contained under schedule 2 of the Competition and Consumer Act
2010
Motor Car Traders Act 1986
Expert Evidence Practice Note (GPN-EXPT, Federal court Website, www.fedcourt.gov.au
(accessed 15 May 2019)
J, McCamus, The law of contract, (2nd edition Irwin Law 2012)
J W, Carter, Contract law in Australia, (7th edition Lexis Nexis Australia 2018)
International Comparative Legal Guides (ICLG) on product liability laws and regulations in
Australia, https://iclg.com (accessed 15 May 2019)
Legal Services Commission of South Australia, Exclusion Clauses and the Australian Consumer
Law, https://lawhandbook.sa.gov.au (accessed 14 May 2015)
Australian Contract Law website, legislations relating to contract law in Australia;
www.australiancontractlaw.con (accessed 15 May 2019

Civil Law Articles, Contracts in Australia, www.gotocourt.com.au (accessed 14 May 2019)
Consumer Complaints and Queries, Frequently Requested information www.australia.gov.au
(accessed 15 May 2019)