Contract Law and Australian Consumer Law

This article discusses two different scenarios and the application of Contract Law and Australian Consumer Law in resolving the issues. The first scenario deals with the formation of a contract between Annie and Joe for the sale/purchase of single core CPU. The second scenario deals with the liability of Joe for the damages caused to Florence because of his actions. The article covers the issues, laws, and solutions related to the cases.

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Contents
Answer 1.....................................................................................................................................................2
Issues I.........................................................................................................................................................2
Law..........................................................................................................................................................2
Application of Law..................................................................................................................................3
Conclusion...............................................................................................................................................5
Solution 2....................................................................................................................................................5
Issue II.....................................................................................................................................................5
Law..........................................................................................................................................................5
Application of Law..................................................................................................................................6
Conclusion...............................................................................................................................................7
Solution 2....................................................................................................................................................7
Reference List............................................................................................................................................11

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Answer 1
Issues I
i. Is a contractual relationship that exits amid Annie and Joe for the sale/purchase of
single core CPU?
ii. If a contractual relationship exists then can Joe sue Annie for any kind of remedies?
Law
An agreement which is when combined with legal intention, capacity and consideration results in
the formation of a contract. An agreement is established when there is a valid offer reciprocated
by a valid acceptance.
The offeror when transfers or communicates certain terms to the offeree which he wish to be
obeyed by the offeree, then, such transfer of terms is called an offer in contract law. The terms of
the offer must be clear and must be communicated to the offeree to consider the offer as
complete and binding and is held in Gibson v Manchester City Council1. In the leading case of
Carlill v. Carbolic Smoke Ball Co2 the court held that an offeror has the right to make the offer
either to a particular person, or class or group of persons or to the general public but whomsoever
it is made, the offer must be communicated to make it a valid offer in law3.
Now, when the offer is communicated to the offeree, then, it is the duty of the offeree to either
affirm the offer so made or does not comply with the offer terms. But, when the offeree desires
to agree with the offer terms then the offeree can either orally, in writing or by conduct express
his desire of affirmation and this affirmation is called acceptance in law. It is very necessary that
some sort of expression must be carried out by the offeree to communicate the acceptance. If the
offeree desires to accept the offer but remain silent then it is no acceptance and is held in
Felthouse v Bindley4.
Generally, when the offeror makes an offer and if he also clarifies the way and manner in which
the acceptance to be made, then, it is necessary that the said manner specified by offeror must be
comply with in order to consider the communicate of acceptance and is held in Latec Finance
1 Gibson v Manchester City Council - CA [1978] 1 WLR 520
2 Carlill v. Carbolic Smoke Ball Co (1891).
3 John W. Carter, Contract Law in Australia (LexisNexis Butterworths, 2013).
4 Felthouse v Bindley (1862).

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Ltd v Knight5. In Crown v Clarke6 it was held that no other mode is allowed but slight changes
are allowed and when the offeror comes in the knowledge of the acceptance results in a binding
agreement.
But, the rule is slightly different when the acceptance is made by post. The acceptance is deem to
be complete against the offeror when the letter is put into transit and not when the letter finally
reaches the offeror and is held in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd7.8
However, at times, the offeree instead of affirming to the offer wish that some variation must be
bought in to such terms by incorporation of new terms in the offer or changes or to bring changes
to the existing term, then, it is not an acceptance and is called counter offer. A counter offer
cancels the offer. The counter offer made by the offeree is the only new offer that prevails9. But,
when the offeree does not bring any changes to the offer but seek additional information in
relation to the offer then it is not counter offer and is held in Stevenson Jaques & Co v McLean10.
When a binding contract is made then the parties to the contract must comply with its terms.
Non performance of the terms results in breach of contract and the aggrieved party has the right
to seek damages. If the term violated is the root term of the contract, then, it is a condition and
the contract thus be terminated and damages can be claimed. If the term is not the root term then
only damages can e ascertained.
The rules related to offer, acceptance, and counter offer, postal acceptance rule is now applicable
to the facts of the case to resolve the issues rose.
Application of Law
Issue i
Joe is dealing in the business of computers and is operating a store for the repair of the
computers in the name of ‘Connect Computers’ (CC). CC enters into a contract with WPS
(Whittlesea Primary School) for the delivery of 150 computers for $45,000 by 31st June 2018.
5 Latec Finance Ltd v Knight (1969)..
6 Crown v Clarke (1927) 40 CLR 227.
7 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 527.
8 MIK, Eliza, ‘The Effectiveness of Acceptances Communicated by Electronic Means, Or – Does the Postal Acceptance Rule
Apply to Email’ (Journal of Contract Law, 2009).
9 Hyde v Wrench (1840) Beav 334.
10 Stevenson Jaques & Co v McLean (1880)

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Joe is need of 75 CPUs so that the contract with WPS be completed. He called Annie (friend)
who is operating an IT supply business for the supply of the CPUs. Annie, on 12th February 2018
sent a email to Joe specifying that she can gave 75single core CPUs @4,000. The email is sent
along with a form and if Joe confirms the quote then the form must be printed and send and be
return within 7 days.
The email by Annie to Joe is an act of offer which is made by Annie (offeror) to Joe (offeree).
the offer is made along with the mode in which the acceptance is to be made. So, Joe must make
sure that the acceptance must be made as desired by Annie within 7 days.
However, Joe was not happy with the single core CPU. On 12th February, Joe request Annie to
gave the price for the quad-core CPUs so that he can compare the process of both the kinds of
CPUs. A request is also made that the original quote should be kept open for 14 days. Now as
per Stevenson Jaques Joe has made request but no changes are made to the original offer of
Annie. So, there is no acceptance by Joe neither any counter offer is also made by Joe.
Annie, on 16th February sent a quote for 75 quad-core CPUs @ $12,000. This mail is just a reply
to the request that is made by Joe and there is no cancelation of the offer from the side of Annie.
Now, Joe on 16th February, Joe prints and sign the order form and post the same. By posting the
form an acceptance is made by Joe and the contract is made amid the parties on the 16th itself and
is held in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd.
So, there is a valid contract amid the parties.
Issue ii
Annie sold the stock of CPU to Pear and does not deliver them to Joe. On 18th, she emails to Joe
that she can only supply the CPU until August. Now, because of non supply of CPU by Annie,
the contract with WOS is not concluded and Joe has to purchase the CPUs from the market
@7,000.
So, the supply of CPU was the root term of the contract amid Annie and Joe, since Annie did not
comply with this root term, so, Joe can cancel the contract and sue Annie for the damages that
are suffered by him, th at is, $3,000 ($7,000-$4,000).

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Conclusion
Annie and Joe are in contractual relationship. Annie is in breach of contract and thus Joe can
claim $3,000 for the damages that are suffered by him.
Solution 2
Issue II
Whether Joe be held liable for the damages that is caused to Florence because of his actions? If
Yes, then what remedies can be availed by Florence?
Law
In Australia, there are various laws that are formulated which are needed for the protection and
safeguards of the consumers at the hands of the suppliers and the manufacturers. One such law is
the Australian Consumer Law. The provisions that are framed under the Australian Consumer
Law is applicable only in favor of those consumers who has purchased good and services for
their personal and domestic use and the goods and services are not more than $40,000 and is
rightly enshrined under section 3 of the Australian Consumer law. Once a consumer is covered
under section 3 of the Law, then, every supplier and manufacture has certain guarantees that
must be comply with by him against such consumers. As per section 64 of the Australian
Consumer Law, no guarantees that are made part of the law can be shed away by the supplier or
the manufacturer by the incorporating any kind of exclusion clause in the consumer contract that
is established amid the parties.
The main consumer guarantees that can be avail by a consumer against the manufacturer
includes11
Section 18 of the Australian Consumer Law deals with misleading and deceptive representations
on the part of the supplier and the manufacturer. The section submits that if any untrue
representation is made regarding the good and services in the business course and which has the
capacity to misled or deceive the consumers or likely to misled or deceive the consumers, then,
such, representation are nothing but misrepresentations and is in violation of section 18 of
Australian Consumer law and is established in Ricochet Pty Ltd v Equity Trustees Executor &
11 Nicole Morandin and Joshua Smith, 2011, Australian Competition and Consumer Legislation 2011. Australia: CCH
Australia Limited.

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Agency Co Ltd 12. The consumer must rely on the statements before entering into the contract and
thus the consumer can sue the supplier or manufacturer for damages or compensation for the
violation of section 18.
Section 20-23 of the Australian Consumer Law prohibits the acts of unconsiousable conduct on
the part of the suppliers and manufacturers while dealing in their business course. When the
suppliers has a dominate position over the consumer either because of knowledge , experience,
literacy, etc, then the supplier must make sure that no statements must be made which will not
allow the consumer to make an independent judgment before entering into a contract with the
supplier and is analyzed in Kailash center for personal development Inc, v Yoga Malik Pty
limited13.
Section 54 of the Australian consumer Law submits that whenever the goods are supplied by the
supplier then such goods must be fit for the purpose for which it is supplied otherwise, there is
violation of section and is analyzed in ACCC v Valve Corporation (No 3)14.
The rules related Australian Consumer Law is now applicable to the facts of the case to resolve
the issues rose.
Application of Law
Florence was residing near Joe and was a lady of 70 years. She is not very much flaunt in
English and also does not have much knowledge of computers. Joe visited her and sold her a
computer for $2,000.
Now, Florence purchased a computer of $2,000, so, the implied guarantees that must be furnish
by Joe towards Florence are applicable as Florence is a consumer as per section 3of the
Australian Consumer Law. Florence bought a computer of $2,000, which is less than the amount
of $40,000, and the same is also bought by Florence for her personal use. So, Florence is a
consumer as per the law.
So, now, while selling the computer to Florence, there are various implied gummites that were
not comply with by Florence:
12 Ricochet Pty Ltd v Equity Trustees Executor & Agency Co Ltd (1993);
13 Kailash center for personal development Inc, v Yoga Malik Pty limited (2003).
14 ACCC v Valve Corporation (No 3) [2016];

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Section 18 of the Australian Consumer law was violated by Joe. Before selling the computer to
Florence there are various statements that were made by him that were false and are made to
mislead and deceive Florence. Joe is aware that Florence has no knowledge of the computer and
does not know much English. Considering the fact, Joe made a false statement that the computer
that is used by Florence is containing several viruses and that she must upgrade the computer. He
sells Florence a new computer. So, these are nothing but false statements of fact made
intentionally by Joe in order to deceive Florence. Hence, there is clear violation of section 18 of
the law;
Section 20-22 of the Australian Consumer law was also violated by Joe. Florence was not fluent
in English nor has knowledge of the computer. Joe is aware of these facts and thus is at a
stronger position when compared with Florence. He uses his position and misguides Florence but
stating false statements regarding her computer and induces her so that a contract can be made
with her. Florence was 70 years old and thus is not in a position to make an independent
judgment. Thus, an unconsiousable conduct is undertaken by Joe and Florence can sue Joe for
breach of section 20-23 of the Australian Consumer Law.
Joe also violated section 54 of the Australian Consumer Law as the computer was not for the
purpose for which the same is required by Florence rather the same was very much upgraded. So,
Joe has violated section 54 by supplying a computer that is not fit for the purpose.
Now, Joe was relying on the exclusion clause that was made part of the contract with Florence
according to which he established that he will not be liable if the goods so supplied are not fit for
the purpose, thus, he is trying to exclude section 54 of the Australian Consumer Law and which
is not permissible as per section 64 of the Australian Consumer law.
Conclusion
So, Joe is in breach of section 18, 54, 20-22 of the Australian Consumer Law. Also, section 64 is
not applicable as the same is excluding the guarantee which is not permissible.
Solution 2
Letter of Advice on the best business structure
To

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Joseph Brunetti
Subject: To furnish advice on the most appropriate business structure required.
Respected Sir,
Joseph Brunetti is one of our esteem clients and is now intending to look for expansion plans. He
is in the business of stores and is operating his business all of his own. In legal terms he is
operating by way of a sole trader.
At this stage I would like to state that sole trader ship has its own set of advantages, that is, no
inclusion of external entities or personal, all the profits that are generated through the business
are personal, etc.
But, at the same time, there are various problems that can also be considered when the business
is carried on as a sole trader ship, that is, in case of death of the owner the business comes to an
end, if there is any loss that is caused to the business then it is the owner who has to face the
losses which might also be covered by his personal assets, if any money needs to be raise then it
is very difficult to secure finance and the only option is when the sole trader himself bring in the
cash, also the tax is directly imposed on the sole trader. 15.
So, considering these major problems that are faced by a sole trader and surely by Joseph
Brunetti, so, it is now important to understand the other two options that can be avail by Joseph
Brunetti.
The first option that can be sought by Joseph Brunetti is the formation of a company. A company
is an artificial legal person and comes into existence upon its registration. Once a company is
registered then there are various significant features that can be attributed to a company and
which can also be considered its advantages, that is, a company is a separate legal entity in law
which signifies that the directors and officers acts are the acts that are carried on by them in the
name of the company, a company has perpetual succession and never dies, it can sue, it can hold
property, there are several tax advantages, the liability is limited in nature.
15 Michael Adams, Australian Essential Management Law, (Routledge, 01-Jul-1997).

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But, there are few drawbacks that can also be associated, that is, it is every costly and time
consuming to register a company, also the auditing and reporting requirements are also very
cumbersome.
Considering the drawbacks of a company, another option that can be used by Joseph Brunetti for
his business expansion plan is the way of partnership.
When two or more persons wish to carry on a business with one common objective and with the
main purpose of earning gains, then, it is a partnership form of business. Like company there are
also various positive attributes that can be availed by way of a partnership, that is, the process of
the formation of a partnership is simple, less time consuming and not very costly, since it is only
the partners who manages the partnership thus the confidentially exists, the partner can bring in
capital to raise money very easily16.
But, there are few disadvantages that also comes along with a partnership, that is, the dissolution
of a partnership is very easy, that is, on the death of a partner or incoming or outgoing partner,
there are high chances of conflict of interest, there is unlimited liability of the partners, etc17.
After understanding the concepts of a company and partnership and the advantages and
disadvantages that are associated with them, it is now important to guide the best business
structure for Joseph Brunetti.
Firstly, in order to achieve the objective of reducing the tax liability one of the best structure
that can be opted is to operate as a company. When a company is incorporated then it is only the
company which is charged for tax and not the director or shareholders of the company. But, of
partnership is carried on then a dual tax is imposed, that is, on the firm and the partners both.
Secondly, Joseph Brunetti can bring in cash by issuing shares but in partnership he himself has to
take pains to bring in the cash. So, a company form of business is a better choice;
Thirdly, Joseph Brunetti requires persons for the business and in company the same can be
employed without bringing them to be part of the business. But, in partnership the partners
become part of the business there making it difficult to run the business.
16 Peter Gillies, Business Law, (Federation Press, 2004).
17 Ibid.

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Fourthly, Joseph Brunetti can hire expert people to run the company effectively as an employee
and not as the owners of the company but in partnership the experts act as a partner causing
unnecessary division of power;
Fifthly, Joseph Brunetti can become the Managing director of the company and operate the
company on daily basis.
Sixthly, if Joseph Brunetti operates as a company then, he can in the name of the company
acquire vehicles and warehouse. The amount of $600,000 can be raised by share issue or
debentures which is not prevalent in partnership. He himself cannot raise finance as his worth is
merely of $100,000 (equity) and $20,000 (cash).
So, the best choice that can be opt by Joseph Brunetti is that he must operate by way of a
company and not partnership.
Thanks You

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Reference List
Books/Articles/Journals
Adams, Michael ,Australian Essential Management Law, (Routledge, 01-Jul-1997)
Carter , John , Contract Law in Australia (LexisNexis Butterworths, 2013).
Eliza, MIK, ‘The Effectiveness of Acceptances Communicated by Electronic Means, Or – Does
the Postal Acceptance Rule Apply to Email’ (Journal of Contract Law, 2009).
Gillies, Peter , Business Law, (Federation Press, 2004)
Morandin, Nicole and Smith, Joshua 2011, Australian Competition and Consumer Legislation
2011. Australia: CCH Australia Limited.
Case laws
ACCC v Valve Corporation (No 3) [2016];
Carlill v. Carbolic Smoke Ball Co (1891).
Crown v Clarke (1927) 40 CLR 227
Gibson v Manchester City Council - CA [1978] 1 WLR 520.
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 527.
Felthouse v Bindley (1862).
Hyde v Wrench (1840) Beav 334.
Kailash center for personal development Inc, v Yoga Malik Pty limited (2003).
Latec Finance Ltd v Knight (1969)..
Ricochet Pty Ltd v Equity Trustees Executor & Agency Co Ltd (1993);
Stevenson Jaques & Co v McLean (1880)