BLO1105 Business Law: Contract Formation, Exclusion Clauses & Terms

This case study delves into Australian contract law, analyzing the validity of a contract between Avinash and a café. It examines essential elements of contract formation, including agreement, offer, acceptance, consideration, and capacity. The study further investigates the enforceability of an ...Read More

Business Law
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Contents
Introduction...........................................................................................................................................3
Question1..............................................................................................................................................4
Question2..............................................................................................................................................8
Conclusion...........................................................................................................................................10
Bibliography.........................................................................................................................................11
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Introduction
To clear concept of validity of contract, various essentials of the contract that are defined in
the Australia contract law have been discussed. It is analysed as to whether there was a
contract between Avinash and Café. All steps are considered in this regard and each division
of contract is analysed in facts of the case. In later part, exclusion clause provision is analysed
in the applicable law as well as its expression in the common law. On the basis of this, it is
further examined as to when a defendant can fully exclude his liability under the exclusion
clause for the negligence. And lastly the express and implied terms are discussed and the
operational difference is also made to analyse the validity of the statement of a problem. This
way entire assignment revolves around the contract law and its related terms of the contract.
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Question1.
a) Formation of the contract takes place under the contract law in Australia. The act specifies
essential that has to be there in the valid contract and these includes:
Agreement: Agreement includes in it the offer and its acceptance. Information of the
agreement the offer has to be accepted by the other party to the contract I the form and
essence in which it was offered to him. Case of Smith v Hughes, subjective intention of the
party is irrelevant and for the formation of the contract conduct of the parties showing the
acceptance to perform the contract is sufficient. In the contract between Avinash and Café,
the agreement took place when the order was selected and placed by Avinash and in turn to
that he received the foodstuff (Giancaspro, 2014).
Offer:
There is no hard and fast format to make an offer for the agreement it can be in any form,
either in writing or verbally. Offer can be in relation to the performance of some act or non-
performance in exchange of which some consideration will be offered to Offeree. It is also
possible that offer is made to a single person or it can at the same time be made to the large
public as per judgment of Carlill v Carbolic Smoke Ball Co, Court of Appeal [1893] 1 QB
256; [1892] EWCA Civ 1. Café makes a running offer to the public to buy the products of it
in exchange for the consideration. The requirement of offer was fulfilled in the above fact by
displaying the prices of different products over the screen of system (Marshall, 2012).
Acceptance:
To make agreement out of offer it has to be accepted by a person to whom it is made or by
some person authorised by him in this behalf. The acceptance cannot be qualified and
conditional. The mode of acceptance can be chosen as specified in the offer and when no
mode of communication is specified then it can be accepted in any form and manner.
Decision of Crown v Clarke, (1927) 40 CLR 227, held that even silence can amount to
acceptance of offer. The acceptance of the offer of café for food and beverages was accepted
by Avinash when he selected the food item and drink for him.
Consideration:
Consideration in contract is essential no contract can be entered without paying consideration
by one party to another party. The consideration in the contract must not be set so high nor so
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low. It must be reasonable and in the buying capacity of payer. In the form of consideration,
$7.50 was paid by Avinash in exchange for his selected food and drink.
Capacity to contract:
It is also essential that person entering into contract must be capable of understanding the
needs, nature, and purpose of the contract. Person having any kind of disability which debars
him to understand the contract cannot make valid contract. Avinash was major and he had
known about the nature of his contract. He was not hacking any kind of disability. Case of
Gibbons v Wright, (1954) 91 CLR 423, held that contract with person having mental disorder
cannot be enforced and they are void (MacMillan and Stone, 2012).
All the above-discussed essentials are required to be there in the contract formation and
missing of any single element will make the contract void and unenforceable. Avinash made
a valid contract with the café in which he accepted the offer of displayed food items and he
made acceptance by selecting the beverage and food item and he paid consideration by
paying the prices of the food items. He had knowledge of the nature of the contract and the
effect of entering into contract. Therefore a valid contract was formed between Avinash and
Café under the Contract Law of Australia (McKendrick, 2014).
b)
Issue: Can café legal avoid the liability for injury to Avinash by Exclusion clause printed
behind the ticket.
Rule:
There is certain occasion when the liability under the contract is allowed to be excluded out
of the contract. For the exclusion clause to be valid it must be included in the contract by
giving prior notice to the other party. The exclusion clause must be legal and when it relates
to the aspects or negligence it must be clearly stated (Sims, 2012).
Incorporation through Notice:
The condition of the ticket will not be valid when they are brought in the knowledge of the
other party to the contract after the conclusion of the contract. It has to be disclosed pre-hand
as per judgment of Thornton v Shoe Lane Parking Ltd (1971) 1 All ER 686.
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Legal:
The exclusion clause has to be legal and it cannot be of misleading the consumer under the
Competition and Consumer Act 2010.
Negligence:
Exclusion clause when relates to mitigating the negligence on the part of another party to the
contract it must be clear (Schwenzer, et. al., 2012).
The validity of the exclusion clauses in discussed under two acts in Australia i.e. Australian
Securities and Investments Commission Act 2010 (Cth) ("ASIC Act") and the Competition
and Consumer Law Act (Cth). Under the part 2-3 of ACL any condition that can cause the
imbalance of right and liabilities in the contract and can case the detriment to the interest of
the consumer if it is made part of the contract. Under the CC there is list of 14 terms that
should not be included in the contract otherwise they can cause unfair advantage to one party
over the other. Among those terms, there is a prohibition to use any term which can have the
effect of the limitation of right to sue one party to contract with the other in case of default.
Under section 25 of ACL also there is no validity of exclusion clause when it can limit right
to sue. There no one can exclude the legal liability to which he is subjected under
Competition and Consumer Law. Any clause that excludes the liability of company for the
damage that will be void and cannot be enforced in the court (Blackshield & Huisman, 2016).
The case of Alderslade v Hendon Laundry Ltd. [1945] KB189 was a landmark judgment
over the issue of the exclusion clause in case of negligence. It was held that in case of
negligence when the party to contract is seeking to limit the liability it must do so clearly. By
following this judgment, in Canada Steamship lines v The King [1952] AC192, the three
clarification were made and held that express mention of exclusion of liability for negligence
will exclude the defendant totally from liability.
Application:
According to common law principle the liability of the defendant will only be excluded by
the exclusion clause when it is express and in the contract of Café and Avinash, the express
mention was there on the ticket of it that there will be no liability for the personal industry out
of the food product. However, this exclusion clause was there on behind the ticket and it is
displayed and comes to knowledge of the parties to the contract only when the offer is agreed
by the other party to the contract. The condition of exclusion was not intimated prior to
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entering into contract and therefore one of the essential conditions for the valid exclusion
clause was not fulfilled on the art of Café.
Apart from this the terms which will limit the right of one party to contract to bring action
against another is also not a valid condition. The exclusion clause printed on the ticket was
regarding the no suit by the consumers even when they suffer health issues due to the
negligence of the café. Therefore on the basis of this contention as well this exclusion clause
does not permit defendant to totally wither away liability for his negligence (Lee & Tang,
2015).
The exclusion clause therefore on ticket was neither clear nor it was revealed before the
contract was entered between Avinash and Café. This also would have effect over right to sue
for reasonable claim of compensation of plaintiff. Therefore being unreasonable and unfair
term the exclusion clause cannot be relied legally by defendant as per the law of contract and
common law in the country.
Conclusion:
As per the applicable law of Competition and consumer law, any contract cannot contain
express terms and thereby exclude liability which is given under the act. If any term is
included in contract that will be void. The common law also states that any liability for
negligence has to clearly mention when it is not mentioned beforehand that it cannot be
enforced in the court. Only the legal and reasonable terms that are not against the adverse
interest of any party to contract can fully rely upon. The express condition of café is not valid
as it restricts the right to use of plaintiff. It is also not valid because it was not disclosed
before contract was entered by Avinash with Café. Café is liable for injury caused to Avinash
from the consumption of food and drink.
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Question2.
To form the contract certain terms and conditions are exchanged between two parties to the
contract. These terms and conditions can be of two types one is the express condition and
another is the implied conditions. These two types of condition have their different operation
from one another in terms of validity and enforcement. Each and every term in the contract is
important and the breach of the terms gives rise to the breach of contract as well.
Express Terms: The express mention of the terms can be either in writing or orally. When
the terms are and conditions that are agreed at the time if making contract expressly they are
known in the express terms.
Implied Terms:
There are some terms in the contract that are neither stated by the parties to the contract even
when they form the contract obligation for both or any one of the parties to the contract.
These self-attached conditions with the contract are termed as the implied terms. These terms
are so essential that the purpose of the contract will be affected adversely if they are not given
effect in the contract (Elvin, 2015).
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Terms of
contract
Express
Terms
Implied
Terms

The implied terms of the contract can be in two ways:
 Implied terms are given under statue
 And implied terms given by the court.
In implied terms under statue, some terms are attached with the contract due to the nature of
contract itself under the applicable law and sometimes these terms come in effect when the
court recognises and enforces them under the legal precedents.
Whatever has been stated in the contract is considered as the terms and both the parties to the
contract are under obligation to fulfil those obligations. When the express terms of the
contract are found by the court to be vitiating the contractor when they are against the
mandatory provisions of law. In such instances, the implied terms will override the express
terms of the contract. Another object of implied terms in the contract is to make it more
effective and making the terms and conditions of the contract to be just and fair. Implied
terms form part of Unfair Contract Terms Act 1977 and Sale of Goods Act 1979. There is
also distinction between implied terms in law and implied terms in fact (Liew, 2012).
Express terms of the contract are always enforceable and the implied terms are enforceable
only when the express terms are against the law, or when certain important term is missed
out. The implied terms are inserted by the court or under statute to make the balance of the
rights between the two parties to the contract. It is further ensured that the express terms are
not unfair and unreasonable to the interest of one party.
The express terms are always valid and they are enforceable in the contract to perform the
contract as agreed by both the parties to the contract. When any party to the contract deviates
from the expressly agreed terms same can be enforced through court. When the terms and
conditions agreed in the contract are not sufficient to perform the contractual obligation or
when the necessary terms are left then it is always implied as per the law or when the court
recognises it so. Breach of implied term if it is condition can terminate the contract and if it is
warranty then certain legal liability arises in the contract.
In this way, any contract can have implied contract and express terms both. The implied
terms in the contract are there for the protection of the interest of one of the parties to the
contract and when they are not performed the aggrieved party can ask for the enforcement of
those implied terms by approaching to the court as well. There is no legal rule as to when
express terms will override the implied terms and vice versa. It is the nature of terms and its
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value attached to the contract that gives it overriding effect over other. In this way, both the
express and implied terms differ in the essence and operation as well.
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Conclusion
For the formation of the legal contract, the applicable law has to be followed and it is to be
ensured by the parties to the prosed agreement there are all essentials of the contract in their
agreement. The absence of any one of the essential element will render the contract void.
When a valid contract is entered between the parties to the contract it is always enforceable.
In the entering into contract, both parties have to ensure terms of the agreement are
favourable to both and that they are not unfair. When in the contract certain terms are left in
that case implied terms are enforceable so that contract can be performed as agreed between
the parties to the contract. The legally entered contract will always be beneficial for both the
parties to the contract.
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Bibliography
Blackshield, T., & Huisman, R. (2016). Exemption and exegesis: Judicial interpretation of
exemption clauses in England, Australia, and India. Semiotica, 2016(209), 77-97.
Elvin, E. (2015). Good faith, or a good fake? The role of good faith in the performance of
commercial contracts.
Giancaspro, M. A. (2014). New approach to contractual variation. University of Adelaide.
Lee, F. C. J., & Tang, V. (2015). Exclusion of Liability and Unfair Contract Terms in Hong
Kong Travel Contracts: Problems and Solutions. Journal of Law, Technology and Public
Policy®, 1(3).
Liew, C. (2012). A leap of good faith in Singapore contract law. Sing. J. Legal Stud., 416.
MacMillan, C. and Stone, R. (2012). Elements of the law of contract. The University Of
London.
Marshall, B. A.(2012). Reconsidering the proper law of the contract. Melbourne Journal of
International Law, Vol 13.
McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press
(UK).
Schwenzer, I., Hachem, P., & Kee, C. (2012). Global sales and contract law. Oxford
University Press.
Sims, A. (2012). Unfair contract terms: A new dawn in Australia and New Zealand. Monash
UL Rev., 39, 739.
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