BLO5540: Business and Company Law Assignment - Victoria University

This assignment solution addresses two key questions related to Australian Business and Company Law. The first question explores the formation of contracts, focusing on express and implied terms, and their characteristics. It delves into the essential elements of a valid contract, including offer and acceptance, intention to create legal relations, and consideration. The second question examines a scenario involving a self-service restaurant and a customer, analysing the formation of a contract and the validity of an exclusion clause printed on a receipt. The solution applies relevant legal principles, such as those derived from the Australian Contract Law and the Australian Consumer Law, to determine the legal outcomes. The analysis includes case law examples like Thornton v Shoe Lane Parking and Thompson v LMS Railway to support arguments and conclusions. The assignment concludes that a valid commercial contract was formed and that the exclusion clause was invalid.

Business and company law

Contents
Answer to question 1..................................................................................................................2
Answer to question 2..................................................................................................................3
Part (a)....................................................................................................................................3
Issue...................................................................................................................................3
Rule....................................................................................................................................3
Application........................................................................................................................4
Conclusion.........................................................................................................................5
Part (b)....................................................................................................................................5
Issue...................................................................................................................................5
Rule....................................................................................................................................5
Application........................................................................................................................6
Conclusion.........................................................................................................................6
Bibliography...............................................................................................................................7

Answer 1
The Australian Contract Law is the prime law which prescribes the manner of the formation
of the contract between the parties and the administration of the same. A few essential
conditions have been prescribed for the formation of a valid contract between the parties, one
of which is the terms and conditions of the contract. A contractual term is referred to as any
provision that describes the obligation of the parties and forms the part of the contract. It is
imperative to note that the violation of the said terms can result into enforcement of the legal
actions by the parties. The terms of the contract can take various forms such as the same can
either be in the written form or be verbally expressed, or be simply implied owing to the
nature of the contract1. The various characteristics of the different types of the terms and the
manner of operation has been provided as follows.
The terms on which an agreement is reached by the parties, as mentioned specifically in the
written form or expressed orally are referred to as the implied terms of the contract. These are
signed by the parties to provide their assent thereon. The vitality of the express terms is
mentioned in the case law of Thornton v Shoe Lane Parking2. In addition, once the terms are
expressed in the contract, the test for the operation of the same is the examination of the
intention of the contracting parties by the usage of the test of objectivity. This means, the
terms are understood in a manner, a reasonable person would do so. Thus, when after the
express terms are mentioned in writing, the oral terms would not be included as part of the
contract unless the same are in accordance with the express terms or the central idea of the
contract.
In opposition to this, the implied terms are those that are not stated specifically as part of the
contract. However, by virtue of customs, pronouncements of the courts or the customs, these
tend to become the fairly obvious inclusions in the contract, as held in the case of Con-Stan
Industries of Australia Pty Ltd v Norwich Winterthur (Australia) Ltd3. The significant feature
of the implied terms of the contract is that the same are descriptive of the intentions of the
parties to the contract. Whenever, the express terms of the contracts are insufficient, the
implied terms of the contract come into play. Hence, these are rightly stated to be
complimentary to the express terms. The basis for the establishment or the operation of the
implied terms is the business efficacy test. By the business efficacy test, it is meant that for
1 Paul, Latimer, Australian Business Law 2016 (CCH Australia Limited, 2016)
2 Thornton v Shoe Lane Parking [1971] 2 QB 163
3 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Australia) Ltd (1986) 160 CLR 226

any terms to be qualified as the implied terms, the same must enable the functioning of the
business for which the contract was entered in first place, as held in the case of Codelfa
Construction Pty Ltd v State Rail Authority of NSW4. For instance in context of the
commercial contracts of supplying goods or services, the safety and provision of quality
goods are stated to be implied conditions, by their very nature of vitality. Thus, even if there
is no express conditions in a commercial contract regarding the safety of the consumers there
is an implied condition to the same.
Hence, as per the discussions carried above, it can be stated that while the express conditions
operate based on the will of the parties, the implied condition is one which is necessitated as
per the objective of the contract.
Answer 2
Part (a)
Issue
The issue in the given situation is to analyse the conditions owing to which the contract
between Kaffee Shoppe and Caitlyn was formed. Thus, the necessary conditions of the
formation of the contract is to be examined.
Rule
The rules in the given case scenario belong to the Australian Contract Law, as described
follows. The contract law states that that a contract denotes an agreement that can be enforced
in the courts. Hence, certain essential conditions must be fulfilled which would make an
agreement be regarded as a valid contract. The said essential conditions are highlighted
comprehensively as follows.
The first essential condition to the formation of a valid contract is the existence of offer and
acceptance. An offer denotes a willingness to create a contract and it is important that the
same must be communicated by the party. The said communication can be either orally,
written or through the conduct. An offer can be made to a specific person or to a group of
persons. Thus, when the advertisement is comprised of all the terms, there is a sufficiency
regarding certainty in the terms and the same can be accepted without further negotiations,
the advertisements are considered as an offer itself. In rest of the cases, these are regarded as
an invitation to treat. For an agreement to be formed, there must be acceptance to the offer
4 Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

which also must be communicated. In order for an acceptance to be valid, all the key terms of
the offer must be accepted and if the acceptance is with a variation it is a counter offer. The
offer when accepted becomes an agreement.
The second key element of the contract formation is that there must be an intention to create a
legal relationship by the parties. This means that the parties agree to be bound by certain
rights and obligations of the agreement that are enforceable. The vitality of the intention to
create legal relations has been stated in numerous of case laws including that of Ermogenous
v Greek Orthodox Community of SA Inc.5
The next key element for the contract formation is the presence of consideration. It is the
requirement of the common law (subject to limited exceptions), that an agreement would to
be stated to be binding, if the same is supported by the consideration. The consideration
denotes a payment of some kind, for the receipt of the promise. The said payment may not
necessary be in the monetary form and can be anything as stipulated by the promisor but
should be legal. The principle too has been widely pronounced in various case laws including
that of Biotechnology Australia Pty Ltd v Pace6.
The next chief element for the contract creation is that the terms of the contract must be
certain. The terms can however be express or implied and give rise to the certain obligations
on the part of the contracting parties. In order to avoid confusion later on, the provision is
established for the terms to be certain and not vague.
Apart from the above mentioned key elements, it must be noted that the parties to must
possess the legal capacity to enter into the contract. In addition, the object of the contract
must not be illegal. If these conditions are not present, the contract would be void.
Application
The application of the above rules on the case scenario has been stated as follows. In the
given scenario, the restaurant Kaffee Shoppe has set up a self-service facility, and thus makes
an offer to the public. The said advertisement is offer because of the certainty of terms,
consideration, and the obligations of the parties. The act of the customers using the machine,
pressing “OK”, on an item leads to the acceptance of an offer at the price mentioned which is
a consideration. Thus, in the given case, Caitlyn makes a total payment of $ 20.00 for the
order, which is a valid consideration. The same is paid by the customer in exchange of the
5 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
6 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130

provision of the required order. Further, there can be stated that there is an intention of the
legal relationship between the parties.
Conclusion
As discussed in the previous parts, it can be concluded that there is a presence of the essential
elements of the contract creation. Hence, a commercial contract is formed between the
restaurant Kaffee Shoppe and Caitlyn.
Part (b)
Issue
The issue number two in the given case study is to evaluate whether the liability in relation to
Caitlyn’s mishap be avoided by the restaurant, with the aid of the reliance of the exclusion
clause printed on the backside of the receipt.
Rule
The rules with regard to the exclusion clause in the Australian Contract law as well as the
Australian Common Law are mentioned hereunder. One of the popular practices in the
industry by which the liability of a contracting party is avoided or is reduced is by mentioning
the exclusion clause in the terms of the contract. The exclusion clause denotes a condition,
which limits the liability to an extent and thus the obligation as mentioned in the contract
become conditional. The said condition is often used as an unfair means, to avoid liability.
Thus, the said exclusion clauses are valid part of the contracts only when they are legally
viable.
The significant condition of the exclusion clause is the necessity of the communication of the
same while forming the contracts. The principle has been pronounced in a number of case
laws including that of Thompson v LMS Railway7. It was stated by the courts of the law the
parties must notify the exclusion clause to the other party while forming the contracts.
In case of the signed agreements, the legality of the exclusion clause comes with the
communication as well as the signature. In contrast to this in case of the unsigned
agreements, there must be a reasonable sufficiency for the parties to believe that such a clause
can be part of the contract. The sufficiency is owing to the object of the contract. In addition,
there must be reasonable awareness of the outcomes on part of the parties of the possible
outcomes if such a clause is include in the contracts. Thus, the exclusion clause is not valid, if
there was no awareness of the outcomes.
7 Thompson v LMS Railway [1930] 1 KB 41

As per the provisions of the Australian Consumer Law, the statutory guarantees have been
prescribed in the section 64 of the act. This states certain safe measures that are mandatory to
be taken for the customers. Accordingly, if the exclusion clause were not on the lines of the
prescribed statutory guarantees, the former would be invalid.
Application
The application of the consumer law and the common law principles is presented as follows.
In the given case, an exclusion clause has been printed on the backside of the ticket which has
been received through the machine. The exclusion clause states that restaurant would not be
liable for the injuries caused to the consumers in context of the food or the drinks served to
them. It is important to note here that there is no sufficiency of the reasons on the part of the
consumers of the foods to believe that such an exclusion clause may be present. This is
because it is an implied condition in a commercial contract of sell of food items that the same
must be fit to consume. In addition, the clause is printed on the backside of the ticket which is
hard to be noticed by the customers.
Further, a limitation is created on the operation of the statutory guarantee of qualitative
goods, as against the provisions of the Australian Consumer Law principles. This makes the
said exclusion clause be invalid both in the context of the common law principles as well as
the consumer law principles.
Conclusion
The discussions conducted in the previous parts involving the of the common law and the
Australian Consumer Law for the exclusion clause lead to the conclusion that the exclusion
clause as given in the case scenario is invalid, Accordingly, reliance cannot be made on the
said exclusion clause to get away with the liability by the Kaffee Shoppe towards Caitlyn.

Bibliography
Books
Latimer, P., Australian Business Law 2016 (CCH Australia Limited, 2016)
Case Laws
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149
CLR 337
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Australia) Ltd (1986) 160
CLR 226
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Thompson v LMS Railway [1930] 1 KB 41
Thornton v Shoe Lane Parking [1971] 2 QB 163