2017 RMIT University Business and Corporations Law Research Assignment

This report is a comprehensive analysis of business and corporations law, addressing two key legal issues through case studies. The first issue examines the application of contract law principles, specifically misrepresentation and promissory estoppel, in a scenario involving a lease agreement. It analyzes the potential for a party to rescind a contract due to false statements and the application of promissory estoppel to prevent a party from going back on a promise. The second issue focuses on unconscionability in contract formation, exploring a situation where one party exploits the weaker position of another. It examines the elements of unconscionability, including the dominance of one party and the disadvantage of the other, and the remedies available to the disadvantaged party. The report provides a detailed application of legal principles to the facts of the case, supported by relevant case law and legal concepts, and concludes with a clear determination of the outcomes for each issue.

rmit university

ASSESSMENT 2 2
Contents
Question 1........................................................................................................................3
Issue............................................................................................................................. 3
Rule.............................................................................................................................. 3
Application.................................................................................................................... 4
Conclusion....................................................................................................................5
Question 2........................................................................................................................6
Issue............................................................................................................................. 6
Rule.............................................................................................................................. 6
Application.................................................................................................................... 7
Conclusion....................................................................................................................8
Question 3........................................................................................................................9
Issue............................................................................................................................. 9
Rule.............................................................................................................................. 9
Application.................................................................................................................. 13
Conclusion..................................................................................................................13
Bibliography................................................................................................................... 14
A. Articles/ Books/ Reports.......................................................................................14
B. Cases................................................................................................................... 14
C. Legislations..........................................................................................................15
D. Others.................................................................................................................. 15

ASSESSMENT 2 3
Question 1
Issue
The key issue in this case relates to the success of Ringo in recovering the
amount of $6,000 as rent in arrear from Elena.
Rule
Under the contract law, there are certain vitiating factors which make the contract
void or voidable at the option of the aggrieved party. One of such vitiating factors is
misrepresentation. Under misrepresentation, one of the parties is induced into formation
of the contract by making a false statement of fact. Upon successfully establishing a
case of misrepresentation, the aggrieved party can get the contract rescinded1. Smith v
Land and House Property Corp2 was a case where a hotel was bought by the claimant
and the seller described a tenant as “the most desirable”. The statement was made by
the claimant where he had clear knowledge that the rent of this tenant was unpaid and
the tenant could be declared as bankrupt at any moment. It was held by the court that a
case of misrepresentation was present here as the statement was one of fact and not of
opinion. This was because the seller held a position where he knew these facts.
The difference between a statement of fact and statement of opinion can be
clarified with the case of Bisset v Wilkinson3. The respondent had made a statement in
this regarding the possibility of the land holding 2,000 sheep. Making reliance on the
statement made, claimant purchased the land and upon the estimate being proven
wrong, a claim for misrepresentation was made before the court of law. It was held by
the court that the statement made here was a statement of opinion and not of fact. Due
to this reason, the claim of misrepresentation failed. Similarly, in Car & Universal Credit
v Caldwell4, due to the fraudulent misrepresentation being established before the court
of law, the contract was permitted to be rescinded by Caldwell.
1 Linda Mulcahy, Contract Law in Perspective (Routledge, 5th ed, 2008)
2 (1884) 28 Ch D 7
3 [1927] AC 177
4 [1964] 2 WLR 600

ASSESSMENT 2 4
Amongst the different major concepts in contract law, is the concept of
promissory estoppel. Under this concept, the individual who made a promise is stopped
from making a u-turn on such promise, particularly where the second party made
reliance over the promise made. So, once a promise is made, a person is estopped
from going back on this promise, particularly when the same is not supported by
consideration5. The first requirement to establish a case of promissory estoppel is to
show that a contract was in existence. Secondly, the obligation covered under this
contract is modified. Thirdly, the promise was clear and unambiguous, which led to a
change in the position of the parties. Lastly, if the promisor is allowed to go back, it
would be unfair for the party who relied upon the made promise6.
In the High Trees case7, the promissory estoppel as a concept was brought
forward through the obiter statement made by Lord Denning. The case revolved around
the rent of block of flats given to the defendant by the plaintiff for ground rent of £2,500.
Due to the defendant facing hardships as a result of the Second World War, it was
decided between the parties to bring down the rent by half. Upon the war being over,
the plaintiff asked for the original rent to be reinstated. The court agreed with the point
raised by the plaintiff. Lord Denning did not stop the ruling here and made the obiter
statement where he stated that had the plaintiff asked for the payment of the reduced
rent, for the war period, they would have not succeeded. The rationale behind this was
the reliance of the defendant on the promise which changed their positions, and
ultimately, the concept of promissory estoppel came into being8.
Application
The facts of the case highlight both the issues mentioned in the Rules segment.
The case study clearly shows that Ringo had approached Elena in order to see her
interest in the prime location store being offered by him. For inducing her into entering
the lease for his store, Ringo told Elena that a number of brands had signed up long
term leases and that high end fashion shops would be opened up along with the
5 Brian A. Blum, Contracts: Examples & Explanations (Aspen Publishers Online, 4th ed, 2007)
6 Jeffrey A. Helewitz, Basic Contract Law for Paralegals (Aspen Publishers Online, 5th ed, 2007)
7 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130
8 Jill Poole, Casebook on Contract Law (Oxford University Press, 13th ed, 2016)

ASSESSMENT 2 5
cinema. The last statement which induced Elena to the contract entering was that Ringo
would be doing the fitouts for Elena which led to the formation of a five year lease at the
price of $3,000 per week. It later came to Elena’s knowledge that the claims of Ringo
and the statements made by him were false. Neither the brands had signed any lease
nor was the cinema constructed yet. This allows a case of misrepresentation to be
made by Elena against Ringo. In this regard, Elena can quote the case of Smith v Land
and House Property Corp, where she could show that the statement made by Ringo
was false and he was in a position to know the truth. This would clearly show that Ringo
is liable for misrepresentation. Ringo can make an attempt and claim defense on the
basis of Bisset v Wilkinson; however, this case would not prove to be much of help as
the statement of fact was lied upon by Ringo and not of opinion. This would allow Elena
to get the contract, i.e., the lease agreement rescinded on the basis of Car & Universal
Credit v Caldwell.
The second fault of Ringo in this case lies in the doctrine of promissory estoppel.
As soon as Ringo came to know that Elena was contemplating to terminate the lease,
he made a claim for the reduced rent. However, here a promise was made on the basis
of the preexisting contract, which changed the parties’ position. It was clear that the rent
had to be decreased which was the change in position. If Ringo is allowed to claim the
reduced rent, it would be unfair for Elena, especially because Ringo is already given the
lease to new businesses for half the rates offered to Elena. On the basis of the obiter
statement given in the High Trees case, Ringo would be estopped from going back on
the promise which was made.
Conclusion
The discussion carried on above makes it very clear that Ringo would not be
successful in recovering the amount of $6,000 as rent in arrear from Elena due to
promissory estoppel. Further, his misrepresentation would allow Elena to get the
contract rescinded.

ASSESSMENT 2 6
Question 2
Issue
The key issue in this case revolves around the obligation of Albert to pay up the
promised amount to George. Further, the possibility of Albert claiming remedies
pursuant to contract law is also an issue of this case.
Rule
Under any contract, two or more parties are involved, who come together and
promise each other certain terms, where usually one party offers the consideration and
the other offers the fulfillment of certain task. It is crucial that a contract has certain key
elements, without with the contract cannot be formed. The elements include the
elements of agreement, which is offer and acceptance, and the other elements like
consideration, capacity, legality, intention and genuine consent9.
Genuine consent shows that the parties, who are taking part in the contract
formation, are doing it out of their free will and have not been forced in any manner.
There are five different factors which can lead to an absence of genuine consent for a
contract and included in these five factors are unconscionability, duress,
misrepresentation, undue influence, and mistake10.
In such cases where it can be established that a party had been put in a position
where a special disadvantage was caused to them due to their position being weaker in
comparison to the dominating position of the other party, a case of unconscionability
can be made by the party who was at such disadvantageous position owing to their
illness, financial condition, ignorance, impaired facilities or inexperience. In order to
make a successful claim of unconscionability, there is a need to establish that the party
in dominating position had the clear knowledge about the disability of the weaker
party11. Further, it also needs to be shown that the dominating party knew that there was
an opportunity present which would allow them to take advantage in contract formation
9 Neil Andrews, Contract Law (Cambridge University Press, 2nd ed, 2015)
10 Paul Latimer, Australian Business Law 2012 (CCH Australia Limited, 31st ed, 2012)
11 Steven Emanuel, Contracts (Aspen Publishers.., 8th ed, 2006)

ASSESSMENT 2 7
with such weaker party. So, unconscionability allows the weaker party is taken unfair
advantage of, by the dominating party. Upon a case of unconscionability being
successfully presented in the court, the weaker party has the option of getting the
contract being brought to an end12.
A leading example of unconscionability was established in Commercial Bank of
Australia v Amadio13. The plaintiff had guaranteed the business debts of the elderly
Italian migrant couple’s son. During the execution of the mortgage, the previous
financial position of the son was known to the bank manager, along with the fact that the
defendant was not a proper English speaker. Even then, the bank never informed the
defendant about their son’s position and the entire situation was also not explained to
them. Further, the bank chose to ignore to tell the defendant to seek independent
advice. All these reasons led to the court holding a successful case of unconscionability
based the conduct of the plaintiff14.
There are different manners, in which any contract can be discharged, and
amongst these is the contract being terminated15. In such a case where the promise
made under the contract is not fulfilled by one of the contracting parties, the non-
breaching party gets the option of claiming damages from the breaching party for not
fulfilling their side of the promise, made under the contract. The damages can be in form
of monetary compensation or equitable remedies16.
Application
The facts of the case highlight the presence of elements of unconscionability in
George’s conduct. This is clear from the fact that George was fully aware of the
knowledge of English of Albert was very poor and that he lacked the knowledge
regarding which particular plan was best suitable for him. The evidence of this can be
12 Ewan McKendrick, Contract Law (Pearson Education Limited, 11th ed, 2015)
13 (1983) 151 CLR 447; [1983] HCA 14
14 Australian Contract Law, Commercial Bank of Australia v Amadio (2013)
<https://www.australiancontractlaw.com/cases/amadio.html>
15 Richard Stone and James Devenney, Text, Cases and Materials on Contract Law (Routledge, 3rd ed,
2014)
16 James Marson and Katy Ferris, Business Law Concentrate: Law Revision and Study Guide (Oxford
University Press, 3rd ed, 2016)

ASSESSMENT 2 8
found in the communication which took place between the two, where Albert had
informed George that he should tell Albert the best plan which suited him, and that his
requirements were for something small and cheap. The relationship which was present
between the two showed the dominance of George on Albert. And taking advantage of
this position, George suggested Albert the plan which was against his requirements,
and was the most expensive one. Applying the case of Commercial Bank of Australia v
Amadio, it can be clearly established that George was involved in unconscionability due
to his conduct of taking advantage of the weaker position of Albert. Due to the presence
of unconscionability, Albert can get the contract rescinded and not pay a single penny to
George.
In such a situation where the weaker party, i.e., Albert refuses to fulfill his part of
the contractual obligation, George has the option of making a claim of breach of
contract by Albert due to his refusal for paying the consideration sum. Though, this
would not be a successful claim, due to the presence of unconscionability. Further,
Albert could always show that George was in breach of contract as the work done by
him lacked desired quality. This would lead to the claims of George failing and Albert
not being required to pay the consideration value.
Albert has the option of applying for remedies where he can claim monetary
damages for his loss, along with for the payment made to the consultancy fee. In
addition to this, he can claim the cost of renting, at $300 per week for 12 weeks, i.e.,
$360,000. In total, he can claim $510,000 as damages; this amount includes the sum
paid for fixing the slab and for the fee of consultancy firm. Albert would not be required
to pay $250,000, which is the amount claimed by George owing to the unconscionability
on his part.
Conclusion
The discussion carried on above makes it very clear that George’s conduct
depicted unconscionability. As a result of this, Albert can apply for rescission of contract
and also claim monetary compensation for the breach of contract on part of George for
providing subpar quality work.

ASSESSMENT 2 9
Question 3
Issue
The key issue in this case revolves around the most suitable business structure
for Harry based on his requirements covered in the case study.
Rule
There are four key business forms which can be used in Australia for running the
business and these are partnership, company, trust and sole trader. Each of these
business structures has its own advantages and disadvantages and the final choice of
business structure for a particular individual depends upon their requirements and these
advantages and disadvantages17.
Partnership, as stated earlier, is one of the forms of business structures in the
nation. In a partnership form of business structure, two or more people come together
with a common objective of carrying on the operations of the business and sharing the
profits amongst them, in an equal manner. Each of the state in Australia has its
separate Partnership Act and based on the jurisdiction in which the business is carried
on, such act is applied. For instance, for the state of South Australia, the Partnership
Act 189118 is applicable and for the state of Western Australia, the Partnership Act
189519 applies20. In comparison to the company form of business structure, the starting
and operating of partnership is considerably inexpensive. In this form of business
structure, the partners share the profits and losses equally, unless a specific percentage
is covered under the partnership agreement. Even though creating a partnership deed
is not obligatory for partnerships in the nation, it is preferable to draw one so that the
ambiguities of future can be clarified with the help of such deed. The control over
partnership of each partner, their sharing of profits and their capital contributions are
17 Andy Gibson and Douglas Fraser, Business Law (Pearson Higher Education AU, 2013)
18 Partnership Act 1891 (SA)
19 Partnership Act 1895 (WA)
20 Department of Industry, Innovation and Science, Partnership (2017)
<https://www.business.gov.au/Info/Plan-and-Start/Start-your-business/Business-structure/Business-
structures-and-types/Partnership>

ASSESSMENT 2 10
some of the details covered under the partnership deed21. The advantages and
disadvantages of a partnership form of business structure have been effectively
summarized in the table below.
Advantages Disadvantages
Due to the low starting up cost, the
business can be established with ease.
The most disadvantageous reason which
often makes people apprehensive about
partnership form of business structure is
the unlimited liability which is to be borne
by the partners of the partnership firm. The
partners are held jointly and severally
liable for the debts of the company. And
for the purpose of discharging the debts of
the company, the personal assets of the
partner can be attached.
With a high number of partners, the skill
pool is widened, where each partner
brings a unique skill to the partnership.
In case of a disagreement or friction
between the parties, which remains
unresolved, the situation can arise where
the partnership is to be dissolved.
In comparison to sole trader, a higher
capital is brought to the business.
Each partner is considered as the agent of
the partnership and for the actions of one
of the partners, the remaining partners can
be held liable.
Each partner has its own borrowing With the death of the partners, the
21 Australian Taxation Office, Partnership (2017) <https://www.ato.gov.au/Business/Starting-your-own-
business/Before-you-get-started/Choosing-your-business-structure/Partnership/>

ASSESSMENT 2 11
capacity, which increases the overall
borrowing capacity for the firm.
partnership firm comes to an end.
Usually the employees who have high
caliber are made partners, thus making
them a part of the business.
Where a partner is added or removed from
the partnership, there is a need to revalue
the partnership, which involves additional
costs for the partnership firm.
Unlike sole trader, the income and loss
can be split between the partners, thus
resulting in tax savings.
The structure of the firm can be changed
with the decision of the partners.
The external regulations on partnership
are limited.
The affairs of partnership firm remain
private22.
The other option which is available for the individual wants to operate their
business in the nation is the company form of business structure. A company has been
given the status of being a separate entity from the ones who run its operation. Though,
the incorporation of a company proves to be a costly affair and is coupled with different
reporting compliances, which is not present in the partnership form of business
structure. In Australia, the Corporations Act, 200123 is applicable on all the companies,
irrespective of their jurisdictional and they are regulated by the ASIC, which stands for
22 Tasmanian Government, Partnership – advantages and disadvantages (2017)
<https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/partnership-
advantages-and-disadvantages>
23 Corporations Act, 2001 (Cth)

ASSESSMENT 2 12
Australian Securities and Investments Commission24. On behalf of the shareholders of
the company, the company is run by the directors and the officers. There are two kinds
of companies, and these are public and proprietary limited companies. The public
companies can freely raise capital from general public, but the proprietary companies
cannot do the same and can issue shares only to their acquaintances25. The
advantages and disadvantages of a company form of business structure have been
effectively summarized in the table below.
Advantages Disadvantages
Unlike partnership form of business
structure, the liability of the shareholders is
limited in this form of business structure.
Each and every affair of a company is
costly, be it formation, or winding up.
By simply selling the shares of the
company, the ownership of one can be
transferred to the other.
Different compliances have to be adhered
strictly.
The shareholders can also be the
employees of the company.
The affairs of a company are a public
matter.
Without having to go through the hassle of
applying different partnership act in each
jurisdiction, the companies can freely
continue their trade across the nation.
The distributable profit is taxable.
The taxation rates for companies are more
favorable.
In case of failure of fulfilling the director
duties, the directors can be made liable
24 Australian Taxation Office, Company (2017) < https://www.ato.gov.au/Business/Starting-your-own-
business/Before-you-get-started/Choosing-your-business-structure/Company/>
25 Julie Cassidy, Concise Corporations Law (The Federation Press, 5th ed, 2006)

ASSESSMENT 2 13
personally.
A higher capital base, along with wider skill
base is present26.
Application
The facts of the case highlight the need of Harry to raise capital and to have
control over the business and keeping the right kind of employees. These requirements
prove that the partnership is the right kind of business structure for Harry. This is
because the capital can be contributed by new partners and he would have control over
the company, which would not be possible in company form of business, as the word of
the shareholders is the final decision for companies. Agreed that a higher capital can be
raised by forming a public company, but this would mean losing the control over the
business. And due to harry having no acquaintances or family, from whom he can raise
capital under proprietary company, it is advised to Harry to go for partnership form of
business structure.
Conclusion
The discussion carried on above makes it very clear that Harry should go forward
with a partnership form of business structure as it best fits his requirements.
26 Tasmanian Government, Company – advantages and disadvantages (2017)
<https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/proprietary-
company-advantages-and-disadvantages>

ASSESSMENT 2 14
Bibliography
A. Articles/ Books/ Reports
Andrews N, Contract Law (Cambridge University Press, 2nd ed, 2015)
Blum BA, Contracts: Examples & Explanations (Aspen Publishers Online, 4th ed, 2007)
Cassidy J, Concise Corporations Law (The Federation Press, 5th ed, 2006)
Emanuel S, Contracts (Aspen Publishers.., 8th ed, 2006)
Gibson A, and Fraser D, Business Law (Pearson Higher Education AU, 2013)
Helewitz JA, Basic Contract Law for Paralegals (Aspen Publishers Online, 5th ed, 2007)
Latimer P, Australian Business Law 2012 (CCH Australia Limited, 31st ed, 2012)
Marson J, and Ferris K, Business Law Concentrate: Law Revision and Study Guide
(Oxford University Press, 3rd ed, 2016)
McKendrick E, Contract Law (Pearson Education Limited, 11th ed, 2015)
Mulcahy L, Contract Law in Perspective (Routledge, 5th ed, 2008)
Poole J, Casebook on Contract Law (Oxford University Press, 13th ed, 2016)
Stone R, and Devenney J, Text, Cases and Materials on Contract Law (Routledge, 3rd
ed, 2014)
B. Cases
Bisset v Wilkinson [1927] AC 177
Car & Universal Credit v Caldwell [1964] 2 WLR 600
Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130
Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14

ASSESSMENT 2 15
Smith v Land and House Property Corp (1884) 28 Ch D 7
C. Legislations
Corporations Act, 2001 (Cth)
Partnership Act 1891 (SA)
Partnership Act 1895 (WA)
D. Others
Australian Contract Law, Commercial Bank of Australia v Amadio (2013)
<https://www.australiancontractlaw.com/cases/amadio.html>
Australian Taxation Office, Company (2017) <https://www.ato.gov.au/Business/Starting-
your-own-business/Before-you-get-started/Choosing-your-business-structure/
Company/>
Australian Taxation Office, Partnership (2017)
<https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/
Choosing-your-business-structure/Partnership/>
Department of Industry, Innovation and Science, Partnership (2017)
<https://www.business.gov.au/Info/Plan-and-Start/Start-your-business/Business-
structure/Business-structures-and-types/Partnership>
Tasmanian Government, Company – advantages and disadvantages (2017)
<https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-
intro/proprietary-company-advantages-and-disadvantages>
Tasmanian Government, Partnership – advantages and disadvantages (2017)
<https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-
intro/partnership-advantages-and-disadvantages>