Analysis of Negligence, Contract Validity, and Termination

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Business and Corporation Law
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Table of Contents
Introduction................................................................................................................................3
Question 1..................................................................................................................................4
Conclusion..............................................................................................................................7
Question 2..................................................................................................................................8
Memorandum.........................................................................................................................8
Introduction........................................................................................................................8
Question 3................................................................................................................................11
References................................................................................................................................15
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Introduction
The following research assignments emphasis on three major legal issues arising out of
Negligence and terms and validity of the contract. The first question deals with the duty of
care one needs to take and the consequences of negligence. It also discusses the defences
available to the defendant. The second question is the memorandum of advice when there is
an offer to the public at large. The question resolves the issue of enforceability of such
contracts. The third question discusses the circumstances under which a contract can be
terminated and remedies available to the person against whom breach is committed.
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Question 1
Issue 1: Duty of Care1
 Issue: Colin owed the duty of care for the work done by his junior assistant.
 Rules: As defined in Division 2 of Part 2 of Law of Negligence Limitation of
Liability Act 20082, the person in the position is liable if has not taken reasonable care
when the risk was foreseeable and significant. It is the liability of such person to take
precautions in order to avoid such risk. In the landmark judgment of "PALSGRAFF
V. LONG ISLAND RAILROAD3”, the apex court discussed two issues, i.e. (a)
determination of the duty of care owed and (b) to whom the duty of care is owed?
 Application to Facts: In the present case Colin owed the duty to check the
calculations made by his assistant. He owes the liability towards Annie and Ben as the
damage was foreseeable.
 Conclusion: Hence, Colin is liable for the negligence done on his part by ignoring the
duty of care imputed on him.
Issue 2: Standard of Care
 Issue: Colin’s duty to take reasonable care and diligence before appointing his
assistant and assess the calculations made by the junior.
 Rules: As per the rules, a person needs to act as a person with reasonable discretion.
It is the duty of the person in a position to take standard care in order to avoid or to
reduce the risk. The person in the position must have the knowledge for removing
such risk.
 Application to Facts: In the current scenario the duty of Colin was to act with
diligence and assess the calculations made by his assistant. Also, he must have
warned Annie and Ben in order to reduce the risk of paying a larger amount of tax
paid by them.
1 Rhee, R.J., 2012. The Tort Foundation of Duty of Care and Business Judgment. Notre Dame L. Rev., 88,
p.1139.
2 Law of Negligence Limitation of Liability Act 2008, s 11and s12
3 Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99
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 Conclusion: If Colin had acted like a person of reasonable discretion he would have
been able to lower the risk of overpaying of the amount of tax paid by Annie and Ben.
Issue 3: Causation
 Issue: Whether or not the liability must be imposed on Colin?
 Rules: According to Division 3 of Part 2 of Law of Negligence and Limitation of
Liability Act 20084, the negligence that has made harm comprises of two elements,
i.e. factual causation and scope of liability. The principle laid down in the act is
while deciding the liability of the negligent party all relevant facts and circumstances
of the5 the incident must be considered. The burden of proof to prove any fact
significant to the issue of causation is on the plaintiff. In the landmark case of
“PALSGRAFF V. LONG ISLAND RAILROAD6”, the effect of cause and action
was discussed. In deciding the case the court considered the “but for” test for
determination of the liability of the defendant. The court decided that the negligent
party is only liable only if the harm is foreseen.
 Application to Facts: In order to determine whether or not Colin is liable for the
liability imposed on him all factors surrounding the case must be considered. The
question arises is what would Annie and Ben have done if Colin would not have
been negligent on his part? They had acted as per the advice of Colin and hence
ended up paying more tax than they were liable to pay.
 Conclusion: In the current case Annie and Ben have acted as per the advice of Colin
and Colin have negligent on his part, as a result, they have paid more tax than they
were liable to pay. And the negligence done on the part of Colin is not justified
because the harm was foreseeable. But the burden of proving the facts relevant to the
case is on Annie and Ben.
Issue 4: Remoteness
 Issue: To examine the remoteness of the negligence
4 Law of Negligence Limitation of Liability Act 2008, s 11and s12
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6 Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99
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 Rules: Section 5D (1) b of the Civil Liability Act, 20027 decides the scope of the liability
which usually depends on ascertaining the remoteness of the damages. The feasibility test
was first done in the year 1961 in the case of "Tankship (UK) Ltd v Morts Dock and
Engineering Co Ltd (1961)8". For determination of the degree of negligence, it is
important to know the remoteness of the damages i.e. whether the harm occurred was
foreseeable or not.
 Application to Facts: In the present case, Colin did not take proper caution while
appointing his junior assistant and also he did not rechecked the calculations made by
him. Therefore, it is deemed that he is liable for the harm suffered by Annie and Ben.
 Conclusion: Colin is liable for not taking proper caution while appointing the junior
assistant, therefore, it is foreseeable that he is liable for the negligence.
7 Civil Liability Act 2002, s 5D (1) b
8 Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd (1961)
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Issue 5: Defences
The burden of proof is on Annie and Ben that they were unaware of the risk though following
are the defenses available with Colin9:
 He can claim for voluntary non-fit injuria, in a manner that Annie and Ben have
voluntarily acted as per the advice of Colin
 Another defense is of Contributory Negligence. Colin can claim that it was also the
duty to cross-check the calculations and the tax they are required to pay
 Colin may argue that Annie and Ben were fully aware of the risk involved and have
voluntarily accepted it 10
Conclusion
After the critical evaluation of the presented case, it has been ascertained that Colin is liable
for the excess amount paid by Annie and Ben. He is also liable for not taking proper care
while appointing his junior assistant. Colin is liable because there was negligence on his part
as he did not assess the calculations made by his assistant despite the fact that his assistant
was unskilled.
9 Velasco, J., 2014. A Defense of the Corporate Law Duty of Care. J. Corp. L., 40, p.647.
10 Stickley, A.P., 2016. Australian torts law. LexisNexis Butterworths.
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Question 2
Memorandum
To: Sandy Paddington
From: Junior Lawyer
Date:
File:
Subject: Memorandum of Advice to Sandy Paddington [LEX:12577]
The memorandum contains the information and piece of advice regarding your issue of prize
money of the competition. In the memo includes the information regarding the issue, whether
or not you are liable to claim the prize money. As per the information you have shared with
us, an advertisement issued by Alpine Go-Karts ("APK"), one who shall complete a lap in 45
seconds shall win the prize money of $5000, you have completed the lap in 43 seconds but
the APK has denied the payment of $5000. APK has argued that there was a misprint in the
newspaper and the prize money is $500. The issue which arises here is whether there is a
valid formation of the contract and whether the client is liable to claim $5000 or should
accept the prize money of $500.
Contract: A contract is an agreement between parties who gives their volunteer consent to
the terms of the contract with the intention to create a legally binding relationship. The terms
of the contract must be certain and clear in order to achieve the legal objective for which the
contract has been formed.
Issue 1: Formation of Valid Contract
Rule: In order to form a valid contract as per the Contract Law, the following are the
essential constituents11:
 Agreement between two or more parties
 Lawful consideration
 Parties must be competent to form a legal relationship
 The intention of the parties must be to enter into a legal relationship
11 Graw, S., 2012. An introduction to the law of contract. Thomson Reuters.
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 The terms of the contract must be clear, certain and binding
Application to Facts: In the present case the advertisement issued by APK is a unilateral
contract. Though as per law a unilateral contract is no contract but in the landmark case of
Carlill v Carbolic Smoke Ball Company [1892]12 Court of Appeal (England and Wales) held
that an advertisement in the newspaper is not a unilateral contract, the offer made is strictly
restricted to those who abide by the terms and conditions mentioned in the advertisement. In
the case of Sandy Paddington, the rules of the mentioned case apply, viz.
A. The advertisement is not for the World, it was an offer for the people who agree to the
terms and conditions advertised.
B. Vital constituents like offer and acceptance which form a valid contract have been
constituted in the present case
C. Mere participating in the competition was an adequate consideration
D. You have participated in the contract which shows that he had a legal intention to
enter into a contract
E. The price money declared by APK in the public newspaper shows that there was an
intention to create a legal relationship
Conclusion: The facts of the case shows that there all the essential ingredients that are
needed to form a contract is present in the case hence there has been the formation of a valid
contract.
Issue 2: Whether You are liable to enforce payment of the amount advertised in the
newspaper
Rule: As per Australian Contract law there cannot be a unilateral contract but a unilateral
contract is an implied bilateral contract. The case of Carllil v Carbolic Smoke Ball Co has
major significance while deciding such a case. According to the judgment held in the
mentioned case the offer which is made to the public at large is a valid offer, hence forms a
valid contract13.
Application to Facts: In the present issue, the offer is not to the world and restricted to the
people who shall complete the lap under 45 seconds. One has to comply with the conditions
12 Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
13 Marshall, B.A., 2012. Reconsidering the proper law of the contract. Melb. J. Int'l L., 13, p.505.
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of the offer made. Hence it is a valid contract. You have fulfilled the conditions of the
contract hence liable for the prize money of $5000 and the argument from APK is of no
relevance. As there is a valid formation of a contract, APK is liable to pay the prize as
mentioned in the newspaper. If there has been a genuine mistake on the part of newspaper
publications, then APK can claim the amount from the publications14.
Conclusion: After ascertaining the facts of the case it has been concluded that APK is liable
to pay prize money i.e. $5000 and not $500 to you. The counsel advises you that a cause of
action arises if the APK denies you to pay the amount as issued in the newspaper, then you
can bring the civil suit against them in the Court of Law as he is legally liable to claim the
prize money.
14 Cartwright, J., 2016. Contract law: An introduction to the English law of contract for the civil lawyer.
Bloomsbury Publishing.
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Question 3
Issue 1: Whether or not Mike is liable for the recovery of the amount from Northgate?
Rule: As per ACL (Australian Contract Law) in order to form a valid contract there must be
an offer and acceptance for a valid consideration. In general, the remedy for the breach of the
terms of the contract is payment of damages. While deciding the compensation to be paid to
the plaintiff, the Court considers the following:
 Normal that would usually result in similar situations
 Any special loss suffered by the plaintiff
The party at the breach shall still be liable for payment of the losses even if the defendant has
warned the plaintiff for the possibility of occurrence of the loss. But it is also the
responsibility of the plaintiff to minimize his loss15.
Application to Facts: In the present incident the contract between Mike Williams and
Northgate Organic Syrups and Sodas ("Northgate") is a valid contract and is enforceable as
per the rules under ACL. Mike entered into the contract with the intention to form a legal
business relationship with Northgate. Following are the major clauses that were agreed by the
parties:
1. On 31st July 2018 Northgate will supply and install Iso25 Post-Mix System
("Equipment") at Mike's premises
2. As per clause 2 of the contract, the total price to be paid for supply and installation is
$50,000. The amount is to pay within 30 days of signing the contract
3. Clause 5 is related to the acknowledgement by the purchaser for any extraordinary
cost suffered by Northgate.
4. Under clause 9 Northgate assures for the application of reasonable care in the
installation of the equipment and warranties for the same
5. Northgate promises to supply soft-drink syrups for the period of 12 months under
clause 10
6. And clause 12 binds the purchaser to not to buy soft drinks or post-mix syrups from
any other supplier during the period of agreement i.e. 12 months
As per clause 5, Northgate charged Mike with the payment of $16,000 for the unanticipated
installation cost, which is a valid claim by Northgate and Mike is liable to pay such amount.
15 Graw, S., 2012. An introduction to the law of contract. Thomson Reuters
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Mike being bind by clause 12 of the contract pays the amount unwillingly. Later, Mike also
enters into the contract for the amount of $35,000 for repairing the equipment as it was not
installed in accordance with state regulations. The objective of the contract was to supply
organic post-mix syrups, later it has been found that post-mix syrups were not organic.
Hence, there is a breach on the part of Northgate, therefore, they are liable to pay Mike the
compensation. According to the rules of ACL, the plaintiff should try to minimize his loss by
looking for other suppliers. But in the current case, Mike could not minimize the risk because
he was not allowed to purchase the post-mix from other suppliers because of the 12th clause
of the contract. Also, Northgate is liable to pay compensation under clause 9 because as per
clause 9 it was Northgate's responsibility to install the equipment with reasonable care and
they failed to do so as the equipment was not installed properly according to the state
regulations. Therefore, Mike can claim compensation from Northgate.
Conclusion: Mike can claim the amount he paid to the contractor i.e. $35000 for rectifying
the installation of the equipment. Besides this Mike can claim the whole amount which is
paid to Northgate i.e. $50,000 also he can recover the amount of $16,000 he paid for the
extraordinary charges claimed by Northgate. In addition, Mike can claim $4,500 paid for the
order. The total amount Mike can claim from Northgate is $105,500 and the court shall
decide the amount of damage which is to be decided by the court for damage caused to his
reputation.
Issue 2: Whether or not Mike can terminate the contract?
Rule: As per the provisions of ACL, a contract can be terminated in the following
scenarios16:
 When one of the parties breaches the terms of the contract
 When one of the parties has misrepresented the facts of the contract by which other
party has been deceived
 When the parties have committed a mistake
 When parties mutually agree to terminate the contract
 When the contract has become impossible to perform
Application to Facts: By application of the rules stated under the provisions of ACL, a
contract can be terminated by the breach of terms of the contract. The breach could be an
anticipatory breach or repudiator breach. Here, in this case, the promise was to deliver
16 Poole, J., 2014. Casebook on contract law. Oxford University Press, USA
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