Business Law: Analyzing Contract Termination and Financial Liability

This case study delves into two distinct legal issues within a business law context. The first issue examines whether Kent Institute Australia (KIA) could terminate Professor Chris Berlin's employment contract due to unforeseen circumstances, specifically focusing on the doctrine of frustration of contract. It analyzes the applicability of this doctrine, referencing the landmark case of Taylor v Caldwell, and concludes that KIA could terminate the contract without liability for damages due to the unforeseen accident. The second issue investigates whether Repairer Pty Ltd is liable for KIA's financial losses resulting from delays in oven repairs. It distinguishes between the liability for the second oven, damaged by a third-party carrier, and the third oven, delayed due to Repairer Pty Ltd's internal worker strike. Applying principles from Hedley Byrne & Co Ltd v Heller & Partners Ltd, the study concludes that Repairer Pty Ltd is liable for the losses associated with the undelivered third oven, as the strike was a foreseeable internal issue, while the third-party carrier is responsible for the damage to the second oven. Desklib offers comprehensive resources for students, including similar solved assignments and past papers.

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

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Table of Contents
Question 1........................................................................................................................................2
Issue.............................................................................................................................................2
Law..............................................................................................................................................2
Application..................................................................................................................................3
Conclusion...................................................................................................................................4
Question 2........................................................................................................................................5
Issue.............................................................................................................................................5
Law..............................................................................................................................................5
Application..................................................................................................................................6
Conclusion...................................................................................................................................7
References........................................................................................................................................8

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Question 1
Issue
The issue is to determine whether Kent Institute Australia (KIA) could terminate the
contract of employment of Professor Chris Berlin.
Law
Frustration of Contract is one of the vitiating factor that leads to the exhaustion of a
contract for the performance of the contract goes beyond the control of the parties to the contract
(Fried 2015). Uncertain events or negative incidents that are not within the capacity of the parties
to prevent would lead to the termination or exhaustion of the contract (Lawhandbook.sa.gov.au
2019). However, it occurs under limited situations when it becomes impossible to ascertain the
uncertainty of the agreement by the parties that leads to termination of a contract. The parties to a
contract that has been discharge of frustration cannot be liable responsible for such discharge as
the cause of such discharge could not be foreseen by either of the parties. Neither of the parties
should be held responsible for the discharge or termination of the contract due to frustration as it
was beyond their capacity to prevent it from happening. Although it is evident from landmark
cases that the courts have not been considerate towards the party who was liable for the
exhaustion due to frustration of the terms of the contract. The court, would however, consider the
fact that the party responsible for such discharge had no scope to foresee or anticipate the
uncertain event that would result in the discharge of the contract by way of frustration (Stone and
Devenney 2017).

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The landmark case of Taylor v Caldwell (1863) 3 B & S 826 was the pioneer that formed
the principle of discharge by frustration. In this case, the contract was discharged due to the
presence of strict liability on the part of the parties, which was unknown when the contract was
formed. The performance of the parties would have an effect on the performance of the contract
and would decide whether it would be discharged by frustration (Cartwright 2016).
Application
Professor Berlin was offered a post of Vice-Chancellor and Chief Executive by the Kent
Institute Australia (KIA) and was asked to join the office from 1 January 2019. The agreement
between the parties were signed on 1 August 2018 and the term of her service was settled at 3
years from the date of joining along with her annual remuneration. The contract of her
employment is the evidence that the parties had an intention to form a binding contract that could
be enforced in case of legal dispute. The presence of the essential elements to make a contract
valid, that is, an offer, an acceptance, consensus between the parties and an agreed amount of
consideration, makes the legal relationship between the parties strong and enforceable (Poole
2014). Therefore, this would give the court the scope to evaluate the validity of the contract
while enforcing it for the reason of discharge by frustration. The contract between the parties was
breached when Professor Berlin met with an accident and as per her doctor’s advice, she was not
being able to commence with the job before 25 April 2019. It can be deduced that there was no
scope for her to anticipate the forthcoming danger that would make her the breaching party.
Therefore, in this case, the contract would be discharged by frustration for the uncertainty was so
remote that it could not be foreseen. However, Professor Berlin could not be held liable for
paying damages to KIA for breaching the contract for it was discharged by frustration.

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Conclusion
Therefore, Kent Institute Australia (KIA) could terminate the contract of employment of
Professor Chris Berlin.

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Question 2
Issue
The issue is to determine whether Repairer Pty Ltd is liable for the financial loss of KIA.
It is also to be ascertained whether Repairer Pty Ltd would be liable for paying damages to KIA.
Law
When a party who is in contact with another for delivering goods within a scheduled
time, fails to do so, it amounts to a breach of contract for it failed to adhere to the pre-agreed
terms of an agreement (Lawhandbook.sa.gov.au 2019). In this situation the party who has
breached the contract would be held liable for compensating the party who has sustained loss,
either for physical injury, pure economic loss or damage to property. The court aims to provide
damages or compensation to the aggrieved party for he has suffered a loss by the negligent or
wrongful act of another person. It is vital that the parties to the contract must perform their duties
and responsibilities in accordance to the terms of the contract or else the purpose for forming the
contract would be defeated. Nevertheless, sometimes the wrongful act of a third party my even
add to breach of contract for the act of such party becomes significant for the performance of the
contract. It is just unreasonable for aggrieved party to claim for damages when he substance
economic laws for the negligent a wrongful act of another. However the defendant has the scope
to present several defences when he is held liable for the loss of the plaintiff. The defendant may
cite that there has been a contribution to the negligence buy a third party who had been assigned
a share of responsibility pertaining to the contract. Under such circumstances, the third party who
was responsible for the negligent act that resulted to the breach of contract would be held liable
for such breach and also would be held liable to pay damages (Jacobi and Weiss 2013).

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Prior to the case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 the
courts were not much considerate towards entertaining Pure Economic Loss sustained by the
aggrieved parties (Parisi, Palmer and Bussani 2007). The courts followed the principle of
floodgate or unlimited liability when it came to awarding compensation for pure economic loss
for it was the general notion that pure economic loss could not be evaluated in terms of money
for they are much more beyond financial loss. It was also believed that entertaining pure
economic loss would give rise to increased number of litigations (Rizzo 1982). However in the
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, it was held by the court that
damages could be awarded to the aggrieved party only if it could be proved that the defendant
had the scope to foresee the uncertainty or irregularity that would hamper or breach the contract.
The uncertainty that would breach the contract should not be so remote that it was not possible to
foresee it. Therefore when the claimant proves that the defendant had the scope and means to
prevent the breach, the court awards damages for pure economic loss.
Application
KIA had contracted with Repairer Pty Ltd for them to repair three ovens of KIA as they
had to host a course for 1000 students at a cost of $1000 per student. Repairer Pty Ltd delivered
the first oven without any hassle and within the stipulated time. They authorised a third party
carrier to deliver the second oven to KIA, which broke during transit. Therefore it can be said
that be liability of carrying the burden of loss belongs to the third party pertaining to the second
oven, for it is them who negligently handle the oven and damaged while delivering to KIA. As
far as the third oven is concerned, the Repairer Proprietary Limited would be held responsible for
not arranging for the delivery of the oven due to their worker’s strike which is an internal issue

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of their company. The management of the company had enough scope to anticipate that there
was an issue in their organisation that could lead to inconvenience for their clients. Therefore it
can be said that the company had the chance to foresee the issue in its own company and take
precautionary steps according to it. This inconvenience from the third party and Repairer
proprietary Limited cost Kent institute Australia not only a pure economic loss, but also it
insured their Goodwill as an institution.
In this situation, Repairer proprietary Limited would be held liable for not delivering the
third oven due to its internal issues with its workers, which it could have foresee, as it was not
too remote to anticipate. However Repairer proprietary Limited would not be held liable for the
second oven for it was the responsibility of the third party carrier to deliver it to KIA. Thus, the
court would held the third party responsible for the loss sustained by KIA pertaining to the
second oven. Repairer proprietary Limited would be held liable for compensating KIA in context
to their pure economic loss for Repairer proprietary Limited failed to deliver the second oven on
time due to the worker’s strike which was not so remote that it could not have been foreseen.
Conclusion
Therefore, Repairer Pty Ltd would be held liable for the financial loss of KIA and it
would be made to pay compensation for not delivering the third oven.

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References
Cartwright, J., 2016. Contract law: An introduction to the English law of contract for the civil
lawyer. Bloomsbury Publishing.
Fried, C., 2015. Contract as promise: A theory of contractual obligation. Oxford University
Press, USA.
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
Jacobi, O. and Weiss, A., 2013. The effect of time on default remedies for breach of
contract. International Review of Law and Economics, 35, pp.13-25.
Lawhandbook.sa.gov.au. (2019). Discharge by frustration. [online] Available at:
https://lawhandbook.sa.gov.au/ch10s02s13s03.php [Accessed 23 Jan. 2019].
Parisi, F., Palmer, V.V. and Bussani, M., 2007. The comparative law and economics of pure
economic loss. International Review of Law and Economics, 27(1), pp.29-48.
Poole, J., 2014. Casebook on contract law. Oxford University Press, USA.
Rizzo, M.J., 1982. A theory of economic loss in the law of torts. The Journal of Legal
Studies, 11(2), pp.281-310.
Stone, R. and Devenney, J., 2017. The modern law of contract. Routledge.

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Taylor v Caldwell (1863) 3 B & S 82