Business Law Assignment Examining Legal Problems from Real Life Client’s Scenario

Question

Task: Context:
This business law assignment allows students to solve practical legal problems from real life client’s scenario and provide advice to a client on the likely outcome.

Instructions:
There are five case studies you are required to critically analyse. With respect to each case study:
• Identify the legal issue(s) arising from the facts of the case study
• Identify the appropriate legal rules that requires discussion in the case study
• Apply the law to the facts of the case study
• Reach a conclusion/ give practical advice to your client.

Your analysis should refer to appropriate cases and statutes and be referenced using the APA referencing system.

Question 1
Jeff owns a business which makes and sells a well-known brand of peach brandy (“the Business”). Jeff holds a business name, and a trademark for a logo, associated with the Business’s brand of peach brandy. The Business sources fruit from local producers. The Business is operated on land which is also owned by Jeff.

Jeff decides it is time to sell the Business and is introduced to Tina who is interested in buying the Business. Jeff and Tina enter into negotiations and agree on a deal. Both Jeff and Tina sign the following document which Jeff prepared.

Heads of Agreement between Jeff and Tina

1. Jeff agrees to sell, and Tina agrees to buy, Jeff’s peach brandy business and the land it is on.
2. Purchase Price: $2.5 million.
3. All existing supplier agreements to be transferred to Tina.
4. All fixtures and fittings, as inspected and agreed, are included in sale.
5. All employees to be transferred as per solicitor prepared agreement.
6. Parties to negotiate transfer of trademark and business name at a future date for a separately determined amount.
7. This agreement is subject to the preparation of a formal contract of sale based on these terms acceptable to the duly appointed solicitors for Jeff and Tina.
Jeff arranges for his solicitor to prepare a formal contract for sale and then sends the completed contract to Tina. When Tina receives the contract, she calls Jeff and says:

“Jeff, I have changed my mind. I don’t want to buy your business anymore”.
Jeff replies:

“ You have got to be joking Tina, it is way too late to change your mind, you have already signed the Heads of Agreement. You are legally bound to buy the business. Make this easy and buy it as we agreed for I will have to sue.”

Required:
Part A
You are Tina’s solicitor. Using the IRAC legal problem solving process give your conclusion on whether Tina is legally bound to buy the Business as a result of signing the Heads of Agreement. Part B What would be your conclusion if Tina had included in the Heads of Agreement a term stating: This agreement is subject to Tina obtaining suitable finance.

Question 2
Savalot Shopping Centre Ltd (“SSC”) recently opened a new store in your city. SSC is a membership warehouse club: - this means customers must become a member before they can shop at SSC. As a new business in the area, SSC was keen to attract as many new members as possible so it started an advertising campaign.

The advertising campaign included a catalogue with the following wording at the top of the front page in large bold font: Do you want to save $$$$ you know you do!!!!!!

Huge savings for all new members
Get a HUGE 25% off all products if you join right now! Today in fact! 30 todays only! Memberships will go fast, first in best dressed. Be late be disappointed – memberships are limited

At the very bottom of the advertisement, there is additional wording in very small print which states:

“The 25% price reduction for new members only applies to the first $150.00 of items purchased. Fruit and vegetables excluded.” Dess saw the advertisement flyer and picked it up. Dess thought he could save money by buying bulk supplies for his large family, however, he basically stopped reading at 25% discount and didn’t notice the fine print. Dess didn’t want to miss out on the limited memberships, so he went to SSC the next day and paid a $10 monthly membership fee, signed some terms and conditions which he briefly glanced at, got his membership card and started shopping. Dess filled five trollies with bulk household items worth about $1200.00.

At the checkout, Dess is told that the 25% discount only applies to the first $100.00 of items purchased. Dess complained and was referred to Miss Strict, a “customer care representative”. Miss Strict showed Dess the fine print in the advertisement. Dess got very angry and decided not to buy anything. Dess then asked Miss Strict to cancel his membership. However, Miss Strict reminded Dess he signed the terms and conditions which included the following term:

1. The Customer is not permitted to cancel the membership before the expiry of 12 months unless the customer pays a cancellation fee of $150.00.

Dess attempted to negotiate with Miss Strict arguing it was just ridiculous to have such small printing and this was an entirely unacceptable to charge $150 to cancel a $10 membership However, Miss Strict told Dess:

“This is your fault, you should have read the advertisement more carefully, and you indicated you read the terms and conditions by ticking this box and signing the terms and conditions. I think it is unreasonable you think you have grounds to complain.” Dess stalks out of SSC and decided to lodge a complaint with the Australian Competition and Consumer Commission (“the ACCC”).

Required
Part A
Using the IRAC legal problem solving process give your conclusion on whether the ACCC have any grounds to start legal proceedings against “SSC”? Please limit your response to a consideration of the general protections under the Australian Consumer Law.

Part B
Using the IRAC legal problem solving process give your conclusion on whether the ACCC have any grounds to start legal proceedings against “SSC” if Dess had purchased food for use in his café?

Question 3
Phil is managing director of LightsBright Pty Ltd. Phil has accepted a large order for electrical fittings from CheepCheep Pty Ltd on behalf of LightsBright.

The order has been delivered to CheepCheep as per the agreed terms, however CheepCheep have not paid their $75 000 invoice. CheepCheep is in serious financial difficulty and this was well known or suspected across the industry. Consequently, at the time the order was made, CheepCheep was known generally as a bad credit risk in the industry. Phil was aware of this, however he is a good friend of Robert, the managing director of CheepCheep. Phil decided to provide the order in any event. CheepCheep has now been placed into liquidation and has still not paid the debt owed to LightsBright Pty Ltd.

Required
Using the IRAC legal problem solving process give your conclusion on whether:

(a) Phil, the managing director of LightsBright Pty Ltd be held personally liable for the unpaid debt, and if so why?

(b) Could Robert, the managing director of CheepCheep Pty Ltd be held personally liable for the unpaid debt, and if so why?

(c) Will the ‘business judgment rule’ be relevant to either Phil or Robert in these circumstances?

Question 4
Francis collects music related merchandise, in particular she is a big fan of Kiss (American glamrock band) and Status Quo (English boogie band) merchandise. Francis appoints Rick as her agent and instructs him to purchase three specific Kiss related items from Allan, another collector of Kiss merchandise. Francis gives Rick a limit of $25,000 to spend, which Rick promptly deposits in his own personal bank account to “keep it safe” until it is needed.

Francis also instructs Rick to keep the purchase of the three items confidential. Rick is very pleased about his appointment as Francis’s agent and tells three of his closest friends on the proviso the friends do not share any information with anyone. However, two of these friends work in the music industry and immediately tell their employers. Rick approaches Allan and introduces himself as Francis’s agent. Following negotiations it is agreed Allan will sell the three Kiss items to Francis for $32,000. When Francis is informed of the contract, Francis flatly refuses to pay and says:

“Rick never had the authority to make any contracts involving this amount of money. I simply will not pay this amount of money for those three items.” Allan states the contract stands, wants to proceed with the sale and demands payment in 7 days or he will start legal proceedings for breach of contract.

When Rick was inspecting the items, he noticed Allan also had 3 original Status Quo albums which Francis has always wanted for her collection. Rick also facilitates an agreement where Allan will sell the albums to Francis for $45,000.

Required
Part A
Using the IRAC legal problem solving process give your conclusion on whether:

(a) Allan can enforce the contract for the three Kiss items with Francis.
(b) Francis is bound to go ahead with the contract to purchase the Status Quo albums from Allan, and the consequences for Rick if Francis is not bound to the purchase.

Part B
Describe the ways in which Rick is in breach of his common law duties as an agent, and any consequences of such breaches.

Question 5
Jenny has recently begun running her own successful small business, called “Dazzling Dogs”. This is a day care centre and boutique for dogs providing day care, grooming treatment, food, and designer clothes and accessories. In growing her business, Jenny has used her creative talents to produce new ideas and new products. Jenny has developed the following items: 1. A logo/brand using the phrase “Dazzling Dogs!” which she has placed on all her products.

2. A computer software program teaching dog training techniques.
3. A revolutionary electronic dog collar which translates the barking of a dog into talking so that the owner can respond appropriately.

With regard to each separate item, advise Jenny:
a) What type of intellectual property protection should Jenny obtain to protect the items and how would she obtain that protection?
b) How long would the intellectual property protection last?
c) What conduct would amount to infringement of the protection?
d) What remedies would be sought upon infringement?

Answer

Answer 1
Issue
As per the case scenario provided for this business law assignment, the following issues are required to be addressed:

• Whether Tina is legally bound to buy the business, after signing the heads of agreement?
• What would have been Tina’s position if the heads of agreement contained the clause “the agreement is subject to Tina obtaining suitable finance”?

Rule
In accordance to the principles of contract laws prevailing in Australia, for the purpose of formation of any contract existence of three basic elements are required. These elements involve formation of a valid agreement, secondly, parties possessing desired contractual intention to form the same and thirdly presence of sufficient form of consideration. In order to form an agreement, placing of an offer by one party to another and subsequently acceptance of the same by the latter is essential("Australian Contract Law | Association of Corporate Counsel (ACC)", 2020). Offer is basically considered to be an expression or willingness on the part of an offeror expressing his intention of getting bound by the same on account of it getting accepted. Acceptance on the other hand is deemed to be a final assent or an unqualified expression of accepting the terms that are been offered to an offeree (Eisenberg, 2018). The acceptance made on the part of an offeree is further required to be communicated to the offeroreither through conduct or by expressly conveying the same. Similar decision was been rendered in the case of Henthorn vs. Fraser [1892]. The types of term that can be included within a contractual agreement are two that is conditions and warranties. Conditions included within a contract can be further divided into two forms that are condition precedent and condition subsequent which are also referred to as contingent contracts("Australian Contract Law | Association of Corporate Counsel (ACC)", 2020). On occasion of non fulfillment of any of the stated terms within a contractual agreement the parties are prohibited from acting in conformity to the same. Decision rendered in the case of Associated Newspapers Ltd Vs. Bancks [1951] defined the term condition as a term in absence of which parties would not have assented to a contractual agreement.

Application
Here, Jeff offered his business of peach brandy along with the land in which it operated to Tina at the price of $2.5 million to which the latter should her interested and thereby entered into a negotiation. Based on the same Jeff did created heads of agreement including all the necessary particulars and conditions subject to formation of a formal contract and acceptance of the same by the solicitor appointed by Tina (Eldridge, 2019). Although Tina signed the heads agreement but the same was subject to subsequent condition of acceptance by Tina’s solicitor and that the terms and conditions relating to transfer of trademark and business was also open for negotiation on a future date.

Conclusion
Part A
Henceforth it can be stated that the heads agreement signed by the parties was subject to the above mentioned conditions thereby providing Tina with the scope of changing her mind. Therefore it can be concluded that Tina won’t be held liable for signing the agreement.

Part B
Apart from this, if Tina would have included within the HOA a condition stating that the agreement is subject to obtaining suitable finance by her then on occasion of non fulfillment of the same the contract would have stand rescinded. The said term amounts to be a condition precedent that requires prior fulfillment before the contract gets completely performed on the part of the parties.

Answer 2
Issue
The issues that are required to be assessed in the give scenario include:
• Whether ACCC has any grounds to start legal proceedings against SSC based on the complaint forwarded by Dess?
• Whether ACCC can institute legal proceedings against SSC if Dess did purchased food for using in his café?

Rule
As per Sec. 21 of the Competition and Consumer Act, 2010, an individual or organisation while undertaking their trade or commercial transactions in regard to the supply of any goods or services are completely prohibited from engaging into conducts that are unconscionable in nature (Bianchi, 2018). In assessing any such conduct the court shall take into consideration factors mentioned in Sec.21(2) of the CCA, 2010 which includes adjudging the bargaining positions of both supplier and consumer. In the case of Blomleyvs. Ryan [1956] the court defined an act to be unconscionable where one party to the transaction takes unfair advantage of his position in comparison to the other (Tokeley, 2017). Sec. 23 of the CCA, 2010 states about inclusion of any unfair term into the consumer contract thereby making the contract void ab initio (Brody & Temple, 2016). Sec. 24 (1) states that any term which gives rise to a significant imbalance between the rights and obligations of the parties to a consumer contract to be unfair. In the case of Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] it was being held by the court that entering into standard form of contracts by consumers limits the scope of fair negotiations thereby leading to position of the consumers getting prejudiced in any consumer contract.

Application
Here SSC in respect to the included terms and conditions relating to getting their membership for shopping at their centre does prohibit any registered member from cancelling their membership before the expiry of 12 months. On occasion of breaching the same the customer is required to pay cancellation charges of $150.00. Although it was Dess’s responsibility of going through all the terms and conditions properly before accepting the same, thereby making him liable to certain extent for the wrong committed.

Conclusion
Part A
Hence it can be stated that SSC did took unfair advantage of their bargaining position thereby alluring customers to get membership at their stores along with inclusion of terms and conditions that are not reasonable within the membership agreement. Therefore ACCC on the ground of unconscionable conduct and using of unfair terms within the consumer contract can start legal proceedings against SSC.

Part B
Whereas on the other hand if Dess would had purchased food for using in his café then ACCC would not have any other grounds to start proceedings against SSC as the advertisement flayer clearly mentioned about the conditions on which the 25% was available.

Answer 3
Issue
• Whether Phil being the managing director at LightsBright Pty Ltd be personally held liable to pay the unpaid debt?
• Whether on behalf of CheepCheep Pty Ltd, Robert being the MD be held liable for nonpayment of the due order?

Rule
Under Part 2D of the Corporations Act, 2001, general duties and obligations that are required to be exercised on the part of directors are mentioned. Sec. 180 states about exercising of proper care and diligence on the part of directors or managers and thereby is required to take decisions in good faith (Boardman &Raftos, 2016). Sec. 182 of the concerned Act imposes responsibility on the directors to not use their position in gaining an unfair advantage personally and secondly, should not use their position that might be detrimental on the part of the corporation. Sec. 588G of the CA, 2001 also imposes duty on the part of a director or manager of a company to prevent entering into any business transaction when the company is under the stage of insolvency (Buscombe, 2019).

Application
In this case Phil while accepting the order put forth by the manager at CheepCheep Pty Ltd was aware of the serious financial difficulty that was been experienced by the latter’s company. Despite of knowing the market credibility of CheepCheep Pty Ltd did contracted with them thereby violating the prime responsibilities U/S. 180 on the part of director by Phil. While on the other hand Robert being the director at CheepCheep Pty Ltd did not acted reasonably and placed the order at LightsBright Pty Ltd irrespective of the fact that his own company is facing financial difficulties. Here Robert did act in breach of Sec. 588 G leading to insolvent trading.

Conclusion
(a) In this case on behalf of the LightsBright Pty Ltd, Phil can be held personally liable to pay off the debt due to non payment from CheepCheep Pty Ltd as he did not exercised proper care and diligence being a director.
(b) On behalf of CheepCheep Pty Ltd, the BOD can held Robert liable for engaging into a transaction that was detrimental on the part of the company, therefore can be held personally liable for the unpaid debt.
(c) In regard to the application of business judgment rule under the CA, 2001 a director is required to showcase that the judgment was being made in good faith and proper purpose. Secondly, the director himself reasonably believed that the subject matter of the judgment was appropriate and in best interest of the company. Based on the case scenario it can be stated that Phil and Robert both acted recklessly being the directors at their respective companies therefore can’t take recourse to the business judgment rule.

Answer 4
Issue
• Whether Francis is legally bound to pay for contractual negotiation entered between Rick and Allan?
• Whether Francis is liable to carry forward the contract for sales of Status Quo albums entered upon between Allan and Rick?

Rule
As per the common law principles of agency it can be stated that creation of an agency relationship occurs with authorization made by party to another by devolvement of certain rights and obligations (DeMott, 2018). After the formation of agency relationship between a principal and that of an agent certain specific duties and ambit of performance on the part of the agent are been established. Duties of agent:

Duty of care and skill
First duty imposed upon an agent is to act with reasonable care and thereby showcase the desired form of skills in performing his responsibilities.

Promote principal’s best interest
While undertaking or acting on behalf of the principal in negotiating a transaction, an agent is entrusted with the duty to promote the best interest of the principal and thereby act within the purview of authority granted (Leow, 2019). In the case of Keppel vs. Wheeler, the agent failed to gain the best offer in regard to principal’s business thereby making him liable for the loss incurred by the latter.

Duty of confidentiality
In relation to establishment of a fiduciary relationship, an agent shall not discuss any confidential information relating to the principal or any other information that has been entrusted upon him by the principal. On the other hand a principal owes the duty of undertaking and performing the contracts negotiated by agents on his behalf with third parties. Although on occasions where the agent acted in breach of the duty of obedience then the principal cannot be held liable for any loss arising from the same.

Application
Here Francis appointed Rick as her agent and thereby entrusted him with $25,000 of money in relation to purchasing three specific Kiss related items from Allan. But ignoring the total amount of money rendered to him, Rick entered into negotiation with Allan for a price more than $25,000 that is $32,000 thereby acting outside the purview of agency relationship. In addition to this Rick has already entered into an agreement with Allan in regard to the purchase of 3 status quo album for $45,000 by not informing Francis about the same. Moreover despite of Francis alarming Rick to keep the information about any of these transactions confidential he did told them to three of his friends thereby breaching his duties under the agency relationship.

Conclusion
Part A
(a) Allan cannot enforce the contract against Francis in relation to the purchase of the Kiss items because the agent Rick acted in excess of his authority thereby leading to breach of the duty of obedience.
(b) In respect of the second agreement entered between Allan and Rick for the purchase of Status Quo album, Francis shall not be held liable as the same was not been authorized on the part of Principal. Rick acted outside the course and authority of the agency relationship.

Part B
Rick did not act in conformity to his duty of confidentiality, secondly he did not exercise his duty of care and skill in promoting principal’s interest and that there was breach of the duty of obedience on his part against his agency relationship. Therefore Rick shall be held liable for reimbursement of the negotiated amount of money to Allan for Kiss materials and is also personally liable to perform the contractual agreement for the purchase of Status Quo albums for $45,000.

Answer5
a) As per the Intellectual property Law in Australia, the logo/brand created by Jenny using the phrase Dazzling Dogs for her business can be protected under the IP rights of trademark.
The Computer software program created by Jenny that teaches dog training techniques can be protected under the aspect of Copyright protection of the IP rights and, that of revolutionary electronic dog collar can be further accorded protection of the IP rights of Patents (Stewart et al., 2018).
b) Copyright generally lasts for 70 years even after the death of the author and during this period reproducing or adapting the same would require owner’s permission. A standard patent protection is offered for the longest period of 20 years and an innovative patent protects a unique invention for the period of 8 years (Byrne, 2018). In regard to trademarks it can be stated that a protection of 10 years is guaranteed after which renewal is required.
c) Infringement of the IP rights occurs when any other party or individual utilizes one’s registered trademark, patent or copyright materials or inventions for their personal benefit without the permission of the owner’s of the same, then that shall be considered to be an act of infringement.
d) On account of infringement of IP rights of an individual, the judiciary has the option to redress the damages suffered by the concerned owner of an IP right by taking into consideration the extent of prejudice that occurred to the interest of the right holder and, thereby awarding necessary compensation for the same("Protecting your IP | IP Australia", 2020).Secondly, account of profits are also been made available to the right holder based on the profits earned by the infringer. Thirdly, an order of final injunction can also be achieved by the IP right holder in order to prevent undertaking of the concerned act of infringement in future.

References
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