This solution describes the Australian Law for Business Assignment includes the process and problems withing the law in Australia
The present report will explain the concepts of the Australian Legal System and business ethics. In the report concepts of contract, the duties of the directors and the consumer protection law will be explained. In the report we will discuss the Scenario 1. In this report we will try to find legal solutions to the hypothetical situation given in the scenario 1.
FACTS OF THE CASE: In this case the plaintiff had purchased a fan heater from a hardware store and the store is run by a company whose CEO knowingly approves the imports of cheap quality heaters. The heater was faulty and the heater exploded with the first use which caused the heater to explode and it damaged the plaintiff’s carpet and furniture. A sign in the hardware store reads that “we accept no responsibility for faulty goods”.
- Whether there has been a breach of contract? Was the exclusion clause incorporated in the contract?
- Whether there is a breach of the director’s duties?
- Whether there has been a breach of consumer protection law?
- Whether the plaintiff has any legal remedy?
- LAW OF CONTRACT
- LAW RELATED TO DIRECTOR’S DUTY
- CONSUMER PROTECTION LAW
- LAW OF CONTRACT
The elements of the law of contract are (THE LAW HANDBOOK, 2013):
- Offer: it is a definite promise which is made by the offeror and he promises to be bound by the offer if his terms are accepted by the offeree.
- Acceptance: acceptance happens when the offeree agrees to the offer and accepts all the terms of the offer.
- Consideration: it is the price paid by one party to the other party for the promise made by the other party.
- Legal capacity: it means that the person must have a sound mind and they should be adults legally.
- Intention: it means that a contract is legally valid only when there is an intention to be legally bound by the agreement terms by the parties to the contract.
LAW RELATED TO DIRECTOR’S DUTY (PWC, 2011)
The laws related to director’s duties are given in Corporation Act 2001 (Cth). There are four most important duties of the director which they need to follow:
- Section 180 of the act says that the director needs to act with care and diligence
- Section 181 of the act says that the director must act in good faith and should have a proper purpose and they should also avoid conflicts of interest
- Section 182 of the act says that the director needs to use their position for proper purpose and not for the their own advantage or benefit
- Section 183 of the acts says that the director needs to use the information that he gained in a proper manner and not for his own advantage or benefit (PWC, 2011)
Case on director’s duty:
Australian Securities and Investments Commission v Rich and Other, (2003) (PWC, 2011)
Facts: in this case the company was put into voluntary administration in May and it went into liquidation in two months.
Issue: the issue was that whether there was a breach of director’s duty by the non executive chairman
Held: the Chairman was held to have breached the section 180 of the director’s duty because he had qualification and experience to be considered as one of the director of the company and also because he played a significant role in the company.
Law of tort
The law of tort is a civil law and the law of negligence is a part of the law of tort. The law of negligence came into existence with the issue of duty of care first being raised in the case of:
Donoghue v Stevenson (1932)
Facts: in this case the plaintiff went to a resturant and there she ordered a bottle of ginger breand and icecream and the bottle was opaque. When she had drank some of the beer and poured the beer on the ice cream a decomsed snail came out and she suffered some injury because of the sight of the snail. She sued the manufacturee of the beer for claim
Issue: whether the manufacturer were liable
Held: the claim of the plaintiff was successful and this case establised the law of negligence and also the neighbour’s test. In this case Lord Atkin held that aperson should take reasonable care so that he does not cause an injury to a person who can get affeted by the acts of the person, this establised the legal duty of care whcih a reasonable man should show in a similar situation (E-LAW RESOURCES, (n.d.)).
The director will also have a duty of care under the law of tort and he needs to see that his acts do not harm the consumer, as a company ‘director he has the legal duty to see that his acts do not cause any harm to the consumers who would get affected by his acts (LAW HANDBOOK, 2013).
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CONSUMER PROTECTION LAW (LAW HANDBOOK, 2011)
The Australian consumer Law protection law are given in schedule 2 of the competition and consumer Act 2010 (Cth) and section 54 provides a guarantee that the goods will be of acceptable quality and that includes the following:
- The goods will be fit for all the purpose for which the goods of that type are generally supplied
- The goods should acceptable in appearance and finish
- The goods must be free from defects
- The goods must be safe
- The goods must be durable
- Acceptable quality of the goods is determined in relation to:
- The nature of the goods
- Acceptable quality of the goods is determined in relation to:
- The price of the goods
- Any statement made on packaging or the labels
- Any representation made about the goods by the supplier or the manufacturer
- Other relevant circumstances relating to the supply of the goods
Action against the manufacturer or supplier
When defective goods have been provided, the consumers have the right under the Australian Consumer Law to take action against either the supplier or the retailer under section 259 or the manufacture under section 271 (LAW HANDBOOK, 2011).
The exclusion clauses are those clauses that are inserted in a contract to completely exclude or restrict the rights to remedy of the innocent party. Schedule 2 of the completion and consumer act 2010 provides that the conditions and warranties implied and the rights and remedies created by the Australian consumer law will not be excluded under section 64 A and any attempt to exclude the remedy will be void by the terms of the Act and the company will also be liable to be prosecuted under the Act (LAWHAND BOOK, 2012).
Olley v Marlborough Court Hotel (1949)
FACTS: in this case the plaintiff plaintiff was staying in a hotel and when she left the keys behind the receptionher fur coat was stolen from the room, she then asked for the cost of the coat from the hotel but the hotel authorities showed her a exclusion clause notice which was put as a notice behind a door in the bedroom, which said that “ the propritors will not hold themselves responsible for the aticles lost pr stolen unless they were handed to the manageress for the safe custody” Olley v Marlborough Court Hotel(1949).
Issue: whether the exclusion clause was in the contract?
Held: the court held that the exclusion clause was not incorporated in the contract because the contract was formed at the reception itself and the notice was in the bedroom also the exclusion case was not brought to the notice of the plaintiff therefore the exclusion case will not be held to be incorporated and the hotel will b liable for the theft of the plaintiff’s coat.
Chapelton v Barry Urban District Council, (1940)
FACTS:in this case the plaintiff went to a beach and took a chair for three hours abd got a ticket after the payment for the tickets and on the ticket the exclusion clause was mentioned which said that the council will not be held liable for any accident or damage arising from the hire of the chair. The plaintiff got injured when he used the chair as it broke down but it was held that the council does not has any liability becasue of the exclusion, and the plaintiff appealed.
Issue: whether the exclusion lcause valid and incorporated in the contract?
Held: the court of appeal held that there was a valid contract between the plaintiff and the council and the ticket was given after the contract was formed and it was merely a recipt and nothing more therefore the exclusion clause was not incorporated in the contract between the plaintiff and the council and the council was held liable and the exclusion clause was anot valid.
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In the present case the issue was whether there has been a breach of contract?
Yes there has been a breach of contract because there was a valid contract between the consumer and the hardware store and the consumer was not provided the product of good quality and the product also caused injury to the plaintiff.
The second issue was whether the exclusion clause was incorporated in the contract?
In the present scenario the exclusion clause was not incorporated in the contract because the exclusion clause was just written behind the counter and this sign was not a part of the contract between the plaintiff and the hardware store.
Whether there is a breach of the director’s duties?
Yes there has been breach of the director duties given in the corporation’s act 2001 which says that under section 180 the director has a duty of care and diligence and he breached that duty by allowing poor quality heater to be exported. Also according to the law of tort he had a duty of care towards the consumers who would be affected by his actions.
Whether there has been a breach of consumer protection law?
Yes in the present case there has been a breach of the consumer protection law because the heater was defective which exploded with the first use itself and it is in contravention of the protection provided in the section 54 which says that the goods should be safe to use and should be free from defects.
In the present scenario we have seen that there has been breach of consumer contract by the hardware store because they have provided faulty goods to the plaintiff.
There has been breach of the director’s duty given under corporations act and also there is breach of the law of tort as there was negligence on the part of the director who allowed bad quality goods as we have discussed the case law above (Australian Securities and Investments Commission v Rich and Other, (2003) ) and Donoghue v Stevenson (1932).
In this case the exclusion clause will not be valid because the exclusion clause was never incorporated in the consumer contract between the plaintiff and the hardware store as we have referred the case above Olley v Marlborough Court Hotel, (1949).
Australian Securities and Investments Commission v Rich and Other [(2003) ] (2003) 44 ACSR 341.
Chapelton v Barry Urban District Council  1 KB 532.
Donoghue v Stevenson  AC 562 House of Lords.
E-LAW RESOURCES. (n.d.). Donoghue v Stevenson  AC 562 House of Lords. [online]. [Accessed 22 october 2014]. Available from World Wide Web: <http://www.e-lawresources.co.uk/Donoghue-v-Stevenson.php>
LAW HANDBOOK. 2011. Defective Goods. [online]. [Accessed 22 october 2014]. Available from World Wide Web: <http://www.lawhandbook.sa.gov.au/ch10s02s08.php>
LAW HANDBOOK. 2013. Negligence. [online]. [Accessed 22 october 2014]. Available from World Wide Web: <http://www.lawhandbook.sa.gov.au/ch01s05.php>
LAWHAND BOOK. 2012. Exclusion Clauses and the Australian Consumer Law. [online]. [Accessed 22 october 2014]. Available from World Wide Web: <http://www.lawhandbook.sa.gov.au/ch10s02s06s01.php>
Olley v Marlborough Court Hotel  1 KB 532.
PWC. 2011. A guide to directors’ duties and responsibilities for non-listed public companies and proprietary companies in Australia. [online]. [Accessed 4 september 2014]. Available from World Wide Web: <http://www.pwc.com.au/legal/assets/GuideDirectors_Apr08.pdf>
THE LAW HANDBOOK. 2013. Elements of a contract. [online]. [Accessed 21 october 2014]. Available from World Wide Web: <http://www.lawhandbook.org.au/handbook/ch12s01s02.php>