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Enterprise Law: Example Answers Using the IRAC: Issue(s), Rule(s), Application, & Conclusion Table of Contents Module 2: Business entities2 Problem Solving Question (from week 5)2 Advise Alberto of his potential rights and liabilities.2 Example answer – Business entities2 Issue2 Rule2 Application3 Conclusion3 Module 3: Contracts4 Problem Solving Question (from week 8)4 Advise Yoyo whether Leo’s is entitled to the remedies he has outlined.4 Example answer – Contracts4 Issue4 Rule4 Application5 Conclusion5 Module 4: Negligence6 Problem Solving Question (from previous exam – worth 7 ½ marks)6 Advise Jane whether she is entitled to a claim against Kangaroo Council.6 Example answer – Negligence6 Issue (1 mark)6 Rule (3 marks)6 Application (3 marks)6 Conclusion (½ mark)6 Module 5: The Australian Consumer Law7 Problem Solving Question (from previous exam – 7 ½ marks)7 Advise Bob7 Example answer – Australian Consumer Law7 Issue (1 mark)7 Rule (3 marks)7 Application (3 marks):8 Conclusion (½ mark):8 Module 2: Business entities Problem Solving Question (from week 5) In 2015 Sebastian started operating a pool cleaning business as a sole trader under the registered business name ‘Diamond Pool Cleaning’. At first, he completed all of the jobs himself, however, as the business grew, he hired Alberto to assist, paying him $30/hour and providing the necessary pool cleaning equipment. In November 2016, Sebastian decided he needed an injection of capital to invest in a second van, buy a third set of equipment and to hire a third person so that the business could expand. He approached Alberto and asked if he would be interested in investing in the business. On 10 November 2016 Alberto agreed to contribute $15,000.00 in exchange for a 25% share of profits. He also agreed that he will now only receive $10/hour as an allowance to cover his costs. On 1 December 2016, Sebastian enters into a contract with Speedy Motors to purchase a new van for $20,000.00. He is only required to pay a deposit of $5,000.00 and is given car finance by Speedy Finance for the remaining amount. Between December 2016 and April 2017 Sebastian uses the new van to complete pool cleaning jobs and Alberto is given the old van to use for his allocated jobs. On 10 May 2017, Alberto discovers that Sebastian has converted the newly purchased vehicle into a camper-van and is about to leave Sydney to spend 6 months driving around Australia with his family. On 1 June 2017, Alberto receives a letter of demand from Speedy Finance, stating that as no repayments have been received as required under the loan contract, they are seeking immediate repayment of the full loan amount. Advise Alberto of his potential rights and liabilities. Example answer – Business entities Issue Is Alberto a partner in Diamond Pool Cleaning? Further, if he is, what are his rights and responsibilities in this business? Rule Under the Partnership Act 1892 (NSW), (‘the Act’) s1(1), a partnership is … the relation that exists between persons carrying on a business in common with a view of profit. 1. carrying on a business refers to ongoing activity by the parties – Khan v Miah (2000); 2. in common asks whether the parties are carrying on the same business or simply a related business – Degeorgio v Dunn (2004) 3. with a view of a profit excludes volunteer or charity operations. If a partnership exists, it displays certain characteristics: 1. Mutual agency, meaning that each partner operates as an agent of the others and can enter into contracts to bind the business, pursuant to s5 of the Act; 2. Each partner has joint and several liability for the liabilities of the business and is responsible for the entire amount owed as well as their own share pursuant to s9 of the Act; 3. Each partner owes fiduciary duties to the other partners, notably: 4. Duty to avoid a conflict of interests – s30 of the Act; 5. Duty to avoid using their position for personal advantage – s29 of the Act Application Diamond Pool Cleaning has been operating since 2015 as a pool cleaning business. Alberto joined the business in 2016 and the pair have been operating the business together for the 6 months ending April 2017. This satisfies the first part of the definition of a partnership. Both Sebastian and Alberto are involved in cleaning swimming pools. They are both filling the same role in the business, satisfying the second part of the definition. Alberto paid $15,000 for a 25% share in the profits, leaving Sebastian with 75%. There is an obvious intention between the parties to generate profit from this operation, satisfying the final part of the partnership definition. It appears obvious that Sebastian and Alberto are in a partnership. Partners share mutual agency, meaning that Sebastian was entitled to enter into the contract to bind the business to the costs of the new van. As a partner, Alberto is responsible for the full costs of this contract, not simply his 25% share. It could also be reasonably argued that Sebastian has breached his fiduciary duty to Alberto in abusing his position by modifying the work van into a camper van for his own benefit. Conclusion As Diamond Pool Cleaning is operating as a partnership between the parties, Alberto will be responsible for the $15,000 debt to Speedy Finance, but he will retain the right to take civil action to pursue Sebastian for his share of the costs. Module 3: Contracts Problem Solving Question (from week 8) Leo runs a bakery in Lidcombe. He has recently started selling a range of gluten free products. After some research he finds a supplier of gluten-free flours, Yoyo’s. Last Monday he phoned Yoyo’s and informs the owner it is very important that the flour does not have any traces of gluten as he will be making products for people with a gluten intolerance. The owner assures him that the rice flour will be suitable and Leo orders 50 large bags and requests that it be delivered Tuesday night before 8pm as he has orders for gluten free bread to meet on Wednesday. The flour is delivered on Tuesday night at 7.30pm. When Leo goes to open the bags at 3am to start baking he notices inside the bag there is a tag that states the flour is processed on machines that are used for other grains and therefore may contain traces of gluten. Leo decides not to use the flour and proceeds to bake his regular bread. The following day he informs Yoyo’s that he is terminating the contract and claiming $3,000 of damage being the profit he expected to make supplying 100 loaves of gluten free bread to the local hospital ($500) and for the profit for a special order for a gluten free wedding cake for a local minor celebrity who he is not allowed to name ($2,500). Advise Yoyo whether Leo’s is entitled to the remedies he has outlined. Example answer – Contracts Issue Has the contract between Leo and Yoyo’s been terminated, and what damages can Leo claim for this breach? Rule A simple contract can be terminated in one of five ways: 1. Performance, when both parties have completed their contractual obligations; 2. Agreement, when the parties mutually agree to vary or abandon the contract; 3. Frustration, with the occurrence of an event that is beyond the control or contemplation of either party, and that renders performance of the contract impossible; 4. Breach of a condition of the contract, an essential term of the contract that goes to the core of the reason for the agreement and without which one or the other of the parties would not have entered into the agreement; 5. Operation of law, where a change in the legal situation renders the contract impossible to be legally performed. In the event of recission of a contract, the injured party is entitled to claim a civil remedy, that will most often be the common-law remedy of damages, or financial compensation. The purpose of the remedy is to return the injured party to the position they would have been in had the breach not occurred. Quantum of damages will be determined by the court with reference to the issues of causation and remoteness. Causation means that the losses need to be directly caused by the breach, and remoteness means that the losses must be directly connected with the purpose of the agreement. Hadley v Baxendale states that two types of losses may be claimed: 1. Losses incurred in the ordinary course of business of the plaintiff; and 2. Extraordinary losses from activities outside of the ordinary course of business, provided that the defendant was aware that they were occurring, or should have been aware of them. Application In this case, Leo has advised that the flour needs to be gluten-free because of the needs of his customer base, and Yoyo’s has acknowledged this. The flour was only purchased for this purpose, and the tag that indicated that the product was not 100% gluten-free constitutes a breach of this condition of the contract, giving Leo the right to rescind the contract and sue for damages. He will be entitled to recover the cost of the shipment of flour that did not meet the stated specifications. He will also be entitled to recover, as expectation losses, any anticipated profits from the sale of the gluten-free products subject to the provision in the second limb of Hadley v Baxendale. Conclusion The contract between Leo and Yoyo’s has been terminated due to breach by Yoyo’s of an essential term. Leo will be able to claim for the expectation loss of $500 for the sale of bread but will be precluded from recovering the $2,500 lost profit on the wedding cake by the second limb of HvB. Module 4: Negligence Problem Solving Question (from previous exam – worth 7 ½ marks) Students MUST use the IRAC method (Issue, Rules, Application, Conclusion) to answer the following scenario. All answers MUST be supported with relevant statute or case law authority. Jane heads down to her local beach to sit on the beach and watch the waves. Kangaroo Council hires out chairs for patrons to use and displays a sign stating, “chairs can be hired: $15 for 30 minutes”. Jane pays $30 to use the chair for an hour. She receives a receipt which she gives a brief look at before putting in her bag. The chair collapses and Jane is injured. A notice on the back of the ticket stated: “Council will not be liable for any accident or damage arising from the hire of chairs”. Advise Jane whether she is entitled to a claim against Kangaroo Council. Example answer – Negligence Issue (1 mark) Does writing constitute a contractual document and not a mere receipt and exempt Kangaroo Council from Liability? Rule (3 marks) The court held, in Chapelton v Barry Urban District Council [1940] 1 KB 532, that the company could not rely on the exemption clause as it looks like a receipt. The sign behind the chairs made no mention of an exclusion clause, and the ticket handed to