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Business Law Assignment Legal Analysis Case Study

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Your burger establishment has now been running for 6 months.

Part 1 – Leasing and Property

The Mexican Restaurant next door has closed down and the landlord of that premises has approached you to see if you are interested in expanding to this space.  You are very keen. You have been supplied with a standard leasing contract.

1.1 What else does the landlord need to provide to you in relation to the rental property?

The standard lease provided to you by the landlord, James, contains the following clause:

Clause 5.1 Lessee’s Consent

Where, pursuant to any Act or requirement of any relevant authority, the Lessee’s consent is required to any process, step or dealing by the Lessor with its interest in the Land, the Lessee shall give its written consent to such proposed process, step or dealing within seven (7) days of receipt of a written request from the Lessor to do so, provided that such proposed process, step or dealing does not materially detrimentally affect the Lessee’s use of or access to the Premises;

The landlord wants to install an inside wide arch between the two restaurants so he can continue to offer you (and subsequent lessees) ‘double’ restaurant space. However, the modifications will mean that you cannot trade (other than by take-away) for at least two weeks. You are unhappy. You point out that you are quite happy with the amount of access you have to the second restaurant via the kitchen. You don’t want to give James permission to do so.

1.2 What are your obligations and liabilities under Clause 5.1?

The landlord has included in the lease that you must install new extractor (ceiling) fans above the ovens to minimise smoke damage to the ceiling.

1.3 Are the extract (ceiling) fans fixtures and, if they are, can you take them with you if you vacate the premises?

Part 2 – Contracts

In the signed lease agreement it says that all ovens and installed equipment in the kitchen must be in ‘good working order.’ You have now taken over the new premises and found one oven is not working.

2.1 What can you claim from the landlord?

Part of the expansion has allowed for the business to specialise in gourmet hamburgers.

You have entered into an oral agreement with your brother to buy fish from his fish business for your new gourmet fish burger.  On the first delivery you notice the fish is not of good quality and it is not well covered with ice, which raises concerns about whether it can be consumed. You don’t want to pay for the fish.

2.2 What contractual issues can you raise in order to avoid paying the money that your brother has asked for?

You have some special t-shirts made with your establishment’s name and logo.  At $20.00 each they are not selling very well, so you get Carol to put a sign in your window saying the t-shirts are on sale.  You tell her to discount them to $15.00 but she puts “$5.00” on the sign.  Zena has come into buy 30 t-shirts because she really likes your burgers.

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2.3 Are you obligated to sell the T-shirts to Zena at $5.00 each?

You have decided to sell two old fridges to allow a kitchen upgrade due to the expansion.  The Thai restaurant down the road is run by Tina.  You know that Tina is looking for second-hand fridges. You send her an email asking her if she is interested in your two fridges for a total of $5,000.  Tina responds saying “Will only pay $4,800.  What say you?”  At 9.00am the next morning you send Tina an email saying “Okay, good, I can agree on a price of $4,800.”  At about the same time Tina sent an email saying “Cancel my earlier counter-offer.  I will take the fridges for $5,000 as I need them as soon as possible and I cannot bother with haggling over the price.”

According to the electronic records

  • Tina’s email “in” box received your email accepting the price at $4,800 at 9.40am and she looked at it at 9.45am.
  • You received Tina’s email stating that she was willing to pay $5,000 at 9.30am but you did not look at it until 10.00am.

2.4 Have the fridges been sold, and, if so, at what price?

George is a second chef you have employed due to the expansion.  George has been working with you for six months and thinks he would run a hamburger business much better than you do. When George tells you he is leaving and is going to open a new Burger Restaurant on Kangaroo Island called “George’s Burger Restaurant” you remind him that he signed a letter stating that he would not work “in any capacity for another burger establishment anywhere in South Australia for a period of 5 years.”

2.5 Is George bound by the ‘restraint’ clause in the letter? If so, why?  If not, why not?

Assignment Solution

Part 1 – Leasing and Property

1.1. Document landlord needs to provide in relation to the rental property

Lease is a binding contract formed between two parties that are lease which symbolizes user of the property and the lessor that is the owner of the property, in which lease needs to pay to the lessor for use of his assets for a fixed period of time. This law is maintained under retail and Commercial Leases Act 1995. According to law, it is crucial to ensure that lease is available in written form, review current market rent, information on maintenance cost. Written document of the lease needs to include information on permitted use, access management, rent and other obligations. According to the law, lease must be of minimum five years;  lessor needs to provide the lease documents to the lessee; he also needs to provide the disclosure statement before the lease begins in which all mandatory information must be declared. Apart from this, lessor also needs to provide the estimate of outgoing prior to one month of accounting period. They also need to fill retail and commercial bonds and submit. Apart from standard leasing contract, lease will also receive the bond form; condition report and property checklist. If there is any casual licencing policy then policy document must be given to the tenant.

1.2. Obligations and liabilities under Clause 5.1

According to clause 5.1 lessor needs to take adequate permission from lessee for any dealing with the land; permission should be taken in written form. According to given scenario, landlord wants to install a wide arch between two restaurant to increase restaurant space to double but this installation process will impact business operations adversely as company will not be able to operate for two weeks, only take-away service will be possible, therefore lessee is unwilling to do so. In this case, James cannot do the installation process until proper consent is received. Though tenants hold property for limited period of time but their right is undistributed with owner also. However, the owner of the property is only allowed for examining the property, carrying out repairs, collecting rent. However, in case lessor interferes in lessee right to property then it is consider as breach of lease agreement. For example, case of Worrall v Commissioner of Housing for the Australian Capital Territory [2002] FCAFC 127.  . Lessee is liable for adequate maintenance of the property. Lessee is in a position to abstain James from doing the installation if lease is being signed as it will impact business operation and his access to land; he needs to send written notice to James within seven days’ time (Hepburn, 2013).

1.3. Extract (ceiling) fans fixtures and, if they are, can you take them with you if you vacate the premises

Though under general law tenants are not allowed to fix any fixture or furniture in the property without owner’s permission, however in this case asked lessee to install a new ceiling fan above ovens to minimize smoke damage to ceiling, therefore the extracts, fans fixtures are owned by the lessee and he can take back these things with him while vacating the place. However, if clause in lease agreement states that fixture will be owned by the lessor after lease expire then lessee have to leave fan fixture while vacating the place, otherwise he can take these products with him.

Part 2 – Contracts

2.1. Claim from landlord

According to the given scenario, it was signed in the lease agreement that all ovens and equipment’s in the kitchen are in good working order; however after signing the lease it was found that in the new premises one oven is not working. This can be considered as breach of contract between parties, for this purpose notice must be sent to landlord by the tenant for breach of agreement, mentioning the breach occurred and remedy to compensate the same. According to law, landlord needs to take action within seven days’ time of receiving the notice. In this case, lessee is eligible to get compensated for loss occurred due to this breach.  According to law, tenant is liable to claim compensation from landlord if he has suffered loss due to breach of duty as per tenancy agreement; this type of loss can be made within six years’ time of damage occurred (www.sa.gov.au, 2014).

According to law, parties have right to terminate the agreement in case of contract breach. There are different scenarios when material breach can take place; for example, Forklift Engineering Australia Pty Ltd v Powerlift (Nissan) Pty Ltd; in this case Forklift was dealer of powerlift; according to given scenario, both parties had agreement that in case of dispute either of the party is needs to be remedied within 14 days’ time. Powerlift sued Forklift under this clause for non-payment of their invoices. Material breach can be defined as fundamental breach in the agreement. According to court, non-payment of invoices can be considered as material breach in agreement and parties have right to terminate the contract. However, in given scenario this clause will not be applicable as non-operating oven cannot be regarded as material breach of contract (Ferguson & Dixon, 2012).

Further, breach in lease agreement also falls in premises of general contract law; there are different cases that show that in case of breach, parties have the right to claim for damages. For example; case between Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17.2. Given scenario in the case is a breach of quite enjoyment; For example in the case of Martin’s Camera Corner Pty Ltd v Hotel Mayfair Ltd [1976] 2 NSWLR 15, landlord failed to provide adequate remedy for roof drains to the tenant and it was considered as violation of rule of covenant of quite enjoyment.  Another similar case is Haig v Chesney [1925] SASR 82; in this case landlord installed faulty steam cooker in the premises, and was considered as breach of lease contract and compensated the tenant for the same (Jacobs, 2010).

Above cases helped in understanding that James needs to compensate for faulty oven in the premises as it might impact business operation of company, cause financial loss to company; therefore company can seek financial damages for the same.

2.2. Contractual issues raised in order to avoid paying the money

According to given scenario, business expanded and now also specialise in gourmet hamburgers. There was an oral agreement with brother to buy fish from his fish business for new gourmet fish burger. However, it was found that delivered fishes does not fulfil adequate quality, were not covered with ice. Due to quality issues it was difficult to decide whether to consume it or not. First of all, oral agreements are difficult to implement during disputes; though oral contracts are as binding as written contract but they need to fulfil all criteria of contract which include, presence of offer and acceptance between parties; clarification regarding all terms and condition for business, legal binding between parties and proper consideration for the deal fixed. Contractual terms can be defined as any provision or clause made while forming the contract which is considered as obligation for parties and non-fulfilment can be regarded as breach of contract.

  • Sales of goods act 1895 deals with law relating to sales of goods between businesses as well customers. Different elements that will be included in this case are, perishing of goods after agreement of sale has been made but before actual product is being transferred to buyer, in such cases agreement can be void (www.legislation.sa.gov.au, 2008).
  • Another is implied quality of the product; as per law there is no implied quality of the product unless buyer has specifically made clear description for purpose for which product is being bought and seller needs to ensure its fitness for purpose. Goods need to be of merchantable quality. It is also important to clarify whether sale was made on the basis of sample or not.
  • According to sales of goods act, if buyer has not examined the goods before buying then he has the right not to accept them unless and until he has examined them properly and match quality with conformity of contract. Therefore, in case of noncompliance with quality or perishability of goods, contract can be avoided between buyer and seller.
  • In case of breach of contract different remedies available for buyers include measuring the damage occurred to the company both directly and indirectly due to seller breach of contract and get compensated for the same. For example, Kylie v. Lysfar Pty Ltd (1985).
  • Therefore, in given case it is important to analyse the quality of fish, if its perished, not of god quality then buyer has the right to reject the goods.

2.3 Obligation to sell the T-shirts to Zena at $5.00 each

According to given scenario, special t-shirts made by the company with its name and logo on the t-shirts were sold @ $20.00 each, however sales were not satisfactory so it was said to Carol to reduce t-shirt prices to $15.00 and put a sign on window stating it’s on sale. However, Carol written price $5.00 instead of $15.00 on the sign board and now customer has come to purchase the product at mentioned price.

Many Australian companies use different types of promotional techniques to reach their target segment to attract customers for product sale. These advertisements are managed under The Australian Consumer Law (ACL) which is a national governing law made with the objective of protecting consumers interest in market and also foster fair trading in Australia and it also include Competition and Consumer Act 2010 (www.accc.gov.au, 2014). According to consumer law, companies cannot get indulge in misleading or deceptive or misleading statements in advertisements. According to Australian consumer law section 18 it is regarded as illegal to mislead consumers by providing false information to customers, this law also applies even if company is not intended to mislead. Any business is prohibited to make false, misleading or misrepresentation claims; it includes advertisements made on television, radio, catalogues, label, website, over telephone, in person or print. According to section 29 of the Australian consumer law deals with type of misleading claims.  For example, according to a case Federal Court of Australia – [2007] FCA 1990, a car manufacturer made false claim in regards to its vehicles by mentioning seven seats in the car but there were five seats; further price of the car was also mentioned as $79 990 in advertisements but in reality consumers had to pay additional fees for delivery of car. Court held that advertisement made by Car Company was misleading (www.accc.gov.au, 2014).

According to Australian consumer law section 47 in case of two pricing, company needs to sell products at lowest displayed pricing or withdraw the products from sale and correct the price and again put the product on sale. As per given consumer law, it is Carol fault, however his actions represents company actions, therefore there are two options available with the company. First is to sell t-shirt at mentioned price of $5 to Zen, after that company can withdraw offer and redesign and relaunch it at $15. However, it is mandatory to give t-shirts to Zen as it was clearly mentioned in the offer, and if company does not sell product to Zen then it will be a case of misrepresentation in advertisement and Zen can sue company on consumer forum and ask for compensation.

2.4. Email offer and acceptance

According to given scenario this is a case of electronic offer and acceptance. According to given scenario, offer mail was sent for $5,000, Tina sent a counter offer mail for price $4,800. However, next day two mails were sent by both parties which include Tina’s email which reached “in” box received in email accepting the price at $4,800 at 9.40am and email was seen by Tina at 9.45am. Whereas Tina also sent a mail mentioning her interest to pay $5,000 at 9.30am but the mail was seen at 10.00am.

According to the general law of contract, any offer or acceptance cannot be regarded as agreement until acceptance is being communicated properly to the offeror. E-mail is being considered as electronic message, according to law there are number of steps in email communication, which include composition of email by sender, sender sends the email by activating the send command, email is transmitted via electronic mode and get stored in recipients ISP and finally email is being read by the receiver. It is being considered as instant mode of communication (Hill, 2001). According to law sender of email can regulate the email and also retract it until it is being read by the receiver; receiver of the mail also have control on acceptance until the mail is opened and read. Therefore, any acceptance of offer sent by email is only valid when it is being communicated the offeror (Cain, 2012).

According to Commonwealth’s Electronic Transaction Act 1999 (the Act) the email is said to be accepted when it is sent and received by the receiver inbox; regardless of the fact whether it is being read or not. For example, Field, Andrew “Electronic commerce: Encouragement from Canberra” [2000] LawIJV 153; (2000) (austlii.edu.au, 2000).

Therefore, as per law fridge will be sold at $5,000 as the email sent by Tina accepting the price was received by the inbox at 9.30 am whereas acceptance for price $4,800 reached the mailbox at 9.40 am. In email box time at which mail reached inbox is considered as valid.

2.5. George bound by the ‘restraint’ clause in the letter

Employees who work in senior position in company are generally bounded by restraint clause, it is not imposed just too safe employer from competition but also to save valuable employee within organization. It is imposed on employees who have access to company’s confidential information, to protect employee to be poached and to ensure that they do not take company’s customer to some other organization (McEwen, 2008). Restrain clause is defined as a contract between parties in which one party agrees to another party to limit his freedom in future to conduct similar trade with any third party. However, restrain can be imposed on presence of legitimate interest for limited time period, limited geographical boundary and limited activities. For example, case of HRX Holdings Pty Limited v Pearson [2012] FCA 161, in this case post-employment restraint imposed by employer was held to be reasonable by the Federal Court of Australia (Dunn, 2013).

According to given scenario George is working for six month in the company and planning to leave the organization to stand his new burger restaurant. However, a letter has been signed by him that states that he cannot work with any other burger company in South Australia for five years’ time period. Therefore, George is bounded by restrained clause; he cannot open new burger outlet in Kangaroo Island for five years.

Bibliography

austlii.edu.au. (2000). Law Institute Journal (Victoria). Retrieved May 29, 2015, from austlii.edu.au: http://www.austlii.edu.au/cgi-bin/sinodisp/au/journals/LawIJV/2000/153.html

Cain, R. H. (2012, April 27). Court Finds Offer and Acceptance in Email. Retrieved May 29, 2015, from blogs.findlaw.com: http://blogs.findlaw.com/tenth_circuit/2012/04/court-finds-offer-and-acceptance-in-email.html

Dunn, N. (2013, August 29). RESTRAINT – ARE ALL POST EMPLOYMENT RESTRAINTS ENFORCEABLE? Retrieved may 29, 2015, from codea.com: http://www.codea.com.au/Publication-1576-RESTRAINT—ARE-ALL-POST-EMPLOYMENT-RESTRAINTS-ENFORCEABLE.aspx?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original

Ferguson, D., & Dixon, K. (2012, April 29). Australia: “Material Breach” in contracts. Retrieved may 29, 2015, from www.mondaq.com: http://www.mondaq.com/australia/x/175206/Contract+Law/Material+Breach+in+contracts

Hepburn, S. (2013). Australian Principles of Property Law. London: Routledge.

Hill, S. W. (2001). Email Contracts – When is the Contract Formed. Journal of Law, Information and Science , 46.

Jacobs, S. (2010). Damages for breach of leases. WentworthSelborne: University of New South Wales.

McEwen, G. (2008). Employee Restraint of Trade Clauses and Confidential Information. Sydney: Francis Burt Chambers.

www.accc.gov.au. (2014). Advertising and selling guide. Retrieved May 29, 2015, from www.accc.gov.au: http://www.accc.gov.au/accc-book/printer-friendly/29527

www.accc.gov.au. (2014). Discount & gift vouchers. Retrieved May 29, 2015, from www.accc.gov.au: https://www.accc.gov.au/consumers/misleading-claims-advertising/false-or-misleading-claims

www.legislation.sa.gov.au. (2008, December). Sale of Goods Act 1895. Retrieved May 29, 2015, from www.legislation.sa.gov.au: http://www.legislation.sa.gov.au/LZ/C/A/SALE%20OF%20GOODS%20ACT%201895/CURRENT/1895.630.UN.PDF

www.sa.gov.au. (2014). Lease agreements – landlord and tenant responsibilities. Retrieved May 29, 2015, from www.sa.gov.au: http://www.sa.gov.au/topics/housing-property-and-land/housing/renting-and-letting/finding-a-place-to-rent/lease-agreement-responsibilities.

 

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