BUSINESS LAW AND GOVERNANCE

April 23, 2023 Mathews

Abstract

The study is shedding light on the principles of contract law in a country like Australia. It is providing a general overview on the various aspects of contract law and the impact on the business governance.The study will hence provide the aspects of contract law with the help of various cases took place in Australia till now. It will also show how a court is responsible for making a suitable decision and provides justice to the right person. Here, there is a brief explanation on the rules that are followed by the court at the time of making any judgement that is referred as ratio decidendi. Hence, the study is going to be effective enough in showing the basic principles associated with contract law.

Introduction

At the most fundamental level, the problem with respect to corporate governance mostly arises at the time when the investor from outside is demanding to exercise the control very differently from the manager of the organization. Thus, in such a case, there is a conflict of interest among the claim holders with respect to any business firm. Most research with respect to corporate governance has been treated by resolving the action problem. The mechanisms that can help in dealing with such problems: partially concentrating on the ownership and the control must be in the hands of investors, taking over and proximate the voting controls, delegating and concentrating the control to the boards of directors, aligning the managerial interests with the investors by compensation contracts and lastly clear definition of fiduciary duties to the CEOs with class action suits. Thus, the assignment is going to provide various aspects related to the contract law in the Australian context. It will show various cases and how they have been resolved.

The contract law in Australia is mainly on the basis of the English law that has been modified legislatively. The key basic principle of this law is freedom of contract where the parties are free for bargaining at the time of choosing in the legislative parameters (claytonutz.com, 2020). It must be noted that when the parties are free for choosing the content for bargaining, the following must be noted:

Contracts can be written and created by the conduct or sometimes implied from the circumstances that have arisen from the legislative operations
The operation, as well as enforcement of any contract, is usually facilitated with the help of signed document by the parties evidencing the aspects of bargain(Goshen & Squire, 2017).
It does not have any evidence in writing save for a particular type of transactions like sharing, dealing and involving in the purchase of land

In a country like Australia, key contract law is usually meeting the meeting of mind of the parties such that an accord is created between them. In other words, this can be said that the party to any contract is bound by it and is able to acquire the rights, this is under the privity of contract rule. This privity rule also contains some limitations and for this reason, it is very important for the contracts to properly identify the parties (claytonutz.com, 2020). Legislations like Consumer Act as well as competition is able to override and put restrictions in the operations and inserting some key terms. It can be hence noticed that at the national level, legislations are able to affect the contractual freedoms.

Any kind of restriction that is put on the party for contracting with the third parties may have exclusive dealing. This is conduct which is usually regulated by the provisions of anti-trust with respect to the Competition and Consumer Act. In New South Wales, the Restraints of Trade Act 1976 is responsible for permitting the SC for limiting the operation of restraint to such an extent that is considered to be reasonable by the court (acc.com, 2020). Thus, the parties which are indulged in the contract are free for limited or exclude liability with respect to the contract breaching. Hence, it is important for the parties to rely on the LL or exclusion clause and can explain to the court that the relevant clause is contended by the party. It can be further noticed that the contractual freedoms are often indirectly impacted by some legislations (acc.com, 2020).

Additionally, there is some common law that is responsible for putting limitations on this type of freedom. The general law of contract states that the parties can agree to the sum of liquidated damages or a method of calculation that is normally paid at the time of breaching. This is a useful aspect as here the damages caused to monetary value are very difficult for calculation and the parties can often demand to avoid the cost required for resolving the dispute. Thus, such type of agreement is responsible for representing a genuine attempt that is further required for estimating the damages. As it is common that the disputes among parties with respect to the contract are prosecuted by the court but in Australia, there are several practices for facilitating the resolution without the need for intervention from the courts. Hence, at the time of entering any contract in Australia, it is very important to properly recognize and understand the legal system which is governing the contract. There is no requirement for special forms or procedures. Australian law mostly recognizes oral contracts except in the case of transferring land. Moreover, if there is a need for creating the security interest over any kind of assets that are known as Personal property then in such a case, the Personal Property Securities Act 2009 is applied. For preserving the interest with respect to the security holder, then the interest must be registered with this within the stipulated time. The cases of contract law can be explained as follows:

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd

The case mainly provided a view on subjective or any objective approach that must be taken for the creation of legal relations. In this case, both parties entered into an agreement for selling the airline business (australiancontractlaw.com, 2020). Later on, Air Great Lakes alleged that Easter had repudiated the agreement, and damages were claimed. On hearing this, Easter argued that the document signed by both of them was not legally binding.

Biotechnology Australia Pty Ltd v Pace

The case mainly involved contract of employment which provided options for participating in the staff equity sharing scheme, it had been developed by the employees that there was no existence of such scheme and hence filed a complaint about a breach of contract. Both firms were having a contract related to employment. At that time, it was mentioned that Biotechnology will provide an option for participating in the equity share scheme of the company’s staff(australiancontractlaw.com, 2020). But at the time of contract or say employment of Pace, there was no such case, hence, Pace sued for contract breaching.

1.) Commercial Bank of Australia v Amadio

This case was referred to as the issue of unconscionable conduct. The case mainly involved a bank guarantee provided by the parents of Amadio. The bank manager obtained the signature of them on the mortgage by attending their home and no explanation had been provided to them with respect to the document(australiancontractlaw.com, 2020). Then, the bank demanded money and also warned them that if it could not be met then the power of sale under mortgage would be exercised by the bank. Thus, Amadio filed a case against the bank.

2.) Tabcorp Holdings Ltd v Bowen Investments Pty Ltd

This case has been considered as the perfect measure for the damages caused by the tenant present on contract breaching. Here, the tenant was Tabcorp, and the Landlord was Bowen. So, Tabcorp intentionally destroyed the foyer of Bowen’s and hence replaced it with a new one in the breach of contract. In other words, this case can be represented as Tabcorp jack-hammering the stone flooring present in the foyer of the Bowen’s building(australiancontractlaw.com, 2020). The lease was containing a covenant where the tenant had been forbidden from the premises without having any approval from the landlord. Tenant, in this case, Tabcorp, had not received any kind of written consent for destroying the floor. Instead of protesting, Tabcorp was totally engaged in altering the foyer and making a replacement. Hence, Bowen lodged a case against Tabcorp for making damage without any prior approval.

Critically analyzing and comparing the arguments of both plaintiff and defendant

As it can be seen in the above segment that there are various cases with respect to the contract law, hence, now this would provide a brief explanation for the arguments provided by both plaintiff and defendant. So, arguments from the plaintiff and defendant in such case are shown below:

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd

In this case, it can be observed that both the parties had an argument. Both accused one another. But in a real sense, Air Great Lakes Pty ltd is the main plaintiff and the latter one is the defendant. In this aspect, AGL claimed that there was a repudiation of agreement by Easter and hence claimed for the damages(australiancontractlaw.com, 2020). On the other hand, the defendant claimed that there was no such intention for signing the document by both the parties to be bound by some legal system. Hence, in the first instance, both of them succeeded.

Biotechnology Australia Pty Ltd v Pace

In this aspect, it can be seen that the plaintiff Pace argued that there was a breach of contract that had been made between Biotechnology and Pace. Dr. Pace was employed in the concerned organization as a research scientist. Biotechnology, at the time of hiring offered a letter of employment that described that Pace would be provided by a salary package of $36000 yearly, car, and an option for participating in the equity share scheme(australiancontractlaw.com, 2020). Plaintiff further argued that when he started to work there, there was no such scheme. In the meanwhile, the defendant put up the defense with respect to the agreement was void just because of uncertainty.

Commercial Bank of Australia v Amadio

Here, the defendant made an argument that there had provided enough facilities for paying up the sum. Bank also argued that they had also informed about taking over of mortgage over the property owned by Vincenzo’s parents and allowed him to operate the company with an overdraft limit of $270000(australiancontractlaw.com, 2020). On the other hand, Amadio argued that no such information had been provided by the bank. Vincenzo also argued that the bank took a great advantage after they found the special disadvantages with respect to the parents at the time of dealing.

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd

In such a situation, the plaintiff (Bowen) argued that without having any prior notice or suggestion from their side. Defendant (Tabcorp) had provided damage to their building. On the other hand, the defendant argued that once, it had entered into the contract, it had the right to do anything. In fact, instead of making any protest, it further started to make a replacement. It further appealed for restoration of the decision made by the trial judge and later, HC dismissed it(australiancontractlaw.com, 2020). In this case, THL had also argued that the damages must be restricted for any kind of value diminution of the building as it is the breaching of the covenant.

Analyzing the ratio decidendi

In the case of TH Ltd v BI Pty Ltd., the behavior of the defendant was considered to be under contumelious disregard and this definition was provided by the trial judge. The trial judge has upheld a claim for damaging the breaches under common law namely destruction of old foyer and construction of new foyer. The high court also stated that when any kind of damage is made by the party under breach of contract, money can help the bearer in dealing with the situation. One of the judges from the High Court declared that the disappointment of hopes as well as expectations associated with the plaintiff from the contract often becomes an appropriate consideration up to a situation where some damage of the plaintiff can be easily measured or failure for obtaining the amelioration of the current financial situation (Eldridge, 2019). Hence, from the decisions made by the court, the landlord i.e. Bowen, in this case, was able to entitle for preserving the premises without making any alterations and all the losses incurred by the firm were restored by the tenant (Tabcorp).

In the case of Commercial Bank of Australia V Amadio, unconscionable conduct had been followed by the bank. The court held that the plaintiff (Amadio) had suffered from a special disadvantage that was the bank made an unconscionable situation for the company to rely on the guarantee (Cartwright, 2016). This case had been considered to be unconscionable conduct as here the bank had misused the power of superiority to the suffering party as here Amadioswere too old and suffering from a disability.

From the case of AGL Pty Ltd V KS Easter Pty Ltd., it can be seen that the final announcement with respect to this case was made after passing through two judges. The first judge said that the contract existence is something that is often the result of decisions made by both the parties. In this essence, it was also stated that this one was an objective approach for ascertaining intentions. Here, intention to the contract was not totally determinative for binding the contract (Bigwood& Mullins,2018). Hence, in this aspect, this can be said that both parties can have the same intentions. On the other hand, the other judge declared that the defendant i.e. Easter Pty had pressed enough to get a deal wrapped up which can be done without any need for the lawyer. So, it is clear that at the time of putting signature on the document, both of them had intention for the creation of enforceable contracts ina legal manner (Giancaspro, 2017).

The case of Biotechnology v Pace was confirmed to be illusionary. The promise provided by Biotechnology of equity sharing scheme was hence deemed as illusionary just because there was no implementation of reinforcing promise that the former company would be implementing the scheme and hence, both the parties knew it well at the time of moving into the contract that there is no provision for such scheme (Eldridge, 2019). There was no existence of external standards for making any comparative measurement. It was further added by another judge that the promise made by Biotechnology was not enforceable if Pace would have paid some amount (Twigg-Flesner, 2016). Apart from that, it is also seen that there was no presence of an objective standard which was responsible for measuring the offer related to the equity scheme.in addition to that, the judge also found that Biotech was bound to make an honest offer to Dr. Pace for real but not the nominal value where all the circumstances could be considered to be reasonable (Winner,2018).

Thus, from all the cases, it can be said that the ratio decidendi was possible in all the aspects as it had helped the judges in making the appropriate decisions. The cases were not resolved at a single step rather they were passed through several courts like the trial court, FC, HC, and some also went to SC (Levyet al. 2017).

Commenting on the decision provided by the court

From all the cases provided in the above sections, it can be seen that the courts have taken the proper decisions in each case. The study presents four cases where each case had a plaintiff and a defendant. Both of them were responsible for making some faults and missing some principles mentioned in the contract law. From the case of Tabcorp Ltd., it can be commented that the court had made a correct decision. Due to the proper decision of the courts, it was possible for BIPL to recover from the damages for fully modifying the foyer area. By taking the help of the court, it was easier for BIPL to held Tabcorp wrong (Smits, 2017). Furthermore, the court also held that damages on the basis of the diminution of value of the entire building would have undermined the nature of the contractual covenants. In the case of Biotechnology, the court was responsible for making a proper judgment (Pargendler,2018). Due to the court only, it was easier to resolve the case at a faster pace. The actual reason was found and then it was held that there was no existence of any external standard for determining whether the promise had been broken by the Biotechnology or not. The court also developed that there were no objective standards.

From the case of AGL Ltd, it can be seen that the appropriate decision was taken by the court. It was held that at the time of making any contract, it is very important to have a proper look at the aspects of contracts (Sherborne, 2017). From the decision made by the court, it was possible to determine the subjective intention with respect to the contract that is further required for determining the existence of a contract. In the case of Commercial Bank V Amadio, it can be developed that the court has helped the Amadio company in getting justice (Dagan& Heller,2017). Due to the commercial bank, it was possible for the Amadio family to find out the actual propaganda. The court has helped Amadio in finding the main rule and regulations that must be followed by them and furthermore assisted in recovering all the money (Basedowet al. 2019).

Conclusion

From the entire study, it can be concluded that a contract is nothing but a binding agreement that is formed by the legal system that is responsible for recognizing and governing the rights as well as duties of the parties to any agreement. It can be developed from the study that the contracts are legally enforceable as it is able to meet the requirements as well as approval of the law. In the contract law, an agreement is involving any kind of exchange of service, goods, promise, or money. At the time of making any contract, there are certain stages that must be followed like the creation of a contract, authoring the contract, negotiating them, getting approval before making it final, executing them properly, regularly checking them for further amendment, and lastly, managing after putting signature. Thus, the study here shows how in a country like Australia, these aspects have not been followed efficiently and this, as a result, created conflicts among the number of business organizations. Thus, the study has shown various cases and defined the terms like the plaintiff and defendant. Furthermore, it also showed how both the parties make arguments for preventing them before any law.

References

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australiancontractlaw.com (2020) News Accessed on 19^th April 2020: https://www.australiancontractlaw.com/cases/airgreatlakes.html

australiancontractlaw.com (2020) News Accessed on 24^th April 2020: https://www.australiancontractlaw.com/cases/biotechnology.html

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australiancontractlaw.com (2020) News Accessed on 19^th April 2020: https://www.australiancontractlaw.com/cases/tabcorp.html