1 Solving legal problems Students encounter great difficulty in trying to solve a legal problem. Firstly, there is the difficulty in identifying the critical facts, i.e. the facts that may have legal consequences. Secondly, there is the task of locating the relevant legal authoritAy: the legal principles and the law cases. Thirdly, there is the difficulty of structuring the legal argument in advising the parties of their legal rights and liabilities. Where to begin? What is relevant? How should I set out my answer? To assist you in learning how to solve legal problems and to structure your arguments/answer, I set out below a suggested approach/answer to Activity 5.3 Question 4 in Topic 5 under the heading of 'Misrepresentation'. This type structured approach is often referred to as the ILAC Method: I = Issues (Questions to be decided e.g. is there a contract?) L = Law (Principles of law and law cases applicable to those issues) A = Application (of those legal principles and law cases to the facts of the problem) C = Conclusion (Who has a legal remedy or defence and the nature of such). Sometimes this method is called the IPAC method (P = principles of law). Some other descriptions are also used. Some students find this method very useful while other students find it complex, especially when a problem involves more than one principle of law or more than two parties. Some may find that it is too rigid an approach to legal problem solving. A word of caution Some students under the headings of 'Issue' and 'Law' include a large quantity of material that is not relevant to solving the problem. This could indicate that the student is unsure of the issues and the law, or has simply copied slabs of material from the Study Guide, books or materials in the hope that some of it hits the mark. The issues and the law must be stated succinctly and include only the material that is relevant to the solution of the problem. Furthermore, it is incorrect to state the legal principles or law cases and assume that the mere statement of the principles provides a solution to the problem. The law as stated under \"L\" must be discussed in application to the facts of the problem. These legal principles and law cases must be discussed in the context of the relevant facts and the issues in order to come to a conclusion regarding the legal rights, remedies, obligations and possible defences of each party. Contact me if you have any difficulties in this area, or any other area of legal studies or in the study of law in general. 2 EXAMPLE 1 An example of the ILAC method using Topic 5, Activity 5.3, Question 4 Issue Was there an actionable misrepresentation by B? Was there an actionable misrepresentation by C? What remedies does M have against B and C (if any)? Law An actionable misrepresentation has the following elements: (a) a false statement of fact. (b) a statement of opinion is not actionable: Bissett v. Wilkinson [1927] AC117 (c) which was intended to induce the party suing to enter the contract: Peek v. Gurney HL377 (1873) LR6 (d) which did induce the suing party to enter the contract: Redgrave v. Hurd. (1881) 20 CH DI. If an expert is appointed by the representee, who confirms the representation, then it may be held that the representee relied on the expert's report and not the representation of the representor: Attwood v. Small (1838) 7 ER 684. Where there is fraudulent representation the innocent party can recover damages and rescind the contract or do either; Alati v. Kruger (1955) 94 CLR 216. Application M's action against B Applying the test for actionable misrepresentation: (a) The statement by B concerning the earning capacity of the newsagency is false. (b) The statement concerns the 'capacity' of the business to earn income. This prima facie is a statement of opinion. A statement of opinion is not actionable: Bissett v. Wilkinson. However, if B did not actually hold the view that the business was capable of earning the represented amount, then the statement expressing the opinion will be one of fact. For the purpose of this question it will be assumed that given the 'gross over statement' the belief was not held and there was therefore a representation of fact. (c) The representation was clearly made to induce the representee into entering the contract. A business's earning capacity is fundamental to its attractiveness to a purchaser: Alati v. Kruger. (d) The fact that an independent expert (C) was appointed to value the business, and the fact that a price was negotiated on the basis of C's report indicates that C's representation was not relied on by M when the contract was entered into: Atwood v. Small. Conclusion As a result of the above there is no action for misrepresentation which can be brought by M against B. 3 M's action against C It is more likely that the action against C by M will be for breach of contract, rather than for misrepresentation. EXAMPLE 2 A further example of solving legal problems The answer to this question is structured differently from the question in EXAMPLE 1. Firstly, an answer plan is prepared, and secondly, the relevant legal principles and law cases are applied to the facts of the problem. There is no need to be alarmed at the length or complexity of the discussion of the legal principles that are covered in the answer. In your final exam there will usually not be sufficient time to answer all the questions in the exam paper in such detail. Question Ace Construction Pty Ltd contracted on 30 January with Karen Kaminsky to construct a large clothing warehouse and adjoining store in Surrey Hills for five instalment payments of $40,000 (total price $200,000) by 10 July. However, Ace did not finish the building until 10 October. KAREN (1) Refuses to pay Ace the final instalment of $40,000 due on completion. (2) Claims damages of $20,000 from Ace for the increased price of a shipload of Indian clothing ordered on 30 February. Karen was unable to accept the shipload on 10 July due to lack of storage and space. By 10 October, the price of another shipment had risen by $10,000. (3) Claims damages for the anxiety, sleepless nights and nervous exhaustion induced by attempting to encourage Ace to complete the warehouse on time. Ace states that Karen should have opened on 10 July in one of the other warehouses available for rental in the Surrey Hills area. Advise Karen in relation to each of these matters. Answer plan Overview of possible legal actions and remedies available. Karen can sue Ace for breach of contract and claim damages for economic loss and mental distress. Statement of the law and its application to the facts of the problem. time stipulations and termination repudiation assessment of damages remoteness of damage damages for mental distress mitigation. Conclusion as to findings. 4 Answer Is Karen entitled to terminate and refuse payment of the final instalment? This will depend on whether the date of completion is either an essential term of the contract or on the ground that the foreseeable and actual consequences of delay were sufficiently serious to justify termination. If this is the case then Karen was entitled to terminate her performance when Ace failed to complete the warehouse and store on 10 July. On the other hand, if Ace can show that time was not of the essence or that the breach gave rise to no serious consequences, Karen may be held to have repudiated the contract in refusing to pay the final instalment. In any event, Karen has a prima facie entitlement to damages for any loss she suffered during the threemonth period of delay. The object of an award of damages in contract is to put Karen in the same position she would have been in had Ace performed on time: Robinson v. Harman. Date of assessment: As a general rule, damages are assessed by reference to the date on which plaintiff's cause of action arose, that is, the date on which the defendant's breach occurred: Hoffman v. Cali. [1985] Qd R 253. However, in a case of late performance, damages are assessed as at the date of completion of performance: Ozalid Group (Export) Ltd v. African Continental Bank Ltd [1979] 2 Lloyd's Rep 231. Is Karen entitled to damages of $20,000 and $10,000 for the increased price of two shiploads? The normal basis for assessing damages in contract lies in protecting plaintiff's expectation interest, that is, to receive the defendant's performance. Ace agreed to construct a warehouse and shop for Karen, but failed to construct it by the due date. Karen may recover for the economic loss she suffered. Prima facie she is entitled to recover $30,000 in increased costs. However, Karen's recovery will be subject to the basic principles of: causation remoteness of damage mitigation. Causation This is not an issue, since 'but for' the delay Karen would not have suffered the loss: Reg Glass Pty Ltd. Remoteness The test of remoteness of damage as stated in Hadley v. Baxendale distinguishes between loss 'arising naturally' or 'according to the usual course of things' and unusual loss. In relation to the former, the defendant is prima facie liable. But in relation to the latter, the defendant is only liable if such damage was in the contemplation or knowledge of the parties as the 'probable result' of the breach of contract. Therefore if the loss in question arose naturally, knowledge is presumed and Ace is liable. However, if the loss is unusual, knowledge by the defendant must be proved before it can be held liable. If we assume that Ace knew that the warehouse was to be put to immediate use it is liable under the first limb of Hadley v. Baxendale, to pay for any loss which was likely to arise naturally. In this case Karen may claim the increased prices as loss of normal business profits, evidenced by proof that the warehouse would have been in use for the period of delay. Viewed objectively, Ace will be taken to have reasonably contemplated that such damage was 'not unlikely' to occur and that a clothing merchant would suffer the 5 type of damage which occurred: Koufos. While the question whether a particular item of loss is capable of coming within the concept of remoteness is one of law, once this has been established remoteness becomes a question of fact: Burns v. MAN Automotive. Consequently, with respect to the second consignment a further question arises, the need to identify the point of time beyond which plaintiff's claim might be regarded as too remote: per Wilson, Deane and Dawson JJ. Accordingly, Ace might argue that Karen's loss crystallised in July and that she was not entitled to recover beyond that time. Of course, in the event Karen claims the second price increase as exceptional trade, perhaps arising from a particularly low-cost purchase of clothing, then unless Ace had actual knowledge of the transaction, it is not liable. On the other hand if Karen had told Ace at the time of contracting that the consignments of bargain clothing would be lost, Ace might be held liable. Karen's claim for damages for the anxiety, sleepless nights and nervous exhaustion. While Karen's claim for mental distress would certainly satisfy the criteria of causation and remoteness, such claims raise several difficulties for the law of contract, not least of which is their quantification. Consequently, as a matter of policy where the contract is a standard commercial transaction the law traditionally does not allow damages for disappointment: Falko v. James McEwan & Co Pty Ltd [1977] VR 447. Damages for mental distress and injured feelings on a building contract therefore raise two difficulties. First, as the manner of breach is not a basis for increasing the defendant's liability, Ace would argue that such damages would breach the rule against awarding punitive damages in contract: Addis v. Gramaphone Co Ltd. Second, Ace would argue that the loss is to be no more than mere disappointment: Bliss v. Southeast Thames Regional Health Authority [1987] ICR 700. On the other hand, if Karen can show that the breach caused her to suffer nervous shock, and that such injury was within the contemplation of Ace under the test of remoteness and that it led to physical or mental illness, Karen may recover substantial damages. Mitigation However, the plaintiff is expected to take reasonable steps to reduce her loss. Thus if Karen had an opportunity to reduce loss, which she ought reasonably to have taken, she may have her damages reduced appropriately. In accord with the principles limiting the scope of mitigation, no question of mitigation arises until Ace breached the contract: Shindler v. Northern Raincoat Co Ltd [1960] 1 WLR 1038. However, after Karen was unable to accept the first shipload on 10 July, the defendant might argue that she ought reasonably to have sought to mitigate her loss with respect to the second consignment. The defendant would seek to establish that during the three-month delay Karen failed to mitigate by renting a substitute warehouse: British Westinghouse. While Karen is under no real 'duty' to mitigate, the duty is not to act unreasonably: The Soholt per Donaldson MR. The court will look at the steps the P took to minimise her loss and whether in fact she increased it by not leasing another warehouse. On the one hand, it may have been a relatively simple matter to lease another warehouse. If indeed this is found to be the case, then Karen would be debarred from claiming the full extent of her loss with respect to the price increases: Kaines (UK) Ltd v. Osterreichische Warrenhandelgesellschaft Austrowaren Gesellshaft mbH [1993] 2 Lloyd's Rep 1. On the other hand, the mere fact that Karen's conduct has increased the loss flowing from Ace's delay in completing, does not necessarily mean that she would not recover the 6 price increases. For example, even allowing for the fact that Karen might be a discount trader, it would be unreasonable to expect her to take steps to damage her commercial reputation, such as opening in a warehouse that was less than adequate for her business. Conclusion If time is of the essence, Karen is entitled to terminate and sue for damages. She will be successful in recovering ordinary business losses, including the price increases accruing during the period. However, if the price increases constitute special losses, she needs to have informed Ace of these transactions, to recover. The concepts of remoteness and mitigation are closely interrelated: Burns v. MAN Automative (Aust) Pty Ltd (1986) 161 CLR 653. It is open to the court to disallow Karen's full recovery for increase in the price of the consignments on the basis that she failed to mitigate her loss. In the event, the court finds that time was not of the essence, Ace would succeed on its cross claim for the $20,000 owing on the contract, less an amount representing Karen's normal business losses. In respect of damages for mental distress and generally for injured feelings, on the facts given, Karen is unlikely to be successful unless the injury is within the test of remoteness and manifests itself in physical illness. ============================================================ Question 1 Nola was the manager of a supermarket named Danny's Supermarket which was located in a large country town on the north coast of NSW. The store was named after the owner, Danny Doyle who lived in Sydney. On his frequent visits to the store Danny would discuss the purchase of replacement stock and sign the necessary orders for Nola to dispatch to the suppliers. As a rule sufficient stock was ordered during Danny's visits so that Nola had no need to order further stock. Shortly after Danny's visit in December, Karen, the sales manager of Annie's Grocery Wholesalers Co Pty Ltd, called at the store and showed Nola the orders she had taken from a nearby supermarket with which Danny's Supermarket was in direct competition. Nola was in a dilemma. Danny was overseas for the next two weeks and had left no forwarding address. Faced with the absence of Danny and very worried about losing customers to his competitor, Nola placed an order for $40,000 worth of goods for the very profitable Easter trade. Three days later Nola took delivery of the goods and immediately placed them on sale. Unfortunately, the next day Danny had a large consignment of similar goods delivered to the store. In a note attached to the goods Danny apologised for not informing Nola of this consignment but said he had been busy with other retail business matters. On his return from overseas to Sydney, Danny was presented with an invoice for $40,000 for the goods supplied by Annie's Grocery Wholesalers Co Pty Ltd to the north coast store. He immediately informed the company that he would not pay. In a letter to the company he said:\" I will not pay because Nola the manager of my store had no authority to order those goods.\" You are required to: Advise Annie's Grocery Wholesalers Co Pty Ltd: 1. Of any legal rights they may have in order to obtain payment of $40,000 for the goods they delivered to Danny's Supermarket (9 marks). 2. Would your advice differ if Danny informed you that Nola was expressly prohibited from ordering any goods without his authority? (4 marks). In your answer you are required to refer to relevant legal authority. Briefly explain the case law that may apply to the above facts. Question 2 Adam Smith is a 60-year- old former alcoholic who owns the local hotel 'Adams Bar'. He regularly attends meetings of the Alcoholics Anonymous organisation which are conducted by volunteer workers of the organisation. One of the volunteer workers is Coddo, a local business woman. She and her husband, Leech, often visit him at his room in the hotel when he has difficulties 'keeping straight', that is, free from alcohol. During one of these visits Adam tells Coddo and Leech that he would like to free himself from the work and responsibilities of operating the hotel. He is continuing to operate the hotel as this is his only source of income. Adam, Coddo and Leech then discuss plans for Adam's future financial security. After some discussion Coddo suggests to Adam that she has the solution to his problem. She tells him that she knows of a company called Deallo Pty Ltd which specialises in the management of hotels. She says that she is confident that an agreement could be reached whereby the company would take over the management of the hotel for a modest fee and Adam would receive a monthly income. Adam is very excited about this and is eager to obtain some security in the future and says he will go to Coddo's office to sign the necessary paper work. Adam thanks Coddo and Leech and says he can trust them to do the best for him. The next day Adam signs the paperwork. While he is doing this, a solicitor acting for Coddo, Leech and Deallo Pty Ltd, explains the contents of the various documents. For about nine months after signing the documents Adam does not receive any income from Deallo Pty Ltd. The company will not answer his phone calls or emails and Coddo and Leech have refused to talk to him. He finds out from other sources that the only shareholders in the company are Coddo and Leech. Adam also discovers that the agreement provides for a term of 20 years, and that management fee is calculated at 20% of the gross takings of the hotel and that Adam is excluded from any management of the hotel. Adam is anxious to have the agreement set aside. He seeks your advice. Discuss fully the grounds on which Adam may rely in order to have the agreement set aside by the court. In your answer you are required to refer to relevant legal authority. Briefly explain the case law that may apply to the above facts