Question 1

Sonny Chu is a university student majoring in entrepreneurship and international business. Two

years ago, while on a student exchange program in China, Sonny came up with an idea for an

Internet business. In China, Sonny had been able to purchase tailor-made silk suits for $250 to

$400. The equivalent suits cost $1500 to $1800 in Canada. Sonny believed that he could offer

the tailor-made silk suits to Canadians at close to the same price that he had paid for the suits if

he could solve the difficulty of having customers take their own suit measurement.

Back in Canada, Sonny worked with a design student, and together they were able to develop a

simplified method of taking suit measurements. With this problem solved, Sonny set up a

website for his business called "This Suits Me." The website featured several suit styles, a range

of silk fabric swatches, and instructions for taking measurements. Customers could easily order

suits by clicking on the style and fabric and sending in their measurements by following the

simplified instructions provided.

To handle the Chinese end of the business, Sonny employed Dong Lee, a student he had met

on exchange trip. Dong was born in China and is very familiar with the fabric industry, as both

his mother and father are dressmakers. His job for Sonny involves purchasing silk fabric,

engaging the services of Chinese tailors. The arrangement proved to be very profitable, and,

within six months of establishing the website, Sonny was meeting all his sales targets. However,

a couple of recent developments threaten the success of Sonny's business.

Dong agreed to pay $100000 to a Chinese supplier for several bolts of silk fabric. Although the

fabric is beautiful and will make wonderful suits, Sonny believes that Dong has agreed to pay

too much for the fabric and, further, he does not think that his business can afford the purchase

at this time. Sonny wants to cancel or renegotiate the contract. He is also very angry with Dong

because Sonny had expressly told Dong he could not enter into any contracts on his behalf in

excess of $25000 without getting his permission first.

Sonny has also discovered that Dong has been purchasing fabric and engaging tailors on behalf

of some of Sonny's competitors. When confronted with this information, Dong stated that he did

not see any problem with his actions as he had not signed any exclusive representation contract

with Sonny.

a) Applying the relevant principle of agency law, identify and discuss the nature of the

legal relationship between Sonny and Dong. Discuss whether there has been any breach

of duty. (5 marks)