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Sample IRAC Essays-1 on Business and Corporation Law

Question One

This is a negligence problem.  For Tom to succeed, he must prove each of the three steps in negligence:  duty of care, breach and damage (Donoghue v Stevenson).  However, Jim may succeed in defence.

1.    Duty: Does Jim owe Tom duty of care?  

Rule: It is necessary to apply the Donoghue v Stevenson “neighbour” test, as developed in later cases, requiring reasonable foreseeability of injury to Tom through Jim’s failure to take care.  Australian Safeway v Zaluzna – occupiers have a recognised DoC to invited entrants but Tom has not been invited – he is a burglar.  A duty may be owed to a trespasser such as where a deliberate trap is laid, or what the defendant does is extra hazardous, or ultra-hazardous, as in the case of the farmer who shot at a thief’s car and injured the thief’s girlfriend: Hackshaw v Shaw.   Also, where more innocent trespassers, such as children, enter premises which are in fact open to the public, such as railway land.  In Bryant v Fawdon -  no duty was found to exist to a trespasser who climbed a fence in the dark to use the toilet and was injured when the cistern fell upon her.
Application: Tom was not invited so Zaluzna not applicable.  He was trespassing as in Bryant v Fawdon where there was a DoC but no DoC owed to trespasser in Hackshaw v Shaw.  Is the injury the result of the dangerous action undertaken by the owner of the premises in leaving an exposed cable? You could have found DoC either way.

2.    Has the DoC been breached?

Rule: A person breaches their DoC if they fail to meet the standard that a reasonable person is required to show to avoid unreasonable risk of harm: Imbree v McNeilly.   Factors the courts use to help determine whether there is a breach: 
•    likelihood of injury (Bolton v Stone), 
•    common practice (Mercer’s case), and
•     the cost of eliminating the risk (Latimer v AEC)
•    Social utility of defendant’s conduct: Watt v Hartfordshire CC
•    Seriousness of injury: Paris v Stepney CC.
Legislation: s 14G of the Wrongs Act 1958 (Vic) - a court is to take into account whether the plaintiff was engaged in any illegal activity in determining whether the defendant breached the duty of care.  
Application and Conclusion: Has Jim acted as the reasonable person in leaving the exposed electric wire in harm’s way?    The likelihood of injury of anyone properly on the premises being injured seems high.  The cost of insulation is probably not great and common practice would suggest leaving uninsulated cable is probably illegal as a breach of occupational health and safety standards. The seriousness of injury or even death is high.  However, under s 14G given that Tom was committing a burglary, the court may therefore hold that Jim did not breach his duty of care to Tom.  

3.    Has there been damage caused that was not too remote?

Rule: It must be shown that the damage was caused by the breach and that it is appropriate to extend the defendant’s liability to the harm.  For causation, the test is the “but for” test (March v Stramare or Yates v Jones).  On the remoteness test is the damage reasonably foreseeable?
The eggshell skull plaintiff rule states that the defendant must take their victim as they find them, ie where the plaintiff suffers greater than usual harm because of a pre-existing vulnerability, the defendant will be liable to the full extent of the harm.

Application and Conclusion: Tom’s injury has deprived him of the use of his arm for around five years. There is certainly a link between the breach and Tom’s injury.  It is reasonably foreseeable that a sign might not be seen and a person injured.  A person could be in the factory who could not read, there could be a power failure or the sign could be knocked over so it is reasonably foreseeable that a person might be injured. Tom is an eggshell plaintiff so the defendant must take Tom as they find them so the bone defect will not reduce the liability of Jim. 

4.    What are the potential defences?

Rule: The complete defence of voluntary assumption of risk (Agar v Hyde) and the partial defence of contributory negligence (Manley v Alexander or Ingram v Britten).  
Under s 26 of the Wrongs Act 1958 (Vic) damages may be reduced to the extent of the plaintiff’s contribution to their injury.

Application and Conclusion: By engaging in burglary, it may be argued that Tom has voluntarily assumed the risk involved in this kind of activity.  However it must be shown that Tom had full knowledge of that risk and willingly agreed to that risk. It might be easier to make out this defence if the factory was say, disused.  By committing a burglary, which creates dangerous conditions for the burglar himself, it can be argued that Tom contributed to his own injury, for example by failing to keep a lookout for dangers inherent in burglary.   The compensation would be reduced to the extent of his own culpability.

Question Two

Issue: Is Gina able to hold Mr Smith to his promise that she could pay a reduced rent?  The issues are that there is an existing valid written lease with the higher rent and whether Gina provided good consideration for the promise of the reduced rent.  Will Mr Smith be able to enforce the agreement and what defence could Gina raise?

1.    Does the written lease prevail?

Rule: The parol evidence rule (PER) states that where a contract is reduced to writing and appears to be entire it is presumed that the writing contains all the terms.  This means that if there is inconsistency between the written contract and an oral term, the written contract will prevail.  Even if a written contract appears complete, if what was agreed orally is very important, a court may conclude the oral undertaking was intended to be a term : Van den Esschert v Chappell.  However, in that case there was no mention of white ants in the written contract so the additional oral promise did not displace the written term as is the case here, but was merely added as an oral term to complete the contract.  Courts do not take account of post-contractual behaviour and base the contract on the agreed terms: Hoyle & Skin Trading v Oceanic Meat Traders.

Application and Conclusion: Under the PER and s 126 the written contract will prevail.  The oral promise is attempting to displace an existing term of the written contract so will be unsuccessful under the common law.  The behaviour of Mr Smith in accepting the reduced rent for 6 months probably also does not displace the terms of the written lease.

2.    Has Gina provided good consideration?

Rule: A contract is not enforceable unless good consideration has been paid.  Consideration cannot be past consideration (Roscorla v Thomas) nor consist of a prior legal obligation (Stilik v Myrick) nor be only part of a debt owed (Foakes v Beer).  However under Musumeci v Windell consideration could be a practical benefit.

Application and Conclusion: Gina’s rent has been reduced to $3000 from $8000, a reduction of $5000.  The issue is what has Gina given up in return?  She already had an existing legal obligation to pay rent and consideration that is only part of the amount owed is not good consideration.  So it appears Gina has not provided any consideration for Mr Smith’s promise to reduce the rent.  (However, you could also argue that Mr Smith has received the practical benefit of retaining Gina as a tenant and on this argument Gina did provide good consideration).  It would most likely be found that under common law, Mr Smith may enforce the original rental agreement.  

3.    What defence could Gina raise?

Rule:  The equitable doctrine of promissory estoppel (PE) a defence or exception to the PER and/or a lack of consideration (the High Trees case and Waltons Stores v Maher).  In Walton Stores v Maher, Maher the builder was induced to start building work because Waltons did not correct his assumption that the signing of the contract was a mere formality and so he was able to claim his loss from Waltons under the doctrine of promissory estoppel.  The elements of PE are  that a person
(a) was induced into doing something in reliance on a promise, 
(b) suffered detriment as a result, and 
(c) it is unconscionable for the person to break his promise.  

    Application and Conclusion:  The facts are very similar to High Trees.  Gina must show that 
(a) she was induced into remaining in the lease on the basis on Mr Smith’s promise to reduce the rent – she kept the restaurant running, 
(b) she suffered detriment by continuing with the lease, and 
(c) it is unconscionable for Mr Smith to break his promise.  

Promissory estoppel would prevent Mr Smith from enforcing his strict legal rights.  Gina would therefore only be liable to pay $3,000 per month for the rest of 2014, rather than $8,000 per month.

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