Legal Advice Essay

Question 1

(a) Clients, because of the limitation clause;

(b) Non-clients, because she has no contract with them; and

(c) Either group, because Lucy will be covered by Ivor’s indemnity

(and that it doesn’t matter whether the variation agreement referred to the light fittings).

Analyze whether you agree or disagree with each of parts (a), (b) and (c) of Arthur’s statement that Lucy should not worry about her liability.

Answer ALL three parts of this question. Make sure you refer to relevant cases and relevant provisions, including from the Civil Liability Act 2002 (WA) and, to the extent that you discuss negligence, limit your discussion to whether a duty of care exists (the Civil Liability Act and duty of care to be discussed in lectures on 29 August and 5 September).

Disagree on each of parts (a), (b) and (c)

To the fullest extent permitted by law, the total liability, in the aggregate, of Consultant, Consultant’s officers, directors, partners, employees, agents, and subconsultants, to Client, and anyone claiming by, through, or under Client for any claims, losses, costs, or damages whatsoever arising out of, resulting from or in any way related to this Project or Agreement from any cause or causes, including but not limited to negligence, professional errors and omissions, strict liability, breach of contract, or breach of warranty, shall not exceed the total compensation received by Consultant or $50,000 whichever is greater.

In proceedings relating to liability for negligence:(a) the burden of taking precautions to avoid a risk of harm includes the burden of taking precautions to avoid similar risks of harm for which the person may be responsible, (b) the fact that a risk of harm could have been avoided by doing something in a different way does not of itself give rise to or affect liability for the way in which the thing was done, (c) the subsequent taking of action that would (had the action been taken earlier) have avoided a risk of harm does not of itself give rise to or affect liability in respect of the risk and does not of itself constitute an admission of liability in connection with the risk. Thus, the idea (a) could not be powerful.

For the points (b), it could not be set up. The essential elements of a contract are offer and acceptance, intention to create a contract, form of consideration. Lucy has already signed a contract in June 2014. When she found out the difficulties, she still communicated with Ivor about the contract for assuring Ivor that she would complete the contract with a great intention to create legal relations and also confirmed the consideration. Thus, the before contract still existed and had legal power.

The duty of care and diligence features significantly under the common law, and is reinforced under section 180(1) of the Corporations Act. Section 180(1) provides that a director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

1﹑were a director or officer of a corporation in the corporation’s circumstances

2﹑occupied the office held by, and had the same responsibilities within the corporation as a director or officer.^[1]

The reference to a reasonable person indicates an objective standard of care, consistent with the development of the equivalent fiduciary duty.^[2] The foreseeable risk of harm is balanced against the potential benefits that could reasonably have been expected to affect the company from the conduct in question.^[3] The court also takes into account the subjective elements of the position of an officer and the particular circumstances of the relevant corporation in assessing whether the duty has been breached.^[4] 

Section 180 incorporates a business judgment rule under section 180(2) of the Corporations Act, whereby the director must:

1﹑make their judgment in good faith for a proper purpose

2﹑not have a material personal interest in the subject matter of the judgment

3﹑inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate

4﹑rationally believe that the judgment is in the best interests of the corporation

The director must satisfy these requirements in order to have been taken to have satisfied the statutory duty of care and diligence in respect of the particular business judgment.^[5]A “business judgment” means any decision to take or not take action in respect of a matter relevant to the business operations of a corporation.^[6]

Even Ivor agreed to vary the sale agreement to provide Lucy with the indemnity for any negligence of Smith and Brown Pty Ltd or Smith and Brown Pty Ltd’s employees, Lucy still have the duty of the liability because of the unfinished payment. Consequently, this agreement did not enter into effect and force.

Directors have a duty to be informed on the Corporations actual financial affairs of their company, including its solvency.^[7] This duty is not diminished by delegating responsibility. Directors are unable to hide behind ignorance of the company’s affairs, where that ignorance is of their own making.^[8]This means that directors should question information that is put before them to ensure that it is truly representative of the company’s position and not just accept what may be put to them by employees of the company. For example, if a director received a balance sheet that did not balance, it would be a breach of his or her duty of care and diligence not to ask for it to be corrected. Directors are required to make an informed and independent judgment on decisions put to the board of directors^[9], and are required to place themselves in a position to guide the company and monitor its management.^[10]

Question 2

Why are an intention to create legal relations and consideration essential elements of a contract, and what is the relationship between them? And should any distinction be drawn between family/domestic agreements and commercial agreements?

Intention to Create Legal Relations and Considerations

The definition of a contract is that a contract is an agreement but much more than agreement, which will be enforced in the courts, between two or more parties. There are six essential elements: offer and acceptance, intention to create a contract, form of consideration, legal capacity, genuine consent and legality of objects.