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Exam 2015, questions and answers

Commercial Law (RMIT)

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Mr. Chan is a law lecturer at RVIT, a large Australian university. He is also a fan of driving motorcycles
very fast. One day his manager told him, Mr. Chan, all of your law examples are old and boring. You
need to find some better cases to amuse your students. Mr. Chan tries hard at his job and he decided
to be a good worker and accept this criticism. He therefore decided to visit the local law library in order
to research some new case studies to use in his lectures. He jumped on his motorcycle, put on his
helmet and his leather jacket and rode toward the law library.
On his way to the law library Mr. Chan became bored and decided to see how fast he could go. He rode
in and out of traffic, he rode through red lights. Traffic became very bad and he was stuck at a traffic
light. He then decided that he would ride his motorcycle down the sidewalk to avoid the traffic. He rode
down the sidewalk at 70km/h just as Yuan, a jogger using an IPod, stepped out of her office building to
begin her regular morning run. Mr. Chan hit Yuan, who was thrown into the street where she was then
also hit by a passing garbage truck.
As a result of the accident, Yuan had 13 broken bones. Her prized Nike running shoes (which cost $200)
and IPod (costing $200) were destroyed. Yuan also suffered serious shock and developed a life-long fear
of running and motorcycles. She has $50,000 in doctors bills and $10,000 in psychiatrist bills. She also
lost $60,000 in income due to missing work while she was recovering in the hospital.
Using case law, advise Yuan whether she would succeed in negligence against Mr. Chan.

For Yuan to succeed, she must prove each of the three steps in negligence: duty of care, breach
and damage (Donoghue v Stevenson).
Duty: Does Mr. Chan owe Yuan a duty of care? It is necessary to apply the Donoghue v
Stevenson neighbor test, as developed in later cases, requiring reasonable foreseeability of
injury to Yuan through Mr. Chans failure to take care.
In these circumstances, there is a strong argument that a duty of care is owed to Yuan. It is
reasonably foreseeable that the failure to ride the motorcycle safely he rode on the sidewalk
and at excessive speed in circumstances where it was reasonably foreseeable that his conduct are
likely to hurt a pedestrian such as Yuan using the sidewalk. Mr. Chan owes Yuan a duty of care
to take reasonable care to avoid foreseeable risk of injury. Case authority for the duty owed by
drivers to individuals using public roads or paths includes Chapman v Hearse and Imbree v
McNeilly.
Breach: The question is whether Mr. Chan has acted as the reasonable person in the
circumstances. The court will consider relevant factors to determine whether there has been a
breach of the duty of care. These include the probability of the harm (Bolton v Stone), the likely
seriousness of the harm (Paris v Stepney Borough Council), common practice (Mercers case),
and the low cost of eliminating the risk (Latimer v AEC). In this regard, the court may take into
account the fact that Mr. Chan was riding his motorbike on the sidewalk which is meant for
pedestrians and not for riding on a motorbike and that he was speeding. The probability of harm
in these circumstances is high, as the likely seriousness of the harm. These would indicate a
breach of the reasonable motorbike rider standard.

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Damage: It must be shown that damage was caused by the breach and that it is appropriate to
extend the defendants liability to the harm. For causation, the but for test is usually applicable.
But for Mr. Chans breach of his duty of care, Yuan would not have suffered 13 broken bones,
the other medical and psychiatric injuries, as well as the damage to her personal belongings and
the loss of income while recovering.
Having established the three elements of negligence (a duty of care, breach and damage), Yuan
may recover damages from Mr. Chan for the expenses and losses she has suffered.
Potential Defences:
From the facts given, Mr. Chan does not have a strong claim under either voluntary assumption
of risk or contributory negligence. Yuan did not voluntarily assume the risk of being hit by Mr.
Chans motorcycle. As far as the defence of contributory negligence is concerned, Yuan may be
found to have contributed to her injury in that she was using an IPod when stepping out of the
building when the accident occurred. Under section 26 of the Wrongs Act 1958 (Vic) there
would be a reduction of damages to the extent of her negligence.

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Sam Hua runs a mens hairdressing business. He advertise on TV and radio a new hair and scalp cream
called Hair Galore which is designed to stop men from going bald. He advertises it for $1,000 a bottle.
In the advertisement, Sam Hua states that the cream is designed to keep your hair from falling out.
Sam Huas advertisement also promises a $1,000 refund to anyone who purchases the product, uses it
as directed for six months, but still loses more than 5% of hair from their head.
Charles is a 30 year old accountant and is worried that he is going bald. He therefore buys a bottle of
Hair Galore and uses the cream as directed for six months. However, he finds that he has lost at least
10% of head hair during this time.
Charles attends Sam Huas hairdressing business and requests advice regarding the effectiveness of
Hair Galore. Sam Hua refuses to discuss the matter, arguing that the advertisement was not meant to
be taken seriously.
Charles continues using Hair Galore as directed for another six months but finds that he has lost at
least 20% of hair from his head since he started using Hair Galore.
Required:
Using case law, advise Charles whether he can successfully claim the $1,000 refund.

Sam Huas advertisement is an offer, not an invitation to treat, as the advertisement promises a
refund Carlill v Carbolic Smoke Ball (compare this to Partridge v Crittenden which held
that advertisements are normally treated as invitations to treat). The advertisement is not an
advertising puff as it makes a clear promise of a refund.
Furthermore, the advertisement is an offer to the world in which case acceptance does not need
to be communicated. In unilateral contracts performance of the acts specified in the offer
amounts to acceptance: Carlill.
Charles knew about the offer and acted in reliance on it: R v Clarke. Charles is therefore
considered as having accepted the offer to buying and using the product. There is therefore
agreement.
Intention is not at issue as this is an arms length commercial transaction. Similarly,
consideration is not at issue, both parties providing the requisite consideration: Sam Hua
promised a $1,000 refund to users of the product who still lost more than 5% of their head hair
and Charles bought and used the product and still lost more than 5% of his head hair.
Charles therefore has contractual rights to the $1,000.

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On Monday the 2nd of March 2015, Charles offers to sell his collection of rare stamps to his close friend
Wing Yee for $20,000 by telephone. This was considerably less than the $25,000 that Charles had
advertised his collection for in the local newspaper. Wing Yee asked for a little time to think it over and
was told by Charles Sure, I will leave the offer open until Thursday the 5th of March.
On Wednesday the 4th of March, Wing Yee posted a letter to Charles agreeing to buy the stamps at the
specified price subject to Charles assurance that the stamps were not damaged.
Later that same Wednesday, Charles was approached by Joo Keng who offered to purchase Charless
stamps for $25,000 as advertised in the newspaper. Charles immediately accepted and then sent Wing
Yee a letter telling him that he had decided not to sell the stamps.
Charles received Wing Yees agreement letter on Thursday the 5th of March and Wing Yee received
Charles withdrawal letter on Friday the 6th of March.
Advise Charles of his liability, if any, to Wing Yee and/or Joo Keng.

1. 2nd March 2015: Charles offers to sell stamps to Wing Yee for $20,000. This is a definite
undertaking to be bound. It has been communicated. It is therefore a valid offer (Carlills
case). There is, however, a question relating to intention to create legal relations as
Charles and Wing Yee are close friends (Balfour v Balfour).
2. The advertisement, on the other hand, is an invitation to treat (Patridge v Crittenden).
3. Leaving offer open till Thursday 5th March is not a separate contract or option as no
consideration was paid (Routledge v Grunt). It is therefore a revocable offer.
4. Wednesday 4th March 2015: Wing Yees letter purporting to accept is not an acceptance
as is subject to a condition that the stamp is not damaged (Masters v Cameron) or may
be considered a counter offer (Hyde v Wrench).
5. Later on 4th March: whether a contract is formed between Charles and Joo Keng for the
sale of the stamps for $25,000 depends on whether the acceptance by Charles of Joo
Kengs offer was effective. It appears that it was effective. There is no suggestion of a
counter offer or conditional acceptance.
6. Later on 4th March: Charles purports to revoke offer to Wing Yee. However, the
revocation of offer is effective only when received which is 6th March (Byrne v Van
Tienhoven).
7. There is no contract between Charles and Wing Yee. Wing Yee had not unconditionally
accepted Charles offer. Furthermore, their friendship may also indicate that there was no
intention to be legally bound.

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Wei Yen who is aged 34, was employed on his parents farm as a labourer. In 2012 he suffered an injury
to his back when lifting heavy bags of potatoes. He underwent spinal surgery and was off work for
nearly 12 months. Wei Yen received compensation for this injury. Wei Yen returned to work on the farm
in 2013. His parents knew of the injury and the operation.
In 2014, Wei Yen began to complain that his back was getting sore again, and his parents told him not
to lift heavy things and to be careful. They provided a small lifting machine to assist him to carry out his
job. However Wei Yen thought the machine was too slow so he continued to lift the bags by himself.
Early in 2015, while Wei Yen was lifting bags of potatoes onto a trailer, his back was again injured, and
he had to undergo more surgery. This time the injury was too great, and he will be unable to do any
more laboring work for the rest of his life.
Discuss what Wei Yen must prove to obtain compensation from his parents. Also discuss what defences
might his parents be expected to raise? Refer to relevant court decisions to support your answer.

This is a negligence action. To prove negligence the plaintiff must prove there was a duty of
care, this was breached, which caused injury, and that injury was foreseeable. Defences of
contributory negligence and voluntary assumption of risk must also be discussed.
There are many cases that show an employer owes an employee a duty of care. (Paris v Stepney
Council, Latimer V AEC). Where an employee has a special disability the employer must take
this into account, (Paris). The parents told him not to lift things, so they knew of the bad back,
and injury to a bad back is foreseeable and clearly causation is not an issue. However, Wei Yen
contributed to his injury in not using the lifting device.
Therefore all the elements of negligence are present, so Wei Yen will get compensation, but it
will be reduced by his contributory negligence.

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Mei Ling writes a letter to her close friend, Won Tan, and offers to sell him her car for $3,000. Won Tan
calls Mei Ling and explains that he needs a little time to think it over. Mei Ling tells her, Ill give you till
Monday August4 to let me know whether you want the car.
On Thursday August 7, Won Tan posts a letter to Mei Ling agreeing to buy the care for $3,000.
Later that Thursday, Mei Ling is approached by her work boss, Jack, who wishes to purchases Mei Lings
car. Jack offers $4,000. Mei Ling accepts Jacks offer. Mei Ling immediately calls Won Tan and leaves a
message on Won Tans answering machine telling her that she has decided to sell the care to Jack
instead.
Won Tan hears Mei Lings message on Friday August 8 and Won Tans letter to Mei Ling is not delivered
until Monday August 11.
Advise Mei Ling as to her contractual obligation in respect of the car.

1. Mei Ling offers to sell her car to Won Tan for $3,000. This is a definite undertaking to be
bound. It has been communicated. It is therefore a valid offer (Carlills Case). There is
however, a question relating to intention to create legal relations as Mei Ling and Won
Tan are close friends (Balfour v Balfour).
2. Leaving offer open till 4 August is not a separate contract or option as no consideration
was paid (Routledge v Grant). It is therefore a revocable offer.
3. August 7: Won Tans letter purporting to accept is not valid acceptance as it does not
comply with the terms of the offer the offer had already lapsed as it was only open till
effective notice of acceptance on 4 August.
4. Later on August 7: a contract is formed between Mei Ling and Jack for the sale of the car
for $4,000. It appears that it was effective as Jacks offer was accepted by Mei Ling.
There is no suggestion of a counter offer or conditional acceptance.
5. Later on August 7: Mei Ling purports to revoke offer to Won Tan. However. The
revocation of offer is effective only when received which is 18 April (Byrne v Van
Tienhoven).
6. However, her revocation is not relevant as her offer had lapsed on August 4.
7. Mei Ling has a contract with Jack, created on August 7.
8. There is no contract between Mei Ling and Won Tan as acceptance was not notified
within the time stipulated.

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Sriniti is the owner of a coffee shop in Yummees, a popular place to meet up and chat over a cup of
coffee. Last Monday was a wet and windy day, Srintis coffee-shop became very busy as people came in
from the street to shelter from the rain. Because of the rain, sections of the floor of the coffee shop
became wet and slippery. One of the customers, Gopalan, who was enjoying a coffee with his friends,
stood up from his chair, took a couple of steps, but slipped on the floor, breaking his legs. As a result,
Gopalan incurred $3,000 in medical expenses and will be out of work for six weeks. Using case law,
advise Gopalan whether he would be successful in negligence against Sriniti.

This is a negligence problem. For Gopalan to succeed, he must prove each of the three steps in
negligence: duty of care, breach and damage (Donohue v Stevenson).
Duty: Does Srinti owe Gopalan a duty of care? It is necessary to apply the Donohue v Stevenson
neighbor test, as developed in later cases, requiring reasonable foreseeability of injury to
Gopalan through Srinits failure to take care.
In these circumstances, there is a strong argument that a duty of care is owed to Gopanlan. It is
reasonably foreseeable that the failure to wipe and keep the floor dry is likely to cause injury to a
person entering the coffee shop. Because Gopalan was a lawful entrant into Srintis coffee shop,
Srinti owes Gopalan a duty of care to take reasonable care to avoid foreseeable risk of injury.
Australian Safeway Stores Pty Ltd v Zaluzna provides a direct case authority for the duty owed
by occupiers to invitees on the occupiers premises.
Breach: Leaving the floor wet may amount to a breach of the duty of care. The question is
whether Srinti has acted as the reasonable person in the circumstances. The court will consider
relevant factors to determine whether there has been a breach of the duty of care. These include
the likelihood of injury (Bolton v Stone), common practice (Mercers case), and the low cost of
eliminating the risk (Latimer v AEC). In this regard, the court may take into account the extent
and duration of the wet conditions of the floor. If it were not possible to dry the wet sections of
the floor within a reasonable time, Srinitis failure to erect warning signs or barriers around these
area amounts to a breach.
Damage: It must be shown that damage was caused by the breach and that it is appropriate to
extend the defendants liability to the harm. For causation, the but for test is usually applicable.
But for Srinits breach of his duty of care, Gopalan would not have suffered a broken leg and
would not have been out of work for six weeks.
Having established the three elements of negligence (a duty of care, breach and damage),
Gopalan may recover damages from Srinti for his $3,000 medical expenses and loss of six weeks
wages.
Potential Defences:
From the facts given, Srinit does not have a strong claim under either voluntary assumption of
risk or contributory negligence. Gopalan di not voluntarily assume the risk of slipping on Srinits
floor. It may have been a different result if the floor was flooded, but we are not told that. As far
as the defence of contributory negligence is concerned, Gopalan did not contribute to her injury,
so there would be no reduction of damages under section 26 of the Wrongs Act 1958 (Vic).

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Mei Ling is a financial adviser. Her neighbor, Ruo Lan, who is thinking of retiring from his job as a
schoolteacher, approaches Mei Ling for specific advice on superannuation.
Mei Ling is aware that Ruo Lan wants free advice, and she is unhappy with providing free information
outside of work. She therefore decides to be as general as possible.
Ruo Lan mentions XYZ company as a possible investment. Mei Ling is unsure of the status of XYZ
Company but decides to tell Ruo Lan that everything should be all right if he only invest some but not all
of his money in XYZ company.
Ruo Lan retires and invests 75% of his retirement savings into XYZ Company. Three weeks later, XYZ
Company is placed in liquidation. All investors are told that they have probably lost their investments.
Using case law, advise Ruo Lan whether he would succeed in negligence against Mei Ling.

Issue: Is Mei Ling liable to Ruo Lan in an action of negligent misstatement?

Relevant law:
An action for economic loss caused by negligent misstatement may succeed if the following
elements are satisfied on the balance of probabilities:1.
2.
3.
4.

The defendant (Mei Ling) owed the plaintiff (Ruo Lan) a duty of care,
Mei Ling breached the required standard of care,
Ruo Lan suffered damage as a result,
Which was caused by Mei Lings negligent advice

If liability for negligent misstatement is established, the next question is whether Mei Ling could
rely on the defence of contributory negligence.
The main issue is whether Mei Ling owed Ruo Lan a duty of care. A duty of care arises where
there is a special relationship between the parties: (Hedley Byrne v Heller).
The test for establishing a special relationship was originally established in (MLC v Evatt).
Following the High Court case of (Shaddock v Parramatta City Council) a special
relationship will exist if:i)
ii)
iii)
iv)

The circumstances are such as to have caused the speaker to realise that he/she is
being trusted
The subject matter must be of a business or a serious nature
The speaker must realise or ought to realise that the receipient intended to act on the
advice and
The circumstances were such that it is reasonable for the recipient to rely on the
advice.

The key to establishing a relationship of PROXIMITY between the parties is reasonable reliance.
Application to facts:

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1. Is there a duty of care?

i)
Ruo Lan is aware that Mei Ling has special skill in the area of financial advice.
Mei Ling would have realized that she was being trusted by Ruo Lan to give
advice and, if she was not aware of this fact, she ought to have been aware of this
fact.
ii)
The advice given is regarding investment of Ruo Lans superannuation funds
which is of a business or serious nature.
iii)
Arguably Mei Ling would have realized that Ruo Lan was intending to act on her
advice even though she was very general in the advice that he gave him. Whilst
she wasnt happy about giving free advice to Ruo Lan, when specifically
questioned about XYZ Company, she replied that if he only invested SOME of
his money, he should be ok. Ruo Lan would argue that it was implicit in this
response that she did believe he intended to act on her advice. It is useful for Ruo
Lan that Mei Ling did not issue him with a disclaimer.
iv)
Is it reasonable for Ruo Lan to rely on advice given to him by Mei Ling casually
as he was heading off to work? Mei Ling would argue that it is not reasonable for
him to acted in reliance of the advice in these circumstances he did not pay her
for the advice and she only gave him general information during a brief informal
chat. She would argue that it is not reasonable for him to make a decision about
the investment of a substantial proportion of his retirement funds based on such
an informal discussion. Furthermore, he has disregarded his advice to a certain
extent by investing 75% of his superannuation funds, arguably substantially more
than the SOME she had suggested. On the other hand, Ruo Lan could argue that
her advice was very clear that he specially stated that the specific investment
should be all right. In other words, Mei Ling gave no indication that there was no
reason why he should not rely on her advice.
2. Are there any other elements of negligence satisfied?
a) Has there been a breach of the standard of care?
The question here is whether Mei Ling acted as a reasonably careful, prudent financial
advisor? She appears to have breached the required standard of care by not making
appropriate enquiries as to the status of the XYZ Company, Ruo Lan should argue that a
reasonably careful, prudent financial advisor who was not certain about the advice they
were giving (even in these circumstances) would suggest an appointment be made to see
her in the office at a later time, after she had been given an opportunity to investigate the
mature of that company further.
b) Did Ruo Lan suffer damage due the advice?
There appears to be no issue here. Clearly Ruo Lan has been informed that he has
probably lost her investment which represents 75% of the total of her superannuation
funds.
c) Was the damage caused by Mei Lings negligent advice?
The but for test must be applied. Furthermore information is required, for example,
what was the status of the company at the time the advice was given? Why were the

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companys assets frozen? If the companys financial status and/or reputation was not
sound at the time the advice was given, then it would be possible to argue on Ruo Lans
behalf that his damage would not have occurred but for the Mei Lings advice.
Alternatively, if the company was sound at the time the advice was given, it may be
argued by Mei Ling that Ruo Lan lost his money due to other unforeseen circumstances
e.g. swift and un unforeseen economic downturn.

3. Defences
Mei Ling in this case would argue that there has been some contributory negligence on Ruo
Lans part in his failure to seek more detailed advice, given his decision to invest of his
superannuation funds. Given that Ruo Lan was making such an important decision (i.e. where to
invest her entire retirement funds) he should have sought opinion from another financial adviser,
if not several.
Conclusion
Assuming all the elements of negligence are established on the balance of probabilities, then Mei
Ling would be liable to Ruo Lan for the loss suffered. However, if Ruo Lan was found to have
been contributory negligent, this would have the result in reducing (proportionately) of the
amount of damages that are awarded to him.

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Alperhan operates a restaurant in a commercial district in premises leased from Mr. Ravi. The rent
under the 5 year lease beginning in 2011 is $8,000 per month.
At the start of this year, Alperhan found that business was very poor and complained to Mr. Ravi that if
business does not improve he will have to close his restaurant. Mr. Ravi was concerned about losing
Alperhan as a tenant and told him that he will accept a reduced rent of $6,000 per month for the rest of
2014. Aleprhan says that this will help him keep the restaurant running. However, Mr. Ravis statement
about the reduced rent for 2014 is not put down in writing.
It is now September 2014 and Mr. Ravi demands that Alperhan pay him $2,000 per month arrears of
rent from the start of the year and that Alperhan pay him $8,000 per month for the rest of the year.
Advise Alperhan as to his legal rights.

Under Section 126 Instruments Act 1958 (Vic) (the Victorian reenactment of S4 of the Statute of
Frauds 1677), a contract for the transfer of land or an interest in land such as a lease cannot be
enforced unless it is evidenced in writing. Thus, the oral agreement between Alperhan and Mr.
Ravi is unenforceable.
However, promissory estoppel may assist Alperhan. Promissory estoppel prevents a promissor
from reneging on a promise where it would be unconscionable or unfair for them to do so.
Promissory estoppel operates in favour of a promise where the promise has relied on a promise
and would suffer some detriment if the promisor went back on their promise.
Students may consider differences between the English and Australian approaches to promissory
estoppel. Under English law, promissory estoppel may only be used as a defence (a shield) to
prevent the promisor from reneging on a promise not to enforce their strict contractual rights
(Central London Property Trust Ltd v High Trees House Ltd). The Australian High Court,
however, has radically broadened the operation of promissory estoppel may be used as a cause of
action (a sword) to enforce an otherwise non-binding promise.
Alperhan would be using promissory as a defence, so the narrower English approach to
promissory estoppel (the High Trees case) would suffice. Relevant criteria under the High Trees
doctrine include: the existence of a contract, a promise by one party not to enforce their strict
legal rights under the contract, the promisee acting in reliance on this promise to his detriment in
that he continued leasing the premises on the understanding that only the reduced rent was
payable, and that it would be unfair for Mr. Ravi to back on his promise.
However, the broader Waltons Stores doctrine may also be argued, as it can be used as a defence
as well as a cause of action. To succeed in a claim for compensation using the Waltons Stores
case as precedent, the promisee must establish the following criteria:
a)
b)
c)
d)
e)
f)

Assumption: the promisee assumed a legal relationship existed or would exist

Responsibility: the promisor was responsible for the assumption
Reliance: the promisee acted on the assumption
The promisor intended the promisee to act on the assumption
Detriment: the promisee suffered loss on the assumption not being fulfilled
The promisor did not forewarn the promisee that the promise may not be delivered

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Alperhan would also be able to establish these elements on the facts of his case.

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