Question One 2002 End of year (comments in italics) mark: 83
James = J
The issues in this question are
1. What remedies J has and what damages he can recover?
2. Is his mother liable under the guarantee?
1. When asking whether J has any remedies or can recover damages, the obvious
action is to ask whether he can terminate the contract. He could terminate the
contract for breach of term or repudiation on the part of the lessor(Laurinda).
Can J Terminate the contract on the breach of the lessor regarding maintenance?
J would be advised to seek termination as this would vastly improve his business if he
found a more reliable machine company to lease a cleaning machine from. To
terminate for breach, the term must either be a condition(Tramways v Luna Park)
therefore justifying termination for breach of the term not matter how small; or
finding it is an innominate term(Hong King Fir) and thereby looking at the gravity of
the consequences of the breach to decide whether it justifies termination. If he cannot
terminate, he can still recover damages for the breach.√
Was the term a condition?
To decide if the term was a condition you apply the test of essentiality in Tramways v
Luna Park. In this case you ask if the term regarding maintenance within a week’s
notice was so essential to the contract the parties would otherwise no have entered the
agreement. In this case it seems that it was not an essential factor inducing either or
both parties to enter the contract and it is therefore not a condition.√
Is the term an innominate term?And can it justify termination?√√
The term is classified as an innominate term(as a warranty would not allow
termination no matter how serious the breach and does not apply in this case) and the
test in Hong Kong Fir (accepted in Australia in Ankar v National Westminster) states
that you must look at the gravity of the consequences of the breach. In this case the
consequences are that he cannot operate his business to its full capacity. It is obvious
three is more business he could be acquiring and more profit to be made by the fact
that he needed the second machine to cope with it. Where the consequences of the
breach do not allow the contract to perform its function(that is, to make the machine
operate) then it is sufficiently serious to justify termination in this case.√√ Good
reasoning.
Could he terminate for repudiatory conduct on the part of the lessor?
The argument could be put, in the alternative, that the lessor’s actions (√√) in not
coming to fix the machine constitute repudiatory conduct. The law states that
repudiation occurs when the other party is unwilling or unable to perform their
contractual obligations (Laurinda v Capalaba). The lessor may argue that the fire two
times he went to fix the machine, nothing was said regarding the breach, that this was
affirmation.√ J can argue that the final breach and deterioration to the extent that he
has only used the machine for 6 weeks in the last for months is still recoverable loss
(?) and that the affirmation of the first two breaches does not waive his future rights to
terminate (Tropical Traders v Goonan). He could therefore argue that the lessor, in
not adequately repairing the machine and in being consistently late as unwilling to
fulfill his obligations and this constitutes repudiation thus justifying breach.√√
Damages
In order to recover expectation damages, J must then satisfy the elements of
causation, remoteness and mitigation.√
Causation
He must satisfy the ‘but for’ test and common sense in Alexander v Cambridge
Corporation.√ ‘But for’ the lack of repairs on the machine, J would not have suffered
loss of profit and business. Common sense also shows that this breach was a causative
factor of the loss.√
Remoteness
Was the loss too remote?
The test in Hadley v Baxindale in Victoria Laundry allows recovery for foreseeable
loss such as loss of profit and business to be recoverable under the first limb of the
test.
Mitigation
I would advise J to seek another machine company and also suggest seeking legal
advice is sufficient mitigation.
Therefore he could recover ordinary loss of business and profit.√ ( 12½ / 15)
The second issue in this case is whether the mother is liable under the guarantee or
whether the loans advisor was using unconscionable conduct to obtain it.
Were Trevor’s actions unconscionable?
This case is analogous to that of Armadio and must satisfy the criteria in order to
make the loan corporation, Financial, liable.√
The test states that in order for it to be unconscionable conduct there must be:
1. Special disadvantage of the guarantor
2. Knowledge of this special disadvantage by the bank (deal with this below)
3. Exploitation of this special disadvantage of the guarantor by the bank.
√
1.Special disadvantage
The test in Blombly v Ryan includes age and lack of education such as that of Eliza.
Although it says she helped with her husband’s business, due to lack of formal
education it is unlikely she handled the financial side and therefore probably also has
little business knowledge. She is therefore at a special disadvantage.√
2.Knowledge
The financial corporation may not be a bank but they would still come into the
situation of loans being guaranteed by members of family and can be said to be aware,
or ought to be aware, of this sort of situation. They knew she was elderly and
obviously had little business knowledge and was the mother of James.√
3.Exploitaion
Did Trevor(on behalf of Financial) exploit Eliza’s position?
He did ask if she understood yet given the situation and her special disadvantage, it
was not adequate for him to merely ask if she knew what she was signing. He knew
the information regarding the document was given by the son who seeks to gain from
the guarantee and therefore Trevor did not take adequate steps to find out if
independent advice had been sought. He may argue that he was only a trainee but as
he was supervised by Martin, the loans officer, this is no excuse.√√
To conclude it is likely the court will extend Amadio to the situation of loans
corporations acquiring a guarantee from an old woman who is at a similar special
disadvantage as to the parents in Amadio (although they were immigrants, Eliza still
has little education or literacy) and the court may extend the unconscionable conduct
to include this situation where the loans officer has used unconscionable means to
obtain the guarantee. It is advised to pursue this action as it is unlikely Eliza will be
liable.√ What about Garcia and NAB – does that have anything useful? 12½ / 15.
Conclusion
In conclusion J is advised to pursue an action for breach of contract, of an innominate
term, that justifies termination. J would also be advised to present the alternative
argument that the lessor’s actions constituted repudiation thus justifying termination.
For this he could recover expectation damages for loss of profit and business
(established on fact) and would be advised to seek a new lease company. J would be
advised, finally, to pursue an action against the loans company for unconscionable
conduct in obtaining the guarantee from Eliza who would not be liable.√√