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Assessment 2 Case study analysis

Question 1

Issue: in the present question, the issue arises if Tina can be considered as being bound by the head of agreement that has been created with Jeff.

Rule: for the purpose of deciding the issue mentioned above, it needs to be considered if the heads of agreement created between the parties can be treated as being enforceable by the law. Some of the other names for the heads of agreement includes the letters of intent, memoranda of understanding or the heads of terms. Basically this document mentions the terms related to the commercial transaction concerning which the parties have arrived at an agreement in principle. In this way, generally, the heads of document is a document of nonbinding nature, and it mentions the basic terms related with a tentative transaction or an agreement. It can also be described as the first step taken towards the creation of a legally binding contract or an agreement between the parties. The purpose of this document is to provide guidelines related with the role and responsibilities of each party that is going to be a part of the transaction before a binding document has been created by the parties. Generally the document like heads of agreement is created, while dealing with commercial transactions.

In such cases, an issue may arise if the heads of document can be treated as being legally enforceable or not. The document can be considered to be legally enforceable or not, depends on the language that has been used in the document. However, generally the heads of agreements is not considered as being legally enforceable. However, some aspects like confidentiality, exclusivity, intellectual property and the provisions related with broad solicitation are treated as binding even if only for a reasonable time. As a result of the position of law applicable in this regard, there are certain persons who immediately assumed that the heads of agreement can be enforced by the law but many others who are of the opinion that this is not the case. The reality is that the heads of agreement may be binding or not legally enforceable. Generally, it is the intention of the parties to the agreement that the heads of agreement will not be legally enforceable concerning the major terms of the future agreements, but the document even going to be legally binding regarding the matters like confidentiality, due diligence, exclusivity and issues related with intellectual property. 

Application: in view of the legal rules mentioned above, in this case, a peach brandy business is owned by Jeff. However, when he was thinking of selling the business, he met Tina who was willing to purchase the business. In these circumstances, Jeff and Tina were involved into negotiations. It was agreed between them that they have a deal. Therefore a document was signed by Jeff and Tina. This document has been signed by Jeff. It mentioned the terms of the deal that was going to take place between kids and Tina. The terms of the deal have been mentioned in this heads of agreement. But after going through the wording used in this heads of agreement, it can be stated that in case of this document, it was not the intention of the parties that it should be legally enforceable. When Jeff had sent Tina of formal contract for sale, she refused to sign the contract.

Conclusion: in view of the circumstances, the conclusion arises in the present case that Tina is not legally bound to sign the contract for the purchase of the peach brandy business on account of the fact that the heads of agreement has been signed by her.

Part B

The same conclusion would have arisen that the heads of agreement cannot be in legally enforced against Tina even if there was a term which the document according to which the agreement was subject to getting suitable finance by Tina.

Question 2

Issue: In this question, the issue arises if Phil can be held liable for the breach of his duty as the director of LightsBright Pty Ltd. This duty, has to be fulfilled by the directors in view of section 180, Corporations Act. 

Rule: A duty similar to the duty prescribed by section 180 has also been present under the common law. This duty requires that the directors are under an obligation which requires them to use their powers with reasonable care. In this regard, the standard of care is the same that is expectable from a reasonable person, if the person was acting as a director in the same circumstances and held the same office in the company with similar responsibilities (Vrisakis v Australian Securities Commission, 1993).

In order to consider if the duty to exercise care has been fulfilled by the director, there are several circumstances that are a part of this consideration. Among the circumstances are the size and the nature of the company as well as its business type (ASIC v Wizard, 2005). The composition of the company's board and distribution of work among the directors also needs to be considered for this purpose. The duties that have been prescribed for the directors of corporations also depend on their skill and experience. An example in this regard can be given of ASIC v Vines where it was stated by the court that these skills associated with a particular position in the corporation need to be present when the defendant has been acting as the director as well as the chief financial officer (P Bryans & J Le, 2011). The courts have also stated in various judgments that in cases where the director is held as being liable for the violation of their duty of care while performing activities for the company, and action can also be taken under tort of negligence against such a director (ASIC v Vines, 2005). 

Application: in this question, Phil has been working as managing director of LightsBright Pty Ltd. Phil accepted a large order by Cheep Cheep Pty Ltd.. This order was delivered to the company, but it failed to pay $75,000 invoice sent by LightsBright. The circumstances were such that Cheep Cheep had been dealing with financial difficulties. Consequently, when this order was made, the industry was generally aware of the fact that this company was a bad credit risk. Phil was also aware of the treaty's financial position of Cheep Cheep. Still, he accepted the order and decided to ignore the financial problems faced by Cheep Cheep. His decision was motivated by the fact that he was well known to the managing director of the company. On the other hand, in view of the duties imposed on the directors, particularly the duty of care, it is clear that Phil had violated this duty. 

Conclusion: in view of the above stated legal position and its application to the present facts, the conclusion arises that Phil, the MD of LightsBright Pty Ltd had violated the duty of care imposed by s 180 and as a result he can be personally liable for the unpaid debt.


In the present case, Robert the MD of Cheep Cheep Pty Ltd does not have any personal liability regarding the unpaid debt. The reason behind his conclusion is that according to the law, a corporation has its own distinct identity. Therefore it is separate from the controllers (directors) and owners (shareholders) of the company. Hence, it is possible to enforce the debts of the company only against the company. 


According to section 180 (2), it has been provided that when a business judgment is made by the director, it can be considered that the requirements prescribed by the duty of care have been fulfilled under some circumstances. As a result, in this case, it can be claimed by Phil and Robert that the protection available under the business judgment rule is accessible to them only if they fulfill the requirements mentioned in this section.

Question 3

Part A


Issue: in this question, the issue is if they contract formed by Rick as an agent of Francis is legally enforceable by Alan.

Rule: in this context, an agent can be described as the person who had agreed to represent the other person. In such a case the other person is called the principal. In such cases, the scope of authority provided to the agent depends on the agreement concluded between the principal and the agent. In this regard, generally there are two methods of deciding the scope of authority conferred on the agent. 

Express authority: the authority available with the agent can be decided expressly if the agreement concluded between the parties mentions the duties of the agent. In such a case, the agent will not have the authority to represent the principal beyond the duties mentioned in such agreement.

Implied: in this case, the authority available with the agent can be implied. In such cases, custom needs to be decided by the express duties imposed on the other agents, who were also appointed in the same way. For example, a reality company may hire a real estate agent. In this case, it will be implied that the agent will have the authority to help that parties in purchasing and selling their houses. The reason is that it is customary authority of the other real estate agents. 

Application: Here, Francis had appointed Rick as his agent. He had given instructions to Rick to purchase the particular items related with 'Kiss' from Alan. Alan is a well-known collector of merchandise associated with 'Kiss'. For this purpose a limit of $25,000 has been given to Rick by Francis. But Rick had entered into a contract with Alan for purchasing these items for $32,000. In view of the circumstances, Francis refuses to pay this amount. According to him, Rick had not been given the authority to spend this amount. But by applying the principles of agency law, it can be stated that in the present case, Francis is legally bound by contract that has been created by Rick on his behalf with Alan. 

Conclusion: the conclusion arises in this case that the contract can be enforced by Alan against Francis. 


Issue: in this part of the question, the issue arises if Francis can be a legally bound by the contract that has been created by Rick in order to purchase the Status Quo albums as well as the consequences for Rick, if it is decided that the contract cannot be enforced against Francis.

Rule: according to the law, generally the authority available with the agent has to be decided in order to see if the agent can be held liable in case of a lawsuit. In cases where the agent acted beyond the scope of authority conferred by the principal, then, in most of the cases, the agent is going to be considered as acting under the control of the principal. That would result in such cases will be that the liability of the principal will be present regarding the contract that has been created by the agent. Generally the principal has more money as against the agent. Hence it is better for the injured parties to sue the principal because he has more money even if it is easier to sue the agent. 

If the conclusion arises that the agent has acted beyond his or her scope of authority that was conferred by the principal, the principal cannot be held responsible for any injury that may be caused to the third-party. However there is one exception present in this regard. Therefore if the agreement has been identified by the principal, the liability of the principal may arise. It is also provided by the law that in case the agent acted outside the scope of his authority, such agent may be held liable for breach of contract or for the injury that may be caused to the third-party. 

Application: in this case, a contract was created by Rick regarding which authority was not conferred on him by Francis. Hence in this case, it can be concluded that the contract formed by Rick for purchasing Status Qou albums is not legally enforceable against Francis as the agreement was outside the scope of authority given to Rick. Therefore, Francis is not legally bound by this contract. 

Part B

The relationship between an agent and principle is fiduciary in major. Therefore in the present case, Rick has breached his duties as an agent prescribed by the common law as he has acted beyond the scope of authority ever provided to him by Francis.

Question 4

Issue: the issue here is if any legal action can be taken by Prue against the other parties under the tort of negligence.

Rule: negligence has been legally described as the failure to use reasonable care to make sure that no harm is caused to the other person. It also needs to be seen if the person has a duty of care present on its part (Conaghan and Mansell, 1997). The defendant's behavior or inaction should have failed to fulfill the standard of care. That is applicable in case of any other reasonable person. This is known as the breach of duty. The harm should have been caused to the plaintiff, which was reasonably foreseeable. This is known as the requirement of damages. As a result of the breach, any harm should have been caused to the plaintiff. 

Application: in view of the above mentioned legal requirements, Prue had purchased a new gown. When she wore them down, it resulted in pain for red rashes of large boils on her body parts that came in contact with the gown. When she was trying to leave the stage in a hurry, she fell down and broke her leg. The rashes were caused because the company failed to perform the washing process in order to remove the toxic chemical.

Conclusion: in this case, Prue is allowed by the law to sue Gladrags, RuPeter and Hotel Bilton for her injuries under the tort of negligence. 


Issue: The issue in this part of the question is concerned with the damages that Prue can claim for damages suffered by her.

Rule: three different kinds of damages can be claimed by the persons who have suffered harm as a result of the negligence of the other party. Economic damages are concerned with the actual monetary loss that has been caused to the victim. Such damages are present in the form of lost income, medical bills, medication costs and the cost of the rehabilitation etc. As compared to this, it is difficult to calculate non-economic damages (Harpwood, 2003). The reason behind this difficulty is that such damages are typically subjective. Therefore, they do not reflect in a bill or a receipt. The third images are punitive damages. Punitive damages may be avoided by the court in order to give punishment to the party that is guilty of negligence. 

Application: Here Prue has to suffer bodily injuries, and also on account of the scars that her body, covered in a position to work as a model. The hospital bill alone was for $15,000. She was also negotiating a movie contract worth $5 million. But after the incident, the movie company does not want to initiate the contract with her. 

Conclusion: in this case, Prue can claim the damages that are directly caused by the injuries suffered by her on account of the negligence of other party. 


Conaghan, J and Mansell, W, 1997, The Wrongs of Tort, 2nd edn, London: Pluto

Harpwood, V, 2003, Principles of Tort Law, 5th edn, London: Cavendish Publishing

P Bryans & J Le, (2011) ‘James Hardie — NSW Court of Appeal Decision’ 63(2) Keeping Good Companies 92

Case Law

ASIC v Vines [2005] NSWSC 738

ASIC v Wizard (2005) 145 FCR 57

Vrisakis v Australian Securities Commission (1993) 9 WAR 395

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