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Contract Law Assignment: Analysis On Legal Cases

Question

Task:
Question 1: Marks Epick Games enters into negotiations with big game developer Buzzard Games to develop an add-on for Buzzard’s smash hit game Kandy Krash. The add-on needs to be developed as quickly as possible, and the parties agree to a five-week deadline. The parties agree to this deadline on the assumption that Epick’s programmers will be able to work seven days a week. Buzzard agrees to Epick’s price of $100,000. The parties sign a contract containing Buzzard’s standard terms. Epic employs talented programmer Sarah Bellum to lead the programming for the contract. The programming commences and for the first week everything is on schedule. Buzzard starts to promote the launch of the add-on.
However, the National Programmers’ Union finds out that Epick’s programmers are working seven days a week and it lodges a complaint with Fair Work (ignore any employment law that may be relevant in real-life). Fair Work declares that the programmers must only work five days per week and Epick has no choice but to comply. As a result of this, the five weeks programming now takes seven weeks and costs Epick an extra $50,000. Epic submits an invoice to Buzzard for $150,000. Buzzard is unhappy because it had intended to release the add-on after five weeks and it claims that it is has lost money due to the delay and so it will only pay $50,000 in total to Epick.
Finance Manager, Holden Cash, comes to see you about the situation. He has heard about something called ‘frustration of contract’. He asks you if this would apply to the contract between Buzzard and Epick and, if so, what the outcome might be for Epick? Alternatively, he asks you if it might be reasonable to assume that, even though Buzzard’s standard terms do not address this, there is an implied term in the contract that if the work costs more due to unforeseen circumstances beyond the control of the parties, Epick is entitled to charge more? Human Resources Manager Peya Little also comes to see you. She has received a letter from Kronos Games about Sarah Bellum. Apparently, Sarah was employed by Kronos prior to her coming across to Epick and her employment contract with Kronos contained a restraint clause stating that: “In consideration of the Employer paying the Employee 1 year’s additional salary upon any termination employment, the Employee agrees not to work for any of the Employer’s competitors in Australia for 1 year after termination.” Kronos wants Epick to pay compensation for Sarah’s alleged breach of restraint. Peya asks you whether or not the restraint would be enforceable anyway?
Using the 4-Step Approach and with reference to relevant cases, advise as to the following:
A. Whether or not the contract was frustrated and, if so, any effect and, regardless, what Epick might expect to get paid;
B. Whether or not there is an implied term that Epick would be paid more for delays due to unforeseen circumstances beyond the control of the parties; and C. Whether or not the restraint against Sarah would be enforceable and, regardless, if Epick would have to pay any compensation to Kronos.
Notes:
• The total word allowance for this question 1 only is 2000 words with 10% leeway so maximum 2200 words.
• Use a separate 4-Step Approach for each of A, B and C as each deals with different areas of law.
• Divide up the maximum wordcount of 2200 words between A, B and C as you see fit. As a rough guide, A should take up approximately 1000 words whilst B and C only approximately 600 words each. This is only a rough guide.
Question 2:
Epick CEO, Dick Tate, shows you the draft subscription terms for Epick’s game Animal Crossroads. Subscribers will pay a monthly fee to access the game. The terms are as follows:
1. The subscription term is 12 months.
2. The subscription fee is $29.99 per month, debited from the subscriber’s credit card on the first of each month.
3. If any fee payment is declined, the full balance of the remaining subscription term will become due and payable immediately.
4. After 12 months the subscription will renew for another 12 months unless cancelled by the subscriber.
5. Due to the varying costs of providing online services, the subscription fee is subject to change by up to 10% per month without notice to the subscriber and any fee increases will be payable by the subscriber.
6. Subscriptions cannot be cancelled prior to the expiry of the subscription term or any renewed subscription term
7. Subscriptions may only be cancelled in writing in the last month of the subscription term.
8. Epick can cancel a subscription at any time and for any reason.
9. Epick is not liable for any disruption in services, no matter how caused.
10. Subscription fees will not be reduced to compensate for any disruptions in services.

Answer

Question 1
Part a)
Issue: The issue in the given case study analyzed in the contract law assignment is related to whether the contract is considered as frustrated.

Relevance laws and regulations
As per the contract law of Australia considered herein contract law assignment, a frustrated contract is referred as a contract which is incapable to execute by the party because of the unforeseen events, assisting in the duties as per the contract significantly varying from those agreed by the contracted party[1]. In other words, it can be said in this contract law assignment, after entering into contract, if it is impossible for the party to completion of contract due to the events outside the control of the individuals, then it is referred as the frustration of contract. The contracted party before entering into the contract is free to determine about the events that would assist towards the frustration of contract. According to the common law, the events that assist towards impossibility rather than more difficult of completion of the contract considered as frustration[2]. Concerning this, the legal case of Taylor v Caldwell [1863] a primary case concerning the frustration of contract law[3].

According to the common law, if frustration is established then in such case of contract law assignment it would assist towards the termination of the contract automatically, the same decision was given in the legal case of National Fish Ltd. V. Ocean Trawlers Ltd [1935] there is not any choice available concerning the discharge or perform to contract as per the common law, further, loss is suffered by whom because of such event is also not defined in such law[4].

In this aspect, some of the events that lead towards the frustration of contract are prescribed as below within this contract law assignment –

  • War among the countries, civil unrest, and rebelling.
  • Activities of God, such as storm of unexpected strength[5].
  • Changes in the rules and regulation like a restriction of the sale of specific goods or services, restriction to entry in any country for the benefit of the common public.
  • The contract may also frustrate by injunction, which restricts the performance of the contract for continuation.
  • In conditions where the involved subject matter in the contract destructed.

When those types of events create it impossible for the contracted parties to carry on the contract, it becomes more probable that the case of frustration would become successful. A contract would not be frustrated in case performance of contract become more expensive, complicated, and demanding. It must be based on commercial impossibility[6].Difficulties, significant losses, inconvenience, other related aspects are itself not adequate for frustration. It should be coupled with a modification in the significance of the obligation of a contract.

Apart from this, it is also clear on this contract law assignment whether the event considered a frustrating event based on circumstances of the contract and relevant situation of the case scenario, in this aspect, the event must have significant results, and there should be radical changes[7]. Situations which have discussed the doctrine refer to a happening which –

  • Assists towards further performance to become something significantly different from the contracted terms.
  • Assist towards the creation of fundamentally distinct condition.
  • Deprives the party of executing materially the entire advantage of the contract, which was the primary purpose of the party as shown the contract.

Therefore, it can be asserted that the frustrated contract may relieve a party from obligations taking place from their incapability to satisfy their contractual obligations because of the circumstances beyond their rational control. The circumstance should be unforeseeable, as well as unavoidable and should assist in the completion of the contract impossible[8].

Along with this, it is required by the company to comply with Fair Work Act 2009 which states about terms and conditions of employment.

Application
In this case of contract law assignment, there is contract among Marks Epick Games and Buzzard Games, in which Epick agrees for development of the game for Buzzard for a price of $100000. Epick provided that it would develop the game within five weeks on the assumption that the programmer would work in seven days a week. However, Fair Work declares that a programmer would work only five days a week. Therefore the contact gets delay and Epick wants to charge $50000 additional from the Buzzard. By the application of the above provisions provided within the contract law assignment, the contract is not considered as frustrated, because it is not raised from the unforeseen event, which assists in the performance of the contract impossible. Concerning this, it is possible by the Epick to employ additional programmer or overtime working by which contract could be performed promptly as per terms and conditions defined in the contract.

Conclusion
By considering above aspects of contract law assignment, it can be stated that for succeeding the claim of frustration, it is essential that contract must be impossible to perform. In the given case scenario, it is not impossible to discharge the contract; therefore, it does not fulfil the criteria of frustration. Epick would get paid only the amount of $100000, original agreed price for development of games. The additional amount could not be claimed from Buzzard. In this aspect, it is recommended that, company should comply with prescribed rules and regulations given in the Fair Work Act 2009. Moreover, it should also enter into contract by taking some margin in relation to completion of contract.

Part b)
Issue
In the give case of contract law assignment, issue is, whether or not there is implied condition that in case the project gets delayed because of unreasonable situations which are not within the control of parties. In such a case, Epick would be paid more?

Relevance laws and regulations
According to Contract Law of Australia, rights and duties of the contracted parties are defined by express and implied terms associated with the contract. In this aspect, implied terms are those conditions which are implied by the law even though whether they have been discussed by the contracted parties or included in the contract[9]. They might be implied either by common law or by any statute. As per the common law, terms and conditions are usually implied where it is essential to provide the full impact of the aim of parties. For instance, the common law might imply a condition requiring the parties to do what is essential to enable the contract to be executed.

Implied terms are those commitments that parties do not have expressly explained in the contract. However, they are still considered as part of the contract[10]. There are several types of implied terms such as by facts, previous dealings, rules, and custom.

Concerning the above aspects presented in the contract law assignment, the terms implied by facts consist of conditions in a contract to confirm that the document should demonstrate the real purpose of the parties. The legal case Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] explored in the contract law assignment, describes that terms implied by facts should be –

  • Implied terms must be fair and equitable, and could not provide benefit to one person at the cost of other people[11].
  • It is essential to provide business productivity to the contract.
  • It is so apparent that it could be understood without expressing[12].
  • It should be able for clear expression.
  • It should not contradict to any other condition in the contract.

Further, contracted parties could assume automatically that conditions implied by law for part of particular categories of the contract due to decision by courts. For example, in the employment contract, it is implied terms that the employer would provide a safe and secured working environment to its employees[13]. Apart from this, there are also some terms which are implied by custom. In these aspects of contract law assignment, parties could imply a condition into the contract of another contract in a similar business, market, or scenario could be reasonably assumed to possess that condition. Along with this, where the contract between the parties is in recurring nature, then the court might imply conditions into the contract based on previous behaviour by the parties[14].

Application
In provided case of contract law assignment, it is stated that Union of the National Programmers complained about Epick’s as programmers are working for seven days in a week. However, it is announced by the Fair Work, that programmer would work only for five days in a week, and therefore Epick does not have any choice but to follow. Therefore, due to this, the development of games gets delayed, and Epick has to incur an additional cost. In assertion to this, it can be said that Epick should be paid more for the delay that occurred because of unreasonable conditions which are not in the control of parties. Since, in the given case, it is assumed that there is not any additional programmer is available to the Epick. Therefore it has to carry the development of the program as per relevant rules and regulation such as five days in a week, and due to this, the contract could not be completed promptly. Therefore, by application of implied terms by law, it can be said in the context of contract law assignment that, even if standard terms of the contract do not address this, there is implied term that if the cost of work would be more than because of the unreasonable situation which is not within the control of parties, then Epick can charge more.

Conclusion
It can be asserted that there are implied terms and conditions that there should be additional payment are given to the Epick for the delay in development because of unreasonable situation afar from the control of parties. It is recommended in this section of contract law assignment that, for avoidance of any confusion, Epick should incorporate such terms and conditions in the contract. Further, it is also advisable that, company should maintain some casual workers so that contract could be carried out within time limit.

Part c)
Issue
The issue mentioned in the contract law assignment is related whether the restraint contracts are enforceable under contract law. Another issue is whether this contract makes liable to Epick for payment of compensation to Kronos.

Relevance laws and regulations
In Australia, Fair Work Act 2009 governs the employment contracts. In the employment contracts, restraint of trade clause is considered as valid and enforceable by law if they are related to safeguards the legitimate business interest of the employers such as the secret of business, and other confidential information related to trading practices[15]. For the validity of such a clause, they should be reasonable, legal and founded on the contract law.

For the establishment of the validity of the restraining clause, it is required to establish that –

  • The interest of the employer is reasonable for the protection of the business.
  • In entire circumstances, the interest of the employer is reasonable[16].
  • The analysis about what is reasonable or not should be determined while building the contract.

In the legal case of Commsupport Pty Ltd v Mulligan & Mirow (2018), the court adopted the same principle for the ascertainment of the validity of the restraint clause[17]. In this case of contract law assignment, it was determined by the court that such a clause is not valid as it limits the employees who are not reasonable for the protection of business interest of the employer[18].

Application
In the given case scenario of contract law assignment, it can be noticed that Sarah was engaged in working with Kronos before Epick. The employment contract with the Kronos contained a restrained clause that she should not be engaged in work with any competitor of Australia for one year after termination of employment. Although, restraint clause of one year is considered a significant time, in return to this, Kronos has provided an additional salary to Sarah for one year. In such a case, it can be stated that restraint clause is essential for the protection of legitimate interest of Kronos. Therefore Sarah should not enter into the contract of employment with Epick; it is considered as a breach of contract. Since the contract has been formed between Sarah and Kronos; therefore, in case of a breach, there is no liability arising on the Epick. It has been assumed that Epick appointed Sarah in good faith, and it does not have any knowledge about the restrained clause of Sarah.

Conclusion
In this case of contract law assignment it can be stated that the restraint clause against Sarah would be enforceable by law. Further, there is no liability should be imposed on Epick, it is because the company appointed Sarah in good faith, and there is not any default of the company. Moreover, breach of contract also taken place between Sarah and Kronos. Therefore compensation should be paid by the defaulting party (Sarah) to the innocent party (Kronos). It is recommended herein contract law assignment that, company should appoint employee only after obtaining letter from previous employer so that it can take porper information about employee before recruitment.

Question 2
To

The Dick Tate

CEO of Epick

Subject – Discussion regarding Unfair Contract Terms according to regulations

Dear Sir

Based on given terms and conditions concerning the access to games by a subscriber presented in the contract law assignment, it can be noticed that some terms are not considered as fair and reasonable. In this aspect, a contract is considered as unfair of the terms of the contract, provides one party to change the contract, but not to other parties. Further, if it limits the rights about suing to other parties, then also it is considered as unfair terms in the contract. Although there are no definite aspects concerning the assessment of unfair contract terms is described in the law. According to Section 24 of the Australian Consumer Law, (Stated in the Competition and Consumer Act 2010, schedule 2), establish a national unfair terms aspect[19]. In this aspect, as per Section 23 of the cited Act, a term of the contract is considered as void, if it is unfair and included in a standard form contract[20]t. Further section 24 of the Act, describes the unfairness of consumer contract. In a specific manner, it is considered unfair if –

  • It would assist with major imbalances in the rights and obligations of the parties[21].
  • It is not essential for the protection of legitimate interest.
  • It would be a detriment to the interest of parties if applied[22].

In case of automatic renewal contracts, the fairness of terms is based on the length of the renewal schedule explained in the contract, if it is for one month, then it is considered as reasonable. Further, if the subscriber cannot easily cancel the contract after renewal takes place, then in such case it is also considered as unfair. Further, unilateral increases in the prices are also assisting towards unfair terms in the contract. Apart from this, in part determine the price after signing of the contract, then it is probably an unfair term as one party is bound to perform the contract without knowing the prices.

Based on above aspects discussed in the contract law assignment, it can be asserted that the terms by the Epick about renewal period, increment in the prices, non-cancellation of subscription by subscriber after renewal, not any liability for disruption in services, not any reduction in subscription fee for a disturbance in services, and some others is considered as unfair terms of the contract as rights and duties of one party is significantly affected. Moreover, incorporation of such terms and conditions are not essential for the legitimate business interest of Epick. Therefore, all such norms are considered as ‘Unfair Contract Terms’ by considering cited rules and regulations. In these aspects, some of the changes that are recommended to the company are as follows –

  • Renewal period should not be more than one month.
  • There should be the provision of cancellation of subscription by the subscriber at any time.
  • For the disruption of services, the company should take some obligations.
  • For any increment in the prices, prior notice must be given to the subscriber.

Thank You

Date: 16th May 2020

References
Andrews, Neil. ‘Frustration and Termination by Notice.’ 2016 Arbitration and Contract Law. contract law assignment Springer, Cham,

Carter, J. W., and Wayne Courtney. ‘Good faith in contracts: is there an implied promise to act honestly?’ 75.3, 2016 The Cambridge Law Journal 

Clarke, Philip H. ‘Curbing the Abuse of a Dominant Position Through Unfair Contract Terms Legislation: Australian and UK Comparison.’ 2017 The Constitutional Dimension of Contract Law. Springer, Cham,

Davies, Paul S. ‘Contract Formation and Implied Terms. 77.1, 2018 The Cambridge Law Journal 

Feldman, Steven W. ‘Statutes and Rules of Law as Implied Contract Terms: The Divergent Approaches and a Proposed Solution.’ 19, 2016 U. Pa. J. Bus. L. 

Goldberger, Jeffrey. ‘Implied contracts and implied terms-part 2 of 3.’ 33.3,2019 Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia 

Governatori, Guido, et al. ‘On legal contracts, imperative and declarative smart contracts, and blockchain systems.’ 26.4, 2018 contract law assignment Artificial Intelligence and Law 

Keating, Gregory C. ‘Response to Fox: Impaired Conditions, Frustrated Expectations, and the Law of Torts.’ 117,2017 Colum. L. Rev. Online 

Kovac, Mitja. ‘Frustration of purpose and the French Contract Law reform: The challenge to the international commercial attractiveness of English law?.’ 25.3, 2018 Maastricht Journal of European and comparative law 

Lemmer, Elmari. ‘The employment contract: build in the safeguards!.’ 18001, 2018, Farmer’s Weekly 

Maleki, Mohammad Reza, and Ali Mohammadzadeh. ‘The Effects of Non-Performance of Contract as a Result of Frustration of Purpose.’ 10,2017 J. Pol. & L. 

Méda, Dominique, and Patricia Vendramin. ‘Expectations Frustrated by Changes in Work.’ 2017 Reinventing Work in Europe. Palgrave Macmillan, Cham

Mrozek, Randy A., et al. ‘Open pore, elastomeric scaffolds through frustrated particle collapse.’51.24, 2016 Journal of Materials Science 

Piper, Josh M., and Erik Ruda. ‘Employee” No-Poaching” Clauses in Franchise Agreements: An Assessment in Light of Recent Developments.’ 38.2, 2018 contract law assignment Franchise Law Journal 

Valenti, Alix. ‘Texas Court of Appeals Applies the Covenants Not to Compete Act to a Forfeiture Provision in an Employment Agreement.’ 19, 2019 Hous. Bus. & Tax LJ 

Online

‘Unfair Contract Terms’ <https://www.accc.gov.au/consumers/contracts-agreements/unfair-contract-terms>[16 May 2020]

Case laws
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982]HCA24

Commsupport Pty Ltd v Mulligan & Mirow [2018]QDC134

National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524

Taylor v Caldwell [1863] 3 B & S 826

Laws
Competition and Consumer Act 2010

Fair Work Act 2009

[1] Dominique Méda, and Vendramin Patricia. ‘Expectations Frustrated by Changes in Work.’ 2017 Reinventing Work in Europe. Palgrave Macmillan, Cham, 93-144

[2] Gregory C Keating. ‘Response to Fox: Impaired Conditions, Frustrated Expectations, and the Law of Torts.’ 117,2017 Colum. L. Rev. Online , 212.

[3] Taylor v Caldwell [1863] 3 B & S 826

[4] National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524

[5] Neil Andrews. ‘Frustration and Termination by Notice.’ 2016 Arbitration and Contract Law. Springer, Cham, 273-278

[6] Mitja Kovac. ‘Frustration of purpose and the French Contract Law reform: The challenge to the international commercial attractiveness of English law?.’ 25.3, 2018 Maastricht journal of European and comparative law,288-309 

[7] Mohammad Reza Maleki, and Mohammadzadeh Ali. ‘The Effects of Non-Performance of Contract as a Result of Frustration of Purpose.’ 10,2017 J. Pol. & L. 200 

[8] Randy A Mrozek., et al. ‘Open pore, elastomeric scaffolds through frustrated particle collapse.’51.24, 2016 Journal of Materials Science, 10761-10774.

[9] Jeffrey Goldberger. ‘Implied contracts and implied terms-part 2 of 3.’ 33.3,2019 Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia,12 

[10] Paul S Davies. ‘Contract Formation and Implied Terms. 77.1, 2018 The Cambridge Law Journal, 22-25 

[11] Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24

[12] J. W Carter., and Courtney Wayne. ‘Good faith in contracts: is there an implied promise to act honestly?’ 75.3, 2016 The Cambridge Law Journal ,608-619

[13] Guido Governatori, et al. ‘On legal contracts, imperative and declarative smart contracts, and blockchain systems.’ 26.4, 2018 Artificial Intelligence and Law, 377-409 

[14] Steven W Feldman,. ‘Statutes and Rules of Law as Implied Contract Terms: The Divergent Approaches and a Proposed Solution.’ 19, 2016 U. Pa. J. Bus. L.809 

[15] Alix Valenti. ‘Texas Court of Appeals Applies the Covenants Not to Compete Act to a Forfeiture Provision in an Employment Agreement.’ 19, 2019 Hous. Bus. & Tax LJ, 62

[16] Elmari Lemmer. ‘The employment contract: build in the safeguards!.’ 18001, 2018, Farmer’s Weekly,33-33 

[17] Commsupport Pty Ltd v Mulligan & Mirow [2018]QDC134

[18] Josh M Piper., and Ruda Erik. ‘Employee" No-Poaching" Clauses in Franchise Agreements: An Assessment in Light of Recent Developments.’ 38.2, 2018 Franchise Law Journal, 185-205 

[19] Competition and Consumer Act 2010

[20] ‘Unfair Contract Terms’ <https://www.accc.gov.au/consumers/contracts-agreements/unfair-contract-terms>[16 May 2020]

[21] Philip H Clarke. ‘Curbing the Abuse of a Dominant Position Through Unfair Contract Terms Legislation: Australian and UK Comparison.’ 2017 The Constitutional Dimension of Contract Law. Springer, Cham,185-216

[22] ‘Unfair Contract Terms’ <https://www.accc.gov.au/consumers/contracts-agreements/unfair-contract-terms>[16 May 2020]

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