Case Studies in Australian Contract Law

Scenario 1 Case Study – Hiro and The Federal Bank of Australia

Issue

The issues involved in the case regarding Hiro and the Federal Bank of Australia include the following:

• No background check performed
• Unconscionable conduct performed by Hiro, and, 
• Undue Influence

Rule:

 The rules related to these issues are:

• Australian Contract Law – any law or regulation concerned with enforcing promises (Clarke, 2019)
• The Doctrine of Undue Influence – refers to a situation whereby the weaker party enters a contract with a dominant party. It occurs when there is inequality of power between these two parties. (Clarke, 2010)
• The Doctrine of Unconscionable Conduct – refers to conduct which is considered “so harsh that it goes against good conscience” (ACCC, n.d.)

Application:

• In this case, Hiro is considered as the dominant party. To boost his sales figures (in intent of receiving a bonus), he approaches is grandmother and ex-girlfriend to arrange loans.
• His first breach of rules was approaching his grandmother without performing a background check. Hiro’s grandmother has Alzheimer’s disease; however, he is unaware of this due to the lack of investigation. If Hiro followed correct procedures for arranging loans, he would have actioned a background check, and would be aware of her illness.
• Furthermore, The Doctrine of Unconscionable Conduct, a concept concerned with fair conduct between the two parties entering a contract, would consider Hiro’s conduct as unconscionable. In this case he is the stronger party, abusing the disadvantaged party (due to illness) to adhere to a contract. (Hogan and Gatford, 2015)
• Secondly, Hiro approaches his ex-girlfriend with the intention of exploiting her feelings.
• In this situation Undue Influence occurs. Hiro, the dominant party, influences the weaker party, by abuse of feelings. This can be considered ‘presumed influence’ as Hiro is providing his ex-girlfriend the assurance that this contract will give her what she wants. He is therefore influencing her to enter this contract.
• Hiro felt bad for his ex-girlfriend, therefore reduced the rate of this loan.
• Because Hiro neglected a background check, and acted against Undue Influence and Unconscionable Conduct rules, these contracts may be voided and nullified.

Conclusion:

To conclude, the enforceability of the two contracts Hiro arranged may be voided. This is because Hiro did not perform the necessary steps required to create a contract – i.e. he did not perform a background check. Hiro also abused his ex-girlfriend’s feelings and due to feeling bad, reduced her loan rate. In this case, Hiro is not acting within the rules of Undue Influence and Unconscionable Conduct.

Scenario 2 Case Study – Akshita and Underground Solutions Pty Ltd

Issue

The issue involved in the case regarding Akshita and Underground Solutions Pty Ltd is whether or not Akshita can enforce the employment clause against Lin and Dimitri, her past employees.

Rule:

The rule related to this issue is:

• Non-Compete Clauses – refers to clause(s) within an employee’s contract that is intended to protect the business in the case of employment termination. It states that the employee is prohibited from providing the business’s service and/or knowledge within a specific geographical area for a particular period of time elsewhere. It is a clause intended to protect confidential information of the business and prevent past employee’s from soliciting a business’s current employees. (Ward, 2019)

Application:

• Akshita’s clause states the following:

“No employee can use the same skills employed at Underground Solutions Pty Ltd at any other firm operating in Australia for ten years after finishing a role at Underground Solutions Pty Ltd.”

*skills are related to tunnelling

• Akshita first former employee, Lin, moves onto a new speciality, the designing and building of new parks and public spaces at Grow Tall Pty Ltd. He is no longer performing his speciality in tunnelling, learned at Akshita construction company, Underground Solutions.
• Although both companies are under the Construction umbrella, Lin is no longer performing the same speciality, therefore he is not breaching his contract signed for Underground Solutions. Lin is not able to transfer tunnelling skills into the designing and building of new parks and public spaces, as they are two separate specialities.
• Akshita’s second former employee, Dimitri, is now employed at Long Way Down Pty Ltd, which is a competition firm specialising in tunnelling. Long Way Down Pty Ltd, has local, state and federal governments as their key clientele. 
• As Dimitri’s new company deals with federal government, he is subject to international clients. This means Dimitri is not restricted to firms operating within Australia as he is also exposed to international operations. Referring to the clause found within the Underground Solution contract, Dimitri would be breaching only if his new role was limited to local and state government within Australia, but because he can operate federally, he is not breaching the clause.
   

Conclusion:

To conclude, Dimitri and Lin, former Underground Solutions employees have not breached the non-complete clause of their contracts. Lin has moved onto an unrelated speciality, and Dimitri is able to operate outside of Australian companies, meaning no part of the clause has been violated by either entity. This means, Akshita, will not be able to enforce the non-compete clause against her former employees, Lin and Dimitri.

To prevent challenges with similar clauses in the future, Akshita would be advised to consider the following:

      Be more specific with geographical constraints (Woolrych,2015) – Akshita should correct the clause to former employees not being able to use their skill sets locally and internationally.

      Change the constraint of employability (Woolrych,2015) – Akshita should state that the former is unable to work at any other construction company within Australia.

A sample clause Akshita could use to prevent future challenges may appear like the following:

“No employee can use the same skills employed at Underground Solutions Pty Ltd at any other construction firm operating in Australia, locally or internationally, for ten years after finishing a role at Underground Solutions Pty Ltd.”

Reference List:

• Australian Competition and Consumer Commission (ACCC). (n.d.). Unconscionable conduct. [online] Available at: https://www.accc.gov.au/business/anti-competitive-behaviour/unconscionable-conduct [Accessed 20 Jan. 2020].
• Clarke, J. (2019). Aus Contract Law. [online] Australiancontractlaw.com. Available at: https://www.australiancontractlaw.com/ [Accessed 20 Jan. 2020].
• Clarke, J. (2010). Australian Contract Law | Julie Clarke. [online] Australiancontractlaw.com. Available at: https://www.australiancontractlaw.com/law/avoidance-undue.html [Accessed 20 Jan. 2020].
• Hogan, L. and Gatford, S. (2015). Unconscionable conduct: Specific instances and the Court’s response. [online] Svensonbarristers.com.au. Available at: https://svensonbarristers.com.au/wp-content/uploads/2017/07/Unconscionable_conduct_May_28_2015.pdf [Accessed 20 Jan. 2020].
• Ward, L. (2019). 5 Things To Know About A Non-Compete Clause. [online] Lawpath.com.au. Available at: https://lawpath.com.au/blog/5-things-know-non-compete-clause [Accessed 20 Jan. 2020].
• Woolrych, D. (2015). What is a Non-Compete Clause? (from Employee and Employer’s Perspective). [online] Lawpath.com.au. Available at: https://lawpath.com.au/blog/what-is-a-non-compete-clause-from-employee-and-employers-perspective [Accessed 20 Jan. 2020].