Sample Examination Paper

COMMLAW 1004 Commercial Law I(S)

Official Reading Time: 10 mins

Writing Time: 180 mins
Total Duration 190 mins

Instructions to Candidate:
1. Answer ALL SIX (6) questions.
2. All questions carry equal marks.
3. This is a Closed Book examination
4. You should begin each answer on a new page.

Materials:
• One blue answer book

• You may bring into the examination:

o a hard copy dictionary without any writing or notes made therein.

• You CAN NOT bring in any electronic dictionary or calculator of any type, library book, lecture
notes or any other materials.

PLEASE DO NOT COMMENCE WRITING UNTIL INSTRUCTED TO DO SO

PLEASE SEE NEXT PAGE

6362 Commercial Law I(S) Sample exam paper Page 2 of 6

Helpful Hints
• Make sure you budget your time carefully.
• Take care to read each question carefully and to address the precise question asked.
• Unless otherwise stated, treat each question as independent. The answer to one question should
not depend on the answer to any other question.
• Make explicit reference to any statutory provisions or previous court cases that are relevant to
your answer. Up to half the marks for each question reflect your ability to do this.
• Do not use dot points, bullet points or numbering in your answer. Use paragraphs and complete
sentences like judges do. You should, however, use the following headings:
(i) Plaintiff's arguments
(ii) Defendant's arguments
(iii) Judge's decision
(iv)Judge's reasons
• Where you feel that insufficient facts have been stated to enable a sensible answer to be given,
you should state these additional facts as assumptions at the beginning of your answer. Such
assumptions must be reasonable and vital to your answer.
• Unless otherwise stated, you should assume that all events happened in Adelaide.
• You may use the abbreviations:
“TPA” to refer to the Trade Practices Act 1974 (Cth)
“Pl” and “Def” to refer to the plaintiff and defendant respectively
Shortened versions of case names eg Caparo’s case
• You should ignore the fact that some provisions of the Trade Practices Act 1974 (Cth) are
“duplicated” in South Australian legislation.
• You should assume that none of the services mentioned below are “financial services” as
defined in the Trade Practices Act 1974 (Cth)

Basic Scenario
OZCORP Ltd (hereafter called OZCORP) is a private, family-owned company that operates a chain
of retail stores (under the name OZCORP) throughout Australia. Its head office is in Adelaide.
OZCORP stores sell a wide range of consumer goods including clothes, kitchen equipment,
household appliances, sporting goods and toys.

About six months ago, OZCORP entered into a contract with Indonesian Imports Ltd, a company
based in Sydney, that specialises in importing goods produced in Indonesia. Because of a
significant decline in the value of the Indonesian currency, OZCORP was able to negotiate a deal to
buy 1,000 mountain bikes at a price of $88 each. Under the contract, the bicycles would be
manufactured in Indonesia, but would be specially painted and decorated according to OZCORP’s
specifications including the brand name “EVEREST” which was a brand name selected by
OZCORP. Included in the contract signed by OZCORP was Clause 44 which was as follows:

Clause 44 OZCORP agrees that it will not reveal the identity of the supplier under this contract
to any person not employed by OZCORP. It is agreed that the loss suffered by the
supplier for each breach of this clause is $20,000.

As soon as the first shipment of bikes arrived in Australia, OZCORP entered into a contract with
IMAGES Ltd, a company that specialises in designing newspaper advertisements. Under the
contract, IMAGES Ltd would be paid a fee of $15,000 to design a newspaper advertisement for
EVEREST mountain bikes. The advertisement produced by IMAGES Ltd was as follows:
6362 Commercial Law I(S) Sample exam paper Page 3 of 6

OZCORP’s Sensational Spring Sale

Strictly Limited offer
Newly arrived from overseas
EVEREST Mountain Bikes
EVEREST Mountain Bikes
EVEREST Mountain Bikes
EVEREST Mountain Bikes
EVEREST Mountain Bikes
18 speeds, alloy wheels, centre-pull brakes, Shimano gears

Only $175
12 months interest-free terms

In addition to her role as a solo parent of two young children, Diana carried on a business from
home as a solicitor. Her largest client was IMAGES Ltd. Diana’s role was to review all
advertisements made by IMAGES Ltd prior to their publication. Under the contract, which was
stated to last five years, Diana received a fee of $24,000 per year as well as a commission of 2.5%
of the fee charged by IMAGES Ltd for making the advertisements. The contract, which was signed
by both parties, included the following clause.

Clause 8 It is a condition of this contract that Diana supplies a written report within 48 hours
of receipt of each advertisement and that each report meets the highest standards of
professionalism, confidentiality and technical competence.

Where Diana felt that an advertisement might pose a risk of legal liability she would suggest that
changes be made or that further documentation be obtained to backup the claims made in the
advertisement.

Along with the documents supplied to Diana with the EVEREST advertisement was a copy of
OZCORP’s credit policy, which included Clause 7.2.
6362 Commercial Law I(S) Sample exam paper Page 4 of 6

Clause 7.2 Minors, being anyone under 18 years of age, are not allowed to buy anything on
credit, since it is often difficult to enforce such contracts in court even if no interest
is charged.

Given her role as a solo parent, Diana often worked into the early hours of the morning to meet her
deadlines. However when she finally finished her report on the EVEREST advertisement, it was
already 24 hours late. It simply stated that she had reviewed the advertisement and all the
accompanying documentation and that she had no reason to suspect that publication of the
advertisement would expose either IMAGES Ltd or OZCORP to any litigation. The report did not
include any statement disclaiming liability or protecting confidentiality. In line with normal
practice, a copy of the report was given to OZCORP along with the advertisement.

By the time Harry turned 18, he had already been working part-time for three months in an effort to
save up enough money for a mountain bike. After many hours studying newspaper advertisements
and visiting local bicycle shops, he had virtually decided that he would buy a ROCKHUGGER bike
from BIKESTORE Ltd for $330 as soon as he had enough money.

However, when Harry saw the EVEREST advertisement he rushed off to OZCORP. As soon as he
told William, the salesperson, that he wanted buy a bike on 12 months interest-free terms, William
asked if he had any proof of his age. According to William, OZCORP’s credit policy restricted
credit to those 18 years and over.

Fortunately Harry was able to provide adequate proof of his age. He then paid the first instalment of
$25 and signed a contract to pay the rest ($150) in six equal instalments over the following 12
months. The contract, which comprised three pages, included the following clause:

Clause 27 It is hereby agreed that OZCORP is not liable for injury or death suffered by any
person as a result of OZCORP supplying goods for recreational purposes, whether
such injury or death is caused by the negligence of OZCORP or its employees or
otherwise.

Harry wheeled his brand new EVEREST mountain bike out of the store and then realised that he
had forgotten to bring his bicycle helmet. However, he decided to ride the bike home anyway since
most of the journey would be through the parklands where a helmet was not legally required.

Soon after he entered the parklands, Harry stood up on the pedals for the first time so as to ride up a
small hill. When he did so, the handlebars suddenly became detached from the bike, leaving Harry
steering in mid-air. Without any steering, Harry’s bike swerved into a rock and Harry flew over the
front of the bike onto the gravel pathway in the parklands. His face and hands took the brunt of the
impact and he found himself in hospital before he regained consciousness. It appears that extensive
surgery will be required to his face over a number of years. The estimated cost of this treatment is
$116,000.

As soon as he came out of hospital, Harry wrote to OZCORP explaining how the accident had
happened and requesting that OZCORP pay for his medical expenses. OZCORP’s solicitor replied
that OZCORP was very happy to replace the damaged mountain bike free of charge but that it was
not liable for his medical expenses.

The letter suggested that Harry might like to contact the company that supplied the bikes to
OZCORP and helpfully included the address and phone number for the Sydney office of Indonesian
6362 Commercial Law I(S) Sample exam paper Page 5 of 6

Imports Ltd. Four days later, the solicitor received a strongly worded letter claiming that OZCORP
owed Indonesian Imports Ltd $20,000 by virtue of Clause 44 of their contract.

As a result of Harry’s admission to hospital, a report was prepared by the Accident Prevention
Officer. The report concluded that the accident could be directly traced to the failure to properly
tighten the head bolt (the long bolt that secures the handlebars to the front forks) when the bicycle
was re-assembled.

The report stated that in order to keep the freight costs to a minimum, each bicycle was dismantled
in Indonesia and the components were packed in a strong cardboard box which was then shipped to
Indonesian Imports Ltd in Sydney. Indonesian Imports did not open the boxes. It merely sent them
by train directly to OZCORP stores nationwide.

The boxes were opened and the bicycles were re-assembled by OZCORP employees at each store.
Unfortunately, the only instructions accompanying the boxes as to the correct method of re-
assembly were written in the Indonesian language.

The above events have given rise to six disputes which are described below. Explain what would
happen if each dispute went to trial.

Question 1
Harry has started legal action under Part VA of the Trade Practices Act 1974 (Cth) against
Indonesian Imports Ltd claiming $116,175 to cover his medical expenses ($116,000) and the cost of
replacing his bike ($175). Indonesian Imports Ltd has denied liability for this amount.

It has, however, suggested that Harry contact the manufacturer of the bicycle, whose only place of
business is in Jakarta, Indonesia.

Question 2
OZCORP has started legal action against Indonesian Imports Ltd seeking a court order that Clause
44 of their contract is void because it contravenes Part IVA of the Trade Practices Act 1974 (Cth).

Question 3
Harry has started legal action against OZCORP claiming $116,000 as compensation for breach of
contract.
6362 Commercial Law I(S) Sample exam paper Page 6 of 6

Question 4
BIKESTORE Ltd has started legal action against OZCORP. It is seeking a permanent injunction
against further publication of the EVEREST advertisement on the grounds that it contravenes
Division 1 of Part V of the Trade Practices Act 1974 (Cth) in that it fails to point out that the offer
of interest-free terms is not available to people under 18, a group which constitutes about 60% of
the market for mountain bikes.

Question 5
Assume for the purposes of this question that BIKESTORE Ltd won the court case in which it
sought a permanent injunction against further publication of the EVEREST advertisement. Assume
also that OZCORP Ltd was ordered to pay $30,000 towards the legal costs incurred by
BIKESTORE Ltd in bringing the court case and that OZCORP spent $40,000 in (unsuccessfully)
defending the action.

OZCORP has now started legal action against Diana under the tort of negligence. It is seeking
$70,000 as compensation for its legal costs.

Question 6
Assume for the purposes of this question that BIKESTORE Ltd won the court case in which it
sought a permanent injunction against further publication of the EVEREST advertisement. Assume
also that OZCORP Ltd was ordered to pay $30,000 towards the legal costs incurred by
BIKESTORE Ltd in bringing the court case and that OZCORP spent $40,000 in (unsuccessfully)
defending the action.

IMAGES Ltd has started legal against Diana for breach of contract. It is seeking a court order that it
is entitled to terminate their contract even though the contract still has four years left to run.

END OF EXAMINATION PAPER