Australian COMMERCIAL LAW Cases

PROBLEM 1 Zenon enters a long-term agreement to lease machinery to manufacture exterior cladding for high rise apartments. The lease provides that it is for five years, that Zenon is responsible for the maintenance and upkeep of the machinery, that instalments of $3,000 per month are payable promptly in advance and that no warranty is given as to the suitability of the machinery for Zenon’s purposes. After 15 months the government passes the Building Materials Control Act 2016 Cth to prohibit the manufacture of proclaimed items unless the manufacturer is the holder of a licence. The cladding which Zenon manufactures is a proclaimed item. The licence fee is $10,000 per annum. Zenon refuses to pay for a licence on the grounds that it would make his product uncompetitive and tells the machinery owner he can take it back now but he refuses. In addition to the Building Materials Control Act 2016 Cth, the Australian government placed a ban on the exports of this product to New Zealand. This is as part of an agreement with the New Zealand government because it has been shown that this cladding is not suitable for areas with a high risk of earthquakes such as New Zealand. Zenon had been supplying his product to New Zealand since he started his business and it is his biggest market. He currently has a contract for the transport of it to New Zealand with Bob Builder. The total cost of Zenon and Bob’s contract is $80,000 and he had paid $40,000 2 of this in advance. When the ban was announced, Bob had already loaded the latest batch of cladding onto two trucks and the loaded trucks were waiting at the port to be unloaded. Zenon wants Bob to refund the $40,000 he had paid but Bob refuses. Using cases as support, explain the relevant law to Zenon and how it applies to him in this situation. (Question based on Stephen Graw, (2015) An Introduction to the Law of Contract, 8 th Ed., Lawbook Co., Thomson Reuters, Sydney, Australia, page 516.) PROBLEM 2 Tess runs a shoe making business. She decided to form a company to take over the business. She is the sole shareholder and sole director. She sold her business to the company at an inflated price and lent the company $100,000 to help meet the cost of purchase. As security for the loan, Tess arranged and registered a mortgage over the property with the small factory, which she transferred to the company as part of the sale. Both Tess and her son are the only two employees for the company. In the first year of operation the business made a small profit even after she paid herself and her son a large and seemingly inflated wage. However after two years it was clear that foreign competition was making it very difficult for the company to make a profit. Tess spent more time working at the business but one night whilst working on a pair of shoes, she badly injured her hand and needed major surgery on it to fix it. However she was pleased that she had taken out insurance for employees if they were injured whilst at work and she claimed her costs from the insurance company. However the insurance company refused to pay her. Profits continued to decline and Tess worried that the company might become bankrupt and lose everything, decided to set up a new company and sold $50,000 worth of equipment to her new company for $10,000. She planned on using the new company to make various leather products but no production has actually taken place yet. Since Tess was now limited in how much work she could do because of her injured hand and her son had been working only part-time and he could not make enough shoes to keep the company going, the company was eventually forced into liquidation. Once the assets were realised it was discovered that there was only $110,000 available in the shoe company but the debts to creditors were $250,000. Tess is the only secured creditor and wants her loan repaid. Using your knowledge of the law and supporting cases, explain the legal relationship Tess has with her shoe company AND what is likely to happen with Tess’ loan, her insurance claim and her new company. (Question based on Ciro T., & Symes C., (2013) Corporations Law: In Principle, Lawbook Co., Thomson Reuters, Sydney, Australia, page 79.) Please be mindful of the overall word limit. 10% leeway is allowed; penalties apply after that. 2,000 words = the maximum. There is no penalty for answering in less words.

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