Wiremu operates a small business selling natural health products. He recently heard about one of the latest trends – an expensive new organic herbal tea called T4.

While looking through a trade magazine Wiremu saw an advertisement, promoting the supply of T4 by a company called Eaze Supplies. The advertisement stated, amongst other things, “Great Offer” and “Prices start at $100 per kg”.

Wiremu phoned up Eaze Supplies and spoke to Sally who was Head of Sales, and asked whether Eaze Supplies would be able to fill an order for a regular supply of T4. Wiremu told Sally he wanted the tea packed in 0.5kg packets and suggested the supply of 100 packets each week. (Nothing was specifically said about the price but Wiremu assumed the price would be based on the price stated in the advertisement, which worked out at $5000 per 100 packets.)

Wiremu also told Sally that he must receive the order Monday of each week since he was expecting a high demand, had limited storage space, and Monday would be his weekly time for organizing his stock.

Sally told Wiremu that she needed to do some inventory checks and would get back to him.

After 3 weeks, there was no response from Sally, so Wiremu called Sally again to enquire whether Eaze Supplies could supply him with the requested T4. Sally responded by saying, “Oh yeah… silly me… it completely slipped my mind. Sure no problem. However, we are closed on Mondays so the T4 would have to be sent and delivered on Tuesdays. How does $6000 per 100 packets sound?” In response Wiremu answered, “Mmmm, geee I don’t know. That might affect my entire business scheme. But I guess it could work.”

Sally then suggested to Wiremu that they both agree to do this but decide on the exact terms when Wiremu had worked out the precise details of his business plan, since he sounded a bit confused and uncertain. Wiremu agreed.

Over the next few days, a friend of Wiremu gave him some inside information about an exceptionally cheap supplier of bulk speciality tea grown in Malaysia. Wiremu immediately called up the New Zealand supplier, MST Ltd, and asked if they could supply T4 for 12 months. MST Ltd accept without hesitation, offering $5000 per 100 packets. Wiremu replied, “Excellent that is exactly what I need.” Wiremu and MST Ltd agreed that 100 packets of T4 would be delivered every week on Monday for a period of 12 months.

Two months later, Sally phoned Wiremu looking to conclude their agreement. Wiremu told Sally that he had changed his mind and no longer wished to order from Eaze Supplies. Sally is furious, and told Wiremu, “We had a deal! You will be hearing from my lawyer!”

Wiremu, worried about potential legal action, seeks your advice regarding whether he has entered into a legally binding contract with Eaze Supplies.

REQUIRED:

Advise Wiremu. In advising Wiremu, analyse each stage in this scenario in terms of offer and ac- ceptance, and in addition consider any issues relating to contractual intention. Limit your analysis to any possible contract between Wiremu and Eaze Supplies.
10 marks

QUESTION 2

Earnshaw Limited (“Earnshaw”) is a corporation registered under the Companies Act 1993 carrying on business in Auckland as a dealer selling motor vehicles, both new and used.

In late August 2019 Earnshaw sold a sport utility vehicle (“SUV”) to Heathcliff. The vehicle had not previously been sold by retail. Under New Zealand regulations, every vehicle must have attached to it a compliance plate containing information relating to the description of the vehicle, and its date of manufacture. The compliance plate is affixed to the vehicle by the manufacturer. An importer of motor vehicles assembled overseas is normally the manufacturer under the regulations. The date of manufacture to be inserted on the compliance plate is the date the vehicle is available in New Zealand in a condition which will enable it to be registered.

The vehicle was imported into New Zealand fully assembled. There had been no model changes with respect to this SUV since the year 2017 and the SUV was a current model. The SUV was sold as a new motor vehicle as distinct from a demonstration or used motor vehicle. The sale took place in that part of Earnshaw’s premises reserved for the sale of new vehicles as opposed to that part of its premises reserved for the sale of used vehicles.

Consumer Protection NZ had issued an information circular – a copy of this circular had been sent to Earnshaw by Consumer Protection NZ in response to a query about advertising vehicles as new.
The information circular stated that:

“Generally whether or not goods can be advertised as ‘new’ will depend on all the circumstances surrounding the advertisement in question. In the case of motor vehicles having regard to the nature of the product and the market in which they are advertised, we consider that they can be described as ‘new’ where: (a) the vehicle had not previously been sold by retail; (b) it is a current model.”

In early August 2019 Heathcliff attended at the premises of Earnshaw and spoke to a salesperson, Catherine, and was taken for a test drive in a demonstration SUV. In mid-August 2019 Heathcliff went to Earnshaw’s premises to sign a contract for the purchase of a motor vehicle including an order form and an application for registration.

The order form contained various details. In a part headed, “description of goods” appeared the words, “new/demo/used” and underneath those words the words, “cross out whichever is not applicable”. The words, “demo” and “used” had been crossed out.

In the application for registration, under the title, “vehicle particulars” and the subheading, “year of manufacture” was the year, “2017” in writing and under the part marked, “is certificate of road worthiness attached” a box was ticked which stated, “not required – new vehicle”.

On 2 September 2019, Heathcliff took delivery of the SUV he purchased and received a 2017 owner’s manual. He said to Catherine, “This is a 2017 manual” and she said, “I think they all come with them. I don’t think we have any other manuals.”

On 3 September 2019, Heathcliff checked the compliance plate and found that it was dated “Jan 2017”.

REQUIRED:

Identify and discuss whether there has been any potential contravention of s 9 of the Fair Trading Act 1986. If so, what are the potential penalties and remedies?
10 marks

QUESTION 3

On 21 May 2018 Scott entered into a contract for the purchase of a property (“land”) on the corner of Morrison and Cormann Streets, North Shore. Settlement under the contract took place on 9 July 2018. The land was bought for the purpose of redevelopment. Scott would not have concluded the purchase if he had known that the land would be substantially affected by road widening proposals which had been approved in principle by Auckland Transport (“AT”), a Council controlled organisation of Auckland Council in 2017.

On 10 May 2018 his solicitor, Josh, made a telephone call to AT and spoke to Marise in the Property Department who confirmed that there were no local road widening proposals affecting the land. Josh identified himself as a solicitor acting on behalf of his client who was a prospective purchaser of the land.

According to the Head of the Property Department at AT, Christopher, it was common practice to give information, including information as to the existence of any road widening proposals, orally over the telephone.

Although the relevant proposals were not formally adopted until February 2019, there was little doubt, in May 2018, that they would be implemented and would seriously affect the subject land. The proposals were embodied in a plan in AT’s records.

Josh, as solicitor for Scott, claims that he relied on AT to exercise reasonable care in advising him whether the land was subject to local road widening proposals. He said that it was reasonable for him to do so, because AT was able to know better than anyone else whether any such proposals existed, and it commonly followed the practice of giving information as to that matter when requested.

Whilst Josh did not expressly say what the purchaser intended to do with the land, Scott claims that AT ought to have known that the road widening, if carried out, would adversely affect the use of the land.

REQUIRED:

Based on the above facts, discuss whether AT may be liable in damages for the tort of negligent misstatement.
10 marks

QUESTION 4

The Dedlock Construction Company Limited (“Dedlock”) was incorporated in 2000 under the Companies Act 1993. Prior to its incorporation, three of its directors had been carrying on business in New Zealand as building contractors. These were Snagsby Guppy and Krook who were in partnership. The partnership had just completed a subway under the railway track at Tulkinghorn for KiwiRail, a New Zealand state-owned enterprise responsible for rail operations in New Zealand.

In 2005 KiwiRail was asking for tenders for the construction of a railway line from Summerson to Carstone, known as the Summerson Line, and the tenders of Snagsby, Guppy and Krook made on behalf of the partnership (“the firm”) were accepted by KiwiRail. Before tendering, arrangements had been made by the firm with another building contractor, Caddy, that he should take an interest in the contract to the extent of one-half if the firm was successful. Dedlock was formed to define their interests, and its share capital distributed in the proportions agreed: 50-50 between the firm (compris- ing Snagsby, Guppy and Krook) and Caddy.

The board of directors of Dedlock was comprised of Snagsby, Guppy, Krook and Caddy. Guppy is also general manager.

Dedlock successfully carried out the work of laying the Summerson Line and the company continued to tender and obtain a considerable number of other contracts of great value from KiwiRail.

The Vholes contract – a rail electrification contract in South Auckland – is the one which has given rise to the present dispute. Bucket, a representative of KiwiRail, had arranged most of the contracts between Dedlock and KiwiRail. Her negotiations had always been either with Snagsby or Guppy – she had never dealt with Caddy or Krook.

In 2017, due to a disagreement with Caddy, Snagsby, Guppy and Krook decided that they would no longer continue a business relationship with him.

Whilst still retaining their position as directors and their respective roles in Dedlock, Snagsby and Guppy proceeded to negotiate with Bucket for the new Vholes contract with KiwiRail, in reality on behalf of the firm, but in exactly the same manner as they had always acted for Dedlock.

After all the preliminaries of the Vholes contract had been concluded, Snagsby said to Bucket, “Remember, if we get this contract it is to be the firm, and not Dedlock”.

Caddy had been excluded from all negotiations and discussions even though he was one of the direc- tors of the company – he did not find out about the Vholes contract until it had been signed.

Subsequently Snagsby, Guppy and Krook formed another company called the Honoria Construction Company Limited (“Honoria”) to carry out the work for the Vholes contract. The contract was ac- cordingly taken over by Honoria by whom the work was carried out and the profits made.

REQUIRED:

Discuss whether there has been a breach of fiduciary duty by Snagsby and Guppy as directors of Dedlock in relation to the Vholes contract, and if so, what would be an appropriate remedy?

10 marks

QUESTION 5

Answer both parts A and B. Part A
John owns a shop selling antique goods. This requires him to attend a number of auctions per year. On one occasion, when John went to an auction, he asked his best friend Rochelle to run the shop. John instructed Rochelle, that she could sell any of the items displayed in the shop as long as Rochelle got at least 75% of the price displayed on the item. John warned Rochelle that under no circumstances must she purchase any stock for the shop.

While John was away at an auction, Rochelle sold Clare an antique clock for 70% of the price dis- played. Clare bought the clock believing that Rochelle owned the shop.

Rochelle also sold Manu, a regular customer and good friend of John’s, a bedside cabinet for sixty five percent of the displayed price. Manu was aware that John would not sell for lower than seventy five percent of the marked price, even to a trader such as herself. Manu, however, paid the money.

REQUIRED:

Advise John whether he is bound by the contracts that Rochelle has entered into, and any remedies available to John.
5 marks

Part B

Talia works as a cleaner for Big Auto Ltd. One night when she when she is emptying the rubbish bins before shredding the contents she notices an internal memo from the head of engineering to the CEO of Big Auto. The memo advised the CEO that independent tests done on the seatbelts installed in some of Big Auto’s most recently produced cars were not up to the standards required by the Land Transport Safety Board.

Reading the memo Talia learnt that statistically only a few of the affected vehicles were likely to be involved in a high speed crash where the safety belts’ effectiveness would be an issue. It was recom- mended that the vehicles not be recalled as any physical injury caused by the failure of the seat belts would be covered by the Accident Compensation Scheme. Models produced in the future would have seat belts that did conform with the necessary safety standards.

Talia photocopies the memo and destroys the original. She wants to show her memo to Brent Crocker, who has a television news show.

REQUIRED:

Advise Talia of her legal position.