Presented By: Cauvery Sharma (82008) Chetna Malhotra (82009) Kavya M. Chandra (82017) Neha Tandon (82026) Neha Malhotra (82027)

Presented By:Cauvery Sharma (82008)Chetna Malhotra (82009)Kavya M. Chandra (82017)Neha Tandon (82026)Neha Malhotra (82027)

Agenda

• Introduction

• Meaning and Essentials of a Valid Contract

• Communication of Proposal, Acceptance and Revocation of offer

• Classification of contracts

• Breach of contract

2

• The law relating to contracts is contained in the Indian Contract Act, 1872.

• The Act extends to the whole of India except the State of Jammu and Kashmir

• The general principles of the law of contracts are covered in 75 sections.

• Indian Contract Act provides a framework of rules and regulations which govern

the way we

Enter into a contract

Execute a contract

Implement provisions of a contract

Effects of breach of a contract.

Introduction

3

Agenda

• Introduction





4

• Section 2(a) of the Indian Contract Act, 1872 defines proposal as “When one person signifies

to another his willingness to do or to abstain from doing anything, with a view to obtaining

the assent of that other to such act or abstinence, he is said to make a proposal”.

• The person who makes the proposal is generally called the ‘offeror’ and the person to whom

it is made is called ‘offeree’.

• The proposal must be made with the intention of creating legal relations and must be

definite and not ambiguous.

A offers to sell his car to B. A is making an offer to do something i.e. to sell his car. It is a positive act

on the part of the ‘offeror’.

A offers not to file a suit against B, if the latter pays final settlement of an outstanding claim. Here

the act of A is a negative one, i.e. he is offering to abstain from filing the suit.

Proposal

5

• Section 2(b) of the Indian Contract Act defines ‘promise’ as “When the person to

whom the proposal is made signifies his assent thereto, the proposal is said to be

accepted.

• A proposal, when accepted, becomes a promise

• The person making the proposal is called the ‘promisor’ and the person accepting

the proposal is called the promisee’.

• Under Section 2(d) , Consideration is defined as ‘when, at the desire of the

promisor, the promisee or any other person has done or abstained from doing,

or does or abstains from doing, or promises to do or to abstain from doing

something, such Act or promise is called a consideration for the promise.

Promise & Consideration

6

• Section 2(e) of the Indian Contract Act, 1872 defines an agreement as “Every promise and

every set of promises, forming the consideration for each other”. In other words, agreement

is an accepted proposal.

• Characteristics of an Agreement

Plurality of persons - Agreements results when one person makes a proposal and the person to

whom it is made accepts it.

Consensus ad idem or meeting of minds - Both the parties must agree to the same thing, in the same

sense and at the same time

Reciprocal Promises - Whenever a promise or a set of promises is exchanged for a promise or set of

promises, agreement shall result.

Agreement

7

• Section 2(h) defines a contract as “an agreement enforceable by law”.

• An agreement, enforceable by law, made between at least two parties by which rights are

acquired by one and obligations are created on the part of the other. If the party, which had

agreed to do something, fails to do that, then the other party has a remedy.

• A contract essentially consists of two elements:

An agreement

Its enforceability by law - Agreement must be such which is enforceable by law so as to become a

contract.

A proposal by ‘A‘ inviting ‘B’ over dinner and B’s assent thereto will result in a social agreement.

• All agreements are not contracts; but all contracts are agreements.

Contract

8

• Proposal and Acceptance

• Intention to create legal relationship

• Free and genuine consent

• Parties to be competent to contract

• Lawful Consideration

• Lawful Object

• Agreement not declared void

• Certainty of Meaning

• Possibility of Performance

• Necessary legal formalities

Characteristics Of A Valid Contract

Age of majority, Sound mind, not disqualified by law

Consent free of CUFMM

Characteristics Necessary Conditions

Promisor’s desire, Origin, adequacy, Realty, Legality

Not against law, fraudulent, immoral,

Consensus by both parties

Unambiguity of meaning

Realistic to achieve

Necessary compliances: writing, registration/ attestation

Unlike social/ domestic agreements

Against public policy, in restraint of trade, wagering etc.

9

Agenda

• Introduction





10

• According to Section 4, communication of a proposal is complete when it comes to the

knowledge of the person to whom it is made. For example, A proposes, by letter, to sell a

house to B at a certain price. The communication of the proposal is complete when B

receives the letter.

• The communication of acceptance is complete when

As against the proposer, when a duly addressed letter of acceptance is put into a course of

transmission to him, so as to be out of the power of the person who makes it.

As against the acceptor, when it comes to the knowledge of the proposer. For example, A proposes

by letter to sell a house to B at a certain price. B accepts A’s proposal by a letter sent by post.

Communication of Proposal, Acceptance and Revocation of offer

11

• Acceptance must be absolute and unqualified.

• It must be expressed in some usual & reasonable manner.

• Mental Acceptance is not sufficient in Law.

• Acceptance must be communicated to the offerer.

• Acceptance must be by a certain person.

• Acceptance must be given within a reasonable time.

• Acceptance must be given before the offer lapses or is revoked or is withdrawn.

• Acceptance of proposal is acceptance of all terms.

Essentials Of Acceptance

12

• An offer is revoked by the death or insanity of the proposer, if the fact of his death or

insanity comes to the knowledge of the acceptor before acceptance. Therefore, if the

acceptance is made in ignorance of the death, or insanity of the offeror, there would be a

valid contract

• An offer terminates when rejected by the offeror

• An offer terminates when revoked by the offeror before acceptance by the offeree

• An offer terminates by not being accepted in the mode prescribed, or if no mode is

prescribed, in some usual and reasonable mode

• A conditional offer terminates when the condition is not accepted by the offeree

• An offer terminates by counter-offer by the offeree.

Basics Of Contract Revocation

13

• For example, where P, a passenger deposited a bag in the cloak room at a railway station. The

acknowledgement receipt given to him bore, on the face of it, the words “See Back”. One of the

conditions printed on the back limited the liability of the Railways for any package to $10. The bag

was lost, and P claimed $24. He pleads that he had not read the conditions on the back of the

receipt. P was bound by the conditions printed on the back of the document.

• For example, a Tamilian may be given a drycleaner’s receipt printed in Hindi, a language foreign to

him, he shall be bound by the terms and conditions printed overleaf if his attention had been

drawn by suitable words on the face of such receipt. In such a situation, it is his duty to ask for the

translation of the condition and if he does not do so, he will be presumed to have constructive

notice of the same.

• However, if the conditions are contained in a document which is delivered after the contract is

complete, and then the offeree is not bound by them.

Communication Of Special Terms

14

Devolution Of Joint Liabilities

• Section 42 of the Indian Contract Act requires that when two or more persons have made a

joint promise, then unless a contrary intention appears by the contract, all such persons jointly

must fulfill the promise. In the event of death of any of them, his representative, jointly with

the survivors and in case of the death of all promisors, the representatives of all jointly must

fulfill the promise.

Rights and Liabilities of Joint Promisors

• Under Section 43, any one of the joint promisors may be compelled to perform the whole of

the promise. The liability of the joint promisors has been made not only joint but joint and

several.

Rights and Liabilities of the Joint Promisors

15

Contribution among Joint Promisors (Section 43)

• If a joint promisor has been compelled to perform the whole promise, he may compel every

other joint promisor to contribute equally to the performance of the promise

• For example: A,B,C are under a joint promise to pay D Rs.30000. A is compelled to pay the

whole. A can recover Rs.10000 each from B and C.

Effect of Release of a Joint Promisor (Section 44)

• Example: A,B and C jointly promise to pay Rs.10,000 to D. D releases A from the liability. B and C

shall continue to remain liable to D. Further, A shall not be released from the responsibility to B

and C. If D recovers the amount from B and C, they shall have a right of rateable contribution

from A.

Rights and Liabilities of the Joint Promisors….

16

Agenda

• Introduction





17

• Contracts can be classified in terms of their

Mode of formation

Validity or enforceability

Performance

Classification of Contracts

18

• Express Contract - If the terms of the contract are expressly agreed upon (whether by words spoken or written) at

the time of the formation of the contract

• Implied Contract – Contract which is inferred from the acts or conduct of the parties or the course of dealing

between them.

• Formal Contract – Contract in which the law gives special effect because of the formalities or the special language

used in creating it. The best example of formal contracts is negotiable instruments, such as cheques. A negotiable

instrument has legal characteristic that differ from those of ordinary contracts.

• Informal Contracts – Contracts for which the law does not require a particular set of formalities or special

language. The parties may use any style or language they please, as long as the usual requirements for contract

are met. The contract may be oral, or it may even be inferred from the parties’ conduct in the absence of a statue

requiring writing. Sometimes informal contracts are called ‘simple’ contracts.

Based On Formation

19

• Contracts may be classified according to their validity as:

Valid

Voidable

Void

Unenforceable

Based On Validity

20

• Voidable contract is one which may be repudiated at the will of one or more of the parties as it is affected by flaw

(misrepresentation, fraud, coercion, undue influence), but not by others.

• Characteristics of a Voidable Contract

It is valid and binding on both the parties till it is avoided by the aggrieved party.

It can be avoided only by one party and not by the other.

The party at whose option the contract is voidable is not bound to repudiate it. It may choose to affirm it, and thereby be bound by it as

well as bind the other party.

The party repudiating the contract is entitled to get damages for any loss that he may have suffered. In case he had received some

benefit under the contract, he must restore it to the person from whom it was received.

• A, a man enfeebled by disease or age, is induced by B’s influence over him, as his medical attendant to agree to pay B an

unreasonable sum for his professional services. A can avoid the contract. A’s consent is not free; it is affected by undue influence

employed by B. A can take steps to set the contract aside.

Based On Validity - Voidable Contract

21

• An agreement which is not enforceable by either of the parties to it is void.

• The contract is valid at the time of formation, but may become void afterwards.

• Under Section 11, an agreement with a minor is a void.

• Some instances of void contract

Agreements in restraint of marriage

Agreement in restraint of trade

Agreements in restraint of legal proceedings

All illegal agreements are void but all void agreements are not necessarily illegal.

For example: A, B and C enter into an agreement for the division among them of gains acquired or to be acquired, by them by fraud. The agreement is illegal as per Section 23 of

the Act.

An illegal agreement is not only void as between the immediate parties but has this further effect that even the collateral transactions to it become tainted with

illegality.

Based On Validity - Void Contract

22

• An unenforceable contract is neither void nor voidable, but it cannot be enforced in the court because it lacks some

item of evidence such as writing, registration or stamping or where the remedy has been barred by lapse of time.

For instance, an agreement which is required to be stamped will be unenforceable if the same is not stamped at all or is under

stamped.

• The contract may be carried out by the parties concerned; but in the event of breach or repudiation of such a

contract, the aggrieved party shall not be entitled to the legal remedies.

Based On Validity - Unenforceable Contract

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1. Executed Contract

• An executed contract is one which has been wholly performed.

For Example: A buys a bicycle from a dealer. A pays cash. The dealer delivers the bicycle.

2. Executory Contract

• An executory contract is one which remains wholly unperformed, or in which there remains something further to be done.

For example: On June 1, A agrees to buy a bicycle from a dealer. The dealer has to deliver the bicycle on June 15 and A has to pay price on

July 1. The dealer delivers the bicycle on June 15. The contract is executory as something remains to be done in terms of the contract.

Based On Performance – Executed vs. Executory

24

1. Unilateral Contract

• A unilateral contract is one wherein at the time the contract is concluded there is an obligation to perform on the part of one

party only.

For Example: A makes payment for bus fare for his journey from Mumbai to Pune. He has performed his promise. It is now for

the transport company to perform its promise.

2. Bilateral Contract

• A bilateral contract is one wherein there is an obligation on the part of both to do or to refrain from doing a particular thing.

Based On Performance – Unilateral vs. Bilateral

25

• Under Section 31, a Contingent contract is a contract to do or not to do something, if some event, collateral to such

contract does or does not happen.

• Example: A contracts to pay B Rs. 10,000 if B’s house is burnt

• Example: A contracts to pay B a sum of money when B marries C

• There are three essential characteristics of a contingent contract

1. The performance of a contingent contract depends upon happening or non-happening of some future event.

2. The event must be uncertain

3. The event must be collateral i.e., incidental to the contract

Contingent Contracts

26

• A situation in which law imposes upon one person, on grounds of natural justice, an obligation similar to

that which arises from a true contract, although no contract, express or implied, has in fact been entered

into by them..

• Example: X supplies goods to his customer Y who receives and consumes them. Y is bound to pay the price.

Y’s acceptance of the goods constitutes an implied promise to pay. This kind of contract is a tacit contract.

• If the goods are delivered by a servant of X to Z, mistaking Z for Y, then Z will be bound to pay compensation

to X for their value. This is a quasi contract.

Quasi Contracts

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Agenda

• Introduction





28

• One party’s failure , without a legal excuse, to live up to any of its promises under a contract.

• If the promisor has not performed his promise in accordance with the terms of the contract or where the

performance is not excused by tender, mutual consent or impossibility or operation of law, then this

amounts to a breach of contract on the part of the promisor.

• Breach of contract may arise in two ways

Anticipatory

Actual

Breach Of Contract

29

• When a party repudiates a contract before the time fixed for performance has arrived or when a party by his

own act disables himself from performing the contract.

• Example: A contracts to supply B with certain articles on 1 August. On 20th July, he informs B that he will not be able to

supply the goods. B is entitled to sue A for breach of promise.

• Consequences

Rescind the contract and treat the contract as at an end, and at once sue for damages

He may elect not to rescind but to treat the contract operative and wait for the time of performance and then hold

the other party liable for the consequences of non-performance.

Anticipatory Breach Of Contract

30

• Also, if the repudiation is not accepted and subsequently an event happens discharging the

contract legally, the aggrieved party shall lose his right to sue for damages.

For example, Avery vs Bowden Case(1856), in which a ship was supposed to pick up some cargo at

Odessa. With the outbreak of the Crimean War, the government made it illegal to load the cargo at an

enemy port, so the ship could not perform its contract without breaking the law.. Thus, the contract

was discharged and the other party could not sue for damages.

Anticipatory Breach Of Contract…….

31

• When the personal skill, ability or qualification of the promisor is the basis of the contract, the contract stands discharged by his death or physical disablement or illness

as a result of which the contract could not be performed.

For example: A agrees to paint a picture for B by a certain date. A dies before that time without painting the agreed picture. The death of A results in the discharge of the contract and

therefore his legal representatives are nor liable either to perform the contract or to pay compensation for non-performance.

When the personal skill, qualification or ability of the promisor is not the basis of the contract, his death does not result in the discharge of his obligation under the

contract.

For example: A borrows a sum of Rs.5000 from B to be paid by a certain date. A dies before that date without meeting his obligation. His legal representatives are liable to pay the

borrowed amount. However their liability is limited to the extent of the value of the assets inherited.

Effect of the Death of one Party on the Contract

32

• Actual Breach can occur by

Failure to perform as promised, which may take place

• At the time when performance is due

• During the performance of the contract

• Example: A contracted with a Railway Company to supply it certain quantity of railway chairs at a certain price. The delivery was to be made in installments. After a few

installments had been made, the Railway Company asked A to deliver no more. Thus, A could sue for breach of contract.

Making it impossible for the other party to perform.

Example: Suppose you hire an agency to clean carpets in your home on Saturday for Rs.500. You go out for the day neglecting to make arrangements to let the

agency people into your home to clean the carpets. You have breached the contract by making performance impossible. You would owe money since the

cleaning agency could not clean and because the agency probably turned down requests to clean for other clients.

Actual Breach Of Contract

33

Person does not perform his part of the contract at the stipulated time, he will be liable for breach. But if the promisor

offers to perform his promise subsequently, whether it should be accepted or whether the promisee can refuse such

acceptance and hold the promisor for breach ?

Time as the Essence of a Contract

34

• If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by failure to do such

thing at or before the specified time but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.

• When a party to a contract promises to do a certain thing at or before a specified time, and fails to do any such thing at or before the specified time,

the contract becomes voidable at the option of the promisee, if the intention of the parties was that time should be the essence of the contract.

• But if the promisee accepts the performance by the promisor beyond the stipulated time, the promisee must give notice of his intention to claim

compensation. If he fails to give such a notice he will be deemed to have waived that right.

Time as the Essence of a Contract

35

• Damages under Section 75 are awarded according to certain rules as laid down in Section . 73 – 74. Section 73 contains three important rules

1. Compensation as general damages will be awarded only for those losses that directly and naturally result from the breach of contract.

2. Compensation for losses indirectly caused by breach may be paid as special damages if the party in breach had knowledge that such losses would also follow from such act of

breach.

3. The aggrieved party is required to take reasonable steps to keep his losses to the minimum.

• Under Section 74, when a contract has been broken, if a sum is named in the contract as the amount be paid in case of such breach, or if the contract contains any other stipulation by

way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss or proved to have been caused thereby, to receive from the party who has broken

the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Remedies For Breach Of Contracts

36

• Between 1904 - 1906 British Westinghouse supplied 8 steam turbines to the defendant railway company. They transpired to be defective in design and used excessive

quantities of steam. The railway company did not reject them but reserved its claim to damages for breach of contract. In 1907 the railway company replaced them with

more efficient turbines made by company called Parsons. The railway company claimed damages for the excessive fuel used while they were operating the British

Westinghouse turbines and the whole cost of replacing them with the Parsons turbines.

• The arbitrator found that the railway company had acted reasonably and prudently in acquiring the Parsons turbines to mitigate their continuing loss in using excessive

fuel but he also found that the Parsons turbines were so efficient that it would have been to the advantage of the railway company to replace the British Westinghouse

turbines when they did, even if the latter had been in accordance with the contract specification.

The House of Lords held that the additional benefits gained by the railway company from acquiring the Parsons turbines, over and above what would have been their

contractual entitlement as against British Westinghouse, had to be brought into account in calculating the damages.

British Westinghouse v Underground Electric Railways Co of London (1912) AC 673

37

• It means ‘as much as merited’ or ‘ as much as earned’.

• The general rule of law is that unless a person has performed his obligations in full, he cannot claim performance from the other.

But in certain cases, when a person has done some work under a contract, and the other party repudiated the contract, or some

event happens which makes the further performance of the contract impossible, then the party who has performed the work can

claim remuneration for the work he has already done.• Planche v Colburn (1831)

P was contracted to write a book on costume and armour for £100. P collected materials and wrote part of the book. C then informed P that the

book was no longer needed. The courts held that P was entitled to some money on a quantum meruit basis. Note that P could not have simply

completed the book since his

loss needed to be mitigated.

Quantum Meruit

38

1. Ordinary Damages

2. Special Damages

3. Liquidated Damages

4. Penalty

Different Types Of Damages

39

• Damages which naturally arise in the usual course of things from such a breach. The measure of ordinary

damages is the difference between the contract price and the market price at the date of the breach

For example: A contracts to deliver 10 bags of rice at Rs.500 a bag on a future date. On the due date he refuses to deliver.

The price on that day is Rs. 520 per bag. The measure of damages is the difference between the market price on the date of

the breach and the contract price, i.e. Rs.200.

• The ordinary damages cannot be claimed for any remote or indirect loss or damages by reason of the breach

Ordinary Damages

40

• When there are certain special or extraordinary circumstances present and their existence is communicated to

the promisor, the non – performance of the promise entitles the promisor to not only the ordinary damages but

also damages that may result there from.

• Example: A, a builder, contracts to erect and finish a house by the first of January, in order that B may give possession of it at that

time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house so badly that

before the 1st of January it falls down and had to be rebuilt by B, who in consequence losses rent which he was to have received

from C. and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of

rebuilding the house, for the rent lost and for the compensation made to C.

Special Damages

41

CaseThe plaintiffs, Mr Hadley and another, were millers and mealmen and worked together in a partnership as proprietors of the City Steam-Mills in Gloucester.They cleaned grain, ground it into meal and dressed it into flour, sharps, and bran. Hadley and Anor arranged to have a new crankshaft made for the steam engine by W. Joyce & Co. in Greenwich. Before the new crankshaft could be made, W. Joyce & Co. required that the broken crankshaft be sent to them in order to ensure that the new crankshaft would fit together properly with the other parts of the steam engine.The plaintiffs contracted with defendants Baxendale and Ors, who were operating together as common carriers under the name Pickford & Co., to deliver the crankshaft to engineers for repair by a certain date at a cost of £2 sterling and 4 shillings. Baxendale failed to deliver on the date in question, causing Hadley to lose business. Hadley sued for the profits he lost due to Baxendale's late delivery, and the jury awarded Hadley damages of £50. Baxendale appealed, contending that he did not know that Hadley would suffer any particular damage by reason of the late delivery.

IssueThe question raised by the appeal in this case was whether a defendant in a breach of contract case could be held liable for damages that the defendant was not aware would be incurred from a breach of the contract.

JudgmentThe Court of Exchequer Chamber, led by Baron Sir Edward Hall Alderson, declined to allow Hadley to recover lost profits in this case, holding that Baxendale could only be held liable for losses that were generally foreseeable, or if Hadley had mentioned his special circumstances in advance. The mere fact that a party is sending something to be repaired does not indicate that they would lose profits if it were not delivered on time.

Special Damages…….

42

• Sum payable in case of breach is to be regarded as liquidated damages if it be found that parties to the contract

conscientiously tried to make a pre-estimate of the loss which might happen to them in case the contract was broken

by any of them

• For example: A contracts with B to pay Rs.1000 if he fails to pay B Rs.500 on that day. A fails to pay Rs.500 on that

day. B is entitled to recover from A such compensation not exceeding Rs.1000 as the court considers reasonable

• If the parties made no attempt to estimate the loss that might happen to them on breach of the contract but still

stipulated a sum to be paid in case of a breach of it, with the object of coercing the offending party to perform the

contract it is a case of penalty.

For example: A contracts with B that if A practices as a surgeon within Calcutta, he will pay B Rs.1000. A practices as a

surgeon in Calcutta. B is entitled to such compensation not exceeding Rs.1000 as the court considers reasonable.

Liquidated Damages and Penalty

43

• ONGC had placed an order on Saw Pipes for supply of equipment for offshore exploration, to be procured

from approved European manufacturers. The delivery was delayed due to a general strike of steel mill

workers in Europe. Timely delivery was the essence of the contract. ONGC granted extension of time, but

invoked the clause for recovery of liquidated damages (LD), by withholding the amount from the payment

to the supplier. Liquidated damages to the extent of US $ 3,04,970.20 and Rs. 15,75,559 were deducted

from payments made for goods. The contract itself provided for recovery of a sum equivalent to 1% of the

contract price of the whole unit per week for each delay as agreed liquidated damages and not by way of

penalty. Saw Pipes disputed the deduction and the matter was referred to arbitration.

• While the arbitral tribunal rejected Saw Pipes’ defence of force majeure, it required ONGC to lead

evidence to establish the loss suffered by the breach and proceeded to hold, in absence of evidence of

financial losses, that the deduction of LD was wrongful.

ONGC vs. Saw Pipes – Case Study

44

• Vindictive Damages - Damages awarded with a view to punish the defendant and not solely with the idea of awarding

compensation to the plaintiff.

• These have been awarded in case for

1. Breach of a promise to marry

The measure of damages is dependent upon the severity of the shock to the sentiments of the promisee.

The Wrongful dishonour of a cheque by a banker possessing adequate funds of the customer

measure of damages is governed by the rule which says smaller the amount of the cheque dishonored, larger will be the amount of

damages awarded.

Nominal Damages - These are awarded in cases of breach of contract where there is only technical violation of the legal

right but no substantial loss is caused thereby.

Vindictive & Nominal Damages

45

Background

• Simon Arms sought the advice and services of WSA Online Ltd (“WSA”) in relation to his business. Houghton and Student, employees

of WSA, advised Arms in relation to what was required to establish the business. However, this advice was found to be incorrect and

Arms was required to restructure the business. As a result, the business operated loss for 12 months until a new profitable business

structure was adopted.

• Arms initiated proceedings in the Federal Court against WSA seeking damages for alleged misleading and deceptive conduct. Arms

additionally claimed against Houghton and Student, asserting that they engaged in misleading and deceptive conduct in

contravention of s 9 of the Fair Trading Act 1999 (“FT Act”), which states: “A person must not, in trade or commerce, engage in

conduct that is misleading or deceptive or is likely to mislead or deceive”.

Employees held personally liable for misleading and deceptive conduct

46

The Federal Court’s Decision

• At first instance, the Federal Court held WSA to be liable under the Trade Practices Act 1974

• But found that Houghton and Student were not personally liable as employees of WSA.

• It was specifically determined that neither Houghton nor Student had been engaged in trade or commerce on their own

account.

• On appeal, the Full Court of the Federal Court found in favour of Arms, determining that an employee acting within the

scope of actual authority could be liable for misleading or deceptive conduct.

• Houghton and Student appealed to the High Court.


47

High Court Decision

The High Court had to determine whether Houghton and Student themselves were acting in trade or commerce as required by s

9(1) of the FT Act, as distinct from acting in the trade or commerce of WSA.

The High Court held that it was not the point that Houghton and Student themselves were not business proprietors. Nor was it

relevant that their activities were an aspect of the trade or commerce of WSA but not of “their” trade or commerce. Houghton

and Student nevertheless engaged in conduct in the course of trade or commerce and were thus within the ambit of the FT Act.

The Verdict

• The appeal was therefore dismissed and it was determined that Houghton and Student had engaged in misleading and deceptive

conduct and were liable to pay damages to Arms.


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Conclusion

The High Court decision in this case establishes that an individual can be found liable for damages

for their conduct, even if they were merely acting as an employee of an organisation at the time. It is

therefore clear that directors and managers of organisations, as well as other employees dealing with

the company’s clients in a marketing, sale or contracting capacity, are more likely to be held

personally liable in the future for deceptive or misleading conduct and incorrect advice, if that conduct

or advice leads to damage to a party or parties with whom they have a contractual relationship.


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Documents

Presented By: Cauvery Sharma (82008) Chetna Malhotra (82009) Kavya M. Chandra (82017) Neha Tandon (82026) Neha Malhotra (82027)