Hassan is the owner and operator of HiNutrition Pty Ltd (HiNutrition), a company that develops and
manufactures infant formula for sale in third world and developing countries.
Julia is the owner and operator of SteriSafe Pty Ltd (SteriSafe), a company that manufactures and
leases products for use in healthcare and food manufacturing.
HiNutrition uses an autoclave as part of its manufacturing process for sterilising infant formula. Hassan
wants to upgrade HiNutrition’s autoclave and contacts Julia to discuss leasing an autoclave from
SteriSafe.
Julia and Hassan meet. During their conversation, they say the following:
Hassan: I’m after an autoclave that can sterilise 1 tonne of base formula in 24 hours.
Olivia: That would be the Autoclave5000.
Hassan: I’m after an autoclave that is energy efficient as energy costs have gone through
the roof in the past few months. Does the Autoclave5000 use less than 185Kwh/day? It’s
really important that the Autoclave5000 doesn’t use more energy than because it won’t be
possible for me to make a profit because of the increased costs of production.
Olivia: Relax Hassan, the Autoclave5000 is the best on the market.
Later that week, Olivia sends Hassan a contract for the lease of the Autoclave5000 which contains
the following relevant terms:
Clause 2: This lease commences on 1 April 2022 and expires on 31 March 2027.
Clause 3: HiNutrition must pay monthly instalments of $3,000 on the first day of each month for
the term of this agreement.
Clause 8: SteriSafe warrants that the Autoclave5000 has a maximum energy consumption of
172Kwh/day.
Clause 9: SteriSafe accepts no responsibility for any deficiencies in the Autoclave5000.
Clause 15: This agreement constitutes the entire agreement between the parties and
supersedes all previous discussions, correspondence, negotiations, assurances,
representations and understandings between the parties, whether written or oral, relating to
its subject matter.
Hassan starts using the Autoclave5000 which can only sterilise about 800 kilograms in a 24 hours
period. He then receives his monthly power bill. Hassan is shocked at the amount owing, which is
around 20% greater than he expected.
Hassan does some research and discovers that the maximum energy consumption of the
Autoclave5000 is 206Kwh/day. It is because of the Autoclave5000’s energy consumption that his
power bill is 20% higher.
Hassan calls Olivia and they have the following conversation:
Hassan: The Autoclave5000 has an energy consumption of 206Kwh/day.
Olivia: Really? That’s no good.
Hassan: No, it’s not good. You need to come and pick up the Autoclave5000, I don’t want it
anymore. At 206Kwh/day, it’s costing me about $500 extra per month than if it operated at
172Kwh/day.
Olivia: You can’t return it because your lease runs for another five years. How about
SteriSafe reduces the monthly rental by $500 per month?
Hassan: No, you need to pick it up.
Julia: I’ll need to speak with head office. I’ll give you call later this week.
Julia does not call back. Hassan calls Julia repeatedly the next week and sends her emails but she
does not answer.
Hassan then sends an email to Julia which states that he has terminated the contract because of
deficiencies in the Autoclave5000. Julia responds by email in the following terms:
Dear Hassan,
We refer to your email in which you purport to terminate the lease agreement.
There is no deficiency in the Autoclave5000. We accept your repudiation and hereby
terminate the lease agreement.
You are now liable to us for our loss of profit for the remainder of the term of the lease. We
will write to you separately once we have calculated our loss which we expect will exceed
$60,000.
In the meantime, SteriSafe reserves its rights.
Yours sincerely,
Julia
Hassan then contacts SteriSafe’s competitor ProClave Pty Ltd (ProClave). ProClave only sells
autoclaves, it does not lease them. Hassan meets with ProClave’s sales representative, Ling. After
some negotiation, HiNutrition signs a sale agreement with ProClave for the purchase of a PC-7 for
$80,000. The sale agreement contains the following clause:
This agreement is subject to HiNutrition being able to raise the money at satisfactory rates in
the next four weeks.
Over the next three weeks Hassan’s wife becomes seriously ill and is admitted to hospital. Hassan
takes time off work to care for her. Hassan only managed to visit the Commercial Bank branch in
North Sydney and speak to one of the lending officers. He thought at the time the rates they were
offering for a loan were a bit high. Reading the April 2022 online edition of Food Manufacturers
Monthly, he saw a large banner advertisement for the credit provider Equipment Finance. Had he
clicked on the banner, he would have found finance for the amount he needed for 1.5% less than the
Commercial Bank were offering. Equipment Finance allows for online applications and loan approvals
and promises a 48-hour turnaround on applications.
At the end of four weeks, Ling calls Hassan and Hassan tells her what’s been going on over the past
four weeks. Ling offers to give Hassan some more time to find finance but Hassan says, “No thanks,
I’ve found a cheaper autoclave online.”
Some months later, business is going well then Hassan gets a call from Albert at Mother’s Milk
Pty Ltd (Mother’s Milk), one of HiNutrition’s major customers. Albert explains that he has
become aware that the products supplied by HiNutrition to not meet the nutritional standards
required by the supply contract between HiNutrition and Mother’s Milk.
The supply contract between HiNutrition and Mother’s Milk contains the following clauses:
Clause 28: If Mother’s Milk suspects that HiNutrition has not complied with its obligations
under this agreement, Mother’s Milk may give HiNutrition a notice requiring HiNutrition to
attend a meeting at which HiNutrition must show cause as to why the contract should not be
terminated. If HiNutrition fails to show reasonable cause at the meeting, Mother’s Milk may
by written notice to HiNutrition terminate the contract.
Clause 43: Any notice under this contract may be sent by pre-paid post and will be deemed
to be received by the other party 3 business days after posting.
Mother’s Milk gives HiNutrition a notice under clause 28. Hassan attends the meeting. At the
start of the meeting, Hassan and Albert have the following conversation:
Albert: Hassan, I really don’t care what you say.
Hassan: Well just give me a chance to explain what happened.
Albert: I’m over it Hassan. Our relationship is finished.
Hassan: Fine, if you’re going to be like that, this meeting is over.
Hassan then leaves the meeting. A short time later, Albert emails Hassan a notice that states
that the supply contract has been terminated.
Hassan comes to you for advice. You may assume that the law of New South Wales applies.
Advise Hassan, giving reasons for your answer. When giving your advice, you must identify
each legal issue that arises and the relevant principles that apply to those issues.
Your answer must be limited to the issues arising under general contract law. Do not consider any
statutory rights that the parties may have
