Sweeney Pty Ltd.

Sweeney Pty Ltd. ABN 350032 (Sweeney), a building and construction company, received advice that it should invest in the share market as part of its overall risk management plan for future growth and tax effectiveness.

With that objective in mind, Sweeney’s directors met with and agreed to appoint Quality Merchant Brokers Ltd (the stockbrokers) to be its stockbrokers. A written contract was prepared by the stockbrokers. One of the questions on the contract was whether Sweeney authorised the Brokers to trade at its discretion. The other question was whether Sweeney authorised the Brokers to operate a discretionary account. Sweeney’s directors answered ‘No’ to both questions and signed the contract on behalf of Sweeney.

The Broker engaged in ‘day trading’ investing in risky commodities in the hope that those commodities would increase in value before the end of trade, making profits. By the end of the first day’s trade, the broker had made a significant loss. Without authority, one of its employees continued trading over many weeks and losses exceeding one million dollars were sustained by Sweeney.

You have been asked to advise Sweeney whether it will be successful if it sues the Brokers on the contract. You have read the contract and note that the following two exclusion clauses are in the contract:

‘6. [Sweeney] …. acknowledges that [the Brokers] will not be responsible for any loss should [Sweeney] follow any of [the Brokers’] trading recommendations, nor any loss, in the case of discretionary accounts arising from trading by the [Broker] on [Sweeney’s] behalf.’

‘7. any liability on [the Broker’s] part or on the part of its servants or agents for damages arising out of the contract, however such liability arises, shall not exceed one hundred dollars.’

Advise Sweeney:

1. What is meant by an exclusion clause,

2. Whether Clauses 6 and 7 are effective exclusion clauses, which the brokers can use to defend a claim for breach of contract by Sweeney. Refer to the rules developed by the Common Law to interpret exclusion clauses.

Important: Do not advise Sweeney on the law of negligence

Do not refer to the Competition and Consumer Act 2010, the Australian Consumer law, the Corporations Act 2010, nor any other legislation in answering this question.

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