Contract Law Case Study Assessment
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Foody is an app for people who love all things food-related: cooking, going to cafes and restaurants, and hearing about new dishes and festivals. Users can post photos, arrange meet ups, and leave reviews and comments about places and dishes. Any kind of food business can start an account to attract new customers, offer special discounts, promote events and advertise their dishes and services. It is popular in Melbourne, with 100,000 regular users.
Orson Stank, nephew of the more famous Olaf, runs a vegan food truck specialising in his own brand of ‘high tech’ cuisine, ‘Blockchain Bagels’: a plain unbuttered bagel that can be bought using various cryptocurrencies. Orson does not really know much about cooking or running a restaurant, but like his uncle he knows a thing or two about being a business genius and exploiting both workers and social media trends.
In January, Orson goes to Foody to create a new account. There are two options: ‘customers’ and ‘businesses’. Orson clicks ‘businesses’. A large flashing box appears with the text: ‘Business operators, please read the “Businesses Agreement” document linked here before signing up for Foody’.
The following is in the ‘Businesses Agreement’ document
Parties to this agreement are you as a prospective commercial/business user of Foody (‘you’/‘the User’) and Foody Pty Ltd (‘we/us’/‘Foody’), for services in relation to the Foody Internet/Smartphone Application (‘the App’). You acknowledge the existence of non-business users of the App (‘customers’) who use its services and engage in activities like posting reviews and comments.
The purpose of the App is for a mutually beneficial exchange of commercial information between the User, Foody, and customers. This includes:
(a) Sharing valuable data and information with us about the spending and eating habits of customers, and their approximate locations and visiting times at various businesses.
(b) Your engagement in frequent data-collecting and business promoting activities, including posts, exclusive pop-up events, recipe sharing, and special promotions.
(c) For additional fees, the User can select a range of special promotional activities that will help them attract customers.
Where the User fails to engage properly with the App, Foody may reduce promotion of that User’s page by not showing content and removing up to 20% of its customer followers. The User may apply to ‘unlock’ these removed customers by making a further payment at a reasonable commercial profit to Foody.
Orson lazily reads the document, then calls Olaf and asks him to put him in touch with the Foody CEO, Amal Jones.
Orson: Amal, Orson here. I want to bring my epic Blockchain Bagels to Foody, but I’m not so sure I like this customer reduction thing in clause 3.
Amal: Oh don’t worry about that Orson, we only put that in to scare lesser business geniuses than yourself. We know your bagels and innovative crypto scheme would be a great addition to our platform. It’d be a rare situation where Foody would actually exercise our clause 3 rights, so it’s really nothing to worry about.
Orson: So glad to hear you say it won’t apply to me.
Orson hangs up, ticks ‘I Agree’ and submits the form and opens his account.
Blockchain Bagels’ Foody profile and business works well for the first few months. Orson gains a following of 10,000 Foody customers and is making steady gains in profits thanks to the App. He promotes his events, offers some discounts to loyal followers, uploads a lot of his signature recipes, and buys several add on services for additional fees. By April, most of his business relies on Foody customers.
In June, Foody greatly increases the price of the promotional activities and greatly reduces the number of ‘free’ promotional views that are shown to customers. Orson is short on cash at the moment, and he cannot pay for additional promotions. Only a handful of his followers see his planned food truck events, and no one showed up to the last three.
Orson is worried about this situation and emails Foody to ask what is going on. Foody’s legal counsel replies:
Thank you for your email. You have not been engaging properly with the App as outlined in clauses 2 and 3. In particular, data collection from your users has dropped off and their data is now worthless to us. Your recent pop-up events received no customer interest and you have not made good use of the generous special promotions options which are essential to our business model and the agreement. Consequently, Foody has now exercised its power to remove 5,000 of your 10,000 followers. You may exercise your clause 3 right to unlock these customers for $25,000, calculated at
$5 per customer.
Orson calls Olaf and gets your number.
Orson: Help me! Surely this stupid clause 3 does not apply to me. Even if it does, Foody’s reading of it is stupid, and anyway this not very fair: they’re the ones who cut off my followers!
Advise Orson on issues relating to contract terms (do not advise Orson on issues around discharge).
20 Marks / approx. 1000 words
20 Marks / approx. 1000 words
Thanks to your advice on contract terms, Orson and Foody came to an arrangement around their disagreements, and Orson has continued to use the App.
It’s now September, and Orson gets an email from Foody inviting him to take part in a new ‘Genius Program’ of business coaching and mentoring run by CEO Amal personally. This 12-week program requires Foody business owners to agree to the following terms and conditions by signing a document entitled ‘Genius Program Contractual Agreement’:
This is an agreement between you, a current Business User of Foody, and Foody Pty Ltd to enter and participate in the ‘Genius Program’.
The Genius Program is a state-of-the-art business coaching and mentoring program to improve Foody business User’s skills and profiles. It is run by Foody CEO Amal Jones personally.
CEO Amal Taylor will head and run the program. All participants will have a direct line to Amal for business advice. Amal will respond promptly to all queries.
All participants will be able to participate in the ‘Basic Course’ with one (1) lecture per week and two (2) one-hour business consultations sessions per fortnight, all run by Amal. This Basic Program will be charged at a cost to the User of
In addition to this, participants may choose a series of options:
Additional one-hour mentoring session: $500
Business mindset coaching: $1000
Business model review: $5000
All parties acknowledge that Amal uses cutting edge management techniques that may involve serious risk and could reduce the profitability of lesser enterprises run by Users who do not have what it takes to run a proper business in the modern age. Consequently, neither Foody Pty Ltd nor Amal Jones neither personally nor in her capacity as CEO of Foody accept any liability or responsibility of any kind, in any way whatsoever, for losses connected to the advice and guidance given in this program, including a failure to increase profits or customers, a reduction in customer base, or for expenditures that do not result in profit increases.
Any liability for losses not otherwise excluded by cl 6 shall not, in any event (and whether or not such liability results from or involves carelessness) exceed
Orson signs and returns the agreement and begins his classes. They go well initially, with Orson learning a lot about the restaurant business. His follower counts increase and his profits are slightly up, and he feels this is because of the new skills he has learned. Amal delivers the courses and responds promptly to all his inquiries.
As part of the Basic Course, Amal suggests that Orson begin cutting edge ‘cringe’ marketing campaign on the short form video and datamining social media app Tokle. Amal told Orson: ‘the only way this is guaranteed to work is if you pay a few major influencers a decent amount of money to do content for you to promote a new product’. Orson invents a new ‘seasoned, buttered bagel’ and spends $20,000 in promotional agreements with three Tokle influencers, who video themselves silently eating the bagels at various bus stops.
By week 6 of the course, things start to fall apart. Amal stops answering her phone, and sends her Chief Operating Officer to teach some of the sessions instead, who explains to the
students that Amal has a range of personal and commercial issues that are preventing her from giving 100% to the Genius Program.
Orson is annoyed about Amal not being there, but the main problem is that the Tokle campaign is failing badly. Orson has not gained any extra customers, and the new ‘seasoned buttered bagel’ he made for the promotion is not selling. Orson signs up for two additional mentoring sessions, mindset coaching, and a business model review. Amal delivers these sessions and the coaching. The business model review only results in a one-page document that gives Orson basic data about his profile that he already knows, and repeats Amal’s Tokle marketing plan.
Orson calls you again and explains the situation: ‘I want out of this stupid program, and all the money I spent on it back, and $20,000 to cover my costs for the stupid Tokle idea that Amal came up with. I called them demanding this and their lawyers told me they’ve fulfilled their side of the program, and that anyway clauses 6 and 7 mean they’re not responsible for my problems’.
Advise Orson on terms and discharge rights
20 marks / approx. 1000 words
20 marks / approx. 1000 words
Once again, your advice resolved the dispute around the Genius Program. Orson is still on Foody and his business has recovered again following the Tokle disaster. He is not particularly happy and is thinking about leaving Foody. Indeed, he complained about the whole experience to his Uncle Olaf at a recent family dinner. Olaf scoffed that Foody ought to be taught what a real business genius would do with the platform.
On 15 December, a ransom cyberattack brought the Foody platform down. All customer and business data was breached and copied. The anonymous hackers told Foody that it had 24 hours to pay them $10 million or it would begin releasing data publicly. Foody refused to do so, stating that this would be illegal and a breach of the contracts with their users. The hackers began to release data. Orson’s data is released.
Foody’s legal counsel wrote the following email to all business users, including Orson: Dear Foody Business User,
As you know, we have suffered a serious cyberattack. App data has been severely compromised and while the App appears to still function partially, we do not recommend that users take any risks. Consequently, this has frustrated our agreements with each of you and these are all automatically terminated, meaning that no legal claims around the cyberattack can be brought against us. We wish you good luck with your business ventures elsewhere. We will not shut the app down completely just in case it contains information that will help you in those other ventures.
Orson informs you about another clause in the original Business Agreement document from when he signed up in January
Clause 99: Foody will use its best endeavours to keep all your data and information safe and secure. It warrants that it employs state-of-the-art software and data protection techniques to prevent data loss from a variety of possible sources.
Although Foody and the hackers are still negotiating to end the cyberattack, the Foody App still functions. There are many new problems due to the hack: follower counts change from day-to-day, sometimes events disappear, and lots of users are leaving the platform given the concerns about data security. This has been very annoying for Orson, and his profits are down about 30%.
He calls you once again: ‘Since the attack the platform now sucks even more than before, and Foody insist that the show is over. But I don’t really have anywhere else to go and all my customers are here, and this kinda seems like their fault partly. What can I do?!’
Advise Orson on whether the contract has been discharged on the basis of frustration (do not advise on other possible contract term or discharge rights issues)
10 Marks / approx. 500 words
10 Marks / approx. 500 words