ATL005 CommLaw3 : Property law [(2017 Edition)] 9781925554441, 1925554449

Table of contents :
Product Information
Tax Institute CommLaw3 Module 1 — Commentary
Tax Institute CommLaw3 Module 2 — Commentary
Tax Institute CommLaw3 Module 3 — Commentary
Tax Institute CommLaw3 Module 4 — Commentary
Tax Institute CommLaw3 Module 5 — Commentary
Tax Institute CommLaw3 Module 6 — Commentary
Tax Institute CommLaw3 Module 1 — Cases
Ruapehu Alpine Lifts Limited v State Insurance Limited
Cant, in the matter of Novaline Pty Ltd (in Liq)
MG Corrosion Consultants Pty Ltd v Gilmour
TORRENS REGISTER … Effect of writ of execution lodged hours before completion
Tax Institute CommLaw3 Module 6 — Cases
Zurich Australian Insurance Limited v Metals & Minerals Insurance Pte Ltd Nolan v Hamersley Iron Pty Ltd Metals & Minerals Insurance Pte Ltd v Speno Rail Maintenance Australia Pty Ltd
Tax Institute CommLaw3 Module 4 — ASIC regulatory guides
¶10-104Regulatory guide 104: licensing: meeting the general obligations
Tax Institute CommLaw3 Module 5 — ASIC regulatory guides
¶10-107Regulatory guide 107: fundraising: facilitating electronic offers of securities
¶10-141Regulatory guide 141: offers of securities on the internet (previously policy statement 141)

Citation preview

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© 2017 CCH Australia Limited (unless otherwise indicated) Published by CCH Australia Limited First published April 2013 Australian Securities & Investments Commission (ASIC) regulatory guides © Australian Securities & Investments Commission. Reproduced with permission. CCH is not the copyright owner of the judgments published herein. All rights reserved. No part of this work covered by copyright may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying, recording, recording taping, or information retrieval systems) without the written permission of the publisher.

Contents CommLaw3: Property Law — Commentary Tax Institute CommLaw3 Module 1 — Commentary [¶1-130] Major differences between real and personal property [¶1-120] Interests in personal property [¶1-140] Ownership and possession of personal property [¶40-100] Definition and classification of choses in action [¶8-820] Legal nature of goodwill [¶5-440] Vendor’s solicitor’s pre-contract inquiries [¶7-055] Sale of land — drafting — Perri v Coolangatta Investments [¶7-045] Checklist — Drafting a conditional provision in a contract of sale of land in NSW [¶7-048] Sale of Land — drafting — forfeiture of deposit or

instalments An introduction to the PPSA, 1 February 2013 [¶40-140] Effect of provisions Tax Institute CommLaw3 Module 2 — Commentary [¶43-130] Protection of copyright [¶52-120] Registration of a trade mark [¶52-145] Entitlement to apply for registration [¶52-190] Owner stopping others from infringing trade mark [¶52-180] Removal of a trade mark [¶49-140] Application for standard patent [¶46-125] Who may apply? Tax Institute CommLaw3 Module 3 — Commentary [¶160] Application of the Competition and Consumer Act to persons: outline of s 6 [¶2-100] Glossary — Competition law definitions [¶5-040] Introduction — Misuse of market power [¶2-605] Competition defined [¶4-815] Illustration of secondary boycott situations [¶4-950] Action by ACCC — secondary boycotts [¶7-015] Resale price maintenance — the prohibited conduct [¶10-015] Access to nationally significant infrastructure services — Structure of Pt IIIA [¶11-000] Prices surveillance by ACCC [¶21-000] Roadmap — Telecommunications [¶25-800] Glossary — Australian Consumer Law

[¶26-180] Limitations of s 18 of the ACL [¶26-280] Approach to assessment of conduct [¶27-280] Factors indicating unconscionability — Introduction [¶29-000] Roadmap — unfair practices [¶30-040] “Guarantees”, “warranties”, “conditions” [¶30-450] Unsolicited consumer agreements — introduction [¶30-770] Lay-by agreements: form, content, delivery Tax Institute CommLaw3 Module 4 — Commentary [¶26-184] The Financial System Inquiry [¶35-500] Anti-Money Laundering and Counter-Terrorism Financing Act [¶273-440] When a financial services licence may be granted: s 913B [¶2-798] Obligations of holder of an Australian Financial Services Licence (AFSL) [¶275-850] Overview — best interests obligations and remuneration Tax Institute CommLaw3 Module 5 — Commentary [¶35-310] Electronic Transactions Acts Tax Institute CommLaw3 Module 6 — Commentary [¶4-008] Mutual intention to contract [¶4-025] Terms must be agreed upon [¶4-130] Agents [¶13-350] Policy conditions — common law position [¶4-210] Application of the Insurance Contracts Act and exemptions

[¶4-215] Summary of the Act [¶1-850] General principles [¶1-905] Duty of directors [¶2-300] Primary Commonwealth legislation [¶1-805] State and territory legislation CommLaw3: Property Law — Cases Tax Institute CommLaw3 Module 1 — Cases Ruapehu Alpine Lifts Limited v State Insurance Limited Cant, In The Matter Of Novaline Pty Ltd (In Liq) MG Corrosion Consultants Pty Ltd v Gilmour Torrens Register … Effect of writ of execution lodged hours before completion Tax Institute CommLaw3 Module 6 — Cases Zurich Australian Insurance Limited v Metals & Minerals Insurance Pte Ltd Nolan v Hamersley Iron Pty Ltd Metals & Minerals Insurance Pte Ltd v Speno Rail Maintenance Australia Pty Ltd CommLaw3: Property Law — Releases Tax Institute CommLaw3 Module 4 — ASIC regulatory guides [¶10-104] Regulatory Guide 104: Licensing: Meeting The General Obligations Tax Institute CommLaw3 Module 5 — ASIC regulatory guides [¶10-107] Regulatory Guide 107: Fundraising: Facilitating Electronic Offers Of Securities [¶10-141] Regulatory Guide 141: Offers Of Securities On The

Internet (Previously Policy Statement 141)

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Tax Institute CommLaw3 Module 1 — Commentary ¶1-130 Major differences between real and personal property There are some important legal, conceptual and practical differences between real and personal property which have a bearing on the title to and conveyancing procedures relating to personal property. Real property, from feudal times, has not been subject to absolute ownership. Ownership is held through the Crown and is limited through tenures and estates held in the land. Tenures and estates do not exist in personal property, which is generally held in absolute ownership, limited interests being only possible in equity, under wills, or by way of security interests under the Personal Property Securities Act 2009 (¶1-120). When an owner of realty grants a lease for a period of years, that is an estate in the land and confers on the lessee the legal right to exclusive possession, reducing the owner's estate to a reversion expectant after the termination or expiry of the lease. In the case of a chattel, the absolute owner can lease the chattel for a term that does not interfere with the nature of absolute ownership but rather limits the owner's entitlement to possession by conferring that entitlement on someone else for a specified period. However, under the Personal Property Securities Act 2009, a lessee may be able to obtain a perfected security interest which gives it proprietary rights beyond mere possessory rights: Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services & Ors [2013] NSWSC 852 at [26]. Real property possesses qualities of permanency, immobility and indestructibility, at least in respect of the land, which tangible personal property (¶1-110) does not possess, as the latter is capable of

perishing or being moved, lost, stolen, damaged, destroyed or consumed. By way of contrast, intangible personal property (¶1-110) or choses in action are inherently more akin to real property in their nature. Accordingly, in England land law developed by protecting the title and possession of the owner of each estate in the land. By contrast, the title and entitlement to possession of the owner of personal property has been protected by the law of torts, the wrongly dispossessed owner of movable personal property generally being confined to claims in detinue or conversion. Because of the commercial value and permanency of real property, by the 19th century there was a well established system of registration of title, which became further refined and improved by the introduction and more recent expansion of the Torrens system of title by registration. Registration generally confers an indefeasible title on the transferee who has acquired the property for value (and even by way of gift) without notice of adverse interests. Prior to 30 January 2012, there was generally no Australia-wide registration system in respect of the title to personal property, except for some choses in action (eg trade marks (¶52-100) and patents (¶49-100)) and there is no indefeasibility of title to personal property. A bona fide purchaser for value from a thief acquires no title to chattels because the nemo dat rule prevails (¶2-400), subject to some exceptions (considered at ¶2-410 to ¶2-470). Nevertheless, the nemo dat rule has been largely replaced by the Personal Property Securities Act 2009, which generally provides that possessory rights can trump ownership rights in certain circumstances. The statutory regulation governing property rights is much more extensive for realty (such as land use, planning and environmental controls, proposals and affectations) than for personal property, although the Personal Property Securities Act 2009 has made inroads on this general statement. Each of these differences is reflected in the nature of conveyancing inquiries and procedures which should be adopted for personal property, as distinct from real property. Those types of personal property which do possess some system of registration (eg trade

marks (¶52-100), patents (¶49-100)) are similar to realty as regards the conveyancing inquiries and the procedures when title passes. The introduction of the Personal Property Securities Act 2009 in 2012 has also increased the nature and scope of enquiries that have to be made to determine “security interests” and ownership interests in personal property.

¶1-120 Interests in personal property Under the general law only two kinds of interest have been recognised in personal property: ownership (ie absolute ownership) and possession. Statute law has introduced a third: a security interest under the Personal Property Securities Act 2009. Those general law interests in personal property are legal interests and initially under the general law equitable interests in personal property were not recognised, although that is now possible through the creation of a trust involving personal property. Because of the nature of personal property, at common law it is not possible to create limited or successive interests in personal property, such as life estates, remainders or reversions. For example, a gift of a chattel for life vests absolute ownership in the donee at common law because “the common law does not recognise such a thing as an estate in a chattel, a gift of a chattel for life accompanied by delivery passes the property at law” (per Chitty LJ, in Hill v Hill (1897) 1 QB 483 at p 492). In Re MacKay (1972) 20 FLR 147, White J accepted and applied in a concrete situation the principle (at pp 160-161) “that a future executory interest in a chattel cannot be created without interposing a trustee. The only exception is a gift of a chattel by will direct to one person and then to another without a trustee”. Blackstone suggested as the reasons for not being able to create future property in personal chattels (Commentaries, Book II, at p 398): “because being things transitory and by many accidents subject to be lost, destroyed, or otherwise impaired, and the exigencies of trade requiring also a frequent circulation thereof, it would

occasion perpetual suits and quarrels, and put a stop to the freedom of commerce, if such limitation in remainder were generally tolerated and allowed.” Life interests or future interests can be created by will (In re Backhouse (1921) 2 Ch 51 at p 56; In re Thynne (1911) 1 Ch 282), including life interests in farming stock and equipment (Myers v Washbrook (1901) 1 KB 360). However, in the case of consumable articles, such as food and wines, it was held that a purported bequest by will of a life estate conferred on the legatee an absolute interest in those articles because of their nature (Cockayne v Harrison (1872) LR 13 Eq 432). Another mode of creating limited interests in personal property, recognised in equity, is through a trust (Hill v Hill (supra) at p 493). That applies under a will, as well as in a transaction inter vivos, whether by way of sale or gift. It is pointed out in Helmore, Personal Property and Mercantile Law in New South Wales, 8th ed, 1979, Law Book Co, at p 101: “There is no objection in equity to creating a life interest or a future interest, and so the settlor assigns to trustees the whole legal interest in the property in trust for A for his life, and after his decease in trust for B, etc. The trustees are at law the owners of the property, but equity compels them to hold it for the benefit of the cestuis que trust named in the settlement. This method of settlement is applicable equally to corporeal chattels and to incorporeal personalty such as choses in action, stock or shares.” When dealing with personal property, whether disposed of by way of sale or gift, it is necessary to ascertain: 1. Who has title to the property? 2. Is there an absolute legal title or are there two or more interests in the property, at law or in equity? If there is not a single absolute owner, it is necessary to ensure that all parties join in the sale or gift so as to vest an absolute legal title in the purchaser or donee. 3. Is there any security interest in the personal property (as defined

in s 12 of the Personal Property Securities Act 2009)? If there is, then such an interest, if perfected under the Personal Property Securities Act 2009, can have priority over unregistered security interests and in certain circumstances defeat the rights of the true owner.

¶1-140 Ownership and possession of personal property It is pointed out at ¶1-120 that the three recognised legal interests in personal property are ownership, possession and security interests under the Personal Property Securities Act 2009 (which can include possession). Ownership of personal property confers on the owner a bundle of rights, which may vary in respect of different types of personal property, for example, in respect of chattels, the right to use and enjoy, alter, destroy, alienate, lease or lend out. As is pointed out by Lawson, Introduction to Law of Property, 1958 (UK), at p 8, the main elements of ownership are: “(a) the right to make physical use of a thing; (b) the right to the income from it, in money, in kind, or in services; and (c) the power of management, including that of alienation. Thus the owner of a car may drive it, hire it out, or sell it. And of course within these areas he may do the same things more generously: take the children for a drive, lend it to a friend, give it away.” However not all of these incidents of ownership are available for all types of personal property, eg industrial property which are choses in action (para 40-110) and are intangible property. An owner of personal property may exercise the right to possession by retaining and using the property. Alternatively, an owner may part with possession voluntarily (eg by leasing, hiring, lending or pledging goods) or involuntarily (eg through loss or theft of the goods) or by operation of law (bankruptcy, sale under writ of execution). In conveyancing a critical question is who owns the goods at law and in equity, and who has a security interest in them. At common law title largely depended on possession. The Personal Property Securities Act 2009 emphasises this concept, applying a “substance over form”

analysis to interests in personal property. At common law the person in possession could take proceedings to protect that possession against everyone except a person who had a better entitlement to possession. Collins MR pointed out in The Winkfield (1902) P 42 at pp 55, 60: ``It cannot be denied that since the case of Armory v Delamirie (1 Stra 504), not to mention earlier cases from the Year Books onward, a mere finder may recover against a wrongdoer the full value of the thing converted. That decision involves the principle that as between possessor and wrongdoer the presumption of law is, in the words of Lord Campbell in Jeffries v Great Western Ry Co (5 E. & B. 802, at p. 806), ‘that the person who has possession has the property.’ … As between bailee and stranger possession gives title — that is, not a limited interest, but absolute and complete ownership, and he is entitled to receive back a complete equivalent for those whole loss or deterioration of the thing itself.'' The relationship between the ownership and possession of personal property was discussed extensively by Jordan CJ in Gatward v Alley (1940) 40 SR (NSW) 174 at pp 178-180: ``A good title to property, in the sense of such ownership as the law allows, consists in having the legal right to exercise with respect to it all such rights, as against all such persons, as by law are capable of being exercised with respect to property of the class in question. A person who has possession of property but not ownership has, as a general rule, the same legal rights as the owner, save to the extent to which those rights are qualified as against the owner: Holmes, ‘The Common Law,’ 244-6; Pollock & Wright, ‘Possession,’ 93; Holdworth, ‘History of English Law,’ VII., 449-450. … In the case of a chattel personal in the nature of a chose in possession, the most usual sets of facts by virtue of which a person claims ownership are that someone has sold or given it to

him, or that he has severed it from land belonging to him, or that he has made it out of things derived from his land or things sold or given to him, or that it is the progeny of some animal sold or given to him, or that it is a wild animal which he has caught. In some of these cases, proof of actual ownership would present no great difficulty; but, in the common case of a purchased chattel, proof of ownership by tracing the title back to a person whose actual ownership can be proved would often be quite impracticable. In the case, however, of a chose in possession, as in the case of realty, a person who has possession has all the rights of an owner except as against anyone who can prove that he, and not the possessor, is the true owner: Holdworth, VII, 449-450. Possession is prima facie evidence of ownership: ibid. p. 478; Field v. Sullivan (1923) VLR 70 at p 84; and is sufficient evidence of ownership unless some contrary proof is given: Robertson v. French 4 East 130 at pp 136-137. Indeed, at one time the true owner, if out of possession, had nothing but a right to recover the chattel from the possessor: Holdsworth, VII., 455; and it is only in comparatively modern times that it has been established that a true owner not in possession can assign his right of ownership: ibid. 533-4. After the introduction of the Personal Property Securities Act 2009 in 2012, this last statement might only apply if the Personal Property Securities Act 2009 has been complied with by the true owner. A person whose existing de facto possession has been interfered with can obtain redress from anyone except the true owner or someone claiming through him; but a person who complains of interference not with an existing possession but with a right to possession may be defeated by proving that he has not in fact any legal right to possession: Pollock & Wright, ‘Possession,’ 91. The rights of a possessor are sometimes expressed by some such statement as that ‘existing possession, however acquired, is protected against any interference by a mere wrongdoer’: Pollock & Wright, ‘Possession,’ 91; but it is conceived that the position is

more accurately defined by the statement that ‘possession confers more than a personal right to be protected against wrongdoers; it confers a qualified right to possess, a right in the nature of property which is valid against everyone who cannot show a prior and better right … hence, the rule that possession is a root of title is not only an actual but a necessary part of our system’: ibid. p 93. … A person, not being the true owner, who disturbs a de facto possession is a wrongdoer because a possessor has the full rights of ownership except as against the true owner. ‘The law is that a person possessed of goods as his property has a good title as against every stranger, and one who takes them from him, having no title in himself, is a wrongdoer, and cannot defend himself by showing that there was title in some third person; for against a wrongdoer possession is a title’: Jeffries v. Great Western Railway Co 5 E 802, at p 805. In other words, de facto possession of a chose in possession is prima facie evidence of ownership, and also of itself creates a legal right to possess which is enforceable against anyone who cannot prove that he has a superior right to possess: any person who interferes with this legal right, without being able to prove a superior right, is therefore a wrongdoer.” These principles form the basis of acquisition of title by adverse possession, which is covered in legislation (¶2-270). The concept of possession is not appropriate for all types of personal property, eg choses in action, although for certain purposes it may be necessary to determine whether a person was “in possession” of intangible personal property such as shares (Park v Brady (1976) 2 NSWLR 329). Of course, acquisition of title can now also arise by perfecting a security interest which has a higher priority than other security interests: s 55 of the Personal Property Securities Act 2009. Although the nature of the interest of a person entitled to possession of personal property, eg as bailee, is different from that of a lessee or licensee of realty, that person can obtain legal remedies and protection for the right to possession (eg in detinue) against anyone else, including against the owner of the property who has wrongfully

interfered with that right (City Motors (1933) Pty Ltd v Southern Aerial Super Service Pty Ltd (1961) 106 CLR 477). In the City Motors case, Dixon CJ said (at pp 483-484): “There seems to be no reason why the bailee with an immediate right to possession should not maintain detinue against the bailor if the bailor is clearly entitled only ‘in reversion’.” Windeyer J illustrated this point more vividly (at pp 490-491): “In Bacon’s Abridgment under ‘Bailment’, this appears: ‘If A. borrow a horse to ride to Dover, and he ride out of his way, and the owner of the horse meet him, he cannot take the horse from him, for A. has a special property in the horse till the journey is determined; and being in lawful possession of the horse, the owner cannot violently seize and take it away, for the continuance of all property is to be taken from the form of the original bargain, which in this case was limited till the appointed journey was finished’. The special property or right to possession, which a bailee has, can thus be asserted even against the owner. … Similarly, a bailee wrongfully dispossessed by the bailor can sue either for trespass to goods or in trover or in detinue (see Roberts v. Wyatt (1810) 2 Taunt. 268; 127 E.R. 1080); and perhaps in some cases for replevin.”

¶40-100 Definition and classification of choses in action There is no single acceptable definition which adequately defines or describes all choses in action. The most frequently quoted description of choses in action is the following statement by Channell J (Torkington v Magee (1902) 2 KB 427 at p 430): `` `Chose in action' is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession.'' That emphasises the distinction between choses in possession, ie tangible chattels which can be taken in actual physical possession and control (¶1-110) and may be transferred by physical delivery, and choses in action, which are incorporeal and intangible property and

are incapable of being reduced into physical possession or of being transferred by delivery. Nevertheless, all choses in action constitute proprietary rights in the subject matter of the property interest represented by the chose in action. The source of the chose in action may be legal, equitable or statutory. Furthermore, the category of choses in action is not closed, as new choses in action are being created by statute and by innovations in commercial and banking practice. There are several modes of classifying choses in action, each has merit in emphasising particular characteristics of choses in action. 1. Legal and equitable choses in action. Choses in action can be classified on the basis of whether the particular right was recognised and enforced by action in the common law courts or only in equity. Thus, debts, insurance policies, bills of exchange and the benefit of guarantees are legal choses in action. Beneficial interests in personal property, such as in partnerships, trusts, deceased estates, were only recognised and enforced in equity and are thus equitable choses in action. 2. Ability to assign the chose of action. Some choses in action are assignable (a) at common law, (b) in equity or (c) under statute. Other choses in action cannot be assigned. 3. Present and future choses in action. For example, a debt, whether immediately due or only due at some future date, is a present chose in action. However, the mere prospect or possibility of being entitled to some proprietary interest at some future date, eg to dividends on shares to be declared in the future, or a prospective interest in the estate of a person who is still alive, only constitute a future chose in action. The consequences of that distinction are considered in ¶40-140. 4. Ability to enjoy without legal proceedings. Some choses in action can be enjoyed without having to institute legal proceedings and others cannot be enjoyed without instituting and successfully concluding legal proceedings. In the first category fall various contractual rights, including debts, dividends on shares, shares in

companies, policies of insurance, partnership interests. The right to recover damages for breach of contract or tort fall into the second category.

¶8-820 Legal nature of goodwill Goodwill is a species of incorporeal personal property (¶1-110; The Commissioners of Inland Revenue v Muller & Co's Margarine Ltd (1901) AC 217). Usually goodwill is sold together with the business to which it attaches. It has been suggested that goodwill needs to be attached to a business and does not exist independently of that business (The Commissioners of Inland Revenue v Muller & Co's Margarine Ltd (supra) at pp 224, 235). That was echoed by several justices of the High Court of Australia, in Geraghty v Minter (1979) 53 ALJR 638 (at pp 639, 644), Stephen J having pointed out (at p 644): ``When sold, proceeds of goodwill may be divided up readily enough, but, because goodwill is `the benefit and advantage of the good name, reputation and connexion of a business' — per Lord Macnaghten in Inland Revenue Commissioners v Muller & Co's Margarine Ltd, [1901] AC 217, at p 223, it is inherently inseverable from the business to which it relates. It may cease to exist or may be purloined by one who falsely represents his own business as the original business, but it cannot be disposed of separately from the business which created it nor can it survive the cessation of that business. The reason is simple: since it reflects and is dependent upon the reputation of that business, to sever it from the business destroys it.'' The legal nature of goodwill was considered in some detail by the High Court of Australia, in Commissioner of Taxation v Murry (1998) 72 ALJR 1065, digest at ¶95-287. In the majority judgment, by Gaudron, McHugh, Gummow and Hayne JJ, it is pointed out: ``Goodwill is inseparable from the conduct of a business. It may derive from identifiable assets of a business but it is an indivisible item of property, and it is an asset that is legally distinct from the sources — including other assets of the business — that have created the goodwill. Because that is so, goodwill does not inhere

in the identifiable assets of a business, and the sale of an asset which is a source of goodwill, separate from the business itself, does not involve any disposition of the goodwill of the business.'' Their Honours said that the legal concept of goodwill has three aspects: property, sources and value. With reference to the sources of goodwill, their Honours said: ``It is common to describe goodwill as being composed of elements. However, goodwill is a quality or attribute that derives inter alia from using or applying other assets of the business. Much goodwill, for example, derives from the use of trade marks or a particular site or from selling at competitive prices. But it makes no sense to describe goodwill in such cases as composed of trade marks, land or price, as the case may be. Furthermore, many of the matters that assisted in creating the present goodwill of a business may no longer exist. It is therefore more accurate to refer to goodwill as having sources than it is to refer to it as being composed of elements.'' Their Honours referred to two fundamental premises of the law of goodwill: (a) that goodwill has no existence independently of the conduct of a business; (b) that goodwill cannot be severed from the business which created it. However, their Honours pointed out that the attraction of custom remains central to the legal concept of goodwill. This decision was concerned with whether a taxi ``business'' had goodwill and whether the licence required to conduct a taxi, which is a very valuable and expensive asset, formed part of goodwill. The High Court of Australia, overruling the decision of the Federal Court of Australia (digest at para 95-246), held that the taxi business had no (or minimum) goodwill and that did not include the value of the licence. Gaudron, McHugh, Gummow and Hayne JJ said ((1998) 72 ALJR 1065, at p 1077): ``When the licence was issued to the taxpayer and her husband,

no goodwill was attached to it. It gave them the right to commence a business. In that respect, they were in no different situation to a person issued with a licence to conduct a television or radio station or build a drive-in theatre. Until the station or the theatre commences business, no goodwill can exist. If the taxpayer had commenced a taxi business, it may have developed goodwill. Such a business including its goodwill could have been sold along with the licence. The value of the goodwill, if it existed, might be assessed in a number of ways. However, the value of the goodwill of a taxi business, like the value of the goodwill of a money lending business, a mobile vending business, or a one person professional practice or trade is likely to be small. Most of the custom of a taxi business is new custom. Repeat business is ordinarliy accidental. That is not decisive against the existence of goodwill. But it is a powerful factor indicating that the business has no greater attraction than a similar business on its first day of operation.... A particular taxi business may attract a regular clientele; it may be connected with a network or cooperative which has a reputation for reliability or service; or it may employ highly skilled drivers who are able to generate above average earnings. Such advantages may give a particular taxi business goodwill because it has custom greater than the industry average. However, as with all those who sell goods or services that are virtually indistinguishable from the goods or services of others in a market and who have no special advantages over their competitors, above average industry earnings are difficult to achieve. And in the end, the value, as opposed to the existence, of goodwill for legal and commercial purposes is governed by the extent to which the earnings of a business exceed the norm. Whatever the value of the goodwill of a particular taxi business, it is not identical with the price paid for the business or for the licence. That is because the licence has value independently of it being used in a taxi business of plying for hire. The licence is property. It can be sold independently of any business conducted in respect of it. In theory, the licence could have been sold in the present case for a substantial sum after its issue and before any

business had commenced. The value of the licence would no doubt reflect the profits that could be earned from commencing a business of the kind which the licence authorised. But its sale would not involve any element of goodwill.'' Their Honours commented on licences beyond taxis, concluding that generally (with minor exceptions) licences do not form part of goodwill (at p 1078): ``An exclusive licence to conduct a business in a particular area is indistinguishable from an absence of competition in that area. Because that is so, it may be that an exclusive licence not merely enhances the value of the goodwill of a business but should also be regarded as being a source of custom of the business. However, entry into a market cannot itself be a source of goodwill. And a non-exclusive licence, even a licence in an industry where the issue of licences is limited, is no more than a right to enter a market. ... A licence is a pre-requisite to the conduct of many professions, trades, businesses and callings. But it is not a source of goodwill of a business simply because it is a pre-requisite of a business or calling. Nor is the situation different when only a limited number of licences are issued for a particular industry. For legal purposes, goodwill is the attractive force that brings in custom and adds to the value of the business. It may be site, personality, service, price or habit that obtains custom. But with the possible exception of a licence to conduct a business exclusive of all competition, a licence that authorises the conduct of a business is not a source of goodwill. A taxi licence therefore is simply an item of property whose value is not dependent on the present existence of a business. It is not and does not contain any element of goodwill.'' Their Honours also commented on the possibility of a business changing so much that it is no longer the same business and its goodwill is acquired afresh after that change (at pp 1074-5):

``In determining whether the `same business' is being carried on, the sources of the goodwill may have changed so much that, although the business is of the same kind as previously conducted, it cannot be said to be the same business. Hotels in the inner suburbs of Sydney provide an example, especially those in Paddington. For decades, many of these hotels drew their custom from the nearby locality. The goodwill of those hotels was site goodwill based on the residence of customers. Some years ago, some of these hotels, often with little change to their structural appearance, began to market themselves to people from a broader geographical area. Custom is no longer based on residence. The class of person patronising these hotels is completely different from what it was. Revenues are probably dramatically higher than they were before the change of marketing. In so far as site goodwill is a source of the present goodwill, it is of a different kind. While previously it derived from the proximity of residents to the hotel, it is now derived from the fact that the hotel is in the same locality as other hotels seeking to attract custom from patrons with the same interests. It is arguable that the goodwill asset of those hotels is not the same asset as it was two decades ago because it is not the same business as it was then.'' The creation of a ``new'' business, by changing its character, may have an important impact, for taxation purposes, when that business is subsequently sold (¶13-312). Apart from being sold, goodwill can also be leased for a period of time (Bonda v Wagenmaker (1960) NSWR 40). In Hoogerdyk v Condon (Supreme Court of New South Wales, 3 December 1990) Young J discussed the concept and nature of goodwill: ``As Mahoney JA said in Butler v. Lawler, Court of Appeal, 24 April 1986, unreported: `Goodwill is of its nature a complex thing and it can be misleading to attempt a dissection of it.'

Goodwill includes every positive advantage that has been acquired in carrying out a business which would give a reasonable expectancy of preference in the face of competition: see Carlton & United Breweries Ltd v Tooth & Co Ltd (1986) 7 IPR 581 where I reviewed the authorities generally at pp 595-599. Bearing Mahoney JA's warning in mind, there is some value in looking at the variety of elements which compose goodwill. These have been variously described and will vary from business to business. There will be local goodwill represented by the fact that people will patronise the business nearest their home or place of business. There will be personal goodwill generated by the persons who in fact carry on the business. There will be goodwill of habit brought about by customers getting into the habit of buying things at a particular outlet and, unless something happens, they will continue to buy there because something equivalent to Newton's laws of motion, or perhaps apathy, operates in favour of the trader. In more modern times it has been seen that having a name which is of good repute in the community generally will attract custom to a business... It must always be remembered, however, that all these aspects of goodwill attach to a particular business and one cannot consider goodwill apart from the business: Geraghty v Minter (1979) 142 CLR 177, 181 nor can there ever be specific performance of a contract for the sale of goodwill alone: Perfection Finance Pty Ltd v Barr Services Pty Ltd, Needham J, 2 June 1975, unreported, following Baxter v Conolly (1820) 37 ER 487. See also Spry on Specific Performance, 6th Edition, at p 43. It is also necessary to observe that goodwill can be enhanced, diminished or even extinguished by a number of factors, some of which are internal to the business and some of which are external. Personal goodwill can be lost simply by being rude or inattentive to customers. Goodwill of habit can be lost by a competitor fiercely publicising cut rate prices or otherwise clearly providing a superior service at a cheaper rate''.

CASES

.40 Analysis of goodwill. For an extensive analysis of the nature (and different species) of goodwill see Commissioner of Taxation v Krakos Investments Pty Ltd, Federal Court of Australia, Full Court, Hill, Von Doussa and O'Loughlin JJ; digest at para 95-233. However, some of that analysis was criticised in Commissioner of Taxation v Murry, digest at ¶95-287 and considered above. .41 A taxi business constituted a business which had goodwill. The majority of the Federal Court held that a taxi business did constitute a business which had goodwill. The partial absence of competition arising from the limited form of monopoly granted under a taxi licensing system meant that a licencee, selling the licence, could be regarded as possessing and then disposing of a form of goodwill. The Commissioner of Taxation v Murry, Federal Court of Australia, Full Court, Beaumont, Drummond and Kiefel JJ, 25 July 1996; digest at para 95-246. However, that decision has been overruled, see ¶95287. .42 Goodwill and taxation. For a significant decision in relation to the meaning of goodwill generally and for taxation purposes, having regard to sec 106ZZR of the Income Tax Assessment Act 1936, see Commissioner of Taxation v Murry, High Court of Australia, Gaudron, McHugh, Gummow, Kirby and Hayne JJ, 16 June 1998; digest at ¶95287.

¶5-440 Vendor’s solicitor’s pre-contract inquiries The topic covered in this paragraph may be rephrased thus: “What pre-contract searches and inquiries should the vendor’s solicitor make (from any source) in order to ensure that the contract as drafted will cover the potential problems and will disclose all matters which the vendor should disclose?” The vendor’s solicitor’s obligations when preparing a draft contract are discussed at ¶5-040. The searches and certificates required by a vendor’s solicitor are listed at ¶5-040. The following checklist covers the matters discussed at ¶5-040 and some other topics which are relevant when preparing a contract for the sale of land, including the prescribed warranty.

Title (all systems of title) (i) The nature of the title held by the vendor (front page of standard contract; ¶5-320). (ii) Is the vendor an owner in fee simple or the owner of some lesser interest (¶5-320)? (iii) Is the vendor’s interest sold free from any mortgages or charges, or is it sold subject to some mortgage or charge? (iv) What are the encumbrances to which the land is subject (¶5330)? (v) Is there any departure from the terms of any easement, covenant or restriction as to user affecting the property (¶5-330)? (vi) Are there any latent defects in title (¶5-250)? (vii) Is the vendor a builder or developer, and if so, is the vendor prepared to give any of the implied warranties specified at ¶5220? (viii) Are there any encroachments (¶5-390, para 10? Old system title (i) Is there a convenient good root of title (¶8-710)? (ii) Are there any known or anticipated difficulties in making or showing title (¶8-760; ¶8-960)? (iii) Should there be some special provision relating to the commencement or proof of title (¶8-760; ¶8-960)? (iv) Is any part of the land held under possessory title (¶18-430)? Crown land title (i) If the vendor holds a purchase tenure from the Crown, the

applicability of cl 26 of the standard contract should be checked. (ii) Is the tenure subject to a transfer restriction? (iii) If the answer to (ii) is “yes”, consider cl 27 of the standard contract, regarding the procedure to be undertaken and whether the purchaser is an eligible transferee. (iv) If the purchaser is not an eligible transferee, is the vendor agreeable to applying for release of the transfer restriction? (v) Should the vendor or the purchaser pay for the cost of release of the transfer restriction? Strata title (i) Are there any changes in by-laws which should be disclosed (cl 23.2, 23.9.3 of the standard contract; ¶5-040)? (ii) Should any actual or contingent liabilities or defects be disclosed (cl 23.9.1 of the standard contract; ¶5-040)? Qualified title (i) Are there any subsisting interests (¶19-225)? (ii) Is there any person in adverse possession of any part of land (¶19-260)? (iii) When can (or should) the caution be cancelled (¶19-390; ¶19340)? Estate agent (i) Has the purchaser been introduced by an estate agent (¶5-600; ¶5-620)? (ii) Was that estate agent the exclusive or sole agent (¶5-600)? (iii) Were any other estate agents instructed to sell the property?

(iv) Was the purchaser introduced to the property directly without the intervention of any estate agent (¶5-630)? (v) Should a warranty be inserted in the contract, such as is specified at ¶5-630? Prescribed disclosure and warranty (i) Is the particular contract covered by an exemption, so that there is no need to attach the prescribed documents (¶5-266)? (ii) Is the transaction covered by s 52A(2) of the Conveyancing Act (¶5-267)? (iii) The prescribed documents (¶5-270) should be obtained. (iv) Obtain instructions regarding the prescribed warranty (¶5-405). (v) Is there a need to make any specific disclosure (¶5-410)? Deposit (i) Has any preliminary deposit been paid? (ii) Should the deposit be held by: (a) the estate agent, or (b) the solicitor, as stakeholder? (iii) Should the deposit be invested (¶7-190)? (iv) If the answer to (iii) is “yes”, where should it be invested and who should receive the interest (¶7-190)? Is cl 2.9 of the standard contract acceptable? The subject matter of the sale Instructions should be sought regarding the matters in the checklist at ¶5-390. Boundaries (i) What is the correct description of the land (¶5-385)?

(ii) Is the whole of the land intended to be sold? (iii) Are there any party walls (cl 10.1.3 of the standard contract)? (iv) Are there any dividing fences (cl 10.1.1 of the standard contract; ¶5-310)? (v) If part of the land is sold subject to subdivision, note ¶5-352. (vi) Are all side walls of any building included in the sale situated within the boundaries (¶5-352; ¶5-358)? (vii) Are there any encroachments by any fixtures or improvements over adjoining land (¶5-358) or are there encroachments over the land included in the sale? Legality of structures (i) Check whether the existing building, including any alterations are covered by a subsequent certificate of compliance or building certificate; (ii) Consider whether the vendor can make the warranty in Sch 3, Pt 1, para 1 of the Conveyancing (Sale of Land) Regulation. Services (i) Note cl 10.1.2 of the standard contract (¶6-300). Zoning and affectations (i) What is the correct zoning (¶5-040)? (ii) Is there any current (or impending) proposal for road widening, affectation or resumption (¶5-040; ¶5-464; ¶5-450)? (iii) Is the property affected by any adverse proposals (Sch 3, Conveyancing (Sale of Land) Regulation (¶5-405)? Notices

The vendor’s solicitor should seek instructions regarding the matters in the checklist at ¶11-080, para 1, 2, 4-9. Rates, taxes and outgoings The vendor’s solicitor should seek instructions regarding the matters in the checklist at ¶10-830, para 1-7, 9 and whether the vendor requires a land tax adjustment. If so, the relevant box on the front page of the standard contract should be ticked. Possession or tenancy (i) Is the property sold with vacant possession? If so, note ¶10-150. (ii) Should the purchaser be permitted to enter into occupation before completion (¶10-190 to ¶10-230; ¶10-260)? (iii) Is the sale subject to any tenancy? If so, note ¶10-290 and ¶10360 regarding disclosure of tenancy. Time of completion The vendor’s solicitor should consider the matters in the checklist at ¶11-750, para 1 to 3 and, for drafting special conditions, ¶11-710. Capacity of purchaser Is there any problem regarding the purchaser’s capacity to enter into a binding contract? In particular: • Age (¶3-020) • Bankruptcy (¶2-210) • Corporations (¶2-420; ¶2-430; ¶2-450) • Mental capacity (¶2-810; ¶2-880) • Trustees (¶3-340) • Unincorporated associations (¶2-440) Legality

Is the contract or some provision of the contract illegal (¶3-600)? In particular, the vendor’s solicitor should consider the checklist at ¶3830, which also applies to contracts for the sale of land. .40 Enquiries regarding tenancies. For a decision considering what enquiries should be made by the purchaser’s solicitors regarding tenancies on the purchase of a commercial property, see Hanave Pty Ltd v LFLOT Pty Ltd & Ors (2000) NSW ConvR ¶55-938.

¶7-055 Sale of land — drafting — Perri v Coolangatta Investments The decision of the Court of Appeal, in Perri v Coolangatta Investments Pty Ltd is reported at (1981) NSW ConvR ¶55-032. The High Court of Australia dismissed the appeal, but the judgments throw considerable additional light on this topic and indicate difficulties which should be covered when drafting conditions. The decision of the High Court of Australia is reported at (1982) NSW ConvR ¶55-072. On 7 April 1978, Coolangatta agreed to sell to Perri a property at Cronulla in Sydney for $220,000. The contract was subject to the following condition: “This contract is entered into subject to Purchasers completing a sale of their property, No 9 Korokan Road, Lilli Pilli.” On 30 June 1978, the vendor served a notice to complete, requiring completion by 14 July 1978. On 17 July 1978, a second notice to complete was served, requiring completion by 8 August 1978. On 10 August 1978, the vendor terminated the contract and subsequently issued a summons for a declaration that the contract had been validly terminated by the vendor and for forfeiture of the deposit. In February 1979, the purchaser’s solicitor indicated that the purchaser had still not sold his house, but was willing to complete the purchase on 15 March 1979. The vendor refused to proceed on the ground that previously it had terminated the contract. Needham J held that the condition in cl 6 had not been fulfilled within a reasonable time. His Honour held that the matter was governed by

the principles stated in Aberfoyle Plantations Pty Ltd v Cheng (1960) AC 115 (discussed at ¶11-440) and that the vendor effectively terminated the contract. The purchaser was entitled to a refund of the deposit and Needham J made such an order. The Court of Appeal agreed with his Honour’s decision and reasoning. The judgments of the justices of the High Court of Australia are summarised as follows: 1. The views expressed by Gibbs CJ, Stephen and Brennan JJ are substantially identical on the major issues. Wilson J reached the same conclusion, but with substantial differences from the approach of the other justices. Mason J dissented, although on several issues he agreed with the majority view. 2. The whole court considered the difference between a condition precedent and a condition subsequent. It was generally agreed that this classification is much less relevant than the construction of the particular condition, to determine its meaning and effect. It was indicated that the categorisation of conditions accurately as precedent or subsequent is frequently not possible, as many conditions are at the same time precedent in one respect and subsequent in another, under the particular contract (¶7-060). 3. It is more important to determine whether the condition is a condition precedent to the formation of a binding contract. It was held that the condition in this case was not precedent to the existence of a binding contract (¶7-060). 4. In the contract no time was fixed either for completion or for compliance with the condition. Accordingly, each had to occur within a reasonable time, which is a question of fact. The obligation to complete cannot occur until the condition has been fulfilled or has been waived. 5. The purchaser also had an obligation to use reasonable efforts to perform or to satisfy the condition, which was an implied term of the contract (¶7-065). 6. In this case the condition was not self-executing and needed

some action on the part of either party to terminate the contract (¶7-080). 7. The condition was entirely for the purchaser’s benefit and could be waived by the purchaser. That also requires clear conduct and action by the purchaser (¶7-070). 8. However, at this point of analysis there appear serious differences of views in the judgments as to how the vendor could terminate the contract. The majority view of Gibbs CJ, Stephen and Brennan JJ is clearly correct as it is justified in principle and authority as follows: (a) Aberfoyle Plantations Ltd v Cheng (1960) AC 115 (¶11-440) applies in the circumstances of the case. The view of the Privy Council that the condition was a condition precedent to the formation (and coming into existence) of a contract was disapproved by the whole court. (b) Accordingly, if the condition contains a time for performance, it may be relied on for termination on the expiry of that time without fulfilment of the condition. If there is no time fixed, it can be relied on for termination within a reasonable time (¶11-440; ¶7-075) (c) Unless the condition itself requires some prior notice to be given, there is generally no need for any prior notice being given requiring the fulfilment of the condition (¶7-080). (d) It may be possible to serve a notice making the time for performance an essential obligation, in accordance with Louinder v Leis (1982) ANZ ConvR 419; (1982) NSW ConvR ¶55-065 (per Gibbs J), but that is not necessary. (e) There is no need to serve a notice to complete when the condition has not been satisfied. Indeed, a notice to complete is irrelevant and inappropriate. (f) However, the notices to complete which were served in this

case, on their expiry had the effect of an election to terminate the contract for failure to comply with the condition. The more convincing reason for termination was the commencement of proceedings by the vendor, which clearly evidenced an election to avoid the contract. As that occurred after the reasonable time for the performance of the condition expired, the vendor effectively terminated the contract on that basis. (g) Accordingly, termination can occur by the service of a notice (which should not be a notice to complete, even though that was ultimately effective in this case) or by instituting proceedings. In either case, all that is required is to indicate an election to terminate, which should occur after the fixed time for performance of the condition, or if there is no time fixed, after a reasonable time for performance has elapsed (¶7-080). 9. The view of Mason and Wilson JJ was that Aberfoyle Plantations Ltd v Cheng (supra) did not apply to the circumstances of this case. Mason J held that if a fixed time is specified in a condition, that will generally be construed as essential and the party having the benefit of the condition can terminate immediately on expiration of that time. However, when the time is a reasonable time, a notice should be served making time for performance essential before rescission. The notices to complete served in this case did not fulfil that requirement, therefore the contract has not been terminated effectively and is still on foot. However, in that view his Honour was in a 4 to 1 minority. Wilson J thought that the service of a notice to complete was appropriate, necessary and in the circumstances effectively terminated the contract on the basis of non-performance of the condition within the time specified in the notice. The view of Mason J is logical, although clearly it is not endorsed by the High Court of Australia. With respect, it is suggested that Wilson J’s approach is contrary to well established principles which are supported by authority. These topics (and the views expressed by the justices of the High

Court of Australia) are covered in more detail in the following paragraphs (see ¶7-060, ¶7-065, ¶7-070, ¶7-075 and ¶7-080).

¶7-045 Checklist — Drafting a conditional provision in a contract of sale of land in NSW The following checklist deals with the main topics relevant for instructions before drafting a conditional provision in a contract for the sale of land. These matters should be considered by the conveyancers of each party and are also relevant to conditions intended to be imposed in contracts relating to other types of land transactions. 1. What are the general terms of the condition which should be imposed? 2. Should the parties: (i) enter into a binding contract whose performance is subject to performance of the condition (¶7-060), or (ii) render the performance of the condition as precedent to the formation of a binding contract (¶7-060)? 3. Is the condition imposed for the benefit of one of the parties or does it benefit both parties (¶7-070)? 4. Should a time limit be imposed for the performance of the condition (¶7-075)? 5. (i) Should the party having the benefit of the condition be entitled to request an extension of time for performance of the condition? (ii) If so, when and how should extension be sought, on what conditions and is any additional consideration payable? 6. (i) Should the party having the benefit of the condition be entitled to waive performance of the condition and require

performance of the contract (¶7-070)? (ii) At what time can the condition be waived, ie • only before or also after expiry of the time limit provided for performance of the condition • only before or also after there has been a failure to perform the condition (¶7-065)? 7. If the condition relates to obtaining some approval: (i) what steps should each party take towards obtaining approval (ii) who should apply for approval (iii) what co-operation or action is required by the other party (iv) is any written consent to an application, or inspection of the property or anything else required before (or after) making an application (v) when should an application be made (vi) is more than one application required (vii) to whom should the application be made (viii) should each party expressly agree to co-operate by endeavouring to perform the condition and to act efficiently and reasonably in seeking to obtain approval (¶7-065)? 8. (i) Is unconditional approval necessary? (ii) If approval is likely to be conditional, can the likely conditions be predicted accurately? (iii) What conditions are acceptable to the party having the benefit of the condition?

(iv) Can those conditions be described objectively, eg by relating them to minimum hours of user, maximum cost of expenditure, etc? (v) Should approval subject to more onerous conditions be a deemed refusal (¶7-065)? (vi) When should the recipient of such a decision be required to notify the other party of it? (vii) Should the time for completion of the transaction be specified with reference to the time of fulfilment of the condition or the time of its waiver? 9. What should be the consequences of non-compliance with the condition: (i) if one of the parties fails to perform his obligations under it (ii) should (i) result in loss of entitlement to rely on the condition or only confer an entitlement for the other party to recover damages (¶7-065) or to extend time for compliance (iii) should all moneys (including the deposit) be repaid (iv) should either party be entitled to any deduction or compensation when the condition is not performed without the default of either party, eg for legal costs or for other fees or disbursements? 10. Time and method of termination: (i) can either party terminate when the condition has not been performed (eg refusal of permission) without waiting for the time limit for the performance of the condition to elapse (ii) should termination require the service of a written notice (¶7080) (iii) should it be self-executing (¶7-080)

(iv) is some method for the service of notices provided in the contract (v) if so, should that or some other method for giving and serving notices be specified for the purpose of this condition?

¶7-048 Sale of land — drafting — forfeiture of deposit or instalments The deposit, being an earnest to bind the bargain (¶7-110) or a guarantee of performance, is forfeited to the vendor where the purchaser has defaulted under the contract and the vendor has terminated the contract. The deposit is forfeited in those circumstances even if the particular contract does not contain an express forfeiture clause (Howe v Smith (1884) 27 Ch D 89). Clause 9 of the standard contract for sale of land in New South Wales expressly provides for forfeiture of the deposit up to 10% of the purchase price. The vendor is entitled to forfeit the deposit on termination of the contract due to the purchaser’s default (Kilmer v British Columbia Orchard Lands Ltd (1913) AC 319), even if the vendor decides to retain the land, or resells it for a higher price and suffers no loss through the first purchaser’s default. When the vendor forfeits the deposit and also sues the purchaser for damages for breach of contract, the vendor is required to give credit for the forfeited deposit (Holland v Wiltshire (1954) 90 CLR 409). Forfeiture of the deposit is subject to the purchaser’s statutory entitlement to seek an order for repayment of the deposit, under s 55 of the Conveyancing Act 1919 and in certain circumstances (considered at ¶7-220; ¶24-345) to the purchaser’s entitlement to seek relief against forfeiture. Deposit or penalty? If the deposit is payable by two or more instalments, it is important to ensure that the last instalment is payable while the contract is still in existence and the purchaser is not in default. It is unlikely that the obligation to pay an instalment or an amount described as part of the deposit after default by the purchaser or

termination by the vendor will be enforceable where the total “deposit” exceeds 10% of the purchase price. It is not entirely clear in what circumstances the court will allow recovery of part of the “deposit” (up to 10% of the purchase price) following termination. Compare: • Luong Dinh Luu v Sovereign Developments Pty Ltd & Ors (2006) NSW ConvR ¶56-146: when a deposit was specified as around 1% of the purchase price, the balance of 10% of the price was not recoverable by the vendor on default by the purchaser • Iannello & Anor v Sharpe (2007) NSW ConvR ¶56-179: the balance of the “deposit” was payable “if the purchaser defaults in the observance or performance of any obligation … which is or has become essential” — the obligation to pay was not consistent with the characteristics of a deposit and was not recoverable by the vendor • Boyarsky v Taylor (2009) NSW ConvR ¶56-231: 50% of the deposit was payable on exchange of contracts and 50% payable on the completion date. Following the above cases, the relevant provision was held to be void as a penalty because, on the facts of the case, the vendor sought to recover the second payment on breach by the purchaser (ie failure to complete). The vendor had submitted that the second payment could have become payable as an earnest of the purchaser’s continuing commitment to the contract if an extension was granted. However, Brereton J stated that such extension would involve a departure from the terms of the contract; applied according to its terms, the second payment only became payable on breach, and was a penalty • Wood v Lyons (2009) NSW ConvR ¶56-239: 5% of the purchase price paid as deposit with further 5% “deposit” payable upon completion or termination; when the vendors validly terminated, the purchasers forfeited the 10% deposit (ie 5% released to vendors, further 5% payable as damages) • Golden Oceans (NSW) Pty Ltd v Evewall Pty Ltd [2009] NSWSC 674 at [67]–[68] per Rein J:

“… the courts have long accepted that a 10% deposit forfeited in the event of a plaintiff’s failure to complete is not a penalty … In my view the fact that the vendor did not insist on the payment of all the deposit on exchange does not turn the contractual obligation to pay the amount specified as a deposit (and in total 10% of the purchase price) into a penalty”. In the case of instalments of purchase price, where the contract is terminated due to the purchaser’s default, the instalments are not forfeited to the vendor and are refundable to the purchaser (Mayson v Clouet (1924) AC 980), unless there is an express forfeiture provision in the contract which extends to moneys paid as instalments of the purchase price. In Sydney Developments Pty Limited v Perry Properties Pty Ltd (2016) NSW ConvR ¶56-364; [2016] NSWSC 515 a decision of the NSW Supreme Court, Darke J held that a 20% deposit payable by the purchaser in two 10% instalments was not a penalty (incapable of enforcement), and therefore the first 10% deposit was forfeited by the purchaser in favour of the vendor. This was distinguished from a 25% forfeitable deposit in another case, which was found to be unjustified and therefore a penalty and unenforceable. Further, the court declined to exercise its discretion under s 55(2A) of the Conveyancing Act 1919 (NSW) to return the deposit to the purchaser as it was not found to be unjust and inequitable for the vendor to retain the deposit in the circumstances. Tax consequences Where a purchaser defaults under a contract for sale and forfeits the deposit, a number of CGT and GST issues arise. The Commissioner’s view is that a forfeited deposit is assessable under CGT event H1 in s 104-150 of the Income Tax Assessment Act 1997 (Cth) if the forfeiture of a deposit under a contract for the sale of real estate does not occur within a “continuum of events”. This is the case whether the contract is for the sale of pre-CGT real estate, postCGT real estate or a main residence.

TR 1999/19 states that, for a “continuum of events” to exist, there must be an earlier contract to sell the underlying asset, forfeiture of a deposit and a later bona fide disposal of the underlying asset. In addition, there must be continuous, unbroken and uninterrupted reasonable attempts to resell the real estate after the falling through of an earlier contract of sale which ends in this later disposal. See also Brooks & Anor v Federal Commissioner of Taxation (2001) NSW ConvR ¶55-955; FC of T v Guy 96 ATC 4520; CCH’s Lawyers Tax Companion. The High Court of Australia has held that GST is payable on the amount of a forfeited deposit under a contract for sale of commercial land, following termination by the vendor (Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) NSW ConvR ¶56-219; ¶6070). In a decision impact statement issued on 4 June 2008 dealing with this decision, the Commissioner stated that, if the supply that would have been made had a contract been completed been GSTfree (for example, under the going concern concession) or input taxed, the provisions of s 9-30(1)(b) and 9-30(2)(b) of the GSTA have the effect that no GST is payable by the vendor in respect of the forfeited deposit. .40 Notice of forfeiture validly served. Service of a notice of forfeiture of deposit on a purchaser’s current solicitors was effective under cl 21 of the 1988 contract for sale, even if those solicitors were not named as the purchaser’s solicitors on the front page of the contract: Pratt & Anor v Hawkins (1991) NSW ConvR ¶55-592.

An introduction to the PPSA, 1 February 2013 By James Healy and Elspeth Hensler, Francis Burt Chambers © James Healy and Elspeth Hensler (2013)

Warning: The law has changed since this article was published. For example, from 1 October 2015, leases of serial numbered goods of 90 days or more are no longer deemed to be PPS leases (Personal Property Securities Amendment (Deregulatory Measures) Act 2015), and a number of amendments have been made in the corporate

context: Personal Property Securities (Corporations and Other Amendments) Act 2010 & Personal Property Securities (Corporations and Other Amendments) Act 2011.

What is the PPSA? The Personal Property Securities Act 2009 (Cth) (PPSA) establishes a single national law for personal property and commenced on 30 January 2012. Personal property is any form of property capable of being owned other than land and certain statutory licences (eg mining tenements). Personal property includes goods, motor vehicles, boats, machinery, livestock, and intangible things such as contractual or intellectual property rights. Under the PPSA a single online personal property security register (PPSR) has been established governing security interests in personal property. Under the PPSA the purchaser will be treated as the owner, the seller will only have a security interest in the goods to secure the amount owed. This is a fundamental shift from the pre-PPSA security position where the seller generally retained ownership in goods until it was paid. The ASIC register of company charges, the Western Australian registers of encumbered vehicles and bills of sale along with a number of other state and territory registers have been, or are being, migrated to the PPSR. Existing registered security interests will maintain their current priority for a transitional period of 24 months. Suppliers of goods and lenders are able to register their security interests in personal property. This registration will provide protection in respect to receiving payment and protection in the event of insolvency of a counterparty. The PPSA Explanatory Memorandum explains the introduction of the PPSA as adopting a “functional approach”.1 The functional approach will look at the outcome achieved by the transaction, regardless of who is the owner, lessor or bailor. This means that a security interest in personal property will arise from a transaction that in substance secures the payment or performance of an obligation regardless of the form of the transaction, the nature of the debtor or the jurisdiction in

which the personal property or parties are located (subject to specified exceptions).2 The interest in the personal property, taken as security for a loan or other obligation, is a security interest. The PPSA is modelled on similar legislation in New Zealand, Canada and the United States. It also draws on work by the United Nations Commission on International Trade Law (UNCITRAL) and the International Institute for the Unification of Private Law (UNIDROIT). The PPSA relies on the Commonwealth’s own constitutional power and power referred to it by the states under s 51(xxxvii) of the Constitution. The PPSA has been introduced to provide more certain, consistent, simple and cheap arrangements for the regulation of personal property securities. In doing so it has abolished 70 Commonwealth, state and territory laws, common law rules and rules of equity governing personal property securities. The PPSA means that businesses and individuals will be able to use more of their property as security when seeking to raise capital. The PPSR will also mean that businesses and individuals can search a single register to determine whether security interests are registered against personal property, which will save time and money. In the year since the PPSA has commenced, there have been only a few reported decisions which have considered its effect.3 This paper has been written using the new terminology in the PPSA. When reading the paper, if you are unfamiliar with the expressions used please refer to the annexed glossary for an explanation of that expression. How will it apply to me? The introduction of the PPSA represents a complete rewrite of the law as it relates to personal property, registration and priorities. This will mean different things to different legal practitioners: A. Commercial lawyers will need to ensure that in sale of business transactions they clearly identify what assets are able to be sold, and that they check the registration of security interests. Advice

will also be required in relation to what is the best way for clients to protect their security interests, including the timing of registration so that the registration of security interests does not cause an inadvertent disclosure of a confidential transaction. For example, certain exemptions apply for schemes of arrangement.4 B. Insolvency lawyers will need to address priority issues, in particular between existing transitional and post PPSA registered securities, and address matters of interpretation of concepts in the legislation (eg the meaning of regularly engaged in the business of leasing of goods5). C. Banking lawyers have been working on the introduction of the PPSA for some time and have been assisting banks rewrite security documents to reflect the new scheme and terminology in the PPSA. D. Family lawyers will need to ensure that searches of the PPSR are undertaken when finalising matrimonial disputes to determine whether security interests exist in property to be separated between spouses. E. Barristers will need to be aware of all of the above, and carefully consider the PPSA in the context of obtaining injunctions, freezing orders and declarations in relation to ownership of personal property. Security interests The PPSA applies to most forms of personal property (ie property that is personalty, as distinct from real property such as freehold or leasehold interests in land). Under the PPSA security interests will be created in respect to personal property. A security interest is an interest in personal property provided for by a transaction that, in substance, secures payment or payment of an obligation.6 Security interests will include fixed and floating charges, chattel mortgages, conditional sale agreements (such as consignments and retention of title clauses), leases of goods and hire purchase agreements.

Security interests do not include statutory licences (eg mining tenements), rights of set off, transfers of debts for collection or as part of a sale of a business, liens arising by operation of law7 or interests arising under personal insolvency laws (eg under the Bankruptcy Act).8 Some of these security interests are deemed to exist under the PPSA and others will require further steps to be taken to establish the security interest. A secured party can be an individual, a company or another entity that has an interest in a grantor’s collateral. Collateral is the personal property to which a security interest attaches. Consequently, collateral is not all of one’s personal property. The above discussion can be summarised as follows:

In addition, a security interest is a legal interest in personal property that is created by any transaction that secures the payment or performance of an obligation.9 The way the transaction was conducted and the identity of the person who has title to the property do not affect whether there is a security interest.10 A security agreement can provide for a security interest in after-acquired property,11 and if it does the security interest in the after-acquired property attaches without any specific appropriation by the grantor.12 Purchase money security interests Under the PPSA retention of title agreements and floating charges will be referred to as security interests. For a supplier to obtain a similar benefit as a retention of title arrangement it will be necessary for them to register their security interest as a purchase money security interest (PMSI). A PMSI is an interest in favour of a person who agrees to facilitate the

acquisition or use of the collateral.13 In order to register a PMSI it is necessary that there is a direct connection between the granting of credit or the provision of funds and the acquisition or use of the collateral. The key benefits of registering a PMSI are: (a) it is notified and searchable on the PPSR (b) an upfront registration can cover ongoing supply arrangements with the same customer (c) super priority is obtained over most other security interests, allowing enforcement to occur in priority to other security interests (even those registered early in time) (d) the security interest can be traced into the proceeds of sale, and (e) the security interest survives the commingling for the secured property in a manufacturing process. A PMSI is any of the following: (a) a security interest taken in collateral, to the extent that it secures all or part of its purchase price, for example a supplier PMSI which secures all or part of the purchase price of that collateral (b) a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights, for example a financier PMSI which gives value to enable the grantor to acquire rights in the collateral (c) the interest of a lessor or bailor of goods under a PPS Lease (d) the interest of a consignor who delivers goods to a consignee under a commercial consignment (e) an interest in proceeds, which include for example property derived indirectly or directly from dealing with personal property or

its proceeds, or a right to an insurance payment or other payment as indemnity or compensation for loss or damage to that property.14 The definition of a purchase money security interest therefore necessitates that the loaned funds must be intended and actually used for purchase of an identifiable asset. For example, where funds are advanced to assist the debtor to purchase collateral or where a seller delivers collateral to a debtor under retention of title terms. As a matter of practice to ensure that there is no doubt about an identifiable asset, a PMSI loan should be made directly to the seller and a supplier should ensure that the goods delivered are marked or segregated from other supplies. A purchase money security interest does not lose its status as such only because the purchase money security interest is renewed, refinanced, consolidated or restructured (whether or not by the same secured party).15 The PMSI may exist even where the collateral is purchased before the loan funds are advanced, if the secured party has already agreed to advance the money to pay the purchase price.16 A PMSI could secure a loan of a deposit or the full purchase price to assist a person to acquire personal property. Or a PMSI may be the interest of a consignor who delivers spare parts to a consignee, where the supply agreement in effect secures payment or performance of an obligation. The PPSA deems that the following are security interests, irrespective of whether or not the transaction concerned in substance secures payment of an obligation:17 (a) the interests of a transferee of an account or chattel paper (b) the interest of a consignor who delivers goods to a consignee under a commercial consignment, and (c) the interests of a lessor or bailor of goods under a PPS lease. To obtain the best protection under the PPSA for these deemed

security interests it is necessary to perfect them. The different types of deemed security interests and the concept of perfection is discussed below. A PMSI will expire where payment of the purchase price is made for the collateral or when the loan amount to acquire the collateral is repaid. It is therefore necessary for there to be a clear method of allocating payment to invoices, as the PMSI will be limited to the particular collateral for which the secured party has not been paid.18 Using the register and confidentiality The mechanisms for, and restrictions on, searching the PPSR are set out in Pt 5.5 of the PPSA. In general terms, anyone may access the register to search the register for data with respect to a security interest or personal property.19 A person may apply to obtain: (a) copies of registered financing statements and verification statements, and (b) reports of certain matters relating to registered data in relation to the person. Searches can only be undertaken by reference to certain criteria,20 for example the details of a grantor, or a serial number (such as the vehicle identification number of a motor vehicle). A search by reference to an individual grantor’s details, and the use of data obtained by a search, is only authorised if the search is undertaken using the criteria specified in s 171 of the PPSA21 and for a purpose stated in s 172 (which restricts the authorised purposes of searches by reference to an individual grantor). A search may also be prohibited by court order, or if the Registrar considers that it is in the public interest that access to the data should not be permitted.22 The written search results may be used as evidence in a court or tribunal.23 A civil penalty applies in respect of unauthorised searches, and damages may be available to a person who suffers loss because of unauthorised use of the PPSR.24 In addition, an unauthorised search may be investigated under the

Privacy Act 1988 (Cth). If a person obtains access to the PPSR and obtains personal information about an individual within the meaning of the Privacy Act 1988, and if the search or the use of the personal information is unauthorised under the PPSA, the search or use constitutes an act or practice involving interference with the privacy of the individual for the purposes of s 13 of the Privacy Act 1988. The Privacy Commissioner25 may investigate any such act or practice, attempt to settle any dispute arising from the act by conciliation and generally do anything incidental or conducive to the performance of that investigative function.26 If the Privacy Commissioner is of the opinion that the PPSA may have been breached, the Privacy Commissioner must inform the Registrar, provide information to the Registrar and discontinue the Commissioner’s investigation except to the extent that it concerns matters unconnected with the possible contravention that the Privacy Commissioner believes may have taken place.27 The Registrar must notify the Privacy Commissioner if, after receiving the Privacy Commissioner’s opinion, the Registrar decides not to apply for an order under s 222 of the PPSA or to discontinue a proceeding that is an application for such an order.28 The Privacy Commissioner may then continue the previously discontinued investigation. Part 5.5A of the PPSA governs the conditions on data access. Generally, access to registered data and third party data through the register may be provided subject to conditions, including conditions about the subsequent use of the data. For example, the Registrar has arranged with AustRoads to provide searchers of the register with data held by AustRoads that relates to motor vehicles. As a result, AustRoads’ data concerning whether that vehicle has been stolen or recorded as written off may be provided on a verification statement or search result that relates to, whether or not the data is specifically requested by the register searcher. Again, damages may be available in respect of a contravention of conditions of access.29 Part 5.6 of the PPSA concerns amendments to the PPSR and Pt 5.7 of the PPSA concerns removal and correction of errors on the PPSR. As the information available from the PPSR may be inaccurate or

incomplete30 and incorrect or incomplete information has the potential to affect credit ratings, grantors should search, and if necessary amend and correct, the information about them on the PPSR on a regular basis. Account or chattel paper The deemed security interest arises in respect to the interest of the transferee in the account31 or chattel paper,32 as opposed to the physical account or chattel paper itself. An account is a monetary obligation that arises from disposing of property or granting a right or performing services in the ordinary course of business.33 It is basically a book debt or an account receivable. Whereas chattel paper is a security interest in or a lease of specific goods and accessions to specific goods, together with security interests in specific intellectual paper. Examples of chattel paper are hire purchase agreements and security interests in patents or trade marks. The definition of chattel paper refers to “accessions”, this means that the good in which the security interest arises is installed in or affixed to other goods. For example, an audio system in a boat. Consignor under a commercial consignment A consignment is a commercial consignment if the consignor retains an interest in the goods that are delivered, the consignor delivers the goods to the consignee for the purpose of sale, lease or other disposal and the consignor and consignee both deal with that kind of goods in the ordinary course of business.34 An example of this will be a floor plan arrangement between a bank and a boat dealer. PPS lease The interest of a lessor under a PPS lease are a form of deemed security interest.35 A PPS lease is any lease for an indefinite term or for more than one year, or 90 days for serial numbered goods (eg cars and boats), where the lessor regularly engaged in the business of leasing goods. A PPS lease excludes a lease by a lessor who is not regularly engaged in the business of leasing goods and a lease of

consumer property as part of a lease of land where the use of the goods is incidental to the use and enjoyment of the land. The lessee can grant security interests in the leased goods despite the fact that the lessee has no title.36 An example of where this may arise is where the lessee grants to its bank a security interest in all its present and future property. Such a security interest will extend to all the goods in the lessee’s possession, whether or not they actually own them. The consequence of this is that the lessor will not automatically have priority in respect to the leased goods and will need to ensure that it registers its security interest in the leased goods on the PPSR. Any competition between the lessor and the banks security interests will then be determined under the priority rules in the PPSA. In the absence of such registration by a lessor the bank’s security interest will take priority. Where leases provide lessors with security interests, the lessor should register that security interest to ensure that its priority to the leased goods is protected. This may also become relevant in the leasing of premises where there are separate obligations in respect to the lease of real property and goods or equipment being supplied by the lessor. Registration and perfection of security interests Individuals, companies or other entities who register a security interest should aim to perfect that interest. Perfection of a security interest will mean that the secured party has either a financing statement notice on the PPSR or has possession of the collateral and the security interest has attached. A security interest attaches to collateral when: (a) the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party (eg by taking possession of the goods), and (b) either value is given for the security interest or the grantor does an act by which the security interest arises (eg by providing a loan to the grantor, by delivery of goods to a customer or signing an

agreement). Unperfected security interests vest in the grantor upon insolvency,37 and perfected security interests take priority over unperfected security interests.38 Security interests may be perfected by: (a) possession of the collateral by the secured party or its agent39 (b) control by the secured party40 (c) registration on the PPS Register,41 or (d) by reason of a temporary perfection provision in the PPSA.42 When an item becomes perfected it is given a higher priority to the secured party in the event that the grantor, for example, is unable to make repayments or enters into a form of insolvency. The perfected security will be given priority above a person who takes a later security interest over the collateral or a person who has obtained a legal right to claim against the collateral from the court.43 An item of personal property may have different security interests that attach to it. For example, the security interest may attach to all items of personal property of the grantor, but another person may hold a purchase money security interest over a specific item of that personal property. Questions in relation to who has priority to the specific item of personal property will then become relevant. Registration of personal property on the PPSR can be done using a financing statement.44 The financing statement registration can occur before or after the security agreement is made covering the property, or before or after a security interest has attached to the property. Prior registration alleviates the risks associated with delays in attending to registration of a security interest after settlement in a finance transaction. Enforceability of security interest between parties

To determine whether a security interest is enforceable between the grantor and the secured party it is necessary to determine whether the security interest has attached to the collateral.45 Under the PPSA a signed security agreement is unnecessary to make the security interest enforceable between the parties. To make the security interest enforceable against third parties (ie a person such as a trustee in bankruptcy who is claiming an interest in the collateral) it is necessary for:46 (a) the security interest to have attached to the collateral, and (b) one of the following to apply: (i) the secured party possesses the collateral (ii) the secured party has perfected the security interest by control,47 or (iii) the secured party needs to have a written signed security agreement that covers the collateral (for example stating that the goods are being supplied under retention of title terms). The rights applicable to attachment will obviously be satisfied in a retention of title arrangement because the grantor will have rights in the collateral when it obtains possession of the goods, and the supplier/financier will give value for the security interest by supplying the goods or financing their acquisition. Purchase money security interests and super priority The most important perfection of a security interest for individuals, companies or other entities involved in the supply of specific collateral that is being leased, purchased or on consignment (eg provision of spare parts under 30-day trading terms) will be the registration of a PMSI. The registration of a PMSI by indicating this in the financing statement will establish a super priority if the secured party claimed a PMSI at the time of registration.48 A PMSI is a security interest that facilitates

the acquisition of personal property, and when an insolvency event occurs it enables the holder to jump up the queue in respect to entitlement to assets.49 PMSI’s do not include: (a) an interest acquired under a transaction of sale and lease back to the seller (b) an interest in collateral that is chattel paper, an investment instrument, an intermediated security, a monetary obligation or a negotiable instrument, or (c) a security interest in collateral that at the time the interest attaches to the collateral is to be used predominately for personal, domestic of household purposes.50 However, a purchase money security interest does not include: (a) an interest acquired under a transaction of sale and lease back to the seller (b) an interest in collateral (as original collateral) that is chattel paper, an investment instrument, an intermediated security, a monetary obligation or a negotiable instrument, or (c) a security interest in collateral that (at the time the interest attaches to the collateral) the grantor intends to use predominantly for personal, domestic or household purposes.51 The PPSA has specific time limits in respect to attachment and perfection of a PMSI, which determine whether a purchase money security interest over collateral or its proceeds takes priority over other security interests in the same collateral.52 Different tests apply to inventory and personal property other than inventory. Inventory — The purchase money security interest has priority if: (a) the purchase money security interest is in inventory or its proceeds, and

(b) the purchase money security interest is perfected by registration at the time: (i) for inventory that is goods — the grantor, or another person at the request of the grantor, obtains possession of the inventory, or (ii) for any other kind of inventory — the purchase money security interest attaches to the inventory, and (c) the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in s 153, that the interest is a purchase money security interest.53 Inventory has a broad definition under the PPSA and means personal property (whether goods or intangible property54) that, in the course or furtherance, to any degree, of an enterprise to which an ABN has been allocated: (a) is held by the person for sale or lease, or has been leased by the person as lessor (b) is held by the person to be provided under a contract for services, or has been so provided (c) is held by the person as raw materials or as work in progress, or (d) is held, used or consumed by the person, as materials.55 Given that a PMSI defeats other general security interests and needs to be registered almost immediately, it is advisable for suppliers to register their interest prior to settlement. For example, when an agreement to supply is reached as opposed to when the security interest attaches. The reason this is possible is because the PPSA expressly recognises that a security interest can arise in afteracquired property and if it does the security interest in the afteracquired property attaches without any specific appropriation by the grantor.56

A PMSI interest in inventory or its proceeds, therefore applies to trading stock supplied on retention of title terms. However, a grantor of the PMSI does not have possession of the goods if they are transported by a common carrier. Possession of the goods is acquired by the grantor or debtor at the earlier of: (a) the grantor or debtor, or another person at the request of the grantor or debtor, actually acquiring possession of the goods, or (b) the grantor or debtor, or another person at the request of the grantor or debtor, acquiring possession of a document of title to the goods.57 Personal property other than inventory — The purchase money security interest has priority if: (a) the interest is in personal property, or its proceeds, other than inventory (b) the purchase money security interest is perfected by registration before the end of 15 business days58 after whichever of the following days applies: (i) for goods — the day the grantor, or another person at the request of the grantor, obtains possession of the property (ii) for any other property — the day the interest attaches to the property, and (c) the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in s 153, that the interest is a purchase money security interest.59 An example of personal property other than inventory is capital equipment. Section 65 of the PPSA provides that where goods are shipped by common carrier to a grantor or a person designated by the grantor, the grantor does not obtain possession of the goods for the purposes of s 62(3) until the grantor, or a third party at the request of the

grantor, obtains actual possession of the goods or a document of title to the goods, whichever is the earlier.60 PMSI over proceeds A PMSI can also extend over proceeds. In order to register such a PMSI it is first necessary that the grantor has an interest in the proceeds or has the power to transfer rights in the proceeds to the secured party.61 The interest in the proceeds must also not arise due to the enforcement of the security leading to a distribution back to the grantor.62 This automatic ability to trace the PMSI into proceeds of original collateral and manufactured goods provides greater certainty with respect to the ability to enforce the security in practice. It means that in the event of insolvency the holder of the PMSI will have first priority over other creditors who hold general security interests over all the assets. Competing priorities Where there are competing purchase money security interests in collateral the following rules will apply. The priority interest created by a perfected purchase money security interest that is granted by a grantor in collateral or its proceeds to a seller, lessor or consignor of the collateral has priority over any other perfected purchase money security interest that is granted by the same grantor in the same collateral if the priority interest is perfected: (a) if the collateral is inventory that is goods — at the time the grantor, or another person at the request of the grantor, obtains possession of the collateral (b) if the collateral is inventory and is not goods — at the time the priority interest attaches to the collateral (c) if the collateral is not inventory, and is goods — before the end of 15 business days after the day the grantor, or another person at the request of the grantor, obtains possession of the collateral, or

(d) if the collateral is not inventory, and is not goods — before the end of 15 business days after the day the priority interest attaches to the collateral.63 The benefit of holding a PMSI is that it will defeat most other nonPMSI security interests, even in circumstances where the other security interest was created or registered beforehand.64 The exceptions to this are: (a) factor purchasing arrangements by way of inventory financing. In this circumstance a PMSI in accounts of proceeds of inventory supplied is supplanted by a security interest created by a factoring purchase of those accounts (b) perfection by control.65 However, this only applies where a creditor has control66 and takes all steps necessary to be in a position to sell the collateral without further action by the grantor and only applies to collateral in certain classes,67 and (c) perfection by actual or apparent possession of collateral, for example negotiable instruments. Specific examples in the PPSA of proceeds are: (a) proceeds of crops including the harvested produce of crops, and (b) proceeds of livestock such as meat, provided that the produce is identifiable or traceable.68 Therefore, where collateral gives rise to proceeds the security interest: (a) continues in the collateral, unless: (i) the secured party expressly or impliedly authorised a disposal giving rise to the proceeds, or (ii) the secured party expressly or impliedly agreed that a dealing giving rise to the proceeds would extinguish the security interest, and

(b) attaches to the proceeds, unless the security agreement provides otherwise.69 Consequently, the contracting parties agreement will override the default position in the PPSA. This provides flexibility to contracting parties with respect to how the security agreement will apply with respect to proceeds. Commingling Under the PPSA the security interest in goods that subsequently become part of a product or mass continues in the product or mass if the goods are so manufactured, processed, assembled or commingled that their identity is lost in the product or mass (for example ingredients used to make processed food products, such as the flour and yeast to make bread).70 That is, in circumstances where it is not commercially practical to restore the goods to their original state they are considered to be a mass or commingled.71 This question will be determined as a matter of fact based on the particular facts of the case. A PMSI attaching to the original collateral will retain its PMSI priority in the commingled goods, and the person holding the PMSI will be able to claim a proportion of the commingled goods.72 That is, perfection of a security interest in goods that subsequently become part of a product or mass is to be treated as perfection of the security interest in the product or mass.73 A PMSI will still rank behind security interests that have been perfected by control,74 and certain transfers of accounts or chattel paper.75 The PPSA is not clear as to how the value of the PMSI in the commingled mass or product will be determined. That is, will it depend on the proportionate value of the goods contributed or is it proportionate to the value of each party’s secured debt to the total value of the commingled mass? There are also specific priority rules that apply where there is more than one security interest in processed or commingled goods.76

Limits to the benefits of a PMSI If a PMSI registration does not meet the statutory requirements, it may result in a loss of priority because there is no power in the PPSA to renew, refinance, consolidate or restructure a security interest with the grantor.77 Registrations must therefore correctly identify the class of collateral when registering and state that it is a PMSI.78 Registration of a PMSI can also be lost if the PMSI registration lapses. Once it is lost the PMSI cannot be revived by re-registration. Commentators therefore suggest that when registering inventory suppliers should specify an indefinite end time for their registration in relation to property which is not consumer property and serial numbered goods.79 Further, if a registered financing statement incorrectly states that the security interest is a PMSI, the secured party does not obtain the super priority under s 62 and the registration will be ineffective under s 165(c), which means that the security interest will not be perfected and it will vest in the grantor upon insolvency.80 Further, if a security interest in collateral secures purchase money obligations81 and other obligations, the security interest is a purchase money security interest only to the extent that it secures the purchase money obligations.82 The consequences of failure to register, or registering incorrectly, under the PPSA are that you will become an unsecured creditor in the event of an insolvency of the counterparty because unperfected security interests will vest in the grantor upon insolvency.83 It is also important that in circumstances where you wish the PMSI to cover proceeds as well, that the PMSI is drafted in such a way. Otherwise the security interest will be extinguished when the collateral is sold. A valid PMSI may also be extinguished where it is annexed to the land and consequently becomes a fixture. Summary

Super priority of a PMSI can be obtained by inventory suppliers and financiers where the PPSA registration and notice requirements are satisfied. For a PMSI in inventory or its proceeds (such as trading stock supplied on ROT terms) that is tangible property, the key requirements are that the PMSI must: (a) be perfected by registration at the time: (i) for inventory that is goods — the grantor, or another person at the request of the grantor, obtains possession of the goods, or (ii) for any other kind of inventory — the PMSI attaches to the inventory, and (b) the registration that perfects the PMSI must state that the interest is a PMSI. A PMSI in personal property or its proceeds other than inventory has priority if: (a) the PMSI is perfected by registration before the end of 15 business days after whichever of the following days applies: (i) for goods — the day the grantor or another person at the request of the grantor, obtains possession of the property (ii) for any other property — the day the interest attaches to the property, and (b) the registration that perfects the PMSI states that it is a PMSI. Serial numbered property The PPSA also includes new procedures in respect to serial numbered property.84 Serial numbered property includes motor vehicles, aircraft, boats, patents, designs and trademarks registered with IP Australia. To enforce a PPSR registration over serial numbered property it will be necessary to ensure that the registration

accurately records the serial number. If a buyer or a lessee of serial numbered property conducts a search of the PPSR immediately prior to purchasing the item of personal property and does not find a reference to the serial number of that property, that person will take the property free of any security interest of another party. Circulating assets The concept of fixed and floating charges85 will become redundant under the PPSA, because the relevant concept is now that of circulating assets.86 The new definition of circulating assets confirms the existing case law on floating charges which provides that when determining whether a floating charge exists over personal property consideration must be given to both the express terms of the agreement between the parties as well as to the actual level of control exerted by the secured party. In other words, a functional approach is used whereby consideration is given to the intention of the parties as demonstrated by both their contract and their practice. The PPSA provides for two different types of circulating assets: (a) where a secured party gives a grantor a right to transfer the assets in the ordinary course of the grantor’s business free of the security interests, and (b) current assets, inventory, proceeds of inventory, currency or negotiable instruments. Summary The concepts of attachment and perfection under the PPSA become all important when considering who has priority. Attachment refers to the time when collateral becomes the subject of a security interest.87 Perfection refers to the secured party having taken every available step to ensure that its security interest has priority over any interest another party may have in the same collateral.88 Priority between unperfected security interests will be determined by the order of attachment of the security interests.89 If a secured party does not perfect its security interest:

(a) another security interest may take priority (b) another person may acquire an interest in the property free of that security interest, and (c) it will not survive the grantor’s insolvency. The above discussion can be summarised as follows:

The priority between different security interests can be summarised as follows: This security interest

Has priority over

Section

Unperfected (attached first)

Unperfected (attached latter)

Section 55(2)

Perfected security interest

Unperfected security interest

Section 55(3)

Perfected by control (first in time)

Perfected by control (latter in time)

Sections 55(4) and (5)

Perfected by control

Perfected by other means

Section 57

Insolvency practitioners As discussed above, unlike the existing ASIC charge register the security agreement giving rise to the security interest registered will not be located on the PPSR. The PPSR is a notice based register only

and will only provide notification that the security interest has been registered. The security agreement will have to be held by the party claiming the security interest. Following an insolvency appointment as an administrator or liquidator, it will be necessary to determine whether or not security interests have been perfected under the PPSA. If the security interest is not perfected under the PPSA, the collateral that is the subject of the security interest will vest in the grantor company (which is in administration or liquidation). This will mean that there will be a greater number of assets for the insolvency practitioner to realise in the context of the insolvency engagement. In particular the administrator or liquidator will need to carefully review whether or not they have the ability to deal with the assets subject to retention of title, hire purchase, consignment and leasing arrangements. Some current issues on disclosure through the register Three “confidentiality” issues have been receiving particular publicity since the introduction of the PPSA. They are: (a) the expanded definition of “security interest” and the expanded registration obligations meaning that some commercial documents are now liable to disclosure to interested parties (b) businesses such as finance providers may use the PPSR to identify potential customers (c) the potential for the registration of a change of security interest to disclose a confidential transaction. On the first issue, the new PPSA obligations to disclose security agreements to interested parties, coupled with the expanded concept of what a security interest is, may mean that commercial parties are compelled to disclose documents that they thought could be kept confidential. To use joint venture agreements as an example, interests arising under cross charges and some default clauses90 in joint venture

agreements may be subject to the PPSA and (depending on their terms) be documents that must be disclosed under the PPSA to appropriate interested parties. The disclosure obligation can be limited, but not entirely excluded, by entering into appropriate confidentiality arrangements at the time the security interest is taken or by the structure of the documentation. We should expect to see some new drafting of these kinds of documents to deal with the potential for disclosure introduced by the PPSA. On the second issue, the potential to use the PPSR to identify possible new customers or develop client lists has been raised in the context of the ability to trawl the PPSR for information about who is granting security interests, over what, and in whose favour. While searches of this kind may not be practical (and possibly not for an “authorised purpose”), a search that may be practical (although still possibly not for an approved purpose) would be to search the PPSR to find out about the security interests that have been granted by a person or company of interest to the searcher. On the third issue, when a security interest is being granted or transferred, the new, “to be” secured party may register that interest before the transaction completes. Where the transaction behind the granting or transfer of a security interest is a merger or business sale, someone searching the register may discover the likelihood that there will be a merger or business sale before the parties to it are ready for that transaction to be made public. We should expect to see this issue being dealt with by, for example, the terms of agreements with the “to be” secured party including terms dealing with when the grant or transfer of the security interest may be registered. Case study applying relevant concepts to retention of title arrangements Post introduction of the PPSA pre-30 January 2012 retention of title arrangements do not become invalid, and continue in existence for a two-year transitional period. These transitional arrangements mean that the pre-existing ROT arrangements will maintain their priority over post-30 January 2012 security interests. However, they must be registered under the PPSA prior to the end of the two-year transitional

period otherwise they will lose their priority.91 The rules in relation to retention of title arrangements have changed under the PPSA. Purchasers can deal with the goods as if they already own them and may extinguish the seller’s interest. If a supplier fails to register a security interest under a retention of title agreement the title in the goods supplied will vest with or transfer to the purchaser in the event of insolvency or bankruptcy. Further, if the pre-31 January 2012 retention of title arrangements ceases to be valid during the transitional period it will be necessary to register a PMSI under the PPSA to maintain a security interest in goods delivered. For example, where there is a zero balance on a running account the retention of title arrangement will lapse. To obtain the maximum protection for provision of goods under a retention of title arrangement the following steps should be adopted. First step — The security interest should be made enforceable against the grantor by way of attachment to collateral.92 This will mean that: (a) the purchaser will need to have rights in the collateral or the power to transfer rights in the collateral to the secured party. This requirement will be satisfied if the purchaser takes possession of the collateral, including as lessee or bailee, and (b) “value” needs to be given, or the purchaser needs to do an act that gives rise to the security interest.93 This requirement will be satisfied where the seller provides the goods to the purchaser or the purchaser agrees in writing to the retention of title clause. Second step — It will be necessary to make the security interest in collateral enforceable against third parties.94 This will mean that: (a) the security interest needs to have attached (see first step) (this will mean that the security interest will be enforceable against the purchaser but not a third party), and (b) one of the following applies: (i) the secured party possesses the collateral

(ii) the secured party has perfected the security interest by control,95 or (iii) the secured party needs to have a written signed security agreement that covers the collateral (ie the goods being supplied under the retention of title terms). The security agreement will cover the collateral if: (i) it is in writing and signed, adopted or accepted by the grantor (ie the purchaser) by an act or omission, and (ii) it contains an adequate description of the collateral (eg the specific property or the class to which the property belongs). The security agreement should also state that a security interest is taken in all of the grantor’s present and after acquired property. Third step — Perfection of the security interest.96 This will mean that: (a) the security interest needs to have attached (see first step) and be enforceable against third parties (see second step), and (b) the security interest is registered on the PPSR. It is unnecessary to register again for each delivery, if the security agreement covers future deliveries. Fourth step — When registering you should consider registering as a PMSI.97 Such registration means that the security interest can rank ahead of other security interests granted by the same grantor, even prior perfected security interests.98 A retention of title PMSI, will in fact rank ahead of other PMSI in the same goods.99 PMSI registrations that are perfected will enable the security interest to cover proceeds of sale.100 Conclusion The objectives of personal property securities reform is to increase certainty and consistency in the legislation and reduce complexity and costs. The reforms will make it easier for businesses and individuals to

use personal property as security to obtain finance. The mechanics of the PPSA will be very much a systems driven exercise for businesses and individuals. The PPSA will provide a strong and powerful tool to those people who accurately register their security interests early, and who maintain their security interest registration. Although there have only been a few decided cases applying the legislation to date, there are a number of matters working their way through the courts and some important decisions applying the PPSA in the context of some recent large insolvency appointments will be made shortly. It is likely that those cases will result in some unexpected outcomes for those persons who have not prepared for the introduction of the PPSA. Those that are unprepared or register inaccurately will find that the PPSA will have consequences that are opposite to the way in which the previous legal framework operated with respect to personal property. JM Healy and E Hensler 1 February 2013 This paper is an updated and expanded adaptation of an article which was first published in the September, 2012 issue of Brief, the official journal of the Law Society of Western Australia. Attachment — Glossary* Accession A good is an accession to other goods when it is installed in, or affixed to, other property (unless both the accession and the other goods are required or permitted by the regulations to be described by serial number). Account A monetary obligation which arises from: – disposing of property (whether by sale, transfer, assignment, lease, licence or in any other way); or – granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind

(whether or not the account debtor is the person to whom the right is granted or the services are provided), but excludes an ADI account, chattel paper, investment entitlement, investment instrument or negotiable instrument. It does not matter whether or not the monetary obligation is earned by performance, and, if payable in Australia, whether or not the person who owes the money is located in Australia. Advance The payment of currency, provision of credit or giving of value. This would include the liability of a debtor to pay interest, credit costs and other charges or costs payable by the debtor in connection with the advance, or the enforcement of a security interest securing the advance. After-acquired property Personal property acquired by the grantor after the security agreement is made. Attachment The creation of a security interest in personal property which could be enforced against that property. Attachment In respect to collateral arises where the grantor has rights in the collateral or powers to transfer rights in the collateral to the secured party. Chattel paper Writing which evidences both a monetary obligation and a security interest in, or lease of specific goods, for example, a hirepurchase agreement. It would not include a negotiable instrument, an investment instrument, an investment entitlement or a document of title. Circulating assets Assets that could be used or transferred in the ordinary course of the grantor’s business, even if they are subject to a security interest, including currency, negotiable instruments, inventory and certain accounts (except where the secured party has possession or control). Collateral Personal property to which a security interest is attached. Commingled property Goods that are mixed with goods of the same kind to become part of a product or mass so as to have lost their original identity in the product or mass.

Consumer property Personal property that is held by an individual and not used to any extent in the course of an enterprise to which an ABN has been allocated. Control One way of perfecting a security interest in controllable property. Goods Tangible personal property including crops, livestock, wool, extracted minerals, satellites and other space objects, but excluding chattel paper, documents of title, investment instruments, negotiable instruments, currency or investment entitlements. Grantor A person (or their transferee or successor) who owns or has an interest in the property to which a security interest has attached. A grantor would include a person who receives goods under a commercial consignment, a lessee under a PPS lease and a transferor of an account of chattel paper. Intangible property Personal property other than financial property, goods or an investment entitlement. Intellectual property Rights in a design, patent, trade mark, copyright, circuit layout or plant breeder right. Intermediated security Is the rights of a person in whose name an intermediary maintains a securities account. Inventory Personal property used in the ordinary course of business by a business with an ABN, including property held for sale or lease, property held to be provided under a contract for services, property held as raw materials or as work in progress or property used or consumed as materials. Investment instrument includes a share or debenture in a body, an interest in a managed investment scheme and a derivative. Perfection A security interest could be perfected by registration, possession, control or temporary perfection and perfection would always confer priority over unperfected security interests in the collateral. Personal property Any form of property, other than land or a right or entitlement under a Commonwealth, state or territory law that declares

that the right or entitlement is not personal property for the purposes of the Bill. PPS lease A lease or bailment of goods, for an indefinite term or a term of more than one year. Where goods would be described by serial number, a PPS lease would only need to be a term of 90 days. Proceeds The identifiable or traceable personal property derived directly, or indirectly, from dealing with collateral or the proceeds of collateral. Purchase money security interest (PMSI) A security interest in collateral created by a seller who secures the obligation to pay the purchase price or a person who provides the value to purchase the collateral. A PMSI could also be the interest of a lessor or bailor under a PPS lease or the interest of a consignor who delivers property under a commercial consignment. Registration commencement time The start of the first day of the month that is 26 months after the month in which the Bill is given the Royal Assent, or an earlier time determined by the Minister. Secured party The person who holds a security interest in collateral. The secured party would not always be the creditor of the debtor because a security interest could secure the performance of an obligation without the secured party being a creditor, for example, a security trustee could hold the security for the benefit of creditors but not itself be a creditor. Security agreement An agreement or other act, such as a deed of execution or a declaration of trust, or writing evidencing the agreement or act, that creates a security interest. Security interest An interest in relation to personal property created by a transaction that in substance secures the payment or performance of an obligation, without regard to the form of the transaction. Super priority is a higher form of priority that purchase money security interests can obtain via registration. Value Consideration sufficient to support a contract including the discharge of an earlier debt or liability. Footnotes

Footnotes 1

Personal Property Securities Bill 2009 Explanatory Memorandum, p 9.

2

PPSA, s 12.

3

Casebase search 30 January 2013, Prepaid Services v Atradius [2012] NSWSC 608 and Owen, in the matter of RiverCity Motorway Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 3) [2012] FCA 313; Re Barclays Bank plc [2012] NSWSC 1095; Hastie Group Limited (No 3) [2012] FCA 719; and Grant v YYH Holdings Pty Ltd [2012] NSWCA 360.

4

Personal Property Securities Regulations, reg 1.8.

5

PPSA, s 13(2).

6

PPSA, s 12.

7

Liens, charges and other interests created by, or arising by way of the general law (such as solicitor’s liens, landlord’s liens, repairer’s liens and salvage liens) will not be affected by the PPSA.

8

PPSA, s 8.

9

PPSA, s 12.

10

PPSA, s 3 and 12(1).

11

After-acquired property means personal property acquired by the grantor after the security agreement is made.

12

PPSA, s 18(2).

13

PPSA, s 14(7).

14

PPSA, s 14.

15

PPSA, s 14(5).

16

PPSA, s 18(2).

17

PPSA, s 12(3).

18

PPSA, s 14(6).

19

PPSA, s 170.

20

PPSA, s 171.

21

Generally, the grantor’s details, serial number or other unique identifier, and search time.

22

PPSR, reg 5.7.

23

PPSA, s 174.

24

PPSA, s 271.

25

While the functions of the Privacy Commissioner have been transferred to the Office of the Australian Information Commissioner, the position of the Privacy Commissioner continues.

26

Privacy Act, s 28B.

27

Privacy Act, s 49A.

28

Ibid.

29

PPSA, s 271.

30

The accuracy and completeness of a financing statement will depend on the care taken by the person who prepared it and who has responsibility for keeping it up to date. This person is generally the secured party, not the grantor. Further, in this transitional period, there have been difficulties with the migration of data from other registers.

31

Account means a monetary obligation which arises from disposing of property or granting a right or providing services in the ordinary course of business, subject to certain exclusions.

32

Chattel paper is writing which evidences both a monetary obligation and a security interest in, or lease of specific goods, for example, a hire-purchase agreement. It would not include a negotiable instrument, an investment instrument, an investment entitlement or a document of title.

33

PPSA, s 10.

34

PPSA, s 10.

35

PPSA, s 12(3)(c) and 13.

36

PPSA, s 12(1).

37

PPSA, s 267.

38

PPSA, s 55(3).

39

PPSA, s 21(2)(b) and 55(5)(b).

40

PPSA, s 21(2)(c) and (3).

41

PPSA, s 23(2)(a) and 55(5)(a).

42

PPSA, s 55(5)(c), for example the bailiff seizing property.

43

PPSA, s 55(3).

44

PPSA, s 150 and 153.

45

PPSA, s 19.

46

PPSA, s 20.

47

Control means that a person has possession of the personal property, however, there are a number of different forms of possession that can arise in respect to different types of personal property. See further Pt 2.3 of the PPSA.

48

PPSA, s 62(3) and 153(1) table item 7.

49

PPSA, s 14.

50

PPSA, s 14(2).

51

PPSA, s 14(2).

52

PPSA, s 62(1).

53

PPSA, s 62(2), also notes that this subsection is subject to s 64 (non-purchase money security interest in accounts) and s 71 (chattel paper).

54

Intangible property is defined in s 10, to mean personal property that is not financial property, goods or an intermediated security.

55

PPSA, s 10.

56

PPSA, s 18.

57

PPSA, s 24(3).

58

This period may be extended by a court under s 293 of the PPSA.

59

PPSA, s 63(3).

60

PPSA, s 66(1).

61

PPSA, s 31(3)(a).

62

PPSA, s 31(3)(b) and 140(2)(f).

63

PPSA, s 63, this period can be expanded under s 293.

64

PPSA, s 62.

65

PPSA, s 57(1).

66

PPSA, s 57(2A).

67

PPSA, s 21(2)(c) being ADI accounts, an intermediated security, an investment security, a negotiable instrument not evidenced by a certificate, a right of a letter of credit which requires presentation or performance of an obligation; and satellites and other space objects.

68

PPSA, s 31(4).

69

PPSA, s 32(1).

70

PPSA, s 99(1).

71

PPSA, s 99(2).

72

PPSA, s 98 to 103.

73

PPSA, s 100.

74

PPSA, s 57(3).

75

PPSA, s 64 and 71.

76

PPSA, s 102.

77

PPSA, s 14(5), and the time limit imposed for registration of a PPSA interest under s 62(2). Note there is no ability to extend this registration time under s 293 of the PPSA, cf s 62(3) of the PPSA.

78

PPSA, s 153, 164(1)(b) and 165(c).

79

O’Donovan, Looseleaf, Personal Property Securities, Thomson Reuters, at 60.570.

80

PPSA, s 267.

81

PPSA, s 14(7).

82

PPSA, s 14(3).

83

PPSA, s 267.

84

PPSA, s 10, 44 and 45.

85

PPSA, s 339.

86

PPSA, s 340.

87

PPSA, s 19.

88

PPSA, s 21.

89

PPSA, s 55(2).

90

For example, where a default clause provides that a joint venturer’s interests in the joint venture may be forfeited if the joint venturer fails to perform their joint venture obligations.

91

PPSA, s 319.

92

PPSA, s 19.

93

PPSA, s 10.

94

PPSA, s 20.

95

Control means that a person has possession of the personal property, however, there are a number of different forms of possession that can arise in respect to different types of personal property, see further Pt 2.3 of the PPSA.

96

PPSA, s 21.

97

PPSA, s 14(1)(a).

98

PPSA, s 62.

99

PPSA, s 63.

100 *

PPSA, s 32 and 33.

This glossary is taken from the Explanatory Memorandum.

¶40-140 Effect of provisions The main purpose of the provisions discussed in ¶40-130 was to enable choses in action to be assigned and to confer on the assignee legal title to the chose in action and the ability to enforce it without requiring the assignor to be joined in the legal proceedings. That was not possible at common law. Main requirements The main requirements of a statutory assignment are: • The assignment should be in writing under the hand of (ie signed by) the assignor. • The assignment should be absolute; it should not be merely by way of charge. • Express notice in writing of the assignment should be given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action. Consequences of statutory assignment The consequences of an effective statutory assignment are: • The legal right to the chose in action (ie title) vests in the assignee.

• The assignee acquires all legal and other remedies for the chose in action, ie to recover and protect title to the chose in action. • The assignee can give a good discharge for the debt or chose in action without requiring the assignor’s concurrence (and signature). Important matters to note The following are some of the more important matters to note regarding this provision: 1. Although the statutory provisions refer to “any debt or other legal chose [or thing] in action”, it has been interpreted so as to include the assignment of equitable choses in action. Channell J pointed out (Torkington v Magee (1902) 2 KB 427 at p 430): “I think the words ‘debt or other legal chose in action’ mean, debt or right which the common law looks on as not assignable by reason of its being a chose in action, but which a Court of Equity deals with as being assignable.” In Commissioner of Taxation v Everett (1979) 54 ALJR 196, Barwick CJ, Stephen, Mason and Wilson JJ held that the equitable interest of a partner in a partnership was assignable by a statutory assignment (at p 198): “The interest, being a chose in action, falls within the expression ‘debt or other legal chose in action’ because the section, in providing that notice shall be given to a trustee ‘as a person liable in respect of such debt or other legal chose in action’, appears to contemplate the assignment by a beneficiary of an equitable chose in action against a trustee. There would be no point in referring to a trustee if the section made provision only for the assignment by strangers to the trust of debts owing by, and choses against, persons who happen to be trustees. The expression ‘legal chose in action’ may be read as ‘lawfully assignable chose in action’.” Thus, the statutory assignment of the equitable interest of a purchaser under a contract for sale of real property confers on the

assignee the legal title to sue for specific performance (in equity) and for damages (at law or in equity) (Torkington v Magee (supra) at p 435). 2. It is not possible to make a statutory assignment of part of a debt or chose in action; that can only be achieved by an equitable assignment (¶40-160; Commissioner of Taxation v Everett (supra) at p 198; Norman v F C of T (1963) 37 ALJR 49 at p 56: Sandford v DV Building & Constructions Co Pty Ltd (1963) VR 137). There is a statutory exception in Western Australia, where part of any debt or other legal chose in action can be assigned by a statutory assignment (s 20(3)). 3. There is no requirement under this provision for the payment of consideration, so that a statutory assignment passes legal title to the assignee even if it is a voluntary transaction (ie a gift) (Norman v FC of T (supra) at p 55; Westbourne Grammar School v Sanget Pty Ltd [2007] VSCA 39 (digest at ¶95-456)). Furthermore, it is not necessary for the legal efficacy of a statutory assignment for the assignee to execute the assignment or even to assent to or be aware of it (Grey v Australian Motorists & General Insurance Co Pty Ltd (1976) 1 NSWLR 669 at pp 673, 676–679). Assignments for valuable consideration usually occur after an agreement between the assignor and the assignee. It is possible to make a gift of a chose in action without the donee’s assent or knowledge. The donee or assignee, to whom an assignment has been made without the assignee’s knowledge and consent, may reject the assignment (Grey (supra) at p 673 per Glass JA), but until that point of time the assignment is legally effective. 4. The existence of a mode of effecting a legal assignment by force of statute does not affect the validity of and entitlement to make an equitable assignment (¶40-160) of legal or equitable choses in action. 5. Statutory assignment is only available for an existing proprietary right which constitutes a chose in action, but not for the

assignment of “a mere expectancy or possibility of becoming entitled in the future to a proprietary right is not an existing chose in action” (per Windeyer J, Norman v FC of T (supra) at p 54; Westbourne Grammar School v Sanget Pty Ltd [2007] VSCA 39 (digest at ¶95-456)). Such an entitlement is only assignable by an equitable assignment for valuable consideration (¶40-160). 6. The giving of notice of the assignment (¶40-150) is an essential prerequisite to conferring legal title to the chose in action in favour of the assignee. If no notice is given or if the notice is improper in form or has not been served effectively, the assignment may be effective in equity (¶40-160) but it is not a legal assignment (McIntosh v Shashoua (1931) 46 CLR 494 at p 515). 7. A legal assignment is subject to existing equities at the time of the assignment, such as claims for damages, cross-claims or setoff by the debtor against the assignor arising out of the transaction giving rise to the subject matter of the assignment. Also, if the chose in action is tainted by illegality, neither the assignor nor the assignee will be able to enforce it (Equuscorp Pty Ltd v Haxton & Ors [2012] HCA 7 (digest at ¶95-544)). The assignor cannot pass a better title than the assignor had. 8. The mortgage of a chose in action consisting of a transfer of the property to the assignee with an equity of redemption in favour of the assignor upon repayment of the loan still qualifies as an absolute assignment. The requirement to reassign or reconvey the property to the assignor upon repayment of the loan does not deprive the assignment of its absolute character (Austino Wentworthville Pty Ltd v Metroland Australia Ltd [2013] NSWCA 59; Mio Art Pty Ltd as trustee of Spencer Family Trust v Mango Boulevard Pty Ltd & Ors (No 6) [2015] QSC 116 (digest at ¶95573); Mango Boulevard Pty Ltd & Anor v Mio Art Pty Ltd & Ors [2016] QCA 148 (digest at ¶95-580). 9. Whether an instrument effects an assignment and not merely a charge is determined by a construction of the instrument as a whole (Mio Art Pty Ltd as trustee of Spencer Family Trust v

Mango Boulevard Pty Ltd & Ors (No 6) [2015] QSC 116 (digest at ¶95-573);Mango Boulevard Pty Ltd & Anor v Mio Art Pty Ltd & Ors [2016] QCA 148 (digest at ¶95-580).

Tax Institute CommLaw3 Module 2 — Commentary ¶43-130 Protection of copyright The exponential expansion of technology and technological advances (eg in modes of communication, reproduction and computers) has caused the range of subject matter covered by copyright and the scope of the protection to increase in diversity and complexity. However, broadly, copyright covers two areas. First, Pt III of the Act covers copyright in original works. The term ``work'' is defined as meaning a literary, dramatic, musical or artistic work. “ ‘Artistic work’ means: (a) a painting, sculpture, drawing, engraving or photograph...; (b) a building or a model of a building...; or (c) a work of artistic craftsmanship...'' Secondly, Pt IV of the Act covers copyright in subject matter other than works, in particular copyright in sound-recordings, cinematograph films, television and sound broadcasts and in published editions of works. With regard to each of these topics the legislation specifies who is entitled to the copyright, what rights the copyright covers and the duration of those rights. For example, copyright in relation to a work is the exclusive right: ``(a) in the case of a literary, dramatic or musical work, to do all or any of the following acts: (i) to reproduce the work in a material form;

(ii) to publish the work; (iii) to perform the work in public; (iv) to communicate the work to the public; (vi) to make an adaptation of the work; (vii) to do, in relation to a work that is an adaptation of the first-mentioned work, any of the acts specified in relation to the first-mentioned work in sub-paragraphs (i) to (iv), inclusive; and (b) in the case of an artistic work, to do all or any of the following acts: (i) to reproduce the work in a material form; (ii) to publish the work; (iii) to communicate the work to the public ; and (c) in the case of a literary work (other than a computer program) or a musical or dramatic work, to enter into a commercial rental arrangement in respect of the work reproduced in a sound recording; and (d) in the case of a computer program, to enter into a commercial rental arrangement in respect of the program.'' (s 31(1)). Generally the existence of copyright depends on the creation or making of an original work and copyright exists not in the author's originality of ideas, but in the form in which those ideas have been expressed. Copyright exists in published as well as in unpublished works, as is specified in the legislation. In respect of each subject matter for which copyright may exist, the legislation specifies the qualifications which must be satisfied for

copyright to exist. These qualifications are referred to in text books as the ``connecting factors'' and generally relate to the status of the author, the place of first publication or the place of making the work. For example, the connecting factors with reference to published or unpublished works are set out as follows: ``32(1) Subject to this Act, copyright subsists in an original literary, dramatic, musical or artistic work that is unpublished and of which the author: (a) was a qualified person at the time when the work was made; or (b) if the making of the work extended over a period — was a qualified person for a substantial part of that period. 32(2) Subject to this Act, where an original literary, dramatic, musical or artistic work has been published: (a) copyright subsists in the work; or (b) if copyright in the work subsisted immediately before its first publication — copyright continues to subsist in the work; if, but only if: (c) the first publication of the work took place in Australia; (d) the author of the work was a qualified person at the time when the work was first published; or (e) the author died before that time but was a qualified person immediately before his or her death. ... 32(4) In this section, qualified person means an Australian citizen or a person resident in Australia.'' This topic is covered expressly in other sections of the legislation with reference to each subject matter in which copyright may exist.

The duration of the copyright is also covered in the legislation with reference to each subject matter of copyright protection. For example: “Subject to this section, copyright that subsists in a literary, dramatic, musical or artistic work ... continues to subsist until the end of 70 years after the end of the calendar year in which the author of the work died.” (s 33(2)) The owner of the copyright is also specified, with reference to each subject matter of copyright. Generally, the author of a literary, dramatic, musical or artistic work is the owner of the copyright subsisting in the work. However, there are exceptions with regard to employees creating works in the course of their employment and in the case of certain works commissioned for valuable consideration. On the sale or assignment of an undertaking which should include property protected by copyright, the basic questions which should be asked include the following: 1. Is the particular work (or other subject matter) protected by copyright? 2. Who was the author of the work? 3. Who now owns the copyright? 4. What is the duration of the copyright? 5. What current outstanding rights exist in the copyright, such as assignments or licences? The legislation expressly covers the legal principles with reference to questions 1-4 in respect of each different subject matter of copyright. Those statutory provisions should be applied when considering the facts and seeking answers in concrete situations.

LEGISLATION

CASES .01 Law: Cth Copyright Act 1968, s 10(1); 31(1); 32; 33(2); 35; 85; 86; 87; 88. .40 Overlap of copyright and design protection. This Federal Court decision provides a useful discussion on the overlap of copyright protection and design protection under sec 74- 77 of the Copyright Act 1968 (Cth). Grace & Ors v Beaulieu of Australia Ltd; Federal Court of Australia; Finn J; 18 March 2004; (2004) FCA 265; digested at ¶95397.

¶52-120 Registration of a trade mark Generally, a trade mark, in order to be accepted for registration, must: • not be, or contain, a sign that the regulations say cannot be used as a trade mark • be able to be represented graphically • be capable of distinguishing the applicant’s goods or services in respect of which the trade mark is sought to be registered from the similar goods and services of other traders. For example, the word “Tissues” would most likely be barred from registration as a trade mark for the goods “tissues” • not contain or consist of scandalous matter and its use must not be contrary to law • not be likely to deceive or cause confusion because the trade mark, or a sign contained in the trade mark, has some connotation. For example, the registration of a trade mark like “Healthy Lungs” for cigarettes would most probably be barred • not be substantially identical with, or deceptively similar to, a trade mark already registered for the same or similar goods or services. (There are some exceptions to this provision.)

The Trade Marks Act 1995 provides that a trade mark ought to be registered unless there is some objection to it. It is not for the applicant to demonstrate that the mark is registrable. Rather, the application for registration must be accepted unless the Registrar is satisfied, on the balance of probabilities, that the application has not been made in accordance with the Act or that there are grounds for rejecting it. The grounds upon which an application may be rejected are set out in s 39–44 of the Act and consist of the trade mark’s failure to satisfy any of the requirements listed in the preceding paragraph. Despite the extended scope for registration granted by the 1995 Act, most trade marks are still words or devices or a combination of the two. A pure device trade mark is one which consists of a geometric or a pictorial representation. It may also include one or more letters of an alphabet but will not contain a recognisable word in any language. The criterion for registration of these marks is “capable of distinguishing”.

LEGISLATION .01 Law: Cth Trade Marks Act 1995, s 27; 33; 39–44.

¶52-145 Entitlement to apply for registration The 1995 Act permits a person to apply for registration of a mark if the person claims to be the owner of a mark and one of the following applies: • the person is using or intends to use the mark in relation to the goods or services; • the person has authorised or intends to authorise the use of the mark; or • the person intends to assign the mark to a body corporate about to be constituted with a view to use of the mark by the body corporate.

Under the 1955 Act a prerequisite to the making of an application for registration of a trade mark in Pt A or B of the Register was that the applicant could claim to be the proprietor of the mark. The 1995 Act replaces the term ``proprietor'' with that of ``owner''. The two main criteria of proprietorship of a trade mark under the 1955 Act were being the author of a trade mark or having used it first in Australia (and frequently both of these elements could be established). Proprietorship Under sec 58 the registration of a trade mark may be opposed on the ground that the applicant is not the owner of the mark. There have been many decisions on the question of ``proprietorship'' of a trade mark and what that term means in the context of the Trade Marks Act 1995 and the Trade Marks Act 1955. The following examples attempt to illustrate situations where one party was held entitled to claim proprietorship in an unused trade mark. Authorship ▪ In Aston v Harlee Manufacturing Co (1960-1961) 34 ALJR 242, Fullagar J pointed out (at p 245): ``In the first place, I do not think that the requirement of `authorship' means that the applicant must be the true and first inventor: he has not to establish anything analogous to what an applicant for letters patent for an invention must establish. I do not think that an opponent of an application for registration of a trade mark could succeed by saying merely `I thought of it first', or even `I thought of it first, and communicated it to the applicant'. It is otherwise if the opponent has used the mark `in relation to goods'.'' The facts of that decision are very instructive. H was incorporated in the United States of America in 1950. Its president coined the phrase ``Tastee Freez'' in relation to ice-cream products, which was registered as a trade mark in USA. H built up a large world-wide franchise business for marketing ice-cream through that trade mark. A, a resident of Honolulu, heard of the mark and had inconclusive negotiations with H for an Australian franchise. A then instructed

patent attorneys to register ``Tastee Freez'' as a trade mark in Australia. A's application was lodged in 1952; it was accepted in 1955. On 10 February 1956 H lodged an opposition to A's application and on 3 April 1957 H lodged its own application for registration of that mark. The mark had not been used in Australia either by A or H up to 1957, including with goods imported into Australia. Fullagar J held that A was entitled to be treated as proprietor of the mark in Australia and its application was entitled to priority over H's later application and to be registered. ▪ The facts of the leading Australian decision on this topic, The Shell Company of Australia Ltd v Rohm and Haas Co (1948-1949) 78 CLR 601, are also instructive. S coined the invented word ``Ditrene'', which had not been used in Australia before S lodged its application for registration as a trade mark on 19 June 1945. That trade mark was registered on 4 October 1946 in respect of agricultural and horticultural sprays. R coined the invented word ``Dithane'', which had not been used in Australia before R applied for a trade mark on 20 April 1945 in respect of insecticides, fungicides and disinfectants. Although the application for Dithane was lodged before that for Ditrene, the Registrar dealt with the later application first and granted it. The Registrar then would not grant the Dithane application because of the resemblance between these two marks. R instituted proceedings for rectification of the Register and to expunge S's trade mark. It was admitted in the proceedings that the two marks bore such a close resemblance as to be calculated to deceive and cause confusion in the trade and with the public, as the marks were applied to goods of a similar description. Williams J held that the Registrar should have dealt with the applications in the order of their respective dates and should have determined R's application for Dithane first. The Registrar acted wrongly by granting the later application for Ditrene. This should be expunged from the Register and R's trade mark should be registered. This order was upheld by the Full Court. Although the High Court of Australia dealt in this decision with the Trade Marks Act 1905, on this aspect the current 1955 Act should lead to the same result. Dixon J explained the basis of R's priority through proprietorship and earlier application for the trade mark (at pp 627-629):

``it is clear enough from the course of legislation and of decision that an application to register a trade mark so far unused must, equally with a trade mark the title to which depends on prior user, be founded on proprietorship. The basis of a claim to proprietorship in a trade mark so far unused has been found in the combined effect of authorship of the mark, the intention to use it upon or in connection with the goods and the applying for registration. ... Authorship of course includes claim through or under the author. But it involves the origination or first adoption of the word or design as and for a trade mark. ... The Act therefore assumes that rival claims to identical or nearly identical unregistered marks one or both of which have not been acquired by prior user may be decided by reference to the legal rights of the claimants. Their claims are to that proprietorship of which s 32 speaks when it provides that any person claiming to be the proprietor of a trade mark may make application for the registration of his mark. In other words the legislation ascribes proprietorship to trade marks when application to register them is made notwithstanding that the proprietor's right cannot rest on prior user because hitherto the marks have not been employed, whether within the jurisdiction or at all.'' ▪ The correctness of these decisions and principles has been confirmed in more recent decisions of the High Court of Australia. In Moorgate Tobacco Co Ltd v Philip Morris Ltd & Anor (1980) 54 ALJR 479, Stephen, Mason, Aickin and Wilson JJ said (at p 484): ``It has been accepted that when s 40(1) provides that a person `who claims to be the proprietor of a trade mark' may make application for registration it expresses the notion of proprietorship of a mark before registration and that registration depends upon proprietorship. ... The statutory concept of proprietorship is novel in that it differs

from the common law notion of proprietorship of a mark by treating authorship by a person intending to use the mark, in the absence of prior public user, and the making of an application for registration as a foundation for proprietorship — see especially Shell, at pp 625-629. There are passages in the judgments of this Court which, it is suggested, support the proposition that an applicant who is the `proprietor' in the statutory sense of the mark applied for is entitled to registration of it.... We do not so read them. They do no more than say `The statutory proprietor is the person who is entitled to get on the register if the requirements of the statute eg s 28 are otherwise fulfilled'. They do not say `The statutory proprietor is entitled to registration without more'.'' Use in Australia When the claim to proprietorship is based on user, that refers to user in Australia and relatively slight acts of user might suffice. The exporting of English products to Australia, where retailers sold the goods bearing the trade mark, constituted user of the mark in Australia by the manufacturer (Re Ellis & Goldstein's Trade Marks; Ex parte Estex Clothing Manufacturers Pty Ltd (1966-1967) 40 ALJR 418, 515). Similarly, the supply of a loosely assembled boat by the USA manufacturer to Australia as a prototype to make the mould, where the trade mark was indicated in the shipping documents and on the invoice was sufficient prior use by the manufacturer to enable it to negate authorship of the mark by the Australian licensee which applied for registration of the trade mark. The position was summarised in Moorgate Tobacco Co Ltd v Philip Morris Ltd & Anor (No 2) (1985) 59 ALJR 77, by Deane J (with whose judgment the other justices agreed, at p 83): ``The prior use of a trade mark which may suffice, at least if combined with local authorship, to establish that a person has acquired in Australia the statutory status of `proprietor' of the mark, is public use in Australia of the mark as a trade mark, that is to say, a use of the mark in relation to goods for the purpose of indicating or so as to indicate a connection in the course of trade

between the goods with respect to which the mark is used and that person: see, generally, The Shell Co of Australia Ltd v Esso Standard Oil (Australia) Ltd (1963) 109 CLR 407 at 423-424; Re The Registered Trade Mark `Yanx'; Ex parte Amalgamated Tobacco Corporation Ltd (1951) 82 CLR 199 at 204-205; and the definition of `trade mark' in s 6(1) of the Trade Marks Act. The requisite use of the mark need not be sufficient to establish a local reputation and there is authority to support the proposition that evidence of but slight use in Australia will suffice to protect a person who is the owner and user overseas of a mark which another is seeking to appropriate by registration under the Trade Marks Act. In such a case, the court `seizes upon a very small amount of use of the foreign mark in Australia to hold that it has become identified with and distinctive of the goods and the foreign trader in Australia': see The Seven Up Co v OT Ltd (1947) 75 CLR 203 at 211; Aston v Harlee Manufacturing Co (1960) 103 CLR 391 at 400. ... The cases establish that it is not necessary that there be an actual dealing in goods bearing the trade mark before there can be a local use of the mark as a trade mark. It may suffice that imported goods which have not actually reached Australia have been offered for sale in Australia under the mark (Re The Registered Trade Mark `Yanx'; Ex parte Amalgamated Tobacco Corporation Ltd at 204-205) or that the mark has been used in an advertisement of the goods in the course of trade: The Shell Co of Australia v Esso Standard Oil (Australia) Ltd at 422. In such cases however, it is possible to identify an actual trade or offer to trade in the goods bearing the mark or an existing intention to offer or supply goods bearing the mark in trade.'' The decisions indicated that foreign registration or foreign use of a trade mark did not create proprietorship for the purpose of an Australian trade mark application. Authorised use Previous legislation contained provisions relating to both the

registration of users of a mark and to what constituted authorised use of a mark. The 1995 Act abandoned the registered user regime entirely and the concept of authorised use covers the field. Authorised use of a trade mark will occur to the extent only that the user uses the mark under the control of the owner of the mark. The Act sets out (without limitation) two kinds of control: firstly, ``quality control'' over goods or services; in addition, there is a reference to ``financial control''. If financial control is exercised over the trade mark user's trading activities in relation to the trade marked goods or services, that use is deemed to be authorised use. Under the registered user regime (1955 Act) the control by the registered proprietor over the registered user was generally exercised either because they were related companies, eg the user was a subsidiary of the proprietor, or under a licence agreement which expressly specified the rights and obligations of both parties and the conditions under which the user could use the trade mark. Rights of applicant With the exception of a trade mark whose registration is sought in a Convention Country, the rights of an applicant for registration of an Australian trade mark based on ownership of the mark remains inchoate until the trade mark is registered. On registration the owner's rights are back dated to the date of filing of the application and the owner may claim relief for infringement of the trade mark from that earlier date.

LEGISLATION .01 Law: Cth Trade Marks Act 1995, sec 8; 20; 26; 27.

¶52-190 Owner stopping others from infringing trade mark The owner of a registered trade mark can stop other traders from infringing his or her trade mark. A person can be stopped from using as a trade mark a sign that is substantially identical with, or

deceptively similar to, the registered trade mark in relation to the same or similar goods or services in respect of which the mark is registered. If a registered trade mark is well known in Australia, then it will be possible to stop a person from infringing the mark even if that person is not using the mark on the same or similar goods or services in respect of which the mark is registered. This is because the mark is so well known that even if a similar mark is used on unrelated goods or services people will still be confused into thinking that the two marks are connected. Use as a trade mark As indicated above, a person who infringes a registered trade mark must be using a deceptively similar sign as a trade mark. What does it mean to use a sign as a trade mark? The Act states that the definition of a trade mark is: ``a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person.'' A person who uses a sign in the course of trade to distinguish his or her goods and services from those of other traders will be using that sign as a trade mark. Therefore, to be used as a trade mark the sign must function as a badge of origin (see Top Heavy Pty Ltd v Killin (1996) AIPC ¶91-225). Substantially identical In an action for trade mark infringement, the owner must be able to show that a trader is using, as a trade mark, a sign that is either substantially identical to or deceptively similar to his or her registered trade mark. The basic principles in determining whether two trade marks are substantially identical were set down in Australian Woollen Mills Ltd v FS Walton & Co Ltd (1937) 58 CLR 641 and Shell Co of Australia Ltd v Esso Standard Oil (Australia) Ltd (1963) 109 CLR 407. The basic test as laid down by Windeyer J in Shell Co at pp 414-415 is: ``[the marks should] be compared side by side, their similarities

and differences noted and the importance of these assessed having regard to the essential features of the registered mark and the total impression of resemblance or dissimilarity that emerges from the comparison.'' As can be seen, the test for substantial identity is stringent and most registered proprietors stop other traders from infringing their registered trade mark through the broader test for deceptive similarity. An example of two trade marks that were held to be substantially identical are CITICARD and CITY-CARD (see Citicorp v City Marketing Concepts Pty Ltd (1999) AIPC ¶91-486). Deceptively similarity The basic principles in determining whether two trade marks are deceptively similar were set down in Australian Woollen Mills Ltd v FS Walton & Co Ltd (supra) and Shell Co of Australia Ltd v Esso Standard Oil (Australia) Ltd (supra). The basic test as laid down by Windeyer J in Shell Co at pp 414-415 is: ``The marks are not now to be looked at side by side. The issue is not abstract similarity, but deceptive similarity. Therefore the comparison is the familiar one of trade mark law. It is between, on the one hand, the impression based on recollection of the plaintiff's mark that persons of ordinary intelligence and memory would have; and, on the other hand, the impressions that such persons would get from the defendant's televisions exhibitions.'' Section 10 of the Act defines the words ``deceptively similar'' as: ``a trade mark is taken to be `deceptively similar' to another trade mark if it so nearly resembles that other trade mark that it is likely to deceive or cause confusion.'' The question of whether a trade mark is deceptively similar such as to be likely to deceive or cause confusion was considered in Southern Cross Refrigerating Company v Toowoomba Foundry Pty Ltd (19531954) 91 CLR 592 at p 595 where Kitto J held that, ``...it is sufficient if the result of the user of the mark will be that a number of persons will be caused to wonder whether it might not be the case that the two products come from the same source. It

is enough if the ordinary person entertains a real doubt.'' Examples of trade marks that have been found to be deceptively similar are: • COCO FLAKES and COCO POPS: Creswin Pty Ltd v Kellogg Company (1999) AIPC ¶91-469; • YELLOWNET and YELLOW PAGES: Telstra Corp Ltd v YellowNet Corp (1999) AIPC ¶91-478; • DUCO and DUCO MAGIC: ICI Australia Operations Pty Ltd v Duco-Magic (Australia) Pty Ltd (1999) AIPC ¶91-513; • RELAY and REPLAY: Fashion Box International SA v Tamarind International Limited (1999) AIPC ¶91-526; and • JACKEROO WORLD and JACKAROO: Isuzu-General Motors Australia Ltd v Jackeroo World Pty Ltd (1999) AIPC ¶91-506.

LEGISLATION .01 Law: Cth Trade Marks Act 1995, sec 17; 120.

¶52-180 Removal of a trade mark The registration of most trade marks will confer a good title which cannot be attacked successfully by competitors. However, there are several grounds for attacking the registration of trade marks, which need to be appreciated by conveyancers acting on the assignment of a trade mark or on the purchase of an undertaking which includes ownership of a trade mark. The main matters to note are as follows: Entry wrongly made A prescribed court may, on the application of an aggrieved person, order rectification of the Register by amending or removing the entry of a trade mark which was wrongly made. There are numerous reported decisions under the previous legislation that illustrate successful attacks on trade marks, some of them after registration and

extensive use of trade marks for several years: (a) where the mark was not distinctive or capable of becoming distinctive at the time of the application for registration (b) where the applicant was not the proprietor of the mark and not entitled to registration (eg In the Matter of the Trade Marks Act 1955-1958 and In the Matter of Registered Trade Mark “Thunderbird” (1974) 48 ALJR 456) (c) where the registered trade mark was substantially identical or deceptively similar to another trade mark (registered or at that time unregistered) and should not have been accepted for registration (eg The Shell Company of Australia Ltd v Rohm and Haas Co (1948-1949) 78 CLR 601). Entry wrongly remaining in Register On the application of an aggrieved person, a prescribed court may order rectification of the Register by removing the entry of a trade mark which has wrongly remained in the Register. This relates to events which have occurred after registration of the trade mark, in addition to matters which occurred at or before the making of the application for registration (New South Wales Dairy Corporation v Murray Goulburn Co-operative Co Ltd (1990) 60 ALJR 104). Illustrations of these grounds for rectification are: (a) that the trade mark has become a generic term for the types of goods or services or has otherwise become descriptive (eg “Barrier” in FH Faulding & Co Ltd v Imperial Chemical Industries of Australia and New Zealand Ltd (1964-1965) 38 ALJR 86) (b) that the mark lost its distinctiveness (c) that the mark has become confusing or deceptive, eg through insufficient control over licensees or changing market conditions. Loss of exclusive rights to use trade mark An aggrieved person may apply to a prescribed court for an order for

cancellation, removal or amendment of an entry in the register if the allegation is that s 24 or 25 of the Act applies in relation to the trade mark. Those sections provide that the registered owner does not have exclusive rights to the trade mark if the trade mark: (1) becomes generally accepted within the relevant trade as the sign that describes, or is the name of, an article, substance or service (s 24), or (2) is the only commonly-known way to describe or identify a patented article where the patent expired over two years ago (s 25). Non-use of the trade mark There are two distinct grounds for removal of the trade mark from the Register for non-use: (a) that the trade mark was registered without an intention in good faith on the part of the registered owner that it should be used in relation to the relevant goods or services by the owner and in fact there was no use of the trade mark by the owner earlier than one month before the application for removal from the Register; and (b) that the trade mark has remained registered for a continuous period of three years ending one month before the filing of the non-use application and that, at no time during that period, the registered owner used the trade mark in relation to the relevant goods or services. The non-use application cannot be filed until five years after the application for registration was filed. The effect of this provision is to allow the owner of a registered trade mark four years and eleven months from the filing date in which to commence use of the mark. If a non-use application is not opposed by the owner of the trade mark, or if the owner’s opposition has been dismissed under s 99A of the Act, the registration must be removed. Previously, the applicant for removal was required to establish a prima facie case of non-use in order to succeed where the application for removal was not opposed.

If the non-use application is opposed, the opponent/registered owner must rebut the allegation of non-use. There is no requirement for the applicant for removal to raise the status of its claim beyond an allegation. The Act provides a detailed description of when an opponent/registered owner is to be taken to have rebutted the non-use allegation. In addition to applications for removal by aggrieved persons, the Registrar may also cancel, revoke or correct entries in the register on the application of the registered owner or on his or her own initiative. For example, the Registrar may revoke the registration of a trade mark if the trade mark should not have been registered because the trade mark was registered despite the filing of a notice of opposition to the registration under s 52 of the Act. These matters can properly form the subject of pre-contract inquiries, or of requisition made before completion of the transaction (see ¶53100).

LEGISLATION .01 Law: Cth Trade Marks Act 1995, s 24; 25; 27; 41; 42; 43; 44; 58; 59; 60; 61; 62; Pt 5 Div 2; 84A–84D; 87; 88; 89; 92; 93; 97; 99A; 100; 101; 102. Trade Marks Regulations 1995, Pt 9 (reg 9.1–9.23).

¶49-140 Application for standard patent Any person may make an application for a patent. However, a patent may only actually be granted to the following persons (including corporate persons): • the inventor • any person who would, on the grant of a patent for the invention, be entitled to have the patent assigned to the person • any person who derives title to the invention from the inventor (eg an assignee of the inventor (¶49-170)) or from an entitled person as above

• the legal representative of any of the above persons in the event that the person is deceased. The following is a brief outline of the procedure for making a standard patent application: 1. A request for a patent, being an application in the prescribed form, should be made to the Patent Office. The application should be accompanied either by a provisional specification or by a complete specification. It is common in the first instance to file a provisional specification, which is required to “disclose the invention in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art”. 2. If only a provisional specification has been lodged with the application, the applicant must lodge a complete specification within 12 months after the date of the application, otherwise the application will lapse. A complete specification must: • disclose the invention in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art • disclose the best method known to the applicant of performing the invention, and • end with a claim or claims defining the invention, which must “be clear and succinct and supported by matter disclosed in the specification”. 3. If a complete specification has been lodged with the application, the Commissioner may conduct a “preliminary search and opinion” in relation to the patent request and specification. A substantial fee is payable in respect of a preliminary search and opinion, and the current practice of the Patent Office is not to conduct such a search unless requested by the applicant. 4. Within five years after lodgment of the complete specification the

applicant may request the making of an examination of the application and the complete specification, unless the Commissioner directs the applicant at any time before the expiration of that period to request the making of an examination. If a Commissioner’s direction is issued, the applicant is then given a period of two months to request examination. If the request is not made in time, the application lapses. 5. An Examiner of Patents makes an examination of the patent application and the complete specification and is required to report. 6. If the Examiner’s report is adverse, the applicant may amend the application and the specification. 7. If the Commissioner is satisfied, on the balance of probabilities, that the patent request and specification are valid (ie that: (1) the invention is novel, inventive and useful, (2) the specification complies with the formal requirements in s 40, and (3) any matters prescribed under the regulations are satisfied), the Commissioner must accept the request and specification. An appeal lies against the Commissioner’s decision to refuse a patent request to the Federal Court of Australia. Section 50 contains some specific grounds for the refusal to accept a patent application, including for an invention the use of which would be contrary to law. 8. Acceptance is advertised in the Official Journal. 9. The Commissioner may revoke the acceptance if the Commissioner believes, on the balance of probabilities, that “the request and specification should not have been accepted, taking account of all the circumstances that existed when the request and specification were accepted (whether or not the Commissioner knew then of their existence)”. 10. The minister or any other person may, at any time within three months after acceptance of the application and complete

specification have been advertised, oppose the grant of the patent on specified grounds. An objection is heard and determined by the Commissioner but the losing party may appeal to the Federal Court of Australia. 11. If there is no opposition to the grant of the patent, or if the decision after a contested application favours the applicant, a standard patent is granted.

LEGISLATION CASES .01 Law: Cth Patents Act 1990, s 15(1); 29; 38(4); 40; 43A; 44; 45(1); 49; 50; 50A; 51; 52; 59; 60; 61(1); 142; Patents Regulations, reg 3.10; 3.14B; 3.15(1); 5.4. .40 Employee inventions In Spencer Industries Pty Ltd v Collins & Anor (2002) AIPC ¶91-784, the Delegate of the Commissioner found that the invention in question was not made by the employee in carrying out his normal duties. The idea was conceived by him while on leave and refined by him over a period of two years. No suggestion was made that the employee was directed by the employer to initiate or continue his work. Employers’ rights to the invention of their employees are not governed by statute but by common law and equitable principles. In the absence of any express contractual obligation, there is no rule that an invention made by an employee is inevitably the property of the employer. The Delegate of the Commissioner’s decision was upheld on appeal by Branson J in Spencer Industries Pty Limited v Collins (2003) AIPC ¶91-896; digest at ¶95-381. .41 Entitlement to patent rights See Guttershield Systems Australia Pty Ltd & Anor v LBI Holdings Pty Ltd & Ors (digest at ¶95-412) for an instructive decision concerning ownership of patent rights in partnerships and joint ventures.

¶46-125 Who may apply?

The Designs Act 2003 provides that a person may file a design application (s 21(1)). A design application may be made by more than one person. The type of persons entitled to be entered on the register as the registered owner of a design include: (a) the designer — ie the person who created the design (b) an employer or contractor where the design is created in the course of employment or commissioned under a contract, unless agreed to the contrary (c) a person who has derived title to the design from the persons mentioned in paragraphs (a) and (b) or by devolution by will or by operation of law (d) a person who would, on registration of the design, be entitled to have the exclusive rights in the design assigned to them (e) the legal representative of a deceased person mentioned in any of the paragraphs above. This is an exhaustive list (s 13(4)). To qualify for entitlement to be entered on the register as the registered owner of a design, the applicant must own all rights to the design. This means that they must not have assigned all their rights to another person nor must their rights in the design have devolved on another person by operation of law (s 13(2)). An owner of a design may be an individual, a company, an association or a partnership or any combination of these. A design application should not be made under a trading name. If the owners of a design applying for registration are a firm, a partnership or an association, then all the individuals entitled to a share of the ownership should be listed as applicants. A trust can only be an applicant to register a design if it is a body corporate. Co-ownership

The Designs Act 2003 acknowledges that two or more persons may own interests in an unregistered design, for example due to collaboration by designers in creating the design or a commission by business partners. Where persons hold a joint interest in a design, they may make a joint application and are all entitled to be entered on the register as the registered co-owners of the design (s 13(3)). Any reference made in the Designs Act to a “registered owner” is to be regarded as a reference to each of the registered owners of a design in the case of joint ownership unless a contrary intention is expressed (s 13(3)(b)). The designer A “designer” is defined as the person who created the design (s 13(1) (a)). The creator of a design must be a natural person. Whether or not a person is the creator of a design is a question of fact to be determined on a case by case basis. There is no conclusive decision regarding whether a person must both conceive the design and reduce it to visible form to be regarded as the creator of a design. While the potential for difficulty in identifying the creator of computer generated designs is apparent, such designs are clearly intended to be protected under the Designs Act. As no special legislative provisions address the issue, any competing claims regarding the ownership of computer generated designs are to be determined as questions of fact by the courts.

LEGISLATION .01 Law: Cth Designs Act 2003, s 13, 21(1).

Tax Institute CommLaw3 Module 3 — Commentary ¶160 Application of the Competition and Consumer Act to persons: outline of s 6 The Competition and Consumer Act 2010 (Cth) (CCA) (formerly the Trade Practices Act 1974 (Cth) (TPA) applies to individual persons (not just corporations), through a few different means: • Extended application through s 6: Section 6 extends the operation of the CCA to persons other than corporations, relying on various constitutional bases. Among other things, the CCA is extended in some situations where the conduct is undertaken in trade and commerce, or involves the use of postal, telegraphic or telephonic services. This includes conduct which uses the internet. For example, s 6 could be used to extend the CCA to apply to misleading representations made on websites, in emails, over the telephone, in letters or magazines sent through the post, or in the Yellow Pages. The CCA is also extended in some situations where the conduct takes place in a radio or television broadcast. Section 6 does not extend the Act to traditional government activities. Section 6 is discussed further below. • Australian Consumer Law: Through state and territory legislation, the Australian Consumer Law (Sch 2 of the CCA) applies as a law of each state and territory. Therefore, the Australian Consumer Law applies universally across Australia. • Competition Code: Through state and territory legislation, the Competition Code (Sch 1, Pt 1 of the CCA) applies as a law of each state and territory. The Competition Code mirrors Pt IV of the CCA (which deals with restrictive trade practices) but it applies to “a person” instead of “a corporation”.

Section 6 is concerned with the constitutional bases for the Competition and Consumer Act and was enacted to extend the operation of the CCA to certain categories of person other than those corporations caught within s 51(xx) of the Constitution (see ¶90ff). Its provisions extend the basis for the CCA to other constitutional powers, namely: • s 51(i), the trade and commerce power • s 122, the territories power • s 61 (the executive power of the Commonwealth) coupled with the incidental power (s 51(xxxix)) • s 51(v), the power in relation to postal, telegraphic or telephonic services. Section 6(1) is an attempt to provide for the severance of the whole of the section, or so much as may be invalid, in the event that it should be held invalid. Trade or commerce Section 6(2) extends the operation of specified provisions of the CCA to persons other than corporations where such persons are engaging in overseas or interstate trade or commerce, or trade or commerce within a territory, between a state and a territory or between territories, or in the supply of goods or services to the Commonwealth or a Commonwealth authority or instrumentality. Section 6(2)(a) confines references within the CCA to “trade or commerce” (apart from s 45DB, or s 33 or s 155 in Sch 2 (ACL)) to the above categories of trade or commerce. All the sections of the CCA, however, do not contain the words “trade or commerce”. Section 6(2)(b) confines the operation of those sections without express words to activities involving the above categories of trade or commerce. Section 6(2)(c) specifically refers to the supply of goods and services in Div 1 of Pt 3-2 (consumer transactions), Pt 3-5 (liability of

manufacturers for goods with safety defects) or Pt 5-4 (remedies relating to guarantees) of Sch 2 (ACL). Supply of goods and services within the specified divisions in the ACL is expressly confined to the categories of trade and commerce abovementioned. Transactions involving supply of goods, etc, to the Commonwealth are not included. Section 6(2)(ca) extends the operation of specified provisions of the Act to persons other than corporations where such persons are engaging in overseas or interstate trade or commerce, or trade or commerce within a territory, between a state and a territory or between territories, or in the supply of goods or services to the Commonwealth or a Commonwealth authority or instrumentality in relation to any reference in Pt 2-3 in Sch 2 (the ACL) (unfair contract terms). Omit references to corporations Paragraphs (d) to (h) of s 6(2) provide for the omission of references to “corporations” from affected sections where reliance is placed on other constitutional powers. Cartels Sections 6(2C), (2D) and (2E) provide for alternative constitutional sources of power in relation to conduct identified in the cartel provision definition in s 44ZZRD and in the offences and civil prohibitions. Section 6(2C) extends the operation of the cartel provisions of the CCA to corporations or classes of corporations or, for the purposes of s 6(2C)(g) and (h), to or by any or all of the parties to the contract, arrangement or understanding. Postal, telegraphic or telephonic services Section 6(2D) extends the operation of s 44ZZRF, 44ZZRG, 44ZZRJ and 44ZRK (cartel offences) to apply to those situations involving the use of postal, telegraphic or telephonic services in reliance on s 51(v) of the Constitution, and generally extends the operation of Div 1 of Pt IV under that alternative constitutional source of power to persons. The operation of the consumer protection provisions found in Pt 2-1, 2-2, 3-1 (other than Div 3), 3-3, 3-4, 4-1 (other than Div 3), 4-3, 4-4 and 5-3 of Sch 2 (the ACL) is additionally extended by s 6(3) to apply

to those situations involving the use of postal, telegraphic or telephonic services in reliance on s 51(v) of the Constitution. Section 6(3A) extends the operation of Pt 2-3 of Sch 2 of the Act (the ACL) (relating to unfair contract terms) to apply to those situations involving the use of postal, telegraphic or telephonic services in reliance on s 51(v) of the Constitution. Territory Section 6(2E) extends the operation of s 44ZZRF, 44ZZRG, 44ZZRJ and 44ZRK (cartel offences) to apply to those situations within a territory or a Commonwealth place and generally extends the operation of Div 1 of Pt IV under that alternative constitutional source of power to persons. Promotional activities by a professional person Section 6(4) extends the operation of the Act (except Pt IIIA, VIIA, X, 2-3 of Sch 2, 3-1 of Sch 2 and 4-1 of Sch 2 (other than s 152, 155 and 164 of Sch 2) to an act done in the course of promotional activities by a professional person (eg a dentist, doctor or lawyer) in a territory. The same effect could be achieved by instituting proceedings under the relevant state or territory fair trading law mirroring the ACL, or under the Competition Code in relation to anti-competitive conduct. Bankruptcy The operation of s 279, 282 and 283 is extended by s 6(5) to relieve a debtor of the obligation under s 73 to sue a supplier linked to a credit provider where the individual supplier has died or become bankrupt. Further commentary The particular constitutional powers involved in s 6 are discussed at: • ¶170 Trade and commerce power • ¶180 Trade and commerce involving territories • ¶190 Supply to the Commonwealth • ¶200 The post and telegraphs power

• ¶210 Validity of s 6 extensions • ¶220 The external affairs power • ¶230 The remedial provisions of the Act • ¶240 The incidental power • ¶250 Freedom of interstate power • ¶260 Inconsistency of legislation • ¶270 The judicial power of the Commonwealth • ¶280 Application of the Act to the Commonwealth, the states, the territories and local government bodies • ¶290 Extraterritorial operation • ¶300 The national competition policy regime • ¶310 The Australian Consumer Law.

¶2-100 Glossary — Competition law definitions More glossaries for different areas of law: This glossary explains the meaning of terms used in competition law. The meaning of consumer law terms is explained in the glossary at ¶25-800. Wolters Kluwer, CCH also publishes many glossaries relating to different areas of law. A list of some of these glossaries is available at the end of this glossary. CCH Note: When examining the terms contained in the Glossary, the following factors should be borne in mind. In the Competition and Consumer Act 2010 (formerly the Trade Practices Act 1974), some words are defined by the use of the word “includes”, which generally involves an extension or clarification of any natural meaning the word may possess. However, where a definition gives an apparently full and comprehensive treatment of possible meanings, it may be held to be

exhaustive despite the use of the word “includes”. The foregoing remarks should, however, be treated with a degree of analytical caution in the light of some observations made by the Full Court of the Federal Court in Obeid v ACCC (2014) ATPR ¶42-489. The Full Court said this: “50. The appellants also relied heavily on the argument that the word ‘includes’ was exhaustive or exclusive, so as to limit the operation of the definition ‘services’ to situations where the supplier of the services is in trade or commerce. We do not accept that argument for the following reasons. 51. Throughout the different definitions in s 4(1) the draftsperson has been mindful of the distinction between ‘includes’ and ‘means’. Usually a definition that uses the word ‘includes’ is not intended to be exhaustive. Merely because a definition is expressed to ‘include’ a number of items that fall within the ordinary meaning of a word does not mean the definition is necessarily exhaustive: see Federal Commissioner of Taxation v St Hubert’s Island Pty Ltd (In Liq) (1978) 138 CLR 210, 216. Where, as in s 4(1), a pattern has been established as to the use of ‘includes’ and ‘means’, the Court would normally accept that distinction as being deliberately adopted: see Cohns Industries Pty Ltd v Deputy Federal Commissioner of Taxation (1979) 37 FLR 508, 510–11.” It should also be remembered that s 4 of the Competition and Consumer Act states that terms have the meanings stated in the Act “unless the contrary intention appears”; this implies that all terms, at least to some extent, take their meaning from their context. Some terms are defined by the use of the word “means”, importing a definitive, exhaustive statement. However, it will become apparent to the reader that further information is required to ascertain the true meaning of this definition, despite the use of the word “means”. For example, in the definition of “Council President”, the true meaning of what a Council President is has not been supplied. Instead the Competition and Consumer Act states that “Council President” means the “Council President referred to in s 29C(1)”. In such circumstances,

this Glossary attempts to clarify the meaning of the word by providing further relevant information. Some of the definitions in the Competition and Consumer Act have a limited meaning; they do not say what the definition really means, but rather what it stands for within the Competition and Consumer Act. For example, in the definition of “business”, the real meaning of what constitutes a business is not supplied. Instead, “business” is defined as follows: “business includes a business not carried on for profit”. Some definitions are not “real” definitions, in that the actual meaning of the term is not supplied. Where a “real” definition is not supplied, the Glossary will point this out and insert, where appropriate, the circumstances to which the definition is limited. An example of this is found in the Glossary’s treatment of the term “goods”. “goods” the Competition and Consumer Act does not define the word but explains that it includes: “(a) ships, aircraft and other vehicles (b) animals, including fish (c) minerals, trees and crops, whether on, under or attached to land or not; and (d) gas and electricity …” The words defined in the Glossary are arranged in alphabetical order. acquire The Competition and Consumer Act does not define the word but explains that it “includes: (a) in relation to goods — acquire by way of purchase, exchange or taking on lease, on hire or on hire-purchase, and (b) in relation to services — accept” (s 4(1)). To acquire means to gain, receive or come into possession of. There is no apparent reason to require that such possession results from the

furnishing of consideration or value. The explanation does not purport to be exclusive and there is no reason to exclude acquisition by way of gift or gratuitous loan. The word has been held to cover “transactions of a purely passive nature” (in Congreve & Congreve v IRC [1946] 2 All ER 170 per Rottersley J at p 183). Davies J in Clarke v New Concept Import Services Pty Ltd (1981) ATPR ¶40-264 at p 43,348 said that the definition of “acquire”: “is not a limiting definition but rather a definition which expands the ordinary meaning of the word to include matters such as leasing and hiring, which in the ordinary use of language may not constitute an acquisition”. The terms “acquire” and “supply” are defined in a similar manner, and it was clear from provisions such as those in the former s 65 (repealed on 1 January 2011) that the term “supply” was intended to comprehend the supply of goods to a person who was merely a passive recipient. Therefore, no inference can be drawn from the use in s 4B of the word “acquired”, which is indeed a common word in the English language with a very wide meaning. Goods are acquired in the same mode by which, on the other hand, they are supplied (see supply). The explanation of “acquire” was included in the TPA in 1977 to remove any doubts that the term was limited to acquisitions by way of purchase. It is now clear that the linked concepts of “acquire” and “supply” are not confined in their operation to the provision and acquisition of goods or services under legally binding contractual arrangements only. In particular, the concept of indirect acquisition “from another person” in s 47(6) and (7) is not confined to acquisition only from an entity which is in a legal relationship of agency with that other person: ACCC v Flight Centre Limited (No 2) (2013) ATPR ¶42-458, per Logan J at [132], citing ACCC v IMB Group Pty Ltd (in liq) (2002) ATPR (Digest) ¶46-221. One possible limitation on the interpretation of the definition arises from John Mackintosh & Sons v Baker’s Bargain Stores (Seaford) [1965] 3 All ER 412. It was held in that case that the term, where it

appeared in s 25(2)(a) of the Restrictive Trade Practices Act 1956, means to acquire title, and not mere custody and control. If this contended limitation prevails, the concept of title must be extended by the reference to lease, hire and hire-purchase and to the expanded definition in s 4C(a) and (b). In ADC Centres Pty Ltd v Kilstream Pty Ltd (1979) ATPR ¶40-119 at 18,296, Franki J assumed for the purposes of argument that the definition of “acquire” applied to s 47(4) and “that the word ‘acquire’ is to be read as ‘accept’” and that therefore “the section applies to the acceptance of rights to and interests in real property under the terms of an existing lease”. Accept (in context of definition of “acquire”, in relation to services) There seems to be no requirement of consideration, but to accept may require a positive act, or at least a positive attitude of mind to the transaction. In Dawson v World Travel Headquarters Pty Ltd (1980) ATPR ¶40-187 at pp 42,570–73, Fisher J considered the meaning of the word “accept” for the purposes of s 58(b). Although his Honour agreed that the word’s “meaning certainly goes beyond the physical act of receiving payment”, that was in the context of an offence to which some degree of mens rea was attached. Broadening of definition Section 4C of the Competition and Consumer Act provides a broadening and clarification of the words “acquisition” and “supply”. Unless the contrary intention appears, references within the Competition and Consumer Act should be construed as follows: • acquisition of goods includes acquisition of property in, or rights in relation to, goods in pursuance of their supply (s 4C(a)) • supply or acquisition of goods or services includes agreement to do so (s 4C(b)) • supply or acquisition of goods includes their supply or acquisition

together with other property or services, or both (s 4C(b)) • supply or acquisition of services includes their supply or acquisition together with property or other services or both (s 4C(d)) • re-supply of goods includes their supply to another in an altered form or condition, or incorporated into other goods (s 4C(e)), and • re-supply of services (“original services”) acquired from a person (“original supplier”) includes— (i) supply of the original services to (or their acquisition from) particular persons, and (ii) supply to another person of other services that are substantially similar to the original services, where the substantially similar services could not have been supplied unless the original services were acquired by the person who acquired them from the original supplier: (s 4C(f)). According to Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) ATPR ¶40-751, the acquisition of goods together with services (s 4(1), 4C(c)) cannot constitute a separate supply of services to bring conduct within s 47(6). Castlemaine Tooheys Ltd was, however, distinguished in ACCC v Flight Centre Limited (No 2) (above) (admittedly in the context of a discussion of the meaning and scope of the word “supply”), on the basis that Castlemaine Tooheys Ltd arose under s 47 of the (then) TPA, not s 45, and the end result of characterisation on the facts of the case was that it was goods (beer) which were supplied. The transportation of the goods to the publican’s premises was but a necessary incident of the supply of goods at that site by Castlemaine Tooheys if a publican chose to take delivery of goods there, as opposed to at the brewery. In ACCC v Flight Centre Limited (No 2), though there was a supply of international air travel by the airlines, that conclusion said nothing about how the existence of the availability of that supply was made known to the consumer, the would-be

passenger. In the different circumstances and context of that case, there was no artificial splitting from what was truly to be characterised only as the supply of a service, namely, the air travel (the flight), by separately identifying booking and distribution services. Those are services which a travel agent such as Flight Centre does supply. For a discussion of “acquisition” as used in s 51(xxxi) of the Constitution, see TPC v Tooth & Co Ltd (1979) ATPR ¶40-127 (High Court), and In re Tooth & Co Ltd (1978) ATPR ¶40-084 (Federal Court). acquisition of shares; acquisition of assets The acquisition of shares or assets is defined expansively in s 4(4), so that in the Competition and Consumer Act: “(a) a reference to the acquisition of shares in the capital of a body corporate shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such shares, and (b) a reference to the acquisition of assets of a person shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such assets but does not include a reference to an acquisition by way of charge only or an acquisition in the ordinary course of business.” This definition is complementary to the definition of “acquire” in s 4(1) (see acquire) and to the provisions of s 4C (see acquisition, supply and re-supply). Its purpose is to expand the reach of s 50 (see “Mergers and Acquisitions” at ¶8-000ff). For discussion of the operation of s 4(4) in the context of s 50, also see Broken Hill Pty Co Ltd v Trade Practices Tribunal & Ors (1980) ATPR ¶40-173 at pp 42,384, 42,393 and 42,398. acquisition, supply and re-supply Section 4C broadens and clarifies the inclusive definitions provided in s 4(1) of the words “acquire” and “supply”. Section 4C also provides a definition of the word “re-supply”. Section 4C states that, unless a contrary intention appears, references in the Competition and Consumer Act will be construed as follows:

(a) acquisition of goods will include acquisition of property in, or rights in relation to, goods in pursuance of their supply (s 4C(a)) (b) supply or acquisition of goods or services will include agreement to do so (s 4C(b)) (c) supply or acquisition of goods includes their supply or acquisition together with other property or services, or both (s 4C(c)) (d) supply or acquisition of services includes their supply or acquisition together with property or other services or both (s 4C(d)) (e) re-supply of goods includes their supply to another in an altered form or condition, or incorporated into other goods (s 4C(e)), and (f) re-supply of services (the “original services”) acquired from a person (the “original supplier”) includes: (i) supply of the original services to (or their acquisition from) particular persons or classes of persons, and (ii) supply to another person of other services that are substantially similar to the original services, where the substantially similar services could not have been supplied unless the original services were acquired by the person who acquired them from the original supplier: (s 4C(f)). The acquisition of goods together with services (s 4(1), 4C(c)) does not constitute a separate supply of services, to bring conduct within s 47(6): Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) ATPR ¶40-751. But see ACCC v Flight Centre Limited (No 2) (2013) ATPR ¶42-458, in which Castlemaine Tooheys Ltd was distinguished, as explained above. Re-supply of services Section 4C was amended by Act No 88 of 1995, a new subsec (f) being added to provide a definition of “re-supply of services”. This was necessary because of the extension of prohibitions against price

fixing, exclusive dealing and resale price maintenance to the re-supply of services. Clearly some services cannot be re-supplied (eg a person receiving a haircut cannot re-supply the haircut to another), so the definition of “re-supply of services” has no application to such services. However, as s 4(1) provides a wide definition of “services”, including any rights, benefits, privileges or facilities provided in trade or commerce, some services can be re-supplied (eg person A supplies financial information by electronic means to person B and B then supplies that information, also by electronic means, to C). There are three limbs to the definition of re-supply of services. The first limb is the natural meaning of re-supply of services. If A supplied services to B and B supplied services to C, to fall within this limb the service supplied by B to C would need to be exactly the same service supplied by A to B. An example that might fall within this limb would be where an entertainment centre sells to a ticketing agent a bundle of tickets each entitling the bearer to sit in a particular seat at a particular time, and the ticketing agent on-sells the tickets. The second limb of the definition is provided by s 4C(f)(i), which extends the definition to cover re-supply of services in an altered form or condition. A possible example of this may be where A supplies information electronically to B and B amplifies the signal and then supplies it to C. The third limb of the definition is contained in s 4C(f)(ii), which extends the definition to cover a supply by B to C of services that are substantially similar to services supplied by A to B and could not have been supplied if B had not acquired those services from A. This covers cases where the re-supplied service is a different bundle of legal rights from the original service. A possible example might be where A supplies information in electronic form to B, B manipulates and transforms the information to make it into a more easily understood form and then supplies the transformed information to C. Act (unless otherwise indicated) the Competition and Consumer Act 2010 (formerly the Trade Practices Act 1974). The Act includes the Australian Consumer Law (Sch 2 of the Act) to the extent that it is

applied under Div 2 of Pt XI. application law (in Pt XIA of the Competition and Consumer Act) was inserted on 17 August 1995, when amendments to the Competition and Consumer Act were made following agreement between the federal, state and territory governments to apply the competitive conduct rules uniformly across Australia. Section 150A of the Competition and Consumer Act states that in Pt XIA, unless the contrary intention appears, application legislation: “means: (a) a law of a participating jurisdiction that applies the Competition Code, either with or without modifications, as a law of a participating jurisdiction, or (b) any regulations or other legislative instrument made under a law described in paragraph (a), or (c) the Competition Code, applying as a law of the participating jurisdiction, either with or without modifications.” Application legislation is essentially legislation made by each state or territory to apply the text of the Competition Code, and any regulation or legislative instrument made under that law, to all persons within the legislative competence of its jurisdiction. Under the intergovernmental Conduct Code Agreement, each state and territory agreed to put in place model application legislation by 21 July 1996. Application legislation ensures that unincorporated businesses not trading interstate, which previously were outside the ambit of the Competition and Consumer Act due to constitutional restrictions (see ¶160), are covered by the Competition and Consumer Act. For further information on the application of the Competition Code, see ¶990. See also the definitions of Competition Code, Conduct Code Agreement and modifications. apply (in Pt XIA of the Competition and Consumer Act) was inserted on 17 August 1995, when amendments to the Competition and Consumer Act were made following agreement between the federal, state and territory governments to apply the competitive conduct rules

uniformly across Australia. Section 150A of the Competition and Consumer Act states that “apply”, in relation to the Competition Code: “means apply the Competition Code by reference: (a) as in force from time to time, or (b) as in force at a particular time.” This ensures that application is by way of reference to the Competition Code. For further information about the Competition Code and application legislation, see ¶990. arrive at “in relation to an understanding, includes reach or enter into” (s 4(1)). The term is used in s 45 of the Competition and Consumer Act and related provisions, and reference should be made to ¶3-010ff for a full treatment. The definition was inserted into the Competition and Consumer Act in 1977 and is an expansive one. In TPC v Nicholas Enterprises Pty Ltd (1979) ATPR ¶40-126 at p 18,347, Fisher J noted the deletion of the words “entered into” and the substitution of the words “arrived at” by the 1977 amendment of s 45(2) together with the simultaneous insertion of the definition of “arrived at”. His Honour held that the amendments had not removed the ingredient of mutuality from the concept of an understanding: “In my opinion by making the amendment … the most that can be said is that the legislature intended to expand the means whereby an understanding could be achieved.” His Honour had earlier stated: “the essential elements of an understanding are the same, whether it be reached, arrived at or entered into”. His Honour further stated that the legislature had “sought to emphasise that the method of achieving the necessary meeting of minds was immaterial”. See further at ¶3-295. Australian Competition and Consumer Commission see Commission. Australian Consumer Law means Sch 2 of the Competition and Consumer Act as applied under subdiv A of Div 2 of Pt XI from 1

January 2011. authorisation means: (a) an authorisation under Div 1 of Pt VII granted by the commission or by the Tribunal on a review of a determination of the commission, or (b) an authorisation under Div 3 of Pt VII granted by the tribunal. Division 1, Pt VII of the Competition and Consumer Act contains provisions whereby conduct which would otherwise contravene prohibitions in Pt IV of the Competition and Consumer Act may be approved by the commission or by the tribunal. Applications for authorisation generally involve the weighing of anti-competitive effects of contracts, arrangements, understandings or conduct against the public benefits which may result. Applications are made in the first instance to the Australian Competition and Consumer Commission. An appeal lies to the Australian Competition Tribunal for a review of that decision. In Re Queensland Timber Board (1975) ATPR ¶40-005 at p 17,120, it was held by the tribunal that the words “on a review”, although ambiguous, mean “in the course of a review” as well as “following a review”. Thus the tribunal may entertain an application for the review of an interim authorisation by the commission. It is to be noted that the review by the tribunal is of the determination of the commission and not of its detailed findings. Under s 101(2), the review is a rehearing of the matter (see Re Queensland Co-operative Milling Association Ltd (1976) ATPR ¶40-012). See also “Authorisations • Notifications • Review” at ¶12-200. In Broken Hill Pty Co Ltd v Trade Practices Tribunal (1980) ATPR ¶40173 at p 42,384, Bowen CJ stated: “An authorization may be for a specific period only or may be expressed as an interim authorization which will be revocable at any time. An authorization may be subject to conditions and any authorization may in certain circumstances be revoked (sec 91). Part VII in which these authorization sections appear is not limited

to the authorization of mergers. It extends to the authorization of restrictive trade practices involving continuing conduct such as exclusive dealing. The general sections are drafted to cater for all these widely varying types of conduct and must be read in that light. For example, the Commission does not generally issue an interim authorization for a merger; the power to grant interim authorization is used in relation to continuing conduct.” See further ¶12-050ff. authority, “in relation to a State or Territory (including an external Territory), means: (a) a body corporate established for a purpose of the State or the Territory by or under a law of the State or Territory, or (b) an incorporated company in which the State or the Territory, or a body corporate referred to in paragraph (a), has a controlling interest” (s 4(1)). This definition was included in the Competition and Consumer Act for the purposes of the Australian and New Zealand prohibitions on the misuse of trans-Tasman market power and related enforcement provisions. These changes came into operation on 1 July 1990. Compare authority of the Commonwealth. authority of the Commonwealth “means: (a) a body corporate established for a purpose of the Commonwealth by or under a law of the Commonwealth or a law of a Territory, or (b) an incorporated company in which the Commonwealth, or a body corporate referred to in paragraph (a), has a controlling interest” (s 4(1)). In Thomson Publications (Australia) Pty Ltd v TPC (1979) ATPR ¶40-

133 at p 18,441, Deane and Fisher JJ stated: “Section 2A of the Act provides that, subject to irrelevant exceptions, the Act binds the Crown in right of the Commonwealth in so far as the Crown in right of the Commonwealth carries on a business, either directly or by an authority of the Commonwealth.” The effect of s 2A(2) is that wherever the word “corporation” appears in the Competition and Consumer Act, that word includes the Commonwealth and an authority of the Commonwealth in so far as it carries on a business. The relevant authorities must be bodies corporate, but they need not have been established by the Commonwealth. This definition was inserted in 1977 to overcome the possibility that a corporation incorporated under a Commonwealth Act for “public purposes” could be held to be outside of s 51(xx) of the Constitution and thus not within the purview of the Competition and Consumer Act. By using the expression “controlling interest”, the legislature has not taken advantage of the definitions of subsidiary, holding and related bodies corporate in s 4A of the Competition and Consumer Act. Accordingly, it seems that the phrase includes any interest, legal or otherwise, which confers de facto control. Another view is that while legal ownership of all issued shares may not be required, legal ownership of a majority of shares is required. It may be noted that, in Bermuda Cablevision Ltd v Colica Trust Co Ltd [1998] 2 WLR 82, the Privy Council warned that: “… expressions such as ‘control’ and ‘controlling interest’ take their colour from the context in which they appear. There is no general rule as to what the word ‘controlled’ means.”: per Lord Steyn at 88–9. Compare authority. banker includes, but is not limited to, a body corporate that is an ADI (authorised deposit-taking institution) for the purposes of the Banking Act 1959 (Cth). body corporate: see corporation. business: The Competition and Consumer Act does not define the

word but explains that it “includes a business not carried on for profit” (s 4(1)). This expansive definition particularly relates to s 2A and 2B of the Competition and Consumer Act. It was inserted into the Competition and Consumer Act in 1977 because profit-making is not generally the primary purpose of the business activities of the Commonwealth. Any possible restrictive interpretation of the phrase “carries on a business” in s 2A was overcome by inserting this definition. Section 2B, which was inserted in 1995, also uses the phrase “carries on a business” in extending the application of Pt IV, VB and XIB of the Competition and Consumer Act to each of the states, the Australian Capital Territory and the Northern Territory. For discussion of cases which deal with when a government might be taken to carry on business and be in trade and commerce see Obeid v ACCC (2014) ATPR ¶42-482, at [101]. The expansive definition of “business” in s 4(1) for s 2A and 2B purposes needs to be considered in conjunction with s 2C of the Competition and Consumer Act. Section 2C(1) specifies certain activities which do not amount to the carrying on of a business by the Commonwealth, a state or a territory, with s 2C(2) providing that that list is itself not exhaustive. The concept of “carrying on a business” is discussed at ¶280. It is also discussed in the context of the merger provisions at ¶8-040 and in the context of the extended operation of the Competition and Consumer Act provided for in s 5(1) at ¶14-700. Although the profit-making motive has always been considered an important element in the definition of “business”, it has been defined more broadly than the phrase “trade or commerce”. In defining “the carrying on of a business”, the courts have vacillated between “an occupation not carried on purely for pleasure” and “an enterprise carried on for the purpose of pecuniary gain”. While the lack of a profit-making purpose is not a disqualifying factor, it is clear that some activity of a type carried on “in trade or commerce” is necessary. In Hope v Bathurst City Council (1980) 144 CLR 1 Mason J considered that the word “business” denoted “activities undertaken as

a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis”. In Bray v F Hoffmann-La Roche Ltd & Ors (2002) ATPR ¶41-865 at [63] Merkel J, while noting that the purpose of profit was unnecessary by reason of the definition of business in s 4(1), accepted Mason J’s definition for the purposes of that case, but expressly without adopting it as a definition which would necessarily be applicable in all cases. In respect of foreign corporations, his Honour declined to accept that to carry on business in the jurisdiction such a company would also have to have a place of business in the jurisdiction; although his Honour did accept that a foreign corporation could carry on business in Australia by an agent acting on its behalf. It is clear from the word “business” that an isolated transaction will not suffice unless it is the first in a planned series of transactions. In short, it is essential that there be some degree of repetition, system or regularity in a broadly commercial context. Sackville J in Fasold v Roberts (1997) ATPR ¶41-561 was of the view that the less commercial the character and objectives of an organisation, the greater the degree of system and regularity required to establish that it carries on a business. It may be that some fields of activity could be characterised as “exclusively governmental” and hence not within the definition. In the modern economy, commercial enterprises provide such a wide range of services that the field of “exclusively governmental” activities would be narrowly confined by the courts. In NT Power Generation Pty Ltd v Power and Water Authority & Anor (2004) ATPR ¶42-021 the Authority contended that it was necessary to have examined the specific conduct and only when a particular contravention was found was it relevant to consider if that contravention could be described as a carrying on a business. In noting that this was to invert the correct approach, the High Court said, at [67], that “the conduct need not itself be the actual business engaged in”. Similarly, the court noted, at [69], that the words “market” and “business” have distinct meanings and that there is nothing in the Competition and Consumer Act which limits the meaning of “business” by reference to the criteria for market definition. The Authority’s use of

its infrastructure assets “was part of its carrying on of a business, whether or not it was in the market for their acquisition, sale or hire”. The court concluded at [72] that the Authority’s denial of access to its infrastructure to a potential competitor “simply in order to protect its revenue position in relation to electricity sales was conduct designed to secure [its] position as part of its carrying on of a business”. In contrast to the approach adopted by the High Court in the NT Power case in 2004, a more restrained view of what constitutes “business” was applied earlier in Sirway Asia Pacific Pty Ltd v Commonwealth of Australia (2002) ATPR (Digest) ¶46-226. The case concerned arrangements for the Commonwealth’s acquisition of chinaware for the armed services. The court declined to find that the Department of Defence had been carrying on a business of trading in chinaware or of acquiring chinaware in industrial quantities. The department had not been carrying on a business as the acquisitions were only from one entity (the applicant) and the market for which the goods were acquired or were to be traded was not the world at large but was restricted to the armed services. Furthermore, while there was repetition, system and regularity in the transactions between the department and the individual armed services, such transactions were between persons acting for the Crown in the same right, and thus, due to the operation of s 2C of the Competition and Consumer Act, cannot amount to carrying on a business. As Lee J noted in Holman v Deol (1979) 1 NSWLR 640, the word “business” has always been given a wide meaning. See the cases cited by his Honour at p 645 of that decision. In Thomson Publications (Australia) Pty Ltd v TPC (1979) ATPR ¶40133 at p 18,441, Deane and Fisher JJ stated: “The Trade Practices Commission is established under the Act to perform the functions which the Act entrusts to it. It is not engaged in trade or commerce either on its own behalf or on behalf of the Crown of which it is an instrument … The TPC does not carry on a business in the sense referred to by s 2A. In our view, it is not bound by the prohibition contained in s 45D of the Act.”

For some discussion of “carrying on a business” (s 5(1)) and “in the ordinary course of business” (s 4(4)(b)) see TPC v The Gillette Company & Ors (No 2) (1973) ATPR ¶41-268 at p 41,606. Authorities proliferate on what is the carrying on of a business and reference is made to Stroud’s Judicial Dictionary, 4th ed, vol 1, pp 350–56. Contrast two English cases: (1) In Customs and Excise Commission v British Railways Board [1976] 1 WLR 1036, it was held that the operation of a pension fund for the benefit of its employees by the British Railways Board pursuant to a statutory duty to provide railway services was a “business carried on by it”. (2) In R v Crayden [1978] 1 WLR 604, however, it was held that a national service hospital was not a “business” and therefore records kept by such a hospital were not admissible in evidence in criminal proceedings as business records. The concept of “carrying on a business” is also important in taxation law, particularly in relation to claiming income tax deductions for business-related expenses. This topic is extensively discussed in CCH Australian Federal Income Tax Reporter at ¶31-540ff. cartel provision is defined in s 44ZZRD in complex and detailed terms. Section 44ZZRD(1) defines “cartel provision” as a provision of a contract, arrangement or understanding in respect of which: (a) either of the following conditions is satisfied in relation to the provision: (i) the purpose/effect condition set out in s 44ZZRD(2) (ii) the purpose condition set out in s 44ZZRD(3), and (b) the competition condition set out in s 44ZZRD(4) is satisfied in relation to the provision. Section 44ZZRD(2) provides that the purpose/effect condition is

satisfied if the provision has the purpose, or has or is likely to have the effect, of directly or indirectly: (a) fixing, controlling or maintaining (b) providing for the fixing, controlling or maintaining of  the price for, or a discount, allowance, rebate or credit in relation to: (c) goods or services supplied, or likely to be supplied, by any or all of the parties to the contract, arrangement or understanding (d) goods or services acquired, or likely to be acquired, by any or all of the parties to the contract, arrangement or understanding (e) goods or services re-supplied, or likely to be re-supplied, by persons or classes of persons to whom those goods or services were supplied by any or all of the parties to the contract, arrangement or understanding, or (f) goods or services likely to be re-supplied by persons or classes of persons to whom those goods or services are likely to be supplied by any or all of the parties to the contract, arrangement or understanding. Section 44ZZRD(3) provides that the purpose condition is satisfied if the provision has the purpose of directly or indirectly: (a) preventing, restricting or limiting: (i) the production, or likely production, of goods by any or all of the parties to the contract, arrangement or understanding (ii) the capacity, or likely capacity, of any or all of the parties to the contract, arrangement or understanding to supply services (iii) the supply, or likely supply, of goods or services to persons or classes of persons by any or all of the parties to the

contract, arrangement or understanding, or (b) allocating between any or all of the parties to the contract, arrangement or understanding: (i) the persons or classes of persons who have acquired, or who are likely to acquire, goods or services from any or all of the parties to the contract, arrangement or understanding (ii) the persons or classes of persons who have supplied, or who are likely to supply, goods or services to any or all of the parties to the contract, arrangement or understanding (iii) the geographical areas in which goods or services are supplied, or likely to be supplied, by any or all of the parties to the contract, arrangement or understanding (iv) the geographical areas in which goods or services are acquired, or likely to be acquired, by any or all of the parties to the contract, arrangement or understanding, or (c) ensuring that in the event of a request for bids in relation to the supply or acquisition of goods or services: (i) one or more parties to the contract, arrangement or understanding bid, but one or more other parties do not (ii) two or more parties to the contract, arrangement or understanding bid, but at least two of them do so on the basis that one of those bids is more likely to be successful than the others (iii) two or more parties to the contract, arrangement or understanding bid, but not all of those parties proceed with their bids until the suspension or finalisation of the request for bids process (iv) two or more parties to the contract, arrangement or understanding bid and proceed with their bids, but at least

two of them proceed with their bids on the basis that one of those bids is more likely to be successful than the others, or (v) two or more parties to the contract, arrangement or understanding bid, but a material component of at least one of those bids is worked out in accordance with the contract, arrangement or understanding. Section 44ZZRD(4) provides that the competition condition is satisfied if at least two of the parties to the contract, arrangement or understanding: (a) are or are likely to be (b) but for any contract, arrangement or understanding, would be or would be likely to be,  in competition with each other in relation to: (c) if paragraph (2)(c) or (3)(b) applies in relation to a supply, or likely supply, of goods or services — the supply of those goods or services (d) if paragraph (2)(d) or (3)(b) applies in relation to an acquisition, or likely acquisition, of goods or services — the acquisition of those goods or services (e) if paragraph (2)(e) or (f) applies in relation to a re-supply, or likely re-supply, of goods or services — the supply of those goods or services to that re-supplier (f) if subparagraph (3)(a)(i) applies in relation to preventing, restricting or limiting the production, or likely production, of goods — the production of those goods (g) if subparagraph (3)(a)(ii) applies in relation to preventing, restricting or limiting the capacity, or likely capacity, to supply services — the supply of those services

(h) if subparagraph (3)(a)(iii) applies in relation to preventing, restricting or limiting the supply, or likely supply, of goods or services — the supply of those goods or services (i) if paragraph (3)(c) applies in relation to a supply of goods or services — the supply of those goods or services, or (j) if paragraph (3)(c) applies in relation to an acquisition of goods or services — the acquisition of those goods or services. Subsequent provisions of s 44ZZRD qualify the basic definition in subsections (1)–(4). See further ¶2-816. Chairperson “means the Chairperson of the Commission and includes a person acting as Chairperson of the Commission” (s 4(1)). The Chairperson is a member of the Australian Competition and Consumer Commission and is given certain general powers in Pt II and rather wide powers under s 155 of the Competition and Consumer Act. The courts are to take judicial notice of the Chairperson’s signature under s 167 of the Competition and Consumer Act. See further ¶390ff. Clearance means a clearance under Div 3 of Pt VII granted by the commission or by the tribunal on a review of a determination of the commission (s 4(1)). See further ¶12-050ff. commercial road vehicle (as used in the definition of “consumer” in s 4B of the Competition and Consumer Act) “a vehicle or trailer acquired for use principally in the transport of goods on public roads”. Commission “means the Australian Competition and Consumer Commission established by s 6A, and includes a member of the Commission or a Division of the Commission performing functions of the Commission” (s 4(1)). The commission is constituted under Pt II and has important and extensive powers and duties under Pt VII of the Competition and

Consumer Act. Under s 155 of the Competition and Consumer Act, the commission has wide powers to require the production of information and documents. See generally ¶390ff; ¶18-255. The Competition and Consumer Act contains no general statement of the commission’s functions. Constitution and powers of Commission In Melbourne Home of Ford Pty Ltd v TPC (1979) ATPR ¶40-107 at pp 18,098–99, Franki and Northrop JJ stated: “Under Pt II of the Act, the Commission is constituted a body corporate and consists of a Chairman, and such number of other members as are from time to time appointed, s 6A and 7. See also s 8A relating to associate members of the Commission. Staff necessary to assist the Commission, by s 27 are to be persons appointed or employed under the Public Service Act 1922. Section 25 empowers the Commission to delegate either generally or otherwise any of its powers to a member of the Commission. The Commission, being a body corporate, can act only through its members or staff appointed to assist the Commission. Section 155(1)(b) provides that the notice may require the person to whom it is given to ‘produce to the Commission, or to a person specified in the notice acting on its behalf’ the required documents while s 155(1)(a) provides that the notice may require the person ‘to furnish to the Commission’ the required information … Since by definition the word ‘Commission’ means the body corporate as well as the meaning as extended by s 4, the Commission of necessity must be able to specify members of staff appointed to assist it who are to receive information furnished to the Commission … there can be no warrant to construe the words ‘Commission’ in s 155(1)(a) so as to exclude from the powers of the Commission a power to require information to be furnished to a member of the staff of the Commission.” competition “includes competition from imported goods or from services rendered by persons not resident or not carrying on business

in Australia” (s 4(1)). The explanation in s 4(1) of the Competition and Consumer Act does not define “competition”. The Competition and Consumer Act leaves open the meaning of the term although the word is of fundamental importance to the Act. Section 4G explains that references to lessening of competition shall include references to preventing or hindering competition. “Preventing” and “hindering” appear to be differing degrees of “lessening”, so that while the section enables references to lessening to be interpreted more flexibly, no real aid is given to determinations of what constitutes a lessening of competition. See “Markets, Competition and Market Power” at ¶2-500ff. Competition Code (in Pt XIA of the Competition and Consumer Act) was inserted on 17 August 1995, when amendments to the Competition and Consumer Act were made following agreement between the federal, state and territory governments to apply the competitive conduct rules uniformly across Australia. Section 150A of the Competition and Consumer Act states that in Pt XIA, unless the contrary intention appears, application legislation “means (according to the context): (a) the text described in section 150C, or (b) that text, applying as a law of a participating jurisdiction, either with or without modifications.” This definition therefore has two meanings. It means the text described in s 150C or the text applying as a law of a participating jurisdiction, either with or without modifications. The appropriate meaning will depend on the context. Section 150C states that the Competition Code consists of: “(a) the Schedule version of Part IV (b) the remaining provisions of this Act (except sections 2A, 5, 6, 7 and 172), so far as they would relate to the Schedule version if the Schedule version were substituted for Part IV

(c) the regulations under this Act, so far as they relate to any provision covered by paragraph (a) or (b)”. The Competition Code is the key mechanism to facilitate the application of uniformly applied competitive conduct rules of the Competition and Consumer Act (that is Pt IV and provisions which relate to Pt IV). It is essentially a modified Schedule version of Pt IV of the Competition and Consumer Act, which contains the competitive conduct rules. The Competition Code reflects the different constitutional basis that will underpin the state and territory application laws. While the prohibitions in Pt IV of the Competition and Consumer Act are expressed to apply to corporations, the prohibitions in the Competition Code are expressed to apply to persons. The application of the Competition Code therefore ensures that unincorporated businesses not trading interstate, which previously were outside the ambit of the Competition and Consumer Act due to constitutional restrictions (see ¶70ff), are covered by the Competition and Consumer Act. The Competition Code is discussed further at ¶990 and ¶1-170. See also the definition of Schedule version of Part IV. Competition Principles Agreement “means the Competition Principles Agreement made on 11 April 1995 between the Commonwealth, New South Wales, Victoria, Queensland, Western Australia, South Australia, Tasmania, the Australian Capital Territory and the Northern Territory, being that agreement as in force from time to time” (s 4(1)). Background The definition of Competition Principles Agreement was inserted in the Competition and Consumer Act on 17 August 1995, following Commonwealth, state and territory government agreement to implement a national approach to competition policy. Consideration of a national approach to competition policy began in 1991, and in 1992 the Commonwealth government commissioned the National Competition Policy Review, chaired by Professor Fred Hilmer. The Hilmer Report was completed in August 1993. It recommended implementation of a national competition policy in which the Commonwealth, state and territories cooperated to apply universal

and uniform rules of market conduct to all market participants, regardless of their form of ownership. Extensive governmental consultation concerning the implementation of the report followed. After consideration of the report by the Council of Australian Governments (COAG), legislation was drafted in 1995 to enable implementation of such a policy. The reform legislation, which became the Competition Policy Reform Act 1995, contained a number of changes to competition law. The TPA was complemented by two inter-governmental agreements, the Competition Principles Agreement and the Conduct Code Agreement (see ¶300), which were signed on 11 April 1995 by the Prime Minister and the Premiers and Chief Ministers of the states and territories. Function of Competition Principles Agreement The Competition Principles Agreement sets out the principles which the governments agreed to follow in relation to structural reform of public monopolies, prices oversight of utilities and other corporations with significant monopoly power, a regime to provide access to essential facilities, and a program of review of legislation restricting competition. Agreed principles of “competitive neutrality” between the public and private sectors (aimed at eliminating net competitive advantages enjoyed by government businesses where they compete with the private sector) are contained in the Agreement, as are the arrangements for appointments to the National Competition Council. conduct see engaging in conduct. Conduct Code Agreement “means the Conduct Code Agreement made on 11 April 1995 between the Commonwealth, New South Wales, Victoria, Queensland, Western Australia, South Australia, Tasmania, the Australian Capital Territory and the Northern Territory, being that agreement as in force from time to time” (s 4(1)). Background The definition of Conduct Code Agreement was inserted in the TPA on 17 August 1995, following Commonwealth, state and territory government agreement to implement a national approach to competition policy. Consideration of a national approach to competition policy began in 1991, and in 1992 the Commonwealth government commissioned the National Competition Policy Review,

chaired by Professor Fred Hilmer. The Hilmer Report was completed in August 1993. It recommended implementation of a national competition policy in which the Commonwealth, states and territories cooperated to apply universal and uniform rules of market conduct to all market participants, regardless of their form of ownership. Extensive governmental consultation concerning the implementation of the report followed. After consideration of the report by the Council of Australian Governments (COAG), legislation was drafted in 1995 to enable implementation of such a policy. The reform legislation, which became the Competition Policy Reform Act 1995, contained a number of changes to competition law. The TPA was complemented by two inter-governmental agreements, the Competition Principles Agreement and the Conduct Code Agreement (see ¶300), which were signed on 11 April 1995 by the Prime Minister and the Premiers and Chief Ministers of the states and territories. Function of Conduct Code Agreement The Conduct Code Agreement sets out processes to be used for amendments to the competition laws of the Commonwealth, states and territories, and for appointments to the Australian Competition and Consumer Commission. The Conduct Code Agreement contains information about the manner of implementation of the national competition legislation. It provides a mechanism for states and territories which are party to the Conduct Code Agreement to extend the coverage of the Competition and Consumer Act. Each state and territory is to pass legislation which will apply the Competition Code (a form of text containing the anticompetitive conduct prohibitions in Pt IV of the TPA, modified to refer to “persons” rather than “corporations”) in its jurisdiction. In this way, unincorporated businesses not trading interstate, which were previously outside the ambit of the Competition and Consumer Act because of constitutional difficulties (see ¶70ff), are brought within the scope of the Competition and Consumer Act. The Conduct Code Agreement also restricts the circumstances in which signatories can pass state or territory laws which are exempt from the effects of Pt IV of the Competition and Consumer Act.

Signatories must notify the commission that they seek to rely on s 51 of the Competition and Consumer Act, the section which provides exemptions from Pt IV of the Competition and Consumer Act. The National Competition Council will then submit a report to Federal Parliament about the possible anti-competitive effects of the proposed legislation being exempt, and exemptions from the Competition and Consumer Act made by state or territory laws may be overridden by Commonwealth regulations made under the Competition and Consumer Act. The Conduct Code Agreement also provides that any changes to Pt IV of the Competition and Consumer Act are to be mirrored in the Competition Code, and that no changes will be made to Pt IV without first consulting the signatories to the Conduct Code Agreement. The full text of the Conduct Code Agreement is set out at ¶510-000. Consumer: s 4B(1) states that a person will be taken to have acquired goods as a consumer, where a person has acquired: (a) particular goods for a price not exceeding the prescribed amount of $40,000, or — if the price exceeded $40,000 — goods of a kind ordinarily acquired for personal, domestic or household use or consumption, or goods consisting of a commercial road vehicle, and the goods must not be acquired for the purpose of re-supply for using them up or transforming them in trade or commerce, in the course of a process of production or manufacture or of repairing or treating other goods or fixtures on land, and/or (b) particular services for a price not exceeding the prescribed amount of $40,000, or — if the price exceeded $40,000 — services of a kind ordinarily acquired for personal, domestic or household use or consumption. See also “consumer” in the Australian Consumer Law at s 3 of Sch 2 of the Competition and Consumer Act (¶25-300). The word is limited according to the nature and value of a particular transaction and not by the characteristics of the person involved. For example, a hospital patient who received nursing services in return for

payment of fees was regarded as a consumer of those services within the ordinary meaning of the term (“E” v Australian Red Cross Society & Ors (1991) ATPR ¶41-085). On the other hand, in Westpac Banking Corporation Limited v Prelea & Ors (1992) ATPR (Digest) ¶46-093 at p 53,350, Cole J stated: “It was never intended that a company borrowing millions of dollars from a bank for the purpose of letter of credit facilities for the purchase of goods from overseas corporations, or for the factoring of debts resulting from the distribution of those goods throughout Australia should be regarded as a ‘consumer’.” The definition of a consumer of services is in principle identical to that of a consumer of goods. Because it is perceived that services cannot be used for re-supply or in the process of producing other services, the additional qualification relating to goods does not apply to services, and was not amended when the concept of re-supply was extended to services in Pt IV by the Competition Policy Reform Act 1995. The Exposure Draft Trade Practices Amendment Bill 1984 proposed to increase the prescribed amount to $200,000 and to give some protection to farmers. This proposal was never implemented. The Trade Practices Revision Act 1986 increased the prescribed amount from $15,000 to $40,000 and provided specific protection for purchasers of commercial road vehicles (vehicles used principally in the transport of goods on public roads). Section 4B(2) attempts to deal with the ascertainment of price and provides for a notional price in situations where the actual price is difficult to determine. A presumption that a person is a consumer in relation to particular goods or services unless the contrary is established is raised by s 4B(3). History of definition The current limitation of the definition of consumer has been subject to much criticism. Before the amendment by Act No 81 of 1977, the definition was contained in s 4(3) of the Competition and Consumer Act and was as follows:

“For the purposes of this Act, unless the contrary intention appears— (a) a person who acquires goods shall be taken to be a consumer of goods if the goods are of a kind ordinarily acquired for private use or consumption and the person does not acquire the goods or hold himself out as acquiring the goods for the purposes of resupply, and (b) a person who acquires services shall be taken to be a consumer of services if the services are of a kind ordinarily acquired for private use or consumption and the person does not acquire the services for the purposes of, or in the course of, a profession, business, trade or occupation or for a public purpose.” The latter portion of the old definition received criticism mainly due to the ambiguity of the word “private”. See, for example, Trade Practices Review Committee: Report to Minister of Business and Consumer Affairs, 20 August 1976, AGPS, Canberra, at para 9.42. Philosophy behind current approach The current approach to categorising a “consumer” follows recommendations of the Swanson Committee (see Trade Practices Review Committee: Report to Minister of Business and Consumer Affairs, 20 August 1976, AGPS, Canberra). The views of the committee are summarised in the following extract: “… the most significant aspect of the debate about the definition of ‘consumer’ is whether the definition, and thus the protection, should be restricted to ‘traditional’ consumers, persons who engage in the particular transaction for reasons unrelated to commercial purposes. The Committee is strongly of the view that the definition … should be sufficiently broad to provide protection to a range of business transactions, particularly purchases by small businesses. In our view one important function of the consumer protection provisions of the Act is to redress, between supplier and customer, inequalities in the technical expertise required to recognise, and

negotiate, a fair bargain.” “… the Committee does not agree with proposals that the definition of consumer be necessarily limited either to transactions where the goods or services involved are for ‘personal, domestic or household use’ or to transactions for ‘non-commercial purposes’. The Committee would also reject the distinction between corporate and non-corporate purchasers, on the grounds that it is illogical and promotes form over substance … 9.43. Bearing in mind the need for certainty adverted to in para 2 of the terms of reference of the Committee, and the matters discussed above, the Committee considers that the best approach to the definition of consumer should be primarily by reference to the price paid by the consumer for the goods or services. This definition approach has already been adopted in other legislation, for example, sub-sec 1(6) of the Hire Purchase Act 1960 (NSW) as amended by the Commercial Transactions (Miscellaneous Provisions) Act 1974 (NSW). The arbitrary nature of the monetary limit test may be reduced by setting a figure which may be altered by regulation. The Committee recommends that the appropriate test for the Trade Practices Act should be a limit of $15,000 on the value of the goods or services, or such higher amount as may be prescribed by regulation. 9.44. But there are some transactions which will inevitably be above the monetary limit, which would be encompassed by the present definition and should continue to be encompassed — in the interests of the non-commercial consumer. A contract for the construction of a family home is one example. For this reason, the Committee considers that a further category should be added to the definition of ‘consumer’, where the transaction relates to goods or services priced over $15,000. The category would include all acquisitions of goods or services of a kind ordinarily obtained for personal, domestic or household uses, a category which, the Committee considers, would have limited application

above $15,000. We recognise that the boundaries of such a category are not wholly certain, but believe that in practice that uncertainty is likely to affect only a limited number of cases.” The terms of reference of the committee provided specifically for an investigation into the effect of the Competition and Consumer Act on small business and its philosophy in this regard is set out in its report at para 10.36ff. Detailed consideration of the actual concept of “small business” is not found in the report, and there has been no attempt to incorporate any type of definition of “small business” into the Competition and Consumer Act. In many situations, the “small businessman” in popular terminology will be denied protection under the current definition because he has purchased the goods in question for the purpose of re-supply. Price ascertainment Where the price of goods acquired is less than the prescribed amount, the transaction will be a consumer transaction regardless of the nature of the goods themselves, subject to the purpose of the acquisition. Where the price is greater than the prescribed amount, other considerations will apply. In the Competition and Consumer Act, the meaning of “price” includes a charge of any description (s 4(1)). Following uncertainties in the actual meaning of the word where a single purchase or a simple cash sale were not involved (eg dual purchase, lease, hire, hire-purchase), paras (c)–(e) were added to s 4B(2) to provide for ascertainment of price. Credit as a service In Westpac Banking Corporation Limited v Prelea & Ors (1992) ATPR (Digest) ¶46-093 at p 53,350, Cole J stated: “It is not realistic to suggest that the ‘service’ was the agreement to provide a line of credit, or to provide a factoring facility. Such an agreement was preliminary to the provision of services, the service being the making available of such funds. That seems to be a matter of common sense.” Ascertainment: dual purchases Where goods or services are

acquired with other property and/or services without specific price allocation to each, the price of the goods or services will be taken to be: • the price at which the goods or services alone could have been purchased from the supplier at that time (s 4B(2)(c)(i)) • if the latter course was not possible, the lowest price at which goods or services of the kind acquired reasonably were available alone from another supplier (s 4B(2)(c)(ii) • if goods or services of the kind acquired were not available for purchase alone from any supplier — the value of the goods or services at that time (s 4B(2)(c)(iii)). The rationale behind this section creates some problems. It provides for the notional splitting of goods/services, goods/other property, services/other property, and services/services packages, but does not consider the question of the goods/goods package. Does “other property” include other goods, or does it merely mean land and choses in action? On basic principles, the latter view ought to prevail, but the organisation of the subsection suggests that the other goods were intended to fall within “other property”. On either view, the following problems will arise. It might be suggested that in a $20,000 contract package of two identical cars, the notional value of each car is $10,000. Such a splitting of value does not seem justified on the wording of the section if a single contract price is stated. If “other property” is confined to land and choses in action, problems arise where the package is made up of two dissimilar items with a single stated contract price. The splitting of a price for “services” and “other services” creates difficulties in evaluating exactly how different “other services” must be to justify a split for the purposes of the definition. Presumably, a yearly contract for the maintenance of a fleet of vehicles could not be notionally split where a per annum contract price was negotiated and stated. A yearly maintenance contract involving a private hospital which involved cleaning, painting, gardening, rubbish removal and any other repairs at a stated per annum contract price could possibly be

notionally split on the basis of dissimilarity of the various services. This result seems fairly arbitrary. The use of the words “of the kind acquired” without more leads to uncertainty of the degree of specificity required when comparisons need to be made. How similar must the goods/services be, to be of the same kind? Presumably the same functional goods/services need to be compared, but what of quality, brand and uniqueness of a particular item/service? The term “lowest price” in s 4B(2)(c)(ii) gives no indication to what extent price comparisons should be made. Logic would suggest that comparisons with a provider in a similar situation should be made, eg retailer with retailer, discounter with discounter, etc, but the section adds no qualification to this effect. The exact meaning of the words “the value of the goods or services” found in s 4B(2)(c)(iii) is uncertain, in that no indication is given as to who is to ascribe the value in a particular situation and what should be their point of reference. In Jefferson Ford Pty Ltd v Ford Motor Company Of Australia Limited (2008) ATPR ¶42-231, at [105], the court noted that former s 51AC(11)(b) causes s 4B(2)(c) to apply to the ascertainment of the price. The latter provision recognises that a person may purchase goods or services together with other property or services or with both other property and services, yet a specified price is not allocated to the particular goods or services which are being considered. Thus, s 4B(2)(c), as applied to former s 51AC, reinforces the construction that aggregation of all the amounts paid or payable by Party A to Party B or in respect of goods supplied by Party B over the whole of the period of their relationship is not the ordinary and natural meaning to be placed on the expression “price” in former s 51AC(9). Acquisition other than by purchase The notional splitting of prices where goods or services are acquired otherwise than by way of purchase is provided for in s 4B(2)(d). This subsection will be particularly relevant where goods are hired or leased. Basically, the subsection provides for valuation of the goods/services at a price at which they could have been purchased at the relevant time in the

same manner as that provided for sales. All problems referred to in respect of that subsection will apply, therefore, and any involvement of second-hand goods which may be more relevant in this context will further complicate the issues. Acquisition by way of gift The question of whether a person who has acquired goods or services by way of gift can be a consumer has actually arisen in the context of the consumer product standard provisions of the Competition and Consumer Act (former s 62, 63 of the TPA prior to the Australian Consumer Law enactment of 1 January 2011). In Clarke v New Concept Import Services Pty Ltd (1981) ATPR ¶40-264, a corporation was charged with supplying goods which had been gazetted as unsafe (former s 62(2D)). The defendant claimed that the transaction did not fall within former s 62(1) (supplying goods the subject of a safety standard to a consumer) as the goods in question were the subject of a giveaway and hence not intended to be used by a consumer within the s 4B definition. Davies J found that s 4B could apply to gifts as well as to commercial transactions. The use of the words “acquire” and “price” did not imply that the ordinary meaning of the terms in s 4B should be read down. The only limitation on s 4B was that the value of the goods could not exceed the prescribed amount. Even if the price of the goods was nil, this provision would be satisfied. Purpose of acquisition Whatever the price of the goods involved, the further question of the purpose for which they were acquired must be considered in relation to the meaning of consumer (s 4B(1)(a)). If they were acquired for the purpose of “re-supply” or for the purpose of “using them up or transforming them, in trade or commerce in the course of a process of production or manufacture, or of repairing or treating other goods or fixtures on land”, the acquisition will fall outside the consumer definition. Services, by their nature, do not generally need to be considered in this light. A person who holds himself out as acquiring goods for any of these purposes will not be a consumer if he then decides to keep the goods himself. On the wording of the section, “re-supply” does not appear to be restricted to re-supply “in trade or commerce”, which may produce curious results, for example, where gifts are concerned.

Price below prescribed amount If the price of goods or services is found to be below the prescribed amount, and the goods are not acquired for the purpose of re-supply, etc, then the acquisition is a consumer transaction within the ambit of s 4B. Price above prescribed amount: the kind of goods If the price of goods or services is found to exceed the prescribed amount but the purpose was not one of re-supply, etc, the nature of the goods or services themselves may bring a transaction within the consumer umbrella provided by the Competition and Consumer Act, if the goods or services are “of a kind ordinarily acquired for personal, domestic or household use or consumption”. The words “of a kind” present some difficulties here, although not to the extent provided by s 4B(2)(c)(ii), (d)(ii). It would seem that quite direct comparisons would need to be made under s 4B(2)(c)(ii) or (d) (ii), of specific types of goods or services, in the context of their price. However, in the context of goods or services “of a kind ordinarily acquired for personal, domestic or household use or consumption”, it may be appropriate to use broader categories of comparison, which look at the purpose of the goods or services rather than at their price. Indeed, it seems that any assessment of whether goods or services are “of a kind ordinarily acquired”, etc, may require the court to make a value judgment. In some instances, it will be readily evident that goods are not of such a kind. A truck, purchased by the owner of a scrubpulling business for a price above the prescribed amount, was not of such a kind, so there could be no warranties implied by the Competition and Consumer Act in favour of a consumer within the meaning of the Competition and Consumer Act (Atkinson & Anor v Hastings Deering (Queensland) Pty Ltd (1985) ATPR ¶40-625). The decision may be more difficult, however, where the goods are of the requisite kind but are actually acquired for commercial use or consumption. This fact situation was considered in Carpet Call Pty Ltd v Chan & Anor (1987) ATPR (Digest) ¶46-025. The owners of a nightclub purchased carpet for use in the nightclub. The price of the supply and fitting of the carpet was higher than the prescribed amount. The Queensland Supreme Court ruled that a commodity ordinarily acquired for domestic consumption “does not lose that description by

reason of a commercial rating or some quality which makes it last longer than (that) normally supplied for use in a domestic setting” (per Thomas J at p 53,072). “Personal” may encompass items or services which are neither of domestic or household use, but criticisms similar to those aimed at the use of “private” in the former definition may be levelled at the use of “personal”. contracts — see effect of provision rendering contracts etc unenforceable. corporation “means a body corporate that: (a) is a foreign corporation (b) is a trading corporation formed within the limits of Australia or is a financial corporation so formed (c) is incorporated in a Territory, or (d) is the holding company of a body corporate of a kind referred to in para (a), (b) or (c)” (s 4(1)). It is to be noted that s 2A(2) of the Competition and Consumer Act means that the Commonwealth or an authority of the Commonwealth is to be read as a corporation insofar as it carries on a business (see ¶280). See also financial corporation; foreign corporation; trading corporation and ¶90ff. See further the s 4A definition of holding company, and the discussion at ¶140 concerning doubts as to constitutional coverage of the area. For company law principles generally, see CCH Australian Company Law Commentary Premium (online) and Australian Corporations & Securities Law Reporter (print) at ¶1-000ff. Body corporate In Ex parte CLM Holdings Pty Ltd (1977) ATPR ¶40017 at pp 17,294–17,295, Mason J stated:

“The expression ‘body corporate’ … is not defined for the purposes of the Act. It is apparent that it has a wider meaning than the word ‘corporation’ … which is defined by section 4(1), with s 51(xx) and 122 of the Constitution very much in mind … It is evident then that the expression ‘body corporate’ includes corporations other than corporations of the kind which are included in the statutory definition of ‘corporation’.” See also related bodies corporate and ¶8-620 and ¶8-680. Council “means the National Competition Council established by section 29A” (s 4(1)). The National Competition Council was established by amendments to the Competition and Consumer Act made following the recommendations of the Hilmer Committee in 1993. These amendments were effective as of 6 November 1995. The NCC was created under s 29A of Pt IIA of the Competition and Consumer Act. It comprises a Council President, up to four other Councillors, and around 20 staff. The council is essentially an advisory body, its main functions being to make recommendations on access declarations under Pt IIIA of the Competition and Consumer Act, and to oversee pricing of state and territory government business enterprises. It may also conduct, or provide assistance with, reviews under the Competition Principles Agreement, which sets out arrangements for appointments to, and deciding the work program of, the NCC. The reviews the NCC undertakes are in accordance with a work program determined by participating governments. Under s 29B, the NCC may also: • carry out research into matters and provide advice on matters referred to the council by the Commonwealth Minister • provide advice on matters referred to the council by the Commonwealth Minister • carry out a function conferred on it by a law of a state or territory.

Section 29B should be considered along with s 29J (see ¶750) and cl 10 of the Competition Principles Agreement. Clause 10 provides that: • the work of the council (other than work relating to a function under Pt IIIA of the Competition and Consumer Act or under the Prices Surveillance Act) will be the subject of a work program which is determined by each party to the Competition Principles Agreement • each party will refer proposals for the council to undertake work (other than work relating to a function under Pt IIIA of the Competition and Consumer Act or under the Prices Surveillance Act) to the parties for possible inclusion in the work program • a party will not put forward legislation conferring additional functions on the council unless the parties have determined that the council should undertake those functions as part of its work program • questions as to whether a matter should be included in the work program will be determined by the agreement of a majority of the parties — in the event that the parties are evenly divided on a question of agreeing to the inclusion of a matter in the work program, the Commonwealth shall determine the outcome • the Commonwealth Minister will only refer matters to the NCC under s 29B(1) in accordance with the work program, and • the work program of the NCC shall be taken to include a request by the Commonwealth for the NCC to examine and report on the matters specified in cl 2(2) of the Conduct Code Agreement. For further information about the National Competition Council, see ¶750ff. Recommendatory role in relation to access, (see the “Access” commentary). The council considers applications for declarations of particular services. It may recommend declaration of a service if it is satisfied that access to the service would promote competition, that it

would be uneconomical for anyone to develop another facility to provide the service, that the facility is of national significance, that access would not cause undue risk to health or safety, that access is not already the subject of an effective access regime, and that access would not be against the public interest. The council’s recommendation is considered by the designated minister, who will decide whether or not to declare the service. Where a facility is owned or operated by a state or territory authority and that state or territory is a party to the Competition Principles Agreement, the designated minister will be the responsible state or territory minister. Otherwise, the designated minister will be the responsible Commonwealth Minister. Ministers’ decisions will be subject to appeal to the Australian Competition Tribunal, and the subsequent relevant appeal mechanisms discussed in the “Access” commentary at ¶10000. Councillor “means a member of the Council, including the Council President” (s 4(1)). The definition of “Councillor” was inserted into the Competition and Consumer Act on 6 November 1995. Section 29C was inserted on the same date, and s 29C (1) and (2) provide that the council consists of the Council President and up to four other councillors, each of whom can be appointed for a term of up to five years. The Governor-General makes the appointment. Qualifications for appointment are set out in s 29C(3)(a), which provides that the Governor-General must be satisfied that the appointee qualifies for appointment because of his or her knowledge of, or experience in, industry, commerce, economics, law, consumer protection or public administration. Also, under s 29C(3)(b), a majority of the states and territories that are party to the Competition Principles Agreement must support the appointment. According to cl 9 of the Competition Principles Agreement, the Commonwealth must invite the parties to that agreement to suggest persons for appointment. Before an appointment is made, the Commonwealth is required to send a written notice of the proposed nominees to those parties, who then have 35 days (from the date on which the notice was sent) to reply. If a party does not reply within that

time, it is taken to have supported the appointment. Terms and conditions of office are set out in s 29D. Councillors, including the Council President, can be appointed on a full-time or part-time basis, on such terms and conditions as the GovernorGeneral determines. For further information concerning councillors, see ¶750ff. Council President Section 4(1) of the Competition and Consumer Act states that the Council President “means the Council President referred to in s 29C(1)”. Section 29C(1) states that the council consists of the Council President and up to four other councillors. The definition of “Council President” was inserted into the Competition and Consumer Act on 6 November 1995. Section 29C was inserted on the same date, and s 29C(2) provides that the Council President can be appointed for a term of up to five years. The Governor-General makes the appointment. Qualifications for appointment are set out in s 29C(3)(a), which provides that the Governor-General must be satisfied that the appointee qualifies for appointment because of his/her knowledge of, or experience in, industry, commerce, economics, law, consumer protection or public administration. Also, under s 29C(3)(b), a majority of the states and territories that are party to the Competition Principles Agreement must support the appointment. According to cl 9 of the Competition Principles Agreement, the Commonwealth must invite the parties to that agreement to suggest persons for appointment. Before an appointment is made, the Commonwealth is required to send a written notice of the proposed nominees to those parties, who then have 35 days (from the date on which the notice was sent) to reply. If a party does not reply within that time, it is taken to have supported the appointment. Terms and conditions of office are set out in s 29D. The Council President can be appointed on a full-time or part-time basis on such terms and conditions as the Governor-General determines. For further information concerning the terms and conditions of the appointment of the Council President, see ¶750ff. Court “means the Federal Court of Australia” (s 4(1)). For further

information about jurisdiction see ¶19-500ff. covenant “means a covenant (including a promise not under seal) annexed to or running with an estate or interest in land (whether at law or in equity and whether or not for the benefit of other land), and ‘proposed covenant’ has a corresponding meaning”. It therefore has a much more limited meaning than its normal one of any agreement contained in or implied into a deed. The definition of “covenant” was inserted in 1977 at the same time as the substantial amendments to s 45 were made. The definition represents the response of the legislature to the restrictive effect of the decision in Quadramain v Sevastapol Investments (1976) ATPR ¶40-013. See also “Anti-competitive Agreements” at ¶3-155. debenture The Competition and Consumer Act does not define the word but explains that it “includes debenture stock, bonds, notes and any other document evidencing or acknowledging indebtedness of a body corporate, whether constituting a charge on property of the body corporate or not” (s 4(1)). The explanation of “debenture” relates to s 4A(3)(c). It is similar to, but possibly wider than, that contained in s 9 of the Corporations Act 2001, as to which see CCH Australian Company Law Commentary Premium (online) and Australian Corporations & Securities Law Reporter (print) at ¶21-620. Deputy Chairperson “means the Deputy Chairperson of the Commission” (s 4(1)). The Deputy Chairperson of the Australian Competition and Consumer Commission is appointed under s 10 of the Competition and Consumer Act. Under s 11, the Deputy Chairperson may act as Chairperson when the latter is absent from duty or from Australia. Deputy President “means a Deputy President of the Tribunal and includes a person appointed to act as a Deputy President of the Tribunal” (s 4(1)). Deputy Presidents of the Australian Competition Tribunal are

appointed under s 30 in accordance with s 31 of the Competition and Consumer Act. As to powers and duties, see presidential member. Deputy Registrar “means a Deputy Registrar of the Tribunal” (s 4(1)). The Deputy Registrar of the Australian Competition Tribunal is appointed according to s 44 of the Competition and Consumer Act (see also s 44A). document means any record of information, and includes: (a) anything on which there is writing (b) anything on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them (c) anything from which sounds, images or writings can be reproduced with or without the aid of anything else, and (d) a map, plan, drawing or photograph (s 4(1)). The definition is expansive, particularly of the power of the commission to require the production of “documents” under s 155 of the Competition and Consumer Act. dual listed company arrangement has the same meaning as in s 125-60 of the Income Tax Assessment Act 1997 (s 4(1)). It is an arrangement under which two publicly listed companies, while maintaining their separate legal entity status, shareholdings and listings, align their strategic directions and the economic interests of their respective shareholders through: • the appointment of common (or almost identical) boards of directors • management of the operations of the two companies on a unified basis • the shareholders of both companies voting in effect as a single decision-making body on substantial issues affecting their

combined interests • equalised distributions to shareholders in accordance with an equalisation ratio applying between the two companies, both generally and in the event of a winding up of one or both of the companies, and • cross-guarantees as to, or similar financial support for, each other’s substantial obligations or operations, except where the effect of the relevant regulatory requirements prevents those guarantees or that financial support. In addition, one but not both of the companies must be an Australian resident. Such arrangements usually exist in order to facilitate the listing of one economic entity in more than one country. See further ¶4-225. effect of provision rendering contracts, etc, unenforceable Section 4(3) of the Competition and Consumer Act explains that: “Where a provision of this Act is expressed to render a provision of a contract, or to render a covenant, unenforceable if the provision of the contract or the covenant has or is likely to have a particular effect, that provision of this Act applies in relation to the provision of the contract or the covenant at any time when the provision of the contract or the covenant has or is likely to have that effect notwithstanding that: (a) at an earlier time the provision of the contract or the covenant did not have that effect or was not regarded as likely to have that effect, or (b) the provision of the contract or the covenant will not or may not have that effect at a later time”. Section 4(3) was introduced into the Competition and Consumer Act in 1977 and operates in relation to s 45(1) and 45B, which render unenforceable provisions of contracts and covenants in certain

circumstances. At general law, the validity of contracts and deeds is decided as at the date of their formation. The provision attempts to clarify the temporal aspect of the unenforceability, which becomes, in effect, ambulatory. Thus, a covenant valid when made may nevertheless become unenforceable if, with changing circumstances, it becomes likely to have the proscribed effect. Similarly, although a covenant may be expected at some future time to lose its proscribed effect, it will nevertheless be held unenforceable if at the time that it is considered it has that effect. The question which arises is whether a contract which was unenforceable under s 45(1) or 45B “revives” and becomes enforceable if at some subsequent time it ceases to have the proscribed effect. Although the texts seem to assume an affirmative answer, the wording of the provisions — “is unenforceable” — is ambiguous and could be interpreted to mean unenforceable once and for all. Nothing in s 4(3) dictates an interpretation which would lead to the inconvenient result caused where, during the period of its unenforceability, a party to a contract has changed his position so as, for example, to disable himself from later performance. See further ¶3-155. engaging in conduct; conduct; refusing to do an act; offering to do an act The Competition and Consumer Act does not define the phrases but s 4(2) explains that: “In this Act: (a) a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant (b) a reference to conduct, when that expression is used as a noun otherwise than as mentioned in paragraph (a), shall be read as a reference to the doing of or the refusing to do any act, including the making of, or the giving effect to a provision

of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant (c) a reference to refusing to do an act includes a reference to: (i) refraining (otherwise than inadvertently) from doing that act, or (ii) making it known that that act will not be done, and (d) a reference to a person offering to do an act, or to do an act on a particular condition, includes a reference to the person making it known that the person will accept applications, offers or proposals for the person to do that act or to do that act on that condition, as the case may be”. Section 4(2) was inserted into the Competition and Consumer Act in 1977 to amplify the meaning of the terms defined, or at least to avoid any restrictive interpretation being given to them where they appear in the Competition and Consumer Act. Paragraphs (a) and (b), which broaden conduct to include refusals to do acts, are in turn amplified by para (c) whereby a refusal includes refraining (otherwise than inadvertently) from doing an act and making it known that that act will not be done. An omission to act will only constitute “engaging in conduct” where there has been a refusal or a deliberate refraining from doing an act. This view, which was postulated by Bowen CJ in Rhone-Poulenc Agrochimie SA & Anor v UIM Chemical Services Pty Ltd & Anor (1986) ATPR (Digest) ¶46-010 is based on the use of the words “refuse” and “refrain” in s 4(2)(a), (b) and (c). In his Honour’s opinion (at p 53,046), “the words ‘refuse’ and ‘refrain’ clearly connote that the omission to do an act must be deliberate”. See also Norcast SárL v Bradken Limited (No 2) (2013) ATPR ¶42-433, at [313]. Paragraph (d) seems to represent an attempt to encompass “invitations to treat” within the meaning of the word “offer”, which might otherwise be given its strict contract law denotation. However, it is

questionable whether the attempt is successful, as a “person making it known that the person will accept applications, offers or proposals …” does not describe a person making a mere invitation to treat but rather an offer to all the world in the Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484 sense of a unilateral contract. Nevertheless, in order to effectuate the apparent intention of the provision, a court might be persuaded to interpret the word “will” as “may” or “might”. The subsection has its principal operation in relation to s 47, in which the draftsman nevertheless goes to some pains to explicitly encompass offers and refusals as well as conduct. Although there is some inconsistency of treatment, this should be ascribed to abundant caution rather than an intention to give the defined words a more limited meaning in those particular contexts. The explanations in s 4(2) also serve to broaden the impact of s 45D. See, for example, Tillmanns Butcheries Pty Ltd v The Australasian Meat Industry Employees’ Union (1979) ATPR ¶40-138 (per Bowen CJ at pp 18,493–18,494); F Sharkey & Co Pty Ltd v Fisher (1980) ATPR ¶40-185 (per Sheppard J at pp 42,540 and 42,542–44). In the latter case, his Honour stated that “the definition of ‘engaging in conduct’ is a wide one” and found that an “underlying threat of industrial pressure” is, “within the meaning of s 4(2) of the Act, the doing of an act”. In The Seamen’s Union of Australia & Ors v Utah Development Co & Ors (1978) ATPR ¶40-090 at p 17,878, Mason J considered the proposition that by virtue of s 4(2): “A termination by an employee of his employment or a refusal by a person to continue his employment or a refusal to take up employment in activities forming part of overseas trade and commerce constitutes ‘engaging in conduct’ that is prohibited according to the terms of s 45D(1)”. His Honour stated “no doubt the expression ‘engage in conduct’ is apt to inhibit a refusal of services by a person whilst he continues in the relevant employment. But in my view it should not be understood to restrict a person’s freedom of choice to remain as an employee or to cease to be an employee.” Refusal to renew In TPC v Tooth & Co Ltd (1979) ATPR ¶40-127, the

High Court considered the constitutional validity of s 47(9), which involved interpreting the meaning of a “refusal to renew” a lease. Stephen J (at p 18,370) stated: “No doubt the demanding of a high rent might in some circumstances be some evidence of conduct amounting to refusal, but neither this consideration nor the terms of s 4(2)(c), which extend the meaning of refusing to do an act to include the ‘refraining (otherwise than inadvertently) from doing that act’ contraverts the significance of the general freedom of the prospective lessor to demand whatever rent he chooses.” Mason J (at p 18,379) considered the impact of the definition on the power to grant injunctions under s 80: “It has been suggested that s 4(2)(c), which provides that ‘a reference to refusing to do an act includes a reference to — (i) refraining (otherwise than inadvertently) from doing that act’ furnishes a basis for the grant of a mandatory injunction in lieu of an injunction which is negative in form, though mandatory in substance. This provision can have no application to the present case because s 47(9)(a) deals with refusal to do an act for the nominated reason only.” Failure to disclose information A failure to disclose to an applicant vital information may fall within conduct defined in s 4(2)(c)(i). According to Lucas & Ors v Economic Freedom Pty Ltd & Ors (1986) ATPR (Digest) ¶46-008, to refrain from giving such information may be taken to be a refusal to do so, so that by operation of s 4(2)(c)(i), the refusal may constitute contravening conduct. In Peninsula Balmain Pty Limited v Abigroup Contractors Pty Limited [2002] NSWCA 211, the New South Wales Court of Appeal took a stricter view of this concept. Hodgson JA (with whom Mason P and Stein JA agreed) said, at [58], that the requirement in s 4(2)(c) that a refraining be otherwise than inadvertent requires that there be actual advertence to the question whether something should be done or not and the formation of an intention that it not be done. enter into see arrive at.

exclusionary provisions According to s 4D(1), a provision of an existing or proposed contract, arrangement or understanding is an exclusionary provision, if that contract, etc, was made (or is to be made) between persons any two or more of whom are competitive with each other. Such a provision must have the purpose of preventing, restricting or limiting: • the supply of goods or services to (or their acquisition from) particular persons or classes of persons • the supply of goods or services to (or their acquisition from) particular persons or classes of persons in particular circumstances or on particular conditions • by all or any of the parties to the contract, etc, or by related bodies corporate. Persons are deemed to be competitive with one another for s 4D(1) purposes basically if they or a related body corporate would have been competitive (in relation to the relevant goods or services) apart from the relevant contract, etc (s 4D(2)). Section 4D is relevant to s 45 and is discussed in detail at ¶3-550ff. Family Court “means the Family Court of Australia” (s 4(1)). Federal Circuit Court “means the Federal Circuit Court of Australia”. Federal Court “means the Federal Court of Australia” (s 4(1)). For further information on jurisdiction, see ¶19-500ff. financial corporation “means a financial corporation within the meaning of paragraph 51(xx) of the Constitution and includes a body corporate that carries on as its sole or principal business the business of banking (other than State banking not extending beyond the limits of the state concerned) or insurance (other than State insurance not extending beyond the limits of the State concerned)” (s 4(1)). The categories of companies which are caught by this definition would almost certainly include banks, insurance companies, building societies, credit unions, hire purchase companies, leasing finance

companies, money market dealers, investment companies and general financiers. The appearance in s 51 of the Constitution of separate placita ((xiii) and (xiv)) relating to banking and insurance means that placitum (xx) could be restrictively interpreted so as not to apply to banking and insurance companies. Any doubts in this regard are overcome by this expansive definition which should be read as incorporated in the definition of “corporation”. See also ¶120 for a consideration of the term “financial corporation” in the constitutional context. However, the application of the Competition and Consumer Act to state banking has been interpreted somewhat narrowly, given the increasing complexity and integration of the Australian economy and the increasing importance and size of various state banks. Applying the reasoning of Bank of New South Wales v The Commonwealth (1948) CLR 1 (the Bank Nationalisation case), the legislative power of the Commonwealth extends only to transactions transcending the limits of the state concerned; power over the whole business is not attracted simply by reason of the fact that the business of the bank extends interstate. Therefore, the definition of “financial corporation” in s 4(1) cannot validly extend the application of the Competition and Consumer Act to regulate a transaction of a state bank taking place wholly within the limits of the state concerned: Bourke & Ors v State Bank of New South Wales (1989) ATPR ¶40-924. Exclusion of State banking In Bourke & Ors v State Bank of New South Wales (1989) ATPR ¶40-924, Wilcox J found, as a matter of construction, that the State Bank of New South Wales was a “financial corporation” within the definition in s 4 of the Competition and Consumer Act. However, that definition purported to exercise a legislative power which extended beyond the limits of the power in relation to “State banking extending beyond the limits of the State concerned”, as those limits were defined in the Bank Nationalisation case (see above). Wilcox J held that, insofar as the Competition and Consumer Act purported to regulate a transaction of a state bank taking place wholly within the limits of the state concerned, the Competition and Consumer Act was beyond the legislative power of the Commonwealth. It followed that, although, as a matter of

construction, the Competition and Consumer Act would cover the complaints made, the Competition and Consumer Act had no valid application to those complaints (p 49,994). On appeal (Bourke & Ors v State Bank of New South Wales (1990) ATPR ¶41-033), the High Court considered the possible invalidity of former s 52 and 52A (former s 51AB) as a result of an impermissible extension to the definition of “financial corporation” in s 4(1) beyond the limitation upon the banking power (see ¶120). The court found that, insofar as the Competition and Consumer Act affects the actions of banks in their banking business, it is a law with respect to banking. Within that field, the Competition and Consumer Act has a substantial connection with state banking except to the extent to which s 4(1) restricts its scope. The court found that the Competition and Consumer Act is invalid in its application to banking to the extent that it is not a law with respect to banking other than state banking not extending beyond the limits of the state concerned. The second limb of the definition, unlike the first limb, was not capable of being read down so as to give it any valid operation. The result was that once a state bank fell within the Competition and Consumer Act’s definition of “corporation”, the substantive provisions, including s former 52 and 52A (former s 51AB), may be read as having no application to the conduct of such corporations to the extent that they were engaged in state banking not extending beyond the limits of the state concerned. The Australian Yachting Federation (AYF) is not a financial corporation, although it receives funding from government subvention and pays it out by way of grants to athletes, because such a system of funding and payment on a not-for-profit basis is quite different from activities of a bank or other financier. The AYF makes grants, not loans: Forbes & Anor v Australian Yachting Federation Inc & Ors (1996) ATPR (Digest) ¶46-158. foreign corporation “means a foreign corporation within the meaning of para 51(xx) of the Constitution and includes a body corporate that is incorporated in an external Territory” (s 4(1)). Note that a company registered as a “foreign company” in a participating jurisdiction under the Companies Act 1981 or a state

code is not necessarily a “foreign corporation” within the above definition (eg, a trading or financial corporation incorporated in the Northern Territory). The definition relates only to corporations which have not been formed under the laws of the Commonwealth, a state or an internal territory. According to Northrop J in Nauru Local Government Council v Australian Shipping Officers Association & Ors (1978) ATPR ¶40-087 at p 17,849: “In the definition of ‘foreign corporation’ the reference to para 51(xx) of the Constitution is not of great assistance, that paragraph being concerned with the legislative powers of the Parliament. For present purposes, it is sufficient to say that foreign corporations include bodies corporate incorporated outside a State or an internal Territory of the Commonwealth.” See also ¶100 and Strickland v Rocla Concrete Pipes Ltd (1971) 124 CLR 468. fully-participating jurisdiction “means a State or Territory that: (a) is a participating jurisdiction as defined in section 150A, and (b) is not named in a notice in operation under section 150K” (s 4(1)). This definition is relevant to the concept of “participating jurisdictions” inserted in Pt XIA of the Competition and Consumer Act on 17 August 1995, after agreement was reached between the federal, state and territory governments to apply the competitive conduct rules uniformly across Australia. This definition came into operation on 21 July 1996. A participating jurisdiction is a state or territory which has signed the Conduct Code Agreement, and therefore has agreed to apply a modified version of the competitive conduct rules to all persons within its own jurisdiction. For further clarification, see ¶400 and ¶1-170, and the definitions of participating jurisdiction, Conduct Code Agreement, and Competition Code. Essentially, a participating jurisdiction automatically became a fullyparticipating jurisdiction on 21 July 1996, when the definition came

into effect. This is subject to the qualification contained in s 150K, that the participating jurisdiction is not named in a notice published by the minister in the Gazette, stating that the participating jurisdiction has made significant modifications to the Competition Code which it is applying within its jurisdiction. give effect to “in relation to a provision of a contract, arrangement or understanding, includes do an act or thing in pursuance of or in accordance with or enforce or purport to enforce” (s 4(1)). The Competition and Consumer Act gives an expansive explanation of this phrase, which has its principal operation in relation to s 45. See also “Anti-competitive Agreements”, ¶3-010ff. “In accordance with” In Tradestock v TNT (Management) (1978) ATPR ¶40-056 at p 17,571, Smithers J stated: “It is to be observed that an act done by way of implementation of a contract, arrangement or understanding would necessarily be done ‘in pursuance thereof’. If the only acts struck at by the Act are those done by way of implementation of the contract, arrangement or understanding then there is no work left to be done by the words ‘or in accordance with’. And there is good reason for thinking that those words are intended to cover the situation where what is done is or may be done for reasons other than to implement the understanding.” His Honour then held that a decision could be made “in accordance with” an arrangement or understanding although it might have been made without the decision-maker having the arrangement or understanding in mind. goods The Competition and Consumer Act does not define the word but explains that it “includes: (a) ships, aircraft and other vehicles (b) animals, including fish (c) minerals, trees and crops, whether on, under or attached to land or not, and

(d) gas and electricity” (s 4(1)). This extended definition of “goods” leaves intact the common law distinction between fixtures and movables (except in regard to minerals, trees and crops). At its narrowest, goods includes all chattels of which physical possession is possible. If they become permanently attached to land or buildings, they lose their character as goods or personalty and become part of the realty. In cases involving the interpretation of wills, it has been held that choses in action are goods. However, these cases are unlikely to be applied in the context of this Act, and it is submitted that only tangible, movable personal property (ie: corporeal hereditaments) is covered. Authorities abound on the question of what are “goods”, and reference is made to Stroud’s Judicial Dictionary, 4th ed, vol 2, pp 1174–77. Computer hardware and software The question whether computer hardware and software are goods for the purposes of the Competition and Consumer Act has been discussed in the NSW Supreme Court. The case (Toby Constructions Products Pty Ltd v Computer Bar Sales Pty Ltd (1983) ATPR ¶40-377) involved a contract for three items of hardware and two of software. Rogers J stated that, in light of the inclusive nature of the s 4 definition, the real question was whether the sale of the equipment was a sale of goods in the ordinary sense of those words. His Honour decided the matter on the basis that the system, including software, could be bought mass-produced and “off the shelf”. The sale was of tangible chattels, and the fact that software was included did not preclude this description. His Honour stated that the classification of software alone as a sale of goods was a “debatable question”. Encoded electrical impulses Subscribers to the supply of data information by the Australian Stock Exchange and related companies were provided with a “series of encoded electrical impulses capable of reception and interpretation by the subscribers’ computers”. The definition of “goods” in s 4 includes “(d) gas and electricity”. In Pont Data Australia Pty Ltd v ASX Operations Pty Ltd & Anor (1990) ATPR ¶41-007 at p 51,127, Wilcox J stated:

“It is doubtful whether anyone hearing the word ‘goods’ in normal parlance would readily think of electrical impulses … But whatever the ordinary meaning of the word, there is here a statutory definition which defines the word — in an inclusive rather than exclusive manner — so as to include electricity. It cannot, I think, be doubted that, as Parliament intended the word ‘goods’ to include electricity, it also intended to include encoded electrical impulses.” This view was overturned on appeal, the respondent to the appeal conceding the point. In ASX Operations Pty Ltd & Anor v Pont Data Australia Pty Ltd (1991) ATPR ¶41-069 at p 52,054, the Full Court stated: “… it does not follow from the inclusion of electricity in the definition that it should be read as if there was a further inclusion, by way of extension of the ordinary meaning of ‘goods’, so as to draw within the definition encoded electrical signals. At the heart of the three agreements is the provision by ASXO to the subscriber of stock exchange information; this is provided by electronic means, but one could not properly characterise the subscribers as purchasers of electricity, and therefore of goods…” The Full Court referred to the decision of Rogers J in Toby Constructions (see above), stating that the question there stated was left open after the present appeal, which had been decided on the narrower point. In Multiplex Constructions Pty Ltd v Amdel Ltd (1991) ATPR ¶41-154 at p 53,192, Brownie J of the NSW Supreme Court stated that it was rather artificial to regard the word “goods” as referring to asbestos which was built into a building and which could not be removed without damaging the building. Bank notes are not “goods”: Sykes & Ors v Reserve Bank of Australia (1998) ATPR ¶41-608. Because of legislation, bank notes are legal tender and entitle or enable the bearer to satisfy a debt or obtain a discharge from a debt. The fundamental function of money is to be a medium of exchange. Being a medium of exchange is not the same as being an object of exchange or “goods”.

hindering competition See competition. holding company A holding company is a body corporate of which another body corporate is a subsidiary (s 4A(4)). See also related bodies corporate; ¶8-680. As to possible problems with constitutional coverage of holding companies, see ¶140. injury See loss or damage. joint venture “an activity in trade or commerce: (i) carried on jointly by two or more persons, whether or not in partnership, or (ii) carried on by a body corporate formed by two or more persons for the purpose of enabling those persons to carry on that activity jointly by means of their joint control, or by means of their ownership of shares in the capital, of that body corporate” (s 4J(a)). Section 4J explains that joint ventures fall into two basic categories, the unincorporated and the incorporated. The section provides that references to joint ventures are references to an activity in trade or commerce carried on by: (i) two or more persons, whether or not in partnership, or (ii) a body corporate formed by two or more persons for the purpose of carrying on the activity jointly. A contract, arrangement or understanding in the latter situation will include the memorandum and articles of association, rules or other documents which constitute the body corporate. The question of joint ventures arises in respect of the cartels regime in Div 1 of Pt IV and s 50. Discussion relevant to cartels can be found at ¶2-826ff, and in relation to s 50 at ¶2-000. leases and licences (of land and buildings). The Competition and Consumer Act does not define these terms but s 4H explains that a

reference to a contract includes a reference to a lease of, or a licence in respect of, land or a building. This is so despite express references in the Competition and Consumer Act to such leases or licences (s 4H(a)). A reference to making or entering into a contract in relation to such a lease or licence includes a reference to granting or taking the lease or licence (s 4H(b)). A reference to a party to a contract in relation to such a lease or licence includes any person bound by, or entitled to the benefit of, any provision contained in the lease or licence (s 4H(c)). Section 4H was inserted in the Competition and Consumer Act by Act No 81 of 1977, when substantial amendments to s 45 were made, mainly in response to the decision in Quadramain v Sevastapol Investments Pty Ltd & Anor (1976) ATPR ¶40-013. In that case, the High Court took what was generally seen to be an unduly legalistic approach to s 45 as it then was. It was thought that references to “contract” might be interpreted to exclude covenants, leases and licences in relation to land, and s 4H was inserted to clarify the position. lessening competition See competition. local energy instrument means a regulation, rule, order, declaration or other instrument if: (a) the instrument is made or has effect under a law of a state or territory, and (b) the law of the state or territory applies a uniform energy law as a law of its own jurisdiction (s 4(1)). See further ¶39-710. loss or damage The Competition and Consumer Act does not define the phrase but explains that a reference to loss or damage includes a reference to injury (s 4K(a)), and that a reference to amount of loss or damage includes a reference to damages in respect of an injury (s 4K(b)). According to Aristotite v Gladstone Park Shopping Centre Pty Ltd & Ors (1983) ATPR ¶40-370, the word “injury” in s 4K denotes both

physical and psychological harm to the person. Section 4K is intended to clarify the position as to damages in respect of personal injury. As to damages generally, see ¶18-840ff. market: “unless the contrary intention appears, ‘market’ means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services” (s 4E). The explanation of “market” is somewhat simplistic, and the reasoning expressed in the latter component makes it circular. The explanation gives little assistance to those attempting to ascertain the vital question of relevant market in a particular case and has been largely ignored by the courts. The concept was included in the Competition and Consumer Act following recommendations of the Swanson Committee. The Swanson Committee (at para 4.18ff) emphasised the flexibility of product and geographic market boundaries (at para 4.20), and added: “4.21. The Committee considers that no advantage would be gained by attempting to define exhaustively the term ‘market’. No definition could produce a formula capable of certainty, having regard to the variable nature of the factors discussed in the paragraph above. Importantly also, the Committee has regard to the fact that persons involved with particular cases wish the matters in dispute to be judged on the particular facts, as they may present them, and not by artificial rules designed to achieve what we would suggest is an illusory certainty. 4.22. There is, however, one aspect of the definition of ‘market’ about which we consider the Act should give useful legislative guidance; namely, in relation to product substitution. The Committee therefore recommends that the Act should require that, in the determination of a ‘market’ for particular purposes, regard shall be had to substitute products, being products which have a reasonable

interchangeability of use and which have high cross-elasticity of demand ie where a small decrease in the price of a particular product would cause a significant quantum of demand for a similar product to switch to the product.” The inclusion of the definition in the Competition and Consumer Act should prevent a recurrence of the situation which occurred in Top Performance Motors Pty Ltd v Ira Berk (Qld) Pty Ltd (1975) ATPR ¶40-004 (see ¶5-285), but see J Ah Toy Pty Ltd v Thiess Pty Ltd (1980) ATPR ¶40-155 (also discussed at ¶5-285). The view that the enactment of s 4E casts doubt on the decision in the Top Performance case was also expressed by Wilcox J in Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) ATPR ¶40-809 at pp 48,797–98, but his Honour also pointed out that the definition was not seen as inconsistent with the QCMA case (1976) ATPR ¶40-012. To take account of the definition of “trans-Tasman market” (a market in Australia, New Zealand or Australia and New Zealand for goods and services) in s 46A(1) (see ¶5-600), s 4E makes it clear that the definition of “market” applies, unless the contrary intention appears. For an extensive discussion of the operation of s 4E in respect of markets not wholly located in Australia see ACCC v Air New Zealand Limited (2014) ATPR ¶42-490. For general information on the market definition, see the “Markets, Competition and Market Power” commentary at ¶2-500ff. member of the commission “includes the Chairperson and a person appointed to act as a member of the Commission but does not include an associate member of the Commission” (s 4(1)). Members of the Australian Competition and Consumer Commission are appointed under s 7 and 8 of the Competition and Consumer Act. Associate members may be appointed by the minister under s 8A. Such members may be appointed for special purposes. See “The Administrative Framework” at ¶390ff. member of the Tribunal “includes the President and a person appointed to act as a member of the Tribunal” (s 4(1)).

Non-presidential members of the Australian Competition Tribunal are appointed by the Governor-General on the basis of their knowledge of, or experience in, industry, commerce, economics, law or public administration (s 30 and 31). modifications This definition is relevant to the definitions of application law and Competition Code, contained in Pt XIA of the TPA. “Modifications” are defined in s 150A as “including additions, omissions and substitutions”. National Competition Council See Council. New Zealand Commerce Commission “means the Commission established by section 8 of the Commerce Act 1986 of New Zealand” (s 4(1)). This definition was included in the Competition and Consumer Act for the purposes of the Australian and New Zealand prohibitions on the misuse of trans-Tasman market power and related enforcement provisions. The changes came into operation on 1 July 1990. New Zealand Crown corporation “means a body corporate that is an instrument of the Crown in respect of the Government of New Zealand” (s 4(1)). This definition was included in the Competition and Consumer Act for the purposes of the Australian and New Zealand prohibitions on the misuse of trans-Tasman market power and related enforcement provisions. The changes came into operation on 1 July 1990. offering to do an act See engaging in conduct. officer “in relation to the Commonwealth, includes the following: (a) a Minister (b) a person who holds: (i) an office established by or under an Act (ii) an appointment made under the Act (iii) an appointment made by the Governor-General or a

Minister but not under an Act (c) a person who is a member or officer of an authority of the Commonwealth (d) a person who is in the service or employment of the Commonwealth, or of an authority of the Commonwealth, or is employed or engaged under an Act” (s 150A). The definition of “officer” is relevant to the conferral of jurisdiction on Commonwealth officers by the state and territory application laws. Section 150F states that “an application law may confer functions and powers on authorities and officers of the Commonwealth for the purposes of the Competition Code”, and s 150A defines who “officers” are. organisation of employees “means an organisation that exists or is carried on for the purpose, or for purposes that include the purpose, of furthering the interests of its members in relation to their employment” (s 4(1)). The definition of “organisation of employees” is inserted for the purposes of the secondary boycott provisions which were reinstated (with some modifications), as they existed before 30 March 1994, on 17 January 1997. participating jurisdiction (in Pt XIA of the Competition and Consumer Act) “means a participating State or Territory” (s 150A). This definition was inserted on 17 August 1995, when amendments to the Competition and Consumer Act were made following agreement between the federal, state and territory governments to apply the competitive conduct rules uniformly across Australia. Participating states and territories are states and territories that: (a) are party to the Conduct Code Agreement, and (b) apply the Competition Code as a law of that jurisdiction under an application law (s 150A). See definitions of Conduct Code Agreement, Competition Code

and modifications. For further information about jurisdictions participating in application of the Competition Code, see ¶300 and ¶990. participating state (in Pt XIA of the Competition and Consumer Act) “means a State that is a party to the Conduct Code Agreement and applies the Competition Code as a law of the State, either with or without modifications” (s 150A). See participating jurisdiction above, as well as Conduct Code Agreement, Competition Code and modifications. For further information about jurisdictions participating in application of the Competition Code, see ¶300 and ¶990. participating territory (in Pt XIA of the Competition and Consumer Act) “means a Territory that is a party to the Conduct Code Agreement and applies the Competition Code as a law of the Territory, either with or without modifications” (s 150A). See participating jurisdiction above, as well as Conduct Code Agreement, Competition Code and modifications. For further information about jurisdictions participating in application of the Competition Code, see ¶300 and ¶990. personal injury includes: pre-natal injury impairment of a person’s physical or mental condition, or disease, but does not include an impairment of a person’s mental condition unless the impairment consists of a recognised psychiatric illness (s 4(1)). See further ¶31-055. practice of exclusive dealing “means the practice of exclusive dealing referred to in subsection 47(2), (3), (4), (5), (6), (7), (8) or (9)” (s 4(1)). See also Pt VII of the Competition and Consumer Act and its treatment in “Exclusive Dealing” commentary at ¶6-000ff. practice of resale price maintenance “means the practice of resale

price maintenance referred to in Part VIII” (s 4(1)). See also s 48 and “Resale Price Maintenance” commentary at ¶7000ff. President “means the President of the Tribunal and includes a person appointed to act as President of the Tribunal” (s 4(1)). The President of the Australian Competition Tribunal is appointed under s 30 in accordance with s 31 of the Competition and Consumer Act, and must be a judge of the Federal Court. Under s 39, the president may give directions as to the arrangement of the business of the tribunal and the constitution of the divisions of the tribunal. See also presidential member. See further ¶870ff. presidential member or presidential member of the Tribunal “means the President or a Deputy President” (s 4(1)). Presidential members of the Australian Competition Tribunal are appointed under s 30 of the Competition and Consumer Act by the Governor-General. They must be judges of a Federal Court (other than the High Court or a court of an External Territory). Under s 37, the tribunal is constituted by a presidential member sitting with two non-presidential members. The presidential member presides over proceedings and determines questions of law arising in proceedings before the tribunal. Other questions are decided by majority (see s 42). See further ¶870ff. preventing competition See competition. preventing or hindering competition “references to the lessening of competition shall be read as including references to preventing or hindering competition” (s 4G). “Preventing” and “hindering” appear to be differing degrees of “lessening”, so that while the section enables references to lessening to be interpreted more flexibly, no real aid is given to determinations of what constitutes a lessening of competition. See further ¶2-600ff. price The Competition and Consumer Act does not define the word but explains that it “includes a charge of any description” (s 4(1)). The word means the sum or consideration for which goods and/or

services may be bought or obtained. The term figures importantly in s 4B, former 45A, 47, 48 and the Australian Consumer Law (Sch 2 to the Competition and Consumer Act). The meaning has been interpreted broadly in the cases, such that any charge imposed in relation to goods or services may be regarded as a component of the price. See “Price representations” at ¶29-260. Statement of price In Guthrie v Metro Ford Pty Ltd (1977) ATPR ¶40030, at p 17,392, regarding a prosecution under former s 53(e) of the Competition and Consumer Act for a misleading statement concerning the duration and amount of a reduction in sales tax, St John J stated that: “Sales tax is a component in the retail price of the vehicles being advertised and I am satisfied that the advertisement concerned a reduction in price.” On appeal to the Full Court (in Universal Telecasters v Guthrie (1978) ATPR ¶40-062, at p 17,645), Franki J stated: “Bearing in mind the definition in s 4 that price includes a charge of any description, I am satisfied that the word ‘price’ in s 53(e) in relation to the subject appeal covers an amount included in respect of sales tax.” This is made explicit in relation to the goods and services tax (GST). In the A New Tax System (Goods and Services Tax) Act 1999 (Cth), “price” is defined to include any GST payable on the consideration for a supply of goods or services; that is, the price of taxable goods and services for GST purposes is GST-inclusive: s 9-75. Weekly loan repayments In Henderson v Pioneer Homes Pty Ltd (1980) ATPR ¶40-159, the Full Federal Court, on a case stated, found that misleading representations relating to weekly repayments on temporary finance for the purchase of land and houses were statements with respect to price. Franki J, with whose judgment Northrop J concurred, stated: “I consider that a statement setting out the way in which the price is to be paid is a statement ‘with respect to’ the price although not a statement with respect to the amount of the price. A statement

prescribing the manner in which and the time by which the obligation to satisfy the payment of the price may be discharged is, in my opinion, a statement with respect to price.” proposed covenant See covenant. provision “in relation to an understanding, means any matter forming part of the understanding” (s 4(1)). The definition of “provision” was inserted into the Competition and Consumer Act concurrently with the 1977 amendment of s 45. It represents an attempt to adopt terminology which encompasses terms and conditions of agreements and contracts without involving the restrictive legal connotations of those expressions. A provision will thus be an element of an understanding which need not be so precisely identified as to be a term of it. This understanding of “provision” was recognised by the High Court in Visy Paper Pty Limited v ACCC (2003) ATPR ¶41-952 at [7]. The High Court went on to say that the word “provision” as used in Pt IV of the Competition and Consumer Act “invites attention to the content of what has been, or is to be, agreed, arranged or understood, rather than any particular form of expression of that content adopted, or to be adopted, by the parties”. Further, the High Court in the Visy case said that the word “condition” as used in s 47(4) also has a meaning uncircumscribed by contract law notions by virtue of the operation of s 47(13). The facts of the Visy case are instructive. Visy Paper Pty Limited had endeavoured to have another company enter into various alternate forms of an arrangement which contained a non-competition clause. The nature of the waste paper collection business was such that, depending on the prevailing market prices for paper, businesses could either be charged for or be paid for waste paper collected. Hence, when the matter was before the Full Federal Court, the majority there (Hill and North JJ) observed that “the non-competition clauses should neither be characterised as clauses relating to the acquisition of goods simpliciter, nor as relating to the provision of a service simpliciter, but as encompassing both”: ACCC v Visy Paper Pty Ltd (2001) ATPR

¶41-835 at [60]. When the case was considered by the High Court, the majority (Gleeson CJ, McHugh, Gummow and Hayne JJ) observed that the word “provision” cannot be understood as being “confined to what might appear as a single clause of a written agreement”. The majority went on to say that the relevant inquiry has to be “about what may be done under the contract, arrangement or understanding, not how it is drafted. That is, the inquiry must focus upon the content of the stipulations which the parties have made or agreed. Thus, upon analysis, the one verbal composite may contain stipulations each of which is a ‘provision’ in the statutory sense, and with different statutory characteristics”: Visy Paper Pty Limited v ACCC (2003) ATPR ¶41952 at [32] and [33]. Having found that two provisions existed, the High Court found that one of those provisions contravened s 45, while the other did not. In the Visy case the High Court noted that the relevant provision may not be in writing and hence the word “provision” cannot be understood as “confined to what might appear as a single clause of a written agreement. ‘Provision’, when it is used in s 45(6), directs attention to the content of the agreement, arrangement or understanding rather than the manner of its expression”: at [32]. purpose or reason The Competition and Consumer Act does not define this phrase, but s 4F(1) clarifies the effect of references to purpose or reason within the Competition and Consumer Act. The section displaces the usual common law interpretation of purpose as a dominant purpose. A provision of a contract, arrangement, understanding or covenant is deemed to have (or to have had) a particular purpose, if the provision was included for that purpose and it was a substantial purpose (s 4F(1)(a)). In addition, a person is deemed to have engaged in conduct for a particular purpose or reason if it was one of the purposes or reasons for the conduct, and it was a substantial purpose or reason. (Tillmanns Butcheries Pty Ltd v AMIEU (1979) ATPR ¶40-138 discusses “substantial” at ¶3-450 and ¶6-715.) The test of purpose or reason is applicable to s 45, former 45A–45C, and 46–48. Although the word “purpose” appears in s 45D(1), 45DA(1), 45DB(1), 45E(2) and 45E(3), the interpretation of “purpose”

as set out in s 4F does not apply to those boycott provisions, being expressly excluded by s 4F(2). There has been a difference of judicial opinion as to whether a subjective or an objective test is applicable in relation to the determination of “purpose” in a particular situation. Regarding a subjective test, see (re s 45D) Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) ATPR ¶40-138 per Deane J at p 18,500; (re s 47) O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) ATPR ¶40-376 at p 44,455; (re s 45) Hughes v Western Australian Cricket Association (Inc) & Ors (1986) ATPR ¶40736 per Toohey J at p 48,044. Regarding an objective test, see (re s 47) Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) ATPR ¶40-315 per Smithers J at p 43,897; (re s 45) TPC v TNT Management Pty Ltd & Ors (1985) ATPR ¶40-512 at p 46,136. Regarding application to s 46, see Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd & Anor (1987) ATPR ¶40-810 per Pincus J at pp 48,809–48,810. As to “understanding” see ¶3-295. See also cartel provision. refusing to do an act See engaging in conduct. registered charity: an entity that is registered under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) as the type of entity mentioned in column 1 of item 1 of the table in s 25-5(5) of that Act, namely, a charity with a purpose to which para (a) of the definition of charitable purpose in s 12(1) of the Charities Act 2013 (Cth) applies (s 4(1)). Registrar “means the Registrar of the Tribunal” (s 4(1)). The Registrar of the Australian Competition Tribunal is appointed under s 44 by the relevant minister. See further ¶910. related bodies corporate Where a body corporate (A): (a) is a holding company of another body corporate (B) (b) is a subsidiary of B

(c) is a subsidiary of a holding company of B, then A and B are deemed to be related bodies corporate (s 4A(5)). In addition, and for the purposes only of Pt IV, VI and VII: (a) a body corporate that is a party to a dual listed company arrangement is taken to be related to the other body corporate that is a party to the arrangement (b) a body corporate that is related to one of the parties to the arrangement is taken to be related to the other party to the arrangement, and (c) a body corporate that is related to one of the parties to the arrangement is taken to be related to each body corporate that is related to the other party to the arrangement (s 4A(5A)). See the definition of dual listed company arrangement. Many forms of conduct prohibited under the Competition and Consumer Act are permitted where the parties concerned are “related” (see, eg s 47(12)). The determination of market power involved in s 46 and 50 involves consideration of the power of related bodies corporate, and the conduct of related bodies corporate may be aggregated, in some cases, to ascertain the anti-competitive effect of conduct. Section 4A(6) of the Competition and Consumer Act presumes that bodies corporate are not related for the purpose of proceedings before the court, the tribunal or the ACCC, unless the contrary is proven. The definition of a related company in s 4A(5) is apparently intended to be exhaustive. It is insufficient to allege that companies are related merely because they share a place of business, a common director, a secretary and common shareholders who are natural persons: Chan Cuong Su t/a Ausviet Travel v Direct Flights International (No 2) (1999) ATPR ¶41-677 at p 42,665. In a Full Federal Court decision in the South Sydney Football case Merkel J considered whether the National Rugby League (NRL) was a

body that was related to News Limited and the Australian Rugby League (ARL) for the purposes of s 4D(1) of the Competition and Consumer Act. Without deciding the point, his Honour observed: “There is some force in the contention that, for the purposes of s 4D(1) and 4A(5), the singular can include the plural (see s 23(b) of the Acts Interpretation Act 1901 (Cth)) with the consequence that where, as in the present case, two parties to the contract, arrangement or understanding (News and ARL) together control the composition of the board and own all of the allocated capital of the other company (NRL), then the other company is a company related to the parties to the contract. If the contention of News and ARL, that they are not related to NRL, were to be accepted, s 4D could be easily circumvented by competitors establishing an ‘independent contractor’…”: South Sydney District Rugby League Football Club Ltd v News Limited (2001) ATPR ¶41-824 at [238]. For State government instrumentalities to be construed as related bodies corporate it would be necessary to construe the Crown to be a holding company for the purposes of the Competition and Consumer Act. This would be unlikely unless each instrumentality “were held to be true emanations of the Crown”: The Paul Dainty Corporation Pty Ltd & Anor v The National Tennis Centre Trust & Ors (1990) ATPR ¶41-029 at p 51,464. As to possible constitutional difficulties with holding companies, see ¶140. require “in relation to the giving of a covenant, means require or demand the giving of a covenant, whether by way of making a contract containing the covenant or otherwise, and whether or not a covenant is given in pursuance of the requirement or demand” (s 4(1)). “Require” is used in the sense of “ask for” or “request” rather than “need”. The word was inserted into the Competition and Consumer Act in 1977 and relates to s 45B. The definition is expansive and indicates that merely demanding the giving of a covenant, whether or not it is given, is caught. Note the comprehensive “deeming”

provisions in s 45B(3) which also expand the definition of “require”. See further ¶3-155. restraint of trade; breach of confidence The Competition and Consumer Act does not define these terms but explains that the law relating to restraint of trade is not affected by the operation of the Competition and Consumer Act insofar as the former is capable of concurrent operation (s 4M(a)). The Competition and Consumer Act does not affect the law relating to breaches of confidence (s 4M(b)). Nothing referred to in para (a) or (b) affects the operation of the TPA itself. Section 4M is discussed further at ¶3-120. According to Hughes v Western Australian Cricket Association (Inc) & Ors (1986) ATPR ¶40-736, an applicant may successfully establish causes of action under s 45 of the Competition and Consumer Act and in respect of common law restraint of trade. re-supply See acquisition, supply and re-supply. See also supply; acquire; consumer. Schedule version of Part IV (in Pt XIA of the Competition and Consumer Act) “means the text that is set out in the Part 1 of Schedule 1 to this Act” (s 150A). This definition was inserted on 17 August 1995, when amendments to the Competition and Consumer Act were made following agreement between the federal, state and territory governments to apply the competitive conduct rules uniformly across Australia. The Schedule version of Pt IV is the backbone of the Competition Code, which in turn is the key mechanism enabling participating jurisdictions to apply uniform competitive conduct rules on a national basis. The Schedule version of Pt IV of the Competition and Consumer Act has been “personalised” so that its provisions apply to all persons, including corporations. This ensures that when the Competition Code is applied by the states and territories, unincorporated businesses not trading interstate, which previously were outside the ambit of the Competition and Consumer Act due to constitutional restrictions (see ¶70), are covered by the Competition and Consumer Act.

The Competition Code, containing the Schedule version of Pt IV, is discussed further at ¶300, ¶990 and ¶1-170. See also Competition Code. send The Competition and Consumer Act does not define the word but explains that it “includes deliver, and ‘sent’ and ‘sender’ have corresponding meanings” (s 4(1)). To send is to despatch. The action of sending is completed by the primary act of dispatch, and there is no requirement that the item sent is received. An analogous approach was taken by the Full Federal Court in Thompson v Riley McKay Pty Ltd (1980) ATPR ¶40-152, where it was held that it is not essential to establish that a false representation has actually been communicated to a specific person in order to prove a contravention of former s 53(a) or (c). It is the making of the representation which is of the essence. Receipt unnecessary In Wells v John R Lewis International (1975) ATPR ¶40-007, at pp 17,139–40, the Full Australian Industrial Court held that: “The meaning of the expression ‘sends any invoice or other document’, appearing in s 64(5), was the subject of considerable debate. No doubt the word ‘send’ is of flexible meaning and will respond to the particular context in which it is used. According to the Shorter Oxford Dictionary, ‘to send’ may comprehend, inter alia, ‘to order to be conveyed’, ‘to order, to request (a person) to go to a place or person’, ‘to cause (a thing) to be transmitted by an intermediary to another person or place’ and ‘to despatch (a letter, telegram, etc.) by messenger, post, etc.’” “A communication not received may, nevertheless, if posted, be said to have been ‘sent’ …” The definition is satisfied by “conduct which although not shown to have involved actual communication with the consumer, did involve a class of activity which was likely in the ordinary course of events to result in such a communication”. services The Competition and Consumer Act does not define the word but explains that it “includes any rights (including rights in

relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce, and without limiting the generality of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under: (a) a contract for or in relation to: (i) the performance of work including work of a professional nature, whether with or without the supply of goods (ii) the provision of, or of the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction, or (iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction (b) a contract of insurance (c) a contract between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking, or (d) any contract for or in relation to the lending of moneys but does not include rights or benefits being the supply of goods or the performance of work under a contract of service” (s 4(1)). It is to be noted that the rights, benefits, privileges or facilities which are enumerated in (a) to (d) of the definition follow on from the words “without limiting the generality of the foregoing” and accordingly each such right, etc, remains subject to the “in trade or commerce” qualification: Chapman v Luminis Pty Ltd (No 5) (2002) ATPR (Digest) ¶46-214, per von Doussa J at [175]. Apart from the provision that the service must be supplied “in trade or commerce” (see trade or commerce), it can be seen that the supply of something, tangible or intangible, in a commercial context, will be caught by the definition unless specifically excluded.

The above explanation was inserted in the Competition and Consumer Act by Act No 81 of 1977 in place of a more truly inclusive definition. The explanation is broad and is expanded by the reference to rights, benefits, etc, provided under particular contracts. Thus, the issuing of an insurance policy may now constitute a service, as will the conferral of a benefit in the course of performing a commercial contract. In the final part of the definition, the supply of goods is exempted from the scope of the definition. Also exempted is the performance of work under a contract of service. Thus it seems that all things conferred in a commercial context, exemptions apart, are caught. The cases cited below support this broad proposition. It will not be sufficient to show that a benefit or right is not conferred under a contract of the type listed from (a) to (d) in order to escape the definition. The inclusive formulation at the commencement of the definition contains the words “that are or are to be provided”. These words make it clear that a service which is not presently provided but is to be subsequently provided can still constitute a “service” for the purposes of the Competition and Consumer Act. However, at least in respect of tying arrangements of the type contemplated by s 47(6) and 47(7), the “service” would need to be of a type which the tying corporation, at the time of the contract, arrangement or understanding, is then able to supply or which it will be able to supply in the future, on performance of the condition by the offeree, rather than some service which the tying corporation is not able to supply at the time the conditional offer of supply is made and which it may never be able to supply: ACCC v IMB Group Pty Ltd (in liq) (2002) ATPR (Digest) ¶46-221, per Drummond J at [66] and [68]. The inclusion of contracts for the performance of work and the exclusion of the performance of work pursuant to a contract of service necessitates reference to cases and texts concerning the distinction between employees and independent contractors. See, for example, Fleming, Law of Torts, 5th ed, pp 358–62. Another feature of the explanation of “services” is the inclusion of rights in relation to, and interests in, real property as well as personal property. Without deciding the point, Franki J, in ADC Centres Pty Ltd v Kilstream Pty Ltd (1979) ATPR ¶40-119, at p 18,296, proceeded on

the basis that rights to and interests in real property under the term of an existing lease could constitute services. The explanation renders unnecessary the distinction between real and personal property. According to the explanation, a transaction involving transfer, lease, mortgage or other dealing with land, or rights attaching to land, such as easements and profits à prendre, will involve the provisions of a service. Another area which would seem to be caught is that of industrial property (see subpara (a)(iii)). The mid-part of the explanation of “services” is similar to that which was contained in the definition in s 4(1) of the Consumer Claims Tribunal Act 1974 (NSW). The meaning of the expression “work of a professional nature” as used in that Competition and Consumer Act was discussed in Holman v Deol (1979) 1 NSWLR 640 (esp pp 650– 51). That decision is discussed in Plimer v Roberts [1997] FCA 1361 (5 December 1997, per Lindgren J). Interpretation by the courts In TPC v Legion Cabs (Trading) Cooperative Society Ltd (1978) ATPR ¶40-092, Franki J held that the taxi radio service provided by the respondent, although not provided pursuant to a contract, was the supply of a service within the pre-1977 amendment Competition and Consumer Act definition. His Honour noted that the definition was prefaced by the words “unless the contrary intention appears”, and also that some words were defined as “means” and that therefore the use of the word “includes” called for a broad interpretation. The same judge, in Parramatta Tourist Services Pty Ltd v SWB Family Credit Union Ltd (1979) ATPR ¶40-102, found that the collecting and distributing of a rebate by the respondent and the crediting of that rebate to the account of members of the respondent constituted the supply of services. This was so because it involved the supply of a benefit or privilege that was, or was to be, provided in trade or commerce. This aspect of his Honour’s judgment was affirmed on appeal (Sheppard J dissenting) in SWB Family Credit Union v Parramatta Tourist Services Pty Ltd (1980) ATPR ¶40-180. In Re Kuring-gai Co-operative Building Society (No 12) Ltd (1978) ATPR ¶40-

094, it was held that the lending of money under a mortgage contract involves the provision or grant of rights, benefits or facilities under a contract for or in relation to the lending of money, and thus the supply of services (cf per Deane J at p 17,943). The likely fate of technical or legalistic arguments in attempting to avoid the definition of services is indicated below. The exclusion of the performance of work under a contract of service was adverted to by the Full Federal Court in Adamson v West Australian National Football League (1978) ATPR ¶40-078. The question received more detailed consideration from Northrop J in his judgment on the application in that matter for a final injunction (1979) ATPR ¶40-134. His Honour considered that when a professional footballer takes the field in a match for the club which has acquired his services, he is performing work under his contract of service with that club. Such service was clearly prima facie within the definition, but equally as clearly excluded by the last part of the definition. In another football case, this time involving rugby league players (Adamson & Ors v New South Wales Rugby League Ltd & Ors (1991) ATPR ¶41084), Hill J applied the earlier Adamson case (see above), finding that it was common ground that the players were employees of the club and, as such, were expressly excluded from the definition of services in s 4(1). On appeal, the Full Federal Court affirmed the reasoning of Hill J on this point. See, however, Barnard & Ors v Aust Soccer Federation & Ors (1988) ATPR ¶40-862, at p 49,317, where Pincus J, on hearing an application for interlocutory relief by a soccer player who had been barred by soccer organisations from also playing indoor soccer, stated that the exclusionary words at the conclusion of the definition of services in s 4(1) might well not assist the respondent soccer clubs in their argument against the grant of relief. His Honour indicated that in order that the contract between the player and the club be a contract of service, s 4(1) might well require an “ordinary measure of control” by the club over the player, and the control did not appear to be present in the contract before him. His Honour pointed to another difficulty for the clubs in their endeavour to fall within the exclusionary words of s 4(1): the words “right or benefits being … the performance of work under a contract of service” on its natural reading appeared to cover merely the right of the employer to the performance

of work, not any rights of an employee to be given work (at p 49,317). These two difficulties were not resolved as the proceedings were interlocutory and Pincus J preferred to grant relief on the basis of the common law restraint of trade and not on s 45. In Wright v TNT Aust Pty Ltd (1988) ATPR ¶40-864, at p 49,360, Lee J in relation to claims under the former s 52 and 53(aa) held that the concluding words of the definition of services in s 4(1) expressly excluded from the meaning of services the services supplied under a contract of service between an employee and employer, with the only services supplied under such a contract being the performance of work by the employee for the employer. (This point was not raised on appeal (1988) ATPR ¶40-929.) In Henderson v Pioneer Homes Pty Ltd (1980) ATPR ¶40-159, the Full Federal Court held that advertisements relating to the sale of houses and land and the provision of finance therefore were advertisements relating to the provision of services. Franki J stated: “It may be thought rather strange that those transactions would fall within the supply of services. However, the definition of ‘services’ in s 4 includes interests in real or personal property and ‘any contract for or in relation to the lending of moneys’ and s 4C(d) provides that a reference to the supply of services, unless the contrary intention appears, includes a reference to the supply of services together with property or other services or both.” Smithers J considered that the service was constituted by “a package deal. It offered land and it also offered a loan of money … the promise as part of a total transaction to arrange a loan clearly falls within the description ‘any contract for or in relation to the lending of money’.” His Honour went on: “Accordingly each part of the proposed transaction, namely the sale of the land and the promise to arrange a loan, constituted a service within the meaning of the Act.” In the Queensland Aggregates case, the Full Federal Court stated that, despite the extended meaning prima facie ascribed to services by s 4(1), the repeated use in other sections of the TPA of the words “goods or services”, the content of those sections and the ordinary meaning of services indicated that the s 4 definition should not be

given an expansive construction. The case (Queensland Aggregates Pty Ltd & Anor v TPC (1981) ATPR ¶40-236, at pp 43,142–43,143) involved the allegation that offers to provide work on condition that the offeree acquire a truck from a particular third party were in breach of s 47(6) of the TPA. The Full Federal Court characterised the offer to provide work as a “benefit” or “privilege”, and stated that it constituted the supply of a service. A simple payment of money would not fall within the definition, however, although in one sense it might be regarded as a “benefit”. The issue, distribution and sale of bank notes by the Reserve Bank is a “service”: Sykes & Ors v Reserve Bank of Australia (1998) ATPR ¶41-608. In issuing, distributing and selling bank notes, the bank provided a facility which was “in trade and commercial dealings”. Accordingly, the issue of the bank notes amounted to the provision of a service. In Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) ATPR ¶40-094, at p 17,945, the phrase “any rights” in the definition was examined. Deane J stated: “As a matter of language, the phrase ‘any rights’ is apt to include a right which is held jointly was well as a right which is held independently. The rights of a co-insured under a joint policy of insurance come within its purview. The substitution of the phrase ‘the rights’ in that part of the definition which expressly refers to rights under a policy of insurance is in the context of a provision that that part of the definition shall not limit the generality of what has gone before. In that context, the reference to ‘the rights … under a contract of insurance’ should be interpreted as referring not only to the undivided totality of rights of the independent insured but also to any right which a co-insured or any other person might severally or jointly acquire under a contract of insurance.” In Roberts v Murlar Pty Ltd & Ors (1986) ATPR ¶40-729, an applicant employee claiming relief in respect of alleged breaches of s 45E (as that section existed at that time) sought to establish that there was an arrangement hindering the supply of his services. One of the services

said to be affected was the employer’s right to have the applicant act honestly and skilfully. Pincus J (at p 47,959) pointing to the exclusion of performance of work under a contract of service from the definition of services in s 4, stated that, on the proper construction of the word, the elements of performance of work under a contract of service cannot be taken separately and each treated as services. The rights or benefits being the performance of work pursuant to a contract of service included the beneficial characteristics of that performance such as honesty and skill. In the court’s view, the exclusion catches both the actual performance of work and “the advantage inherent in having the potential performer available to work honestly, skilfully and so forth”. In Dillon & Ors v Baltic Shipping Company “Mikhail Lermontov” (1990) ATPR ¶40-992, Carruthers J found that former s 74 of the Competition and Consumer Act, which implies warranties in relation to the supply of services, extended to the carriage of the luggage of a cruise ship passenger but not to the carriage of the passenger herself. On appeal, Kirby P of the NSW Court of Appeal stated that it was at least doubtful that the contract between the passenger and the shipping company would be divided artificially into two contracts, one within and one outside the TPA. Kirby P, however, did not need to decide this question and Gleeson CJ and Mahoney JA offered no view (Baltic Shipping Company v Dillon (1991) ATPR (Digest) ¶46-068). In Adamson & Ors v New South Wales Rugby League Ltd & Ors (1991) ATPR ¶41-084, the application of both limbs of s 45(2) of the Competition and Consumer Act was argued on the basis that there was a supply of services by rugby league players to the clubs. Hill J found that it was common ground that the players were employees of the club, referring to Buckley v Tutty (1971) 125 CLR 353. As such, they were expressly excluded from the definition of services in s 4(1) of the Competition and Consumer Act, as per Adamson v West Perth Football Club Inc (1979) ATPR ¶40-134. On appeal, the Full Federal Court affirmed this approach by finding that the arrangement in question did not involve the supply of services within the meaning of s 4, as it involved contracts of service which fell within the exclusion in the latter part of the definition: Adamson & Ors v New South Wales

Rugby League Ltd & Ors (1991) ATPR ¶41-141. Wilcox J observed that, as a reference to any standard dictionary will show, although the word “services” has a wide application, it imports always the notion of some assistance or accommodation being made available by one person to another. It is impossible to regard a mere freedom to negotiate with a person as the supply by that person of “services” to the prospective negotiator. The remarks of Wilcox J in the Full Court of the Federal Court in Adamson v New South Wales Rugby League Ltd were expressly approved by the Full Court of the Federal Court in Obeid v ACCC (2014) ATPR ¶42-489 at [54]. In the Obeid case, the Full Court found that an expression of interest (EOI) process run by the NSW Department of Primary Industries, whereby invitations were sought to lodge EOIs for coal exploration licences, was a commercial one designed to maximise revenue from the granting of the right to explore the state’s coal reserves and the appellants were engaged in trade or commerce when participating in the tender process. In providing the appellants with a right to participate in the EOI process, the minister was providing a right, benefit or privilege within the definition of “services” in s 4(1). The case Australian Society of Accountants v Federation of Australian Accountants Inc & Ors (1987) ATPR ¶40-796, at p 48,685, decided that the supplying of services can include the provision of professional qualifications at a price. Regarding rodeo riders, see McCarthy & Ors v Australian Rough Riders Association Inc & Anor (1988) ATPR ¶40-836 per Spender J at pp 49,027–49,028. There, the services acquired included the rodeo rider’s participation in a particular event and thereby the provision of entertainment to the spectators at the rodeo. In Trumpet Software Pty Ltd & Anor v OzEmail Pty Ltd & Ors (1996) ATPR ¶41-511 Heerey J held that, since copyright is a form of personal property, the grant of a copyright licence and the benefits and privileges thereby conveyed is a “service” under s 4. A chemist and a health insurance fund had a commercial agreement whereby the chemist gave discounts to fund members in return for

benefits supplied by the fund. This agreement fell within the definition of “services” covered by the TPA: Australian Competition and Consumer Commission v Health Partners Incorporated (1998) ATPR ¶41-604. severability The Competition and Consumer Act does not define the word — s 4L provides for severance of a provision which contravenes the Competition and Consumer Act, subject to any orders made under s 51ADB or s 87. The validity or enforceability of the remainder of the contract is not affected. For further discussion of severability, see ¶4350. share The Competition and Consumer Act does not define the word but explains that it “includes stock” (s 4(1)). Although shares are not, in Australia, commonly converted into stock, this provision makes it clear that an acquisition of stock will be caught by s 50. subsidiary The Competition and Consumer Act explains in s 4A(1) that a body corporate (A) is deemed to be a subsidiary of another body corporate (B) if B controls the composition of A’s board of directors, is in a position to cast or control the casting of more than half the possible votes at a general meeting of A, or holds more than half of A’s allotted share capital. For the latter purposes, allotted share capital carrying no right to participate beyond a specified amount in a distribution of either profits or capital is excluded (s 4A(1)(a)). A is also the subsidiary of any other subsidiary of B (s 4A(1)(b)). Section 50A(8) contains a deeming provision in relation to a controlling interest, which is specific to the operation of s 50A — offshore acquisitions. Control of Board The composition of the board of directors of A is deemed to be controlled by B if B can appoint or remove all or a majority of the directors without the consent or concurrence of another. B will be deemed to have power to make such an appointment where a person cannot be appointed as a director of A unless that power is exercised in his favour, or a person’s appointment as a director follows necessarily from his being a director or other officer of B (s 4A(2)).

Control of shares In determining whether A is a subsidiary of B, shares held or powers exercisable by B in a fiduciary capacity are irrelevant (s 4A(3)(a)). Subject to para (c) and (d) of s 4A(3), shares held or powers exercisable (aside from those exercisable in a fiduciary capacity): (a) by any person as a nominee of B, or (b) by, or by a nominee for, a subsidiary of B shall be treated as held or exercisable by B (s 4A(3)(b)). Shares held or a power exercisable by any person by virtue of the provisions of any debentures of A, or of a trust deed for securing any allotment of such debentures shall be disregarded (s 4A(3)(c)). Finally, any shares held or powers exercisable by, or by a nominee for, B or B’s subsidiary (excluding the para (c) situation) shall be treated as not held or exercisable by B, if the ordinary business of B or its subsidiary includes the lending of money and the shares are held or the power is exercisable by way of security only for the purposes of a transaction entered into in the ordinary course of that business (s 4A(3)(d)). See also holding company; related bodies corporate. supply “when used as a verb, includes: (a) in relation to goods — supply (including re-supply) by way of sale, exchange, lease, hire or hire-purchase, and (b) in relation to services — provide, grant or confer and, when used as a noun, has a corresponding meaning, and ‘supplied’ and ‘supplier’ have corresponding meanings” (s 4(1)). This inclusive definition of the word “supply” leaves open the question whether supply otherwise than for consideration is caught. See also acquire. It is now clear that the linked concepts of “acquire” and “supply” are not confined in their operation to the provision and acquisition of goods or services under legally binding contractual arrangements only. In particular, the concept of indirect acquisition “from another

person” in s 47(6) and (7) is not confined to acquisition only from an entity which is in a legal relationship of agency with that other person: ACCC v Flight Centre Limited (No 2) (2013) ATPR ¶42-458, per Logan J at [132], citing ACCC v IMB Group Pty Ltd (in liq) (2002) ATPR (Digest) ¶46-221. In Graham v Sloan [1943] NZLR 292, it was held that the gratuitous delivery of goods was a supply of those goods. It could thus be contended that the definition is not comprehensive and includes supply by way of gift. If the principle of John Mackintosh & Sons Ltd v Baker’s Bargain Stores (Seaford) Ltd [1965] 3 All ER 412 is applied, it may be that there can be supply only where title passes, except in the specific instances set out in para (a). Those instances must be read as amplified by the operation of s 4C. The definition of supply of services is also extremely broad. The present state of the authorities indicates that where a “good” or “service” is found to exist, then it will have been supplied. See TPC v Legion Cabs (Trading) Co-operative Society Ltd (1978) ATPR ¶40-092 (per Franki J at p 17,904), Parramatta Tourist Services Pty Ltd v SWB Family Credit Union Ltd & Anor (1979) ATPR ¶40-102, and In re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) ATPR ¶40-094 (especially per Deane J at p 17,943). See also definition of services. According to Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd (1986) ATPR ¶40-747 (per Brennan J at p 48,164), where a seller supplies delivered beer, there is no supply by the seller to the buyer at the seller’s premises. When the beer is picked up there by a carrier, there is no sale, no appropriation of beer to an agreement for sale and no transfer of property in the beer. The carrier is the bailee of the seller. The beer is supplied by the seller to the buyer at the buyer’s premises. Castlemaine Tooheys Ltd was, however, distinguished in ACCC v Flight Centre Limited (No 2) (above), on the basis that Castlemaine Tooheys Ltd arose under s 47 of the (then) TPA, not s 45, and the end result of characterisation on the facts of the case was that it was goods (beer) which were supplied. The transportation of the goods to

the publican’s premises was but a necessary incident of the supply of goods at that site by Castlemaine Tooheys if a publican chose to take delivery of goods there, as opposed to at the brewery. In ACCC v Flight Centre Limited (No 2), though there was a supply of international air travel by the airlines, that conclusion said nothing about how the existence of the availability of that supply was made known to the consumer, the would-be passenger. In the different circumstances and context of that case, there was no artificial splitting from what was truly to be characterised only as the supply of a service, namely, the air travel (the flight), by separately identifying booking and distribution services. Those are services which a travel agent such as Flight Centre does supply. Swanson Committee See consumer. See also market. Territory “means: (a) an internal Territory, or (b) the Territory of Christmas Island, or (c) the Territory of Cocos (Keeling) Islands” (s 4(1)). An “internal Territory” presumably means the Australian Capital Territory or the Northern Territory. Territory “means the Australian Capital Territory or the Northern Territory” (s 150A). This definition is relevant to the definitions of participating Territory and participating jurisdiction, contained in Pt XIA of the Competition and Consumer Act. When read in conjunction with these two definitions, the definition of Territory makes it apparent that the Australian Capital Territory and the Northern Territory are participating jurisdictions, who have agreed to apply the Competition Code in their respective jurisdictions. For further information about jurisdictions participating in application of the Competition Code, see ¶300 and ¶990. trade or commerce The Competition and Consumer Act does not

define the term — it only gives a general geographical orientation, stating that it “means trade or commerce within Australia or between Australia and places outside Australia” (s 4(1)). The definition of “trade or commerce” is also important as in some cases it will delimit the extent of the constitutional power (see Constitution s 51(i). See also s 6 of the Competition and Consumer Act, ¶70). The meaning of the expression “trade or commerce” simpliciter has been attributed with the same meaning as applies to its use in s 51(1) of the Constitution. Prior to the decision in Concrete Constructions v Nelson (1990) ATPR ¶41-022 there were decisions which attributed that same meaning to the compound expression “in trade or commerce” — see for example in the Popular Mechanics case (Handley & Ors v Snoid & Ors (1981) ATPR ¶40-219) in which Ellicott J found that the words “in trade or commerce” bore the same meaning as they did in s 51(1) of the Constitution (see also The Seamen’s Union of Aust & Ors v Utah Development Co & Ors (1978) ATPR ¶40090 and Ex parte West Australian National Football League (1979) ATPR ¶40-103). However, in the Concrete Constructions case the majority joint judgment held that cases dealing with the trade and commerce power in s 51(1) of the Constitution will not be authoritative in respect of the expression “in trade or commerce” (p 51,363). Apart from its use in s 4 and 6(2) of the Competition and Consumer Act, the expression “trade or commerce” simpliciter has limited use throughout the Competition and Consumer Act (instances include s 51(2A) (which employs the phrase “in the course of trade or commerce”), 51(5), former 51AC, 95C(1) (which employs the phrase “in the course of, or in connection with, trade or commerce”), and 151AE). The Competition and Consumer Act also uses the phrase “constitutional trade or commerce” in Pt IIIA (Access) where the meaning attributed to it in s 51(1) of the Constitution would appear to be instructional. However, extensive use is made throughout the Competition and Consumer Act of the phrase “in trade or commerce”, including in the Australian Consumer Law (Sch 2 to the Competition and Consumer Act).

The principles governing construction of the expression “in trade or commerce” in former s 52 of the Competition and Consumer Act (see s 18 of Sch 2) are those enunciated in the joint judgment of Mason CJ, Deane, Dawson and Gaudron JJ in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) ATPR ¶41-022. In that case, an employee alleged that, while he was employed by a construction company, a company foreman instructed him to remove the grates from the entry points of certain air-conditioning shafts and informed him that each grate was secured by bolts. While the employee was removing one of the grates it gave way, causing him to fall to the bottom of the shaft and suffer serious injuries. He claimed damages against his employer on the basis that the foreman’s statement was conduct which was misleading or deceptive. All members of the High Court held that the facts pleaded in the statement of claim did not give rise to a cause of action under s 52 because the employer’s conduct was not in trade or commerce. The joint judgment held (at pp 51,362–51,363) that s 52, on its proper interpretation, prohibits a corporation from engaging in misleading or deceptive conduct “in trade or commerce” regardless of whether the conduct misleads or deceives a person in the capacity of consumer (whereas the separate judgments of Brennan, Toohey and McHugh JJ each considered that s 52 is concerned with protecting persons in their capacity as consumers and, as the conduct in question did not affect the employee as a consumer, the claim failed). The joint judgment considered that there could be both a narrow and a broader view of the meaning of “in trade or commerce” in s 52, and concluded that it was the narrow view which is the correct construction for the purposes of s 52 of the Competition and Consumer Act. The narrow view is that the expression refers only to “conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character. So construed, the expression refers to ‘the central conception’ of trade or commerce and not to the ‘immense field of activities’ in which corporations may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business” (p 51,364). The broader view was that the expression would encompass “conduct in the course of

the myriad of activities which are not, of their nature, of a trading or commercial character but which are undertaken in the course of, or as incidental to, the carrying on of an overall trading or commercial business” (pp 51,363–51,364). Accordingly, as the High Court concluded, s 52 is concerned with “the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or seeks to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public” (p 51,364). In an observation apparently directed at the employee’s attempt to use s 52 to circumvent restrictions imposed by state law on the recovery of damages in personal injury cases, in their joint judgment their Honours said that s 52 was “not intended to impose, by a side-wind, an overlay of Commonwealth law upon every field of legislative control into which a corporation might stray for the purposes of, or in connection with, carrying on its trading or commercial activities” (p 51,364). In a subsequent case, Wilcox J commented on this, saying “It is easy to understand the policy reasons underlying Concrete Constructions. A contrary result would have led to s 52 being used as a vehicle for the recovery of personal injury damages in a large number of industrial and motor accident cases; even cases where the respondent was not negligent, but only if it happened to be a ‘corporation’ as defined in s 4 of the Trade Practices Act”: see Barto v GPR Management Services Pty Ltd (1992) ATPR ¶41-162 at p 40,210. The difficulty which arises with the principles enunciated by the High Court in that decision is not, as was noted in Village Building Company Limited v Canberra International Airport Pty Limited (2004) ATPR ¶42-019 at [41], “so much in stating the principles but in applying them to the circumstances of particular cases”. In Concrete Constructions the High Court recognised the difficulty which may arise in determining whether or not specific conduct is “in trade and commerce” when it said that this “may require the identification of

what imports a trading or commercial character to an activity which is not, without more, of that character” (p 51,364). The High Court illustrated the point by referring to the driving of a truck for the delivery of goods to a consumer as being “in trade or commerce” insofar as the relationship between supplier and customer is concerned. But, the mere driving of a truck or construction of a building without more is not trade or commerce. Hence, the giving of a misleading hand signal by the driver of the truck would not, in the relevant sense, be conduct by a corporation “in trade or commerce”. The High Court’s hand signal analogy was drawn upon in Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (2005) ATPR (Digest) ¶46-261 in concluding that the acts or omissions of a ship’s pilot in the course of manoeuvring a ship into a berth was not conduct “in trade or commerce”. The court (Hely J) further held that the pilot’s conduct was not “in trade or commerce” as the pilot had been purporting to carry out the statutory function of a pilot under relevant state legislation and that was not a function which of itself was an aspect or element of activities which bore a trading or commercial character. In Larmer v Power Machinery Proprietary Ltd (1977) ATPR ¶40-021, at p 17,313, Nimmo J held that the display, in the foyer of a company’s premises, of a brochure which was seen only by investigating officers of the commission, was an act “in trade or commerce”. His Honour considered “the expression is intended to cover the whole field in which the nation’s trade or commerce is carried on. I rejected the view that it is confined to any particular event which may occur in the conduct of a business which operates within that field”. The actual findings in Larmer’s case and those in Videon v Beneficial Finance Corporation Ltd & Ors (1981) ATPR ¶40-246 make it plain that activities affecting a dealer or agent (or an ACCC officer), but not the consuming public, may still be regarded as being “in trade or commerce”. In the Popular Mechanics case (Handley & Ors v Snoid & Ors (1981) ATPR ¶40-219), Ellicott J found that the words “in trade or commerce” encompassed the provision of services and included the “provision of the tangible as well as the intangible”. His Honour found that playing music for reward fell within the meaning of the words.

In Williams v Pisano (2015) ATPR ¶42-504 the New South Wales Court of Appeal said that relevant factors for determining whether conduct is engaged in in trade or commerce include: the character of the parties (including whether they are people who have engaged in or about to engage in commercial activities), the motivation for the transaction (business or personal reasons), and whether the person whose conduct is under attack played an active part in the transaction. “… within Australia or between Australia and places outside Australia” In Norcast Sárl v Bradken Limited (No 2) (2013) ATPR ¶42-433, the relevant “trade or commerce” was the sale of NWS, a Canadian mining consumables company, by its holding company Norcast to Castle Harlan, a New York-based private equity fund, and the potential on-sale of NWS by Castle Harlan, outside Australia, to Bradken, within Australia. Bradken’s silence and Castle Harlan’s silence and the making of relevant representations were held to be conduct by them in trade or commerce “between Australia and places outside Australia”. Limitations on scope Some limitations have been placed on the interpretation of the words by the Federal Court. In O’Brien & Anor v Smolonogov & Anor (1983) ATPR ¶40-418, the purchasers of two lots of land later purported to rescind on the basis of false representations made in the course of negotiations. The Competition and Consumer Act was said to apply to the vendors as individuals by virtue of s 6(3), because the representations took place in the course of a telephone conversation, and the question on appeal was whether the conduct took place in trade or commerce. In that case, the sale did not constitute conduct in trade or commerce. The Full Federal Court interpreted the phrase as being akin to “in the course of a business”, holding at pp 44,851–44,852 that: “… the mere use, by a person not acting in the course of carrying on a business, of facilities commonly employed in commercial transactions, cannot transform a dealing which lacks any business character into something done in trade or commerce”. The sale of a capital asset used for business purposes will, however, fall within the words “trade or commerce” (see Lubidineuse & Ors v

Bevanere Pty Ltd (1984) ATPR ¶40-487), which followed the rationale of the Smolonogov case. On appeal, the Full Federal Court noted that there was nothing in the Smolonogov case which lent support to the proposition that the sale of a capital item used for business purposes would not constitute conduct in trade or commerce unless it formed part of a business of buying or selling such assets. In this case, the making of arrangements necessary to sell the assets of the business was part of the totality of the appellant’s activities in trade or commerce (Bevanere Pty Ltd v Lubidineuse & Ors (1985) ATPR ¶40565). See also Brown v Riverstone Meat Co Pty Ltd (1985) ATPR ¶40576 and Lake Koala Pty Ltd v Walker & Ors (1990) ATPR ¶41-041, which adopted this approach. This was again confirmed in JS McMillan Pty Limited & Ors v Commonwealth of Australia (1997) ATPR (Digest) ¶46-175. There, Emmett J confirmed that the sale of a business or its assets can amount to activity in trade or commerce (even if it does not amount to “carrying on a business” within the meaning of s 2A of the Competition and Consumer Act). His Honour considered the Commonwealth government’s sale of its printing service’s assets was conduct “in trade or commerce”. The rationale in Bevanere was also applied in respect of a representation as to the area of grape vines on a property which was for sale. There, both Mr and Mrs Grace were involved in making the representation. Mr Grace, the vendor of the property, was found to have acted “in trade or commerce”. Although he had made the representation in connection with the sale of a capital asset, it was an asset that had been used by him in trade or commerce. Conversely, Mrs Grace was not a vendor of the property nor had she acted as an agent for reward of the vendor, thus the supply by her of information about the property was not an act undertaken “in trade or commerce”: Lawson Hill Estate Pty Ltd v Tovegold Pty Ltd (2004) ATPR ¶42-038. While production and manufacturing may be distinguished from commerce, no one suggests that a manufacturer may not be subject to the Competition and Consumer Act, and the same situation applies to a primary producer in relation to the goods which he or she produces. The sale of a capital asset by virtue of which a primary

producer has been carrying on business is thus also a transaction in trade or commerce (Morton & Anor v Black (1988) ATPR (Digest) ¶46037). If a transaction falls within the normal ambit of trade or commerce, however, the fact that the dealing was gratuitous or that the parties were not in a business relationship will be irrelevant (Menhaden Pty Ltd v Citibank NA (1984) ATPR ¶40-471). Argy & Anor v Blunts & Ors (1990) ATPR ¶41-015 illustrates the limitations introduced by the words “in trade or commerce”. The applicant purchaser of a house and land brought proceedings against the vendor, estate agent and solicitors who prepared the contract for sale. One page had been omitted from a zoning document annexed to the contract. Combined with statements made in the advertisement and the sale brochure, this was said to misrepresent the true situation as to the zoning of the property. Applying the approach adopted in O’Brien v Smolonogov & Anor (1983) ATPR ¶40-418, the court held that the purely private sale of his home by the vendor was not conduct in trade or commerce. The conduct of the other parties, however, had the potential to fall within the ambit of s 52 and did so. See also Williams v Pisano (2015) ATPR ¶42-504. In that case, the New South Wales Court of Appeal held that the element of acting “in trade or commerce” will not be attributed to owners selling their home merely because they use a real estate agent. The conduct of the real estate agent may have been conduct in the trade or commerce of the agent. However, the fact that the actions by an agent are deemed to have been actions by the agent’s principals (in this case the vendors) as per s 84(4) of the Competition and Consumer Act, does not bring about the result that the deemed actions of the principals constituted conduct in trade or commerce, if all the principals were doing was selling their home. On the other hand, in Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd & Ors (1992) ATPR ¶41-184, the Federal Court applied the reasoning of both the O’Brien and Argy cases to hold that the sale of a house property was conduct in trade or commerce. In Gentry, at p 40,507, Cooper J found that the sale of the house stood not as a single transaction which was strictly private but as part of a

series of transactions involving in land. The decisions in both O’Brien v Smolonogov (1983) ATPR ¶40-418 and Argy & Anor v Blunts & Ors (1990) ATPR ¶41-015 were distinguished by the Victorian Court of Appeal in Sigma Constructions (Vic) Pty Ltd v Maryvell Investments Pty Ltd (2005) ATPR ¶42-048. In that matter, in an isolated transaction, a licence to use land had been granted and subsequently terminated for breach. Batt JA (with whom Vincent and Nettle JJA agreed) held that “notwithstanding that the licence was an isolated transaction and, unlike the first sale of goods by a new business, unlikely to be repeated, the granting of it was an activity or transaction which of its nature bore a trading or commercial character”. His Honour noted that the company had temporarily turned to account part of the premises on which it was conducting or used to conduct a business. The fact that the transaction was divorced from the mainstream of the company’s business, while relevant, was not decisive. This situation was said to be distinguishable from the O’Brien case where the land in question had not been used for any business activity and the vendors in selling, were not acting in the course of carrying on business. It was also distinguishable from the Argy case where the owner of a house was not acting in trade or commerce by selling it, irrespective of whether it was being sold through an agent or otherwise. The sale of real estate owned by non-commercial organisations or associations may constitute conduct in trade or commerce. In Ramage & Anor v Sharp, Phillips & Jones as Trustees of Geraldton Lodge No 321 United Ancient Order of Druids & Ors (1993) ATPR ¶42-242, authorising the sale of a lodge hall, the lodge acted in trade or commerce. The sale of the property was more than the mere realisation of a capital asset and so far as the lodge was concerned was of a commercial nature. Of more importance, however, is the limitation placed upon the meaning of the words by the High Court in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) ATPR ¶41-022. There a majority of the High Court construed the words more narrowly to find that representations made by an employer to an employee in the course of internal working instructions were not conduct in trade or commerce.

In Franich & Anor v Swannell & Ors (1994) ATPR (Digest) ¶46-115, the sale of a private house was held to be without any business character and the vendor’s silence about the “sanitized” nature of the engineering report was conduct which a person who does not engage in conduct in trade or commerce may lawfully maintain. Certain government activities may, in the circumstances, constitute or give rise to conduct in trade or commerce. In Obeid v ACCC (2014) ATPR ¶42-489, the Full Court of the Federal Court found that an expression of interest (EOI) process run by the NSW Department of Primary Industries, whereby invitations were sought to lodge EOIs for coal exploration licences, was a commercial one designed to maximise revenue from the granting of the right to explore the state’s coal reserves and the appellants were engaged in trade or commerce when participating in the tender process. In providing the appellants with a right to participate in the EOI process, the minister was providing a right, benefit or privilege within the definition of “services” in s 4(1). The judgment of the Full Court contains a helpful discussion of cases which deal with when a government might be taken to carry on business and be in trade and commerce. The provision of a gratuitous medical service (eg supplying blood) has been held not to be an act in trade or commerce, even though the provider was a trading corporation (“E” v Australian Red Cross Society (1991) ATPR ¶41-085). The giving of a speech by the Minister for Primary Industry at an international wool conference in which he sought to allay fears that the reserve price for wool would go down further has been held not to have been made in trade or commerce (Unilan Holdings Pty Ltd & Ors v Kerin (1992) ATPR ¶41-169). In striking out the s 52 claim, Hill J found at p 40,324 that the giving of a speech did not form part of the central conception of trade or commerce and was not made so merely because the speech concerned matters of trade or commerce. The giving of the speech was a matter that could be said to be in relation to trade or commerce but was not conduct which was actually in trade or commerce. The speech dealt with government policy which impinged directly upon the international trade in wool but it was not conduct which itself had a trading or commercial character.

Sending a misleading email message to another company did not amount to conduct “in trade or commerce” in Dataflow Computer Services Pty Ltd v Goodman (1999) ATPR ¶41-730. Dataflow supplied computer goods to retailer, Harvey Norman, and one of its employees emailed Harvey Norman about supply conditions. The email implied that Dataflow was about to change supply arrangements, and that Harvey Norman would suffer as a result. Dataflow commenced action against the employee, alleging that he had behaved misleadingly, in breach of s 52. Dataflow lost because it failed to establish that the employee’s misleading conduct had been “in trade or commerce”. The trade or commerce in question was the business or commercial dealings between Dataflow and Harvey Norman. The employee’s sending of the email was not engaged in as part of those business dealings; rather, it was in connection with or in relation to those dealings. The employee’s conduct was that of a bystander commenting on the trade or commerce in which others were engaged, rather than something done in that, or any other, trade or commerce. Representations made by a biblical scholar during public presentations (about the likelihood of a relic being Noah’s Ark) were also not made “in trade or commerce”: Fasold & Anor v Roberts & Anor (1997) ATPR ¶41-561. In that case, Dr Roberts (a Christian minister) made statements in the course of public lectures and in publications and tapes. These lectures were organised and sponsored by an unincorporated association, Noah’s Ark Research Foundation (NARF). Professor Plimer (a professor of geology) claimed that these statements were misleading or deceptive. To succeed, Prof Plimer had to prove that Dr Roberts had made the statements in trade or commerce. This he failed to do. At first instance, Sackville J found that while three of the representations were false, there had not been a commercial or trading relationship between Dr Roberts and NARF. Prof Plimer appealed. In Plimer v Roberts & Anor (1998) ATPR ¶41602 he reiterated his argument that Dr Roberts had, in trade or commerce, engaged in conduct likely to mislead or deceive, thereby breaching both s 52 and 42(1) of the Fair Trading Act 1987 (NSW).

The latter section provided: “A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.” Section 4(1) of the Fair Trading Act said that: “Trade or commerce includes any business or professional activity.” It also said that: “Business includes (a) a business not carried on for profit; and (b) a trade or profession.” The Full Court noted that the meaning of “trade or commerce” in s 52 had been defined by the High Court in Concrete Constructions (1990) ATPR ¶41-022 to mean in (or “as part of”) a particular trading or commercial dealing, transaction or activity. It decided that the narrow construction of the expression “trade or commerce” adopted in Concrete Constructions governed construction of the same expression in s 42 of the Fair Trading Act (subject to any effect of the statutory definition of “trade or commerce” in the Competition and Consumer Act). As a result, the court had to decide whether Dr Roberts’ misrepresentations had been made in trading or commercial dealings between persons. The relevant misleading or deceptive conduct of Dr Roberts was the making of misrepresentations during lectures on a subject of historical, religious and/or scientific interest. Dr Roberts did not make the misrepresentations “in trade or commerce” according to the construction of that expression found in Concrete Constructions. Assuming, without deciding, that NARF was engaged in a business activity, Dr Roberts’ misrepresentations did not take place “in” the supposed trade or commerce of NARF. The delivery of the lectures was not inherently a trading or commercial activity. Dr Roberts’ misrepresentations did not become representations “in trade or commerce” just because, to his knowledge, an admission charge was being imposed and audio and visual recordings were being made and sold. Yates v Whitlam & Ors (1999) ATPR ¶41-722 followed Plimer v

Roberts by agreeing that actions under s 42 of the Fair Trading Act are to be decided under the same “in trade or commerce” principles applying to actions under s 52. Yates v Whitlam also established that statements directed to electors by candidates seeking election on a company’s board are not made “in trade or commerce”. They may be made in connection with trade or commerce, in that they may bear on the commercial activities of the body to be governed as a result of the election, but standing for election is not a business or professional activity. Candidates do not make such statements as part of trading or commercial dealings between persons. For contrary authority, refer to NRMA Limited & Anor v Yates (1999) ATPR ¶41-721. There, Santow J found that statements made by a director during a campaign for re-election to an insurance company’s board were made “in trade or commerce”. The director in question (Mr Yates) had claimed in television and radio advertisements that the existing board indulged in great waste and mismanagement, and identified himself as an NRMA director when he made the claims. NRMA took action against him for misleading conduct. Santow J found that Mr Yates’ purpose in making the statement was clearly to influence the future trade and commerce of the NRMA via a change to its corporate governance. It was therefore made “in trade or commerce” of the NRMA. His Honour thought that this conclusion was strongly reinforced by the fact that Mr Yates made the relevant statement professedly as a director, in connection with NRMA’s future corporate governance and strategic direction. In Yates v Whitlam (supra), Windeyer J criticised Santow J’s conclusion. His Honour said (at p 43,381): “It is, I think with respect, somewhat difficult to see how misleading statements as to alleged inefficient management of NRMA, was conduct for the purpose of promoting the business of NRMA, rather than promoting the chances of Mr Yates’ success at the election, but in any event the finding was partly based upon the position of Mr Yates as a director and his fiduciary obligations in that capacity which are no part of the present action.” The lesson to be drawn from the NRMA cases therefore seems to be

that election statements made by existing company directors are more likely to be considered “in trade or commerce” than those made by fresh candidates. Employment situations Prior to the Concrete Constructions decision in 1990, a number of decisions involving a variety of employment situations had been dealt with by the courts. The courts had adopted the same general approach to the area, although there had been some difference of judicial opinion. It had been indicated, for example, that misrepresentations in the course of employment negotiations were potentially actions undertaken in trade or commerce (Patrick & Anor v Steel Mains (1987) ATPR ¶40-794 per Wilcox J (obiter)). Wilcox J found that a trading corporation, in negotiating with employees or prospective employees about future employment, may act in trade or commerce, a view which his Honour has subsequently affirmed. This view was rejected by Lee J in a similar factual situation in Wright v TNT Australia Pty Ltd (1988) ATPR ¶40-864, at p 49,362, where his Honour stated: “It may well be said that it is necessary for corporations to employ labour before they can effectively engage in trade or commerce but that does not make the engagement of labour an activity in trade or commerce in the sense of an activity which goes to make up trade or commerce.” The whole situation was reconsidered by Lockhart J in Finucane v NSW Egg Corporation (1988) ATPR ¶40-863. A carrier of eggs complained that the corporation approved the sale to him of an egg run only two months before a totally new system was implemented. The new system saw the carrier’s engagement terminated, and the carrier claimed that the corporation had engaged in misleading or deceptive conduct in breach of s 52. In finding that the conduct under consideration fell within the meaning of “in trade and commerce”, his Honour stated at (p 49,337): “… whether in the context of s 52 ‘in’ trade or commerce means ‘within’ or ‘as part of’ or ‘in connection with’ or ‘in relation to’ trade

or commerce, in my opinion the activities of the Corporation in and about the conduct of interviews by its officers of applicants for the purchase of egg runs are ‘in trade or commerce’ within the meaning of the expression in s 52.” On appeal in Wright v TNT Management Services Pty Ltd (1989) ATPR ¶40-929, the Court of Appeal overruled the judgment of Lee J and focused on the actual way in which the misrepresentations were said to have arisen. The court unanimously found that an employer in employing may do things which would constitute a breach of s 52, depending on the circumstances. Such an activity is conduct in trade or commerce and s 52 provides no precise limitation in relation to conduct concerning consumers. In this case, however, the misleading conduct was said to have arisen as a result of the imputation by law of a warranty in relation to provision of a safe system of work and competent employees. The injury to the applicant was said to breach these warranties and thus fall within the ambit of s 52 and former 53B. The majority (Mahoney and Clarke JJA) found that this was not within the ambit of those sections. McHugh JA (dissenting) found that the pleadings did raise a case under s 52 which would be difficult to establish. The Court of Appeal judgment in Wright’s case was considered by Einfeld J in Nelson v Concrete Constructions (NSW) Pty Ltd (1989) ATPR ¶40-936. On the question of whether the entry into a contract of employment was an act done in trade or commerce, his Honour adopted the words of McHugh J in Wright’s case (at p 50,064): “While no doubt it is true that acts done preparatory to participating in trade and commerce are not themselves done in trade and commerce, it is a mistake to think that trade and commerce merely involve the exchange of goods or services and the negotiations, arrangements and delivery of those goods and services. An order by a transport company for the printing of invoices is as much a part of the trade and commerce of the transport company as it is of the printing company.” Einfeld J concluded that he believed the approach of McHugh J to the whole question raised by the case was correct.

Likewise, Kenny J in Walker v Salomon Smith Barney Securities Pty Limited & Anor (2003) ATPR (Digest) ¶46-240 in considering whether negotiations in relation to employment contracts (with existing or prospective employees) can come within the scope of s 52, cited with approval a quote from the dissenting judgment of McHugh JA in Wright’s case in which his Honour said: “The employment of staff for the purpose of carrying out its trading and commercial activities is in my opinion near the centre of a corporation’s trade and commerce.” On appeal from Einfeld J’s judgment, the High Court ruled that the “in trade or commerce” limitation was the factor limiting the application of s 52 in the novel fact situation in that case: Concrete Constructions (NSW) Pty Limited v Nelson (1990) ATPR ¶41-022. In the joint judgment of Mason CJ, Deane, Dawson and Gaudron JJ, their Honours stated (at p 51,364): “What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential customers, be they identified persons or merely an unidentifiable section of the public.” In Barto v GPR Management Services Pty Limited & Anor (1992) ATPR ¶41-162, Wilcox J, without deciding, opined that conduct of a corporation in the course of negotiations for an initial employment contract or for a variation of that contract are both commercial in nature and undertaken for the purposes of the company’s overall trading activities. As such, that conduct, in his Honour’s view, was capable of falling within s 52. Use of business names It has generally been held that the registration or retention of a business name is an act done in trade or

commerce. In Aerospatiale Societe Nationale Industrielle v Aerospatiale Helicopters Pty Ltd & Ors (1986) ATPR ¶40-700, Wilcox J stated that: “It was inappropriate to describe the mere retention of a particular name by a company, which is otherwise inactive, as conduct in trade or commerce. The name may be retained with a view to subsequent use in trading or commercial activity but it is not itself such an activity.” It may be coupled with other conduct of a corporation for the purposes of determining breach of the Competition and Consumer Act. In Burswood Management Ltd & Ors v Burswood Casino View Motel/Hotel Pty Ltd & Ors (1987) ATPR ¶40-824, the registration of the name Burswood Casino Motel/Hotel Pty Ltd by a company unconnected with the Burswood Casino and its hotel was not in itself held to be conduct in trade or commerce within the meaning of s 52. A mandatory injunction directing the company to change its name was refused. Coupled with other conduct of the company, however, there was a breach of s 52 and final injunctions were awarded. Corporate activity Even the first dealing of a corporation which has wide objects may constitute conduct in trade or commerce. In Satna Holdings Pty Ltd v Jokade Pty Ltd & Ors (1985) ATPR ¶40-529, a company sold a hotel, its first such dealing in land. St John J (at pp 46,269–46,270) rejected a submission that this could not be a transaction in trade or commerce, stating: “It seems to me that when the High Court in Fencott v Muller … stated that ‘there is no better guide to its character than its constitution and its constitution establishes its character as a trading or financial corporation’, their Honours were in effect saying, by use of the word ‘character’, that activity pursuant to that character in the case of a trading corporation would be ‘in trade or commerce’. Except for charitable purposes, corporations are not formed except in rare instances other than for the purpose of trading in some manner and the first exercise of any of its objects should, in my view, be regarded as being in trade or

commerce.” On the other hand, activities undertaken in relation to a business, but after the business has ceased trading, may not be in trade or commerce. In ACCC v SMS Global Pty Ltd (2011) ATPR ¶42-364, representations were made on a business website after the business had ceased trading with the public, so that there were no actual or potential customers. The court held that it was artificial to treat information on a redundant website as being “in trade or commerce”. The forwarding of notice of an extraordinary general meeting and supporting documents by directors may be conduct in trade or commerce. In Orison Pty Ltd v Strategic Minerals Corporation NL & Ors (1987) ATPR ¶40-803, the court held that the communication was a necessary step in the acquisition of shares. The acquisition was conduct in trade or commerce. The antecedent communication was so closely related to the acquisition as to be conduct in trade or commerce. Statements made in public presentations, such as films or advertisements, may constitute conduct in trade or commerce if designed to advance or protect the commercial interests of the exhibitor or publisher: Fasold v Roberts (1997) ATPR ¶41-561. In Nixon v Slater & Gordon (2000) ATPR ¶41-765 at [27]–[29], it was held that promotional activities (namely, the issuing of booklets to medical practitioners) in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers were activities bearing a “trading or commercial character”. The firm was of the view that the development of its legal practice in medical malpractice claims required it to foster a better understanding by medical practitioners of the role of the firm, and of medical practitioners, in respect of such claims. The making of representations as to the nature of proposed interviews by a documentary filmmaker can be characterised as being in trade or commerce where the representations are made in the course of an activity which, by its nature, bears a trading or commercial character. In the Full Federal Court in Hearn v O’Rourke (2003) ATPR ¶42-931, the majority (Finn and Jacobson JJ) held there could not have been a

documentary unless the interviews were secured. Thus the securing of the interviews was central to the trading or commercial activity in which the second respondent filmmaking company was involved. As such, the conduct which had been engaged in by the first respondent filmmaker had been for a purpose that could itself be said to have been in trade or commerce. The court stated that this conclusion did not entail a finding that the relationship of the second respondent company with the applicants was a commercial one. The absence of a commercial relationship in respect of a finding that representations were made in trade or commerce was described as an “apparent curiosity” which was countenanced by the majority judgment in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) ATPR ¶41022. In Village Building Company Ltd v Canberra International Airport (2004) ATPR ¶41-979 the applicant contended that the publication of aircraft noise levels forecasts by the airport operator was conduct in trade or commerce for the purposes of s 52, as that conduct was designed to advance, maintain or protect its commercial interests. Relying on the decision in Concrete Constructions, the trial judge (Finn J) considered that the protection or promotion by the airport operator of its business interests was not within the central conception of trade or commerce. His Honour found that the representations were to be regarded as communications made in the context of the debate and public manoeuvring about aircraft noise, airport operations and rezoning in which both parties had engaged. This was so notwithstanding that the airport operator’s activities were motivated by a degree of self-interest. On appeal, Village Building Company Limited v Canberra International Airport Pty Limited (2004) ATPR ¶42-019, the Full Court (French, Sackville and Conti JJ) held that the fact that conduct has the purpose and/or effect of maintaining or protecting a business is not, of itself, enough to ensure that the conduct is “in trade or commerce”. Similarly, the Full Court said it would be unusual that acts necessary to obtain a licence or authority to conduct the corporation’s business may be “in trade or commerce”. The Full Court observed the making of representations to members of the public, to elected councillors and to parliamentarians as part of a campaign to resist rezoning did not mean that there was a trading or commercial

relationship between the airport operator and the persons to whom the representations were made. Novel applications Transactions between a cooperative and its members may be in trade or commerce (see TPC v Legion Cabs (1978) ATPR ¶40-092 per Franki J at p 17,906). In the Popular Mechanics case (Handley & Ors v Snoid & Ors (1981) ATPR ¶40-219), Ellicott J found that the words “in trade or commerce” encompass the provision of services and includes the “provision of the tangible as well as the intangible”. His Honour found that playing music for reward fell within the meaning of the expression. The exhibition of a film made jointly by two trade associations (the Forests Products Association and the WA Forests Products Association) and the WA Forests Department was found to be in trade or commerce by Morling J in Glorie v WA Chip & Pulp Co Pty Ltd (1981) ATPR ¶40-259. The matter involved alleged misleading or deceptive conduct by way of statements made in the film. Morling J rejected submissions that the film was in the nature of a political exercise, viewers of the film being addressed as members of the electorate with the object of education in forest management and increased sympathy towards the industry. His Honour stated (at p 43,311): “In the present case, a real reason for exhibiting the film was to protect indirectly the commercial interests of the members of the Association … I think it is correct to characterize the exhibition of the film as being in trade or commerce.” In Tobacco Institute of Australia v Woodward (1994) ATPR ¶41-285, a case brought under the Fair Trading Act 1987 (NSW), it was held that a person who made public statements on behalf of a lobby group opposed to tobacco was not engaged “in trade or commerce”. Similarly, in Plimer v Roberts (1998) ATPR ¶41-602 (discussed above) it was held that statements made in the course of public lectures and taped interviews by an academic who was not paid for them were not in trade or commerce. In Robin Pty Ltd v Canberra International Airport Pty Ltd (1999) ATPR ¶41-710 Gyles J expressed reservations about the correctness of an earlier decision by Morling J in Glorie v

WA Chip & Pulp Co Pty Ltd (1981) ATPR ¶40-259, where his Honour had concluded that a film produced to explain to the public the way in which a particular forest area was managed was not merely a political exercise but had been exhibited in trade or commerce. The reasoning of Gyles J would appear to accord with that in Orion Pet Products v RSPCA (2002) ATPR (Digest) ¶46-223. In that case, the court held, at [192]–[194], that misleading representations concerning the operation, effectiveness and legality of electronic dog collars made by the RSPCA had not been made “in trade or commerce”; notwithstanding that it found the RSPCA to be a trading corporation given the scale of its trading activities. The court noted that many of the key functions of the RSPCA did not have a commercial character. The statements which had been made were as part of an educational and political campaign to have electronic collars outlawed in Victoria. The court held that their connection with the corporation’s trading activities was tenuous at best, and any benefit that may have accrued to the RSPCA’s commercial revenue as a result of its increased public exposure must be regarded as purely incidental. The proffering of professional advice may also fall within the requirements of the term. In Bond Corporation Pty Limited v Thiess Contractors Pty Ltd & Ors (1987) ATPR ¶40-771, French J stated (at p 48,386): “ … where the conduct of a profession involves the provision of services for reward, then in my opinion, even allowing for widely differing approaches to definition, there is no conceivable attribute of that aspect of professional activity which will take it outside the class of conduct falling within the description of ‘trade or commerce’. This conclusion flows from both the judicial exposition and the particular statutory context of that term”. Government activities “in trade or commerce” include the printing and issue of bank notes by the Reserve Bank: see Sykes & Ors v Reserve Bank of Australia (1998) ATPR ¶41-608. The printing and issuing of bank notes was a trading or commercial venture which was intended to generate profits. The Federal Court found that it was difficult to think of a service more fundamental to trade and commerce than the printing, supply and circulation of bank notes. Accordingly, the

promotion and provision of polymer bank notes was categorised as an activity in trade or commerce, for the purposes of s 52. Similarly, an expression of interest (EOI) process run by the NSW Department of Primary Industries, whereby invitations were sought to lodge EOIs for coal exploration licences, was held to be a commercial one designed to maximise revenue from the granting of the right to explore the state’s coal reserves and the appellants were engaged in trade or commerce when participating in the tender process: Obeid v ACCC (2014) ATPR ¶42-489. Conversely, the operating of a detention centre is not a trading or commercial activity of the executive branch of government. When a law provides that a person is to be held on custody, the government will not be providing a service either to the department which has responsibility for the person or to a person who is held in custody: Corrections Corporation of Australia Pty Ltd v Commonwealth of Australia (2000) ATPR ¶41-787 at [14]. The NSW National Parks and Wildlife Service made certain allegedly misleading representations to the operator of a caravan park in the Lane Cove National Park concerning a tendering process for the future commercial rights to operate that caravan park. In the Supreme Court of NSW, Mathews AJ held that the operation of the caravan park was itself a commercial enterprise, as the company was paying a commercial rental to the National Parks and Wildlife Service. In these circumstances, the transactions between the caravan park operator and the National Parks and Wildlife Service had sufficient commercial character to bring them within the phrase “in trade or commerce” [142]. Her Honour reached this conclusion notwithstanding that she had concluded (albeit without a great deal of confidence) that the National Parks and Wildlife Service was not carrying on a business by leasing a single caravan park: Easts Van Villages Pty Ltd v Minister Administering the National Parks and Wildlife Act (2001) ATPR (Digest) ¶46-211. Whether the ACCC itself acts “in trade or commerce” was considered in Giraffe World Australia Pty Limited v Australian Competition and Consumer Commission (1999) ATPR ¶41-669. There, the ACCC had obtained interlocutory orders and ACCC subsequently issued a media

release about those orders. Giraffe World commenced proceedings against the ACCC alleging that it had itself behaved misleadingly because the media release contained untrue imputations about the orders. Lindgren J found that the pleading did not reveal that the ACCC had published the media release “in trade or commerce”. As a matter of pleading, Giraffe World had to identify material facts constituting the particular trade or commerce in question and the connection (to satisfy the word “in”) between the publishing of the media release and that trade or commerce. As it had not, its pleading did not disclose a reasonable cause of action and was struck out. Dresna Pty Ltd v Misu Nominees Pty Ltd (2004) ATPR ¶42-013 held that statements made by a supermarket chain in the course of seeking the ACCC’s consent to sell one of its business to another supermarket chain could be construed as being in trade or commerce. The sale by the company of its assets could be seen as acting in commerce, even if its primary business was the conduct of supermarkets. The seeking of consent could be seen as part of the overall sale transaction (per Kiefel and Jacobson JJ at [34]; Marshall J agreeing generally at [66]). Other situations Communication of information may be conduct in trade or commerce. In Switzerland Australia Health Fund Ltd v Shaw & Anor (1988) ATPR ¶40-866, a letter written by a well-established health fund to hospital administrators, which impugned the reputation of a health fund, was conduct in trade or commerce. See Advanced Hair Studio Pty Ltd & Anor v TVW Enterprises Ltd (1987) ATPR ¶40816, at pp 48,856–48,857 and the cases cited there. For statements made to government bodies, see Brown v Riverstone Meat Co Pty Ltd (1985) ATPR ¶40-576 and Merman Pty Ltd v Cockburn (1988) ATPR ¶40-915. In Australian Federation of Consumer Organisations Inc v The Tobacco Institute of Australia Ltd (1991) ATPR ¶41-079, it was argued that, where the Tobacco Institute had advertised about the effects of passive smoking, the conduct was not in trade or commerce. Morling J stated (at p 52,174): “The advertisement had the potential, and was no doubt intended, to protect the commercial interests of cigarette manufacturers and

distributors. Accepting that conduct ‘in trade or commerce’ is confined to conduct which is itself an aspect of activities which, of their nature, bear a commercial character I think the proper conclusion is that the publication of the advertisement was conduct ‘in trade or commercial’.” His Honour characterised the situation as involving protection of the market for the product. On appeal, the Full Federal Court in Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations (1993) ATPR ¶41199 upheld the finding that the advertisement was published in trade or commerce. Sheppard J stated (at p 40,768) “that the most likely reason for the publication of the advertisement was to promote or maintain sales of cigarettes for commercial reasons, ie gain”. Foster J observed (at p 40,773) that the “general tenor of the advertisement, its wide exposure, and the name of the appellant combine to create an irresistible impression that it was promotional material designed to advance the cause of cigarette smoking and to assist in the sale of cigarettes”. Hill J considered (at pp 40,788–40,789) that there “can be no doubt that a corporation, formed to promote the interests of a particular industry or whose activities are directed at representing members of that industry in promotional activities acts ‘in trade or commerce’ when conveying representations about that industry’s product to the general public”. By contrast, in Tobacco Institute of Australia v Woodward (1994) ATPR ¶41-285, statements made by Mr Woodward, as spokesperson for the anti-smoking organisation, Action on Smoking and Health (ASH), about the above judicial proceedings were held not to have been made in trade or commerce. The statements were broadcast on radio and were intended to reduce tobacco product sales. Bryson J of the New South Wales Supreme Court found that Mr Woodward acted and spoke as the public face of ASH. He was not engaged in some business or professional activity of his own which over-arched or encompassed all his other activities. His Honour added that conduct designed to reduce sales is the very opposite of conduct in trade or commerce.

In Mid-Density Development Pty Limited v Rockdale Municipal Council (1993) ATPR (Digest) ¶46-100, the issuance by the council of certificates under s 149 of the Environmental Planning and Assessment Act 1979 (NSW) had no element of trade or commerce in it. The council was merely carrying out its functions as a municipal council in the performance of its statutory duty under that Act. In a pyramid selling scheme (see TPC v Parker (1990) ATPR ¶41055), eight people were to be induced to pay $125 each to join an imaginary train. The money would pass up the pyramid to the apex to a man or woman who would collect $1,000. The pyramid would split and each participant would move up a level and would in turn hope to retrieve $1,000. Pincus J stated (at p 51,713) that what was being done was not trade but was “in commerce”. For the position of the ABC, see Sun Earth Homes Pty Ltd & Ors v Australian Broadcasting Corporation (1991) ATPR ¶41-067. Lowe & Ors v Indoor Cricket Federation of New South Wales Incorporated (1994) ATPR ¶41-358 discussed whether a sports federation can act in trade or commerce. In Forbes & Anor v Australian Yachting Federation Inc & Ors (1996) ATPR (Digest) ¶46158, the selection of a team for the Olympic Games by the Australian Yachting Federation was found to be made for a purpose which was not itself part of trade or commerce. According to Santow J of the NSW Supreme Court, the team that was selected would not be entering the Olympic Games for the predominant purpose of making a profit. In addition, while the Australian Yachting Federation administered grants to yachtsmen, they were in the nature of subsistence payments to permit the athletes to devote their time to sport rather than to earning a living, and to cover the expenses necessarily involved in participating in the sport. They were not, therefore, of a commercial nature. His Honour concluded that such representations could, at most, be classified as representations made incidentally to any trading activity engaged in by the federation, which was exactly the kind of conduct that the majority in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) ATPR ¶41-022 found would not be subject to s 52.

Regarding solicitors, in Helco Pty Ltd v O’Haire & Anor (1991) ATPR ¶41-099, the Full Federal Court left open the question as to whether the solicitor’s conduct was in trade or commerce. Davies, Gummow and Hill JJ indicated that each case had to be looked at on its own facts, and there was a danger in excluding the operation of the section by some preconceived classification of professional conduct as conduct not in trade or commerce. Remarks made during settlement negotiations by a solicitor, who had previously represented one of the parties but was not employed or retained to perform such work at the time the remarks were made, were held not to have been made in trade or commerce in Prestia v Aknar & Ors (1996) ATPR (Digest) ¶46-157. This was despite the fact that the remarks had been made during settlement negotiations and related to the terms on which one party would settle. Santow J of the NSW Supreme Court considered that the solicitor’s conduct was not sufficiently connected with the solicitor’s legal and commercial role in the original transaction to retain a professional or business quality. The director of a corporation who acts on its behalf in the course of trade or commerce also acts himself/herself in trade or commerce and, if the corporation is liable under a state Fair Trading Act for his/her conduct, he/she also will attract primary liability under that Act. This principle applies whether the director’s conduct is within the scope of his/her authority as a director or agent or is conduct other than in the capacity of a director or agent: Arktos Pty Ltd v Idyllic Nominees Pty Ltd (2004) ATPR ¶42-005. Further interpretations In Wells v John R Lewis (International) Pty Ltd (1975) ATPR ¶40-007, a Full Bench of the Australian Industrial Court adopted this statement of Anstey Wynes: “[Trade and commerce] extends to every negotiation, contract, trade and dealing between persons which contemplates and causes such commerce whether it relate to goods, persons or information.” See also Swan v Downes (1978) ATPR ¶40-068 (Franki J); and In re Ku-ring-gai Co-operative Building Society (No 12) Ltd & Anor (1978) ATPR ¶40-094 at p 17,944 in the judgment of Brennan J and in that of

Bowen CJ at pp 17,926–17,928. In Re Ku-ring-gai Co-operative Building Society (No 12) Ltd & Anor (1978) ATPR ¶40-094, at p 17,926, Bowen CJ mentioned interpretations given in earlier cases: “The terms ‘trade’ and ‘commerce’ are ordinary terms which describe all the mutual communings, the negotiations verbal and by correspondence, the bargain, the transport and the delivery which comprise commercial arrangements (W & A McArthur Ltd v State of Queensland (1920) 28 CLR 530 at p 547). The word ‘trade’ is used with its accepted English meaning: traffic by way of sale or exchange or commercial dealing (Commissioner of Taxation v Kirk (1900) AC 588 at p 592 per Lord Davey; W & A McArthur Ltd v State of Queensland, supra, at p 548). The commercial character of trade was mentioned more recently by Lord Reid in Ransom v Higgs (1974) 3 All ER 949 at p 955. His Lordship said: ‘As an ordinary word in the English language “trade” has or has had a variety of meanings or shades of meaning. Leaving aside obsolete or rare usage it is sometimes used to denote any mercantile operation but is commonly used to denote operations of a commercial character by which the trader provides to customers for reward some kind of goods or services.’ Moreover, the word covers intangibles, such as banking transactions, as well as the movement of goods and persons for historically its use has been founded upon the elements of use, regularity and course of conduct (Bank of New South Wales v Commonwealth (1948) 76 CLR 1 at p 381).” In Energex Ltd v Alstom Australia Ltd (2004) ATPR (Digest) ¶46-251, where damages had been sought relying on s 51AC for unconscionable conduct arising from pleading a limitation defence, it was held that this would have required the court to give the expression “in trade or commerce” an unduly wide meaning, a conclusion that was difficult to reconcile with past authority. In doing so, the court referred to the “mutual communings” reference in Re Ku-ring-gai and

to the conclusion drawn in that case that “[A] statement made to a court during the course of litigation is not a statement made in connection with or as part of a commercial arrangement.” In Odco Pty Ltd v Building Workers’ Industrial Union of Australia & Ors (1988) ATPR (Digest) ¶46-042, Woodward J said: “What is required to satisfy s 52 of the Act is not merely conduct in the setting or context of trade and commerce but conduct in the furtherance of such trade or commerce. The conduct must itself demonstrate, or at least suggest, some commercial or trading purpose on the part of the person engaging in it. It must be capable of being described as trading or commercial conduct.” trading corporation “means a trading corporation within the meaning of para 51(xx) of the Constitution” (s 4(1)). The constitutional power of much of the Competition and Consumer Act is based upon this definition, which is accordingly of great importance. Decisions on the meaning of “trading corporation” are discussed in detail at ¶110. Tribunal “means the Australian Competition Tribunal, and includes a member of that Tribunal or a Division of that Tribunal performing functions of that Tribunal” (s 4(1)). See ¶870ff for material on the tribunal. uniform energy law means: (a) the South Australian Electricity Legislation (b) the South Australian Gas Legislation (c) the Western Australian Gas Legislation (ca) the South Australian Energy Retail Legislation, or (d) provisions of a law of a state or territory that: (i) relate to energy, and (ii) are prescribed by the regulations for the purposes of this

subparagraph being those provisions as in force from time to time (s 4(1)). See further ¶39-710. Other glossaries This is a list of some of the glossaries published by Wolters Kluwer, CCH: Area

Glossary

Accounting

Australian Standards Accounting Board

Audit and assurance

¶4-000 of Australian Audit and Assurance Manual Auditing and Assurance Standards Board

Business terms

¶950 of Australian Corporate Practice Manual

Competition law

¶2-100 of Australian Competition and Consumer Law Reporter

Consumer law

¶25-800 of Australian Competition and Consumer Law Reporter

Contract law

¶1-000 of Australian Contract Law Reporter

Estate planning

¶2-000 of Australian Estate Planning

Family law — financial agreements

¶33-050 of Australian Family Law & Practice

Family law — superannuation

¶25-120 of Australian Superannuation Law & Practice ¶18-010 of Australian Family Law & Practice

GST

¶530 of Australian GST Guide

¶38-950 of Australian Sports Law Insurance

¶1-900 of Australia and New Zealand Insurance Law Reporter

Internet and e-commerce

¶13-240 of Australian Proprietary Companies Guide

Medical terms

¶1-700 of Australian Medical Liability Commentary

Laboratory safety

¶2-500 of Australian Laboratory Safety Manual

Legal compliance

¶1-130 Glossary of terms of Australian Legal Compliance — Making it Work

Personal Property Securities

¶200 of Australian Personal Property Securities Law Reporter

Superannuation abbreviations

¶680-095 of Australian Premium Tax Navigator

WHS work, health and safety

¶95-100 of Australian Managing Work Health and Safety

¶5-040 Introduction — Misuse of market power For an overview of the misuse of market power provision in s 46 of the Competition and Consumer Act 2010 (Cth), see ¶5-000 and ¶5-001 of CCH’s Australian Competition and Consumer Law Commentary. The jurisdictional threshold for proceedings under s 46(1) of the Competition and Consumer Act is that a corporation must have a “substantial degree of power in a market”. A corporation which satisfies this threshold condition of having a “substantial degree of power in a market” is prohibited by s 46(1) from taking advantage of that power, for the purpose of eliminating or substantially damaging a competitor, preventing entry into that market or into any other market, or deterring or preventing a person from engaging in competitive conduct in that or in any other market.

There are three elements to be satisfied before a breach of s 46(1) (that is, a misuse of market power) can be established: • market power • taking advantage, and • proscribed purpose. Market power threshold The starting point for an analysis of conduct in the context of s 46(1) is establishing whether the respondent has market power. “Market power” is the ability to act independently of competitors for a sustained period. Market power is freedom from constraints from competitors or customers. If the respondent is constrained in its price-setting and decision-making by its actual or potential competitors (see commentary on the Boral case below), it does not have market power and there is no need to investigate further. The meaning of market power is explored in the roadmap at ¶2-700. The next key question is: does the conduct involve a use of market power in the sense that there is a connection or causal link between the conduct and the market power? Taking advantage element The prohibition in s 46 is directed at taking advantage of market power. Section 46 is aimed at striking down predatory conduct as opposed to normal competitive conduct, sometimes referred to as “competition on the merits”. The taking advantage element is discussed at ¶5-280ff. Proscribed purpose element The proscribed purpose element is discussed at ¶5-380ff. The words “for the purpose of” involve an intention to achieve the results described in s 46(1), namely, eliminating or substantially damaging a competitor, preventing market entry, deterring or preventing competitive conduct in a market: Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Limited &

Anor (1989) ATPR ¶40-925; (1989) 167 CLR 177; [1989] HCA 6 at p 214, [32] of Toohey J’s judgment; Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) ATPR ¶41-805; (2001) 205 CLR 1; [2001] HCA 13 at [31] per Gleeson CJ, Gummow, Hayne and Callinan JJ. The court will look at a corporation’s subjective purpose for engaging the conduct. The existence of a proscribed purpose can be inferred from the circumstances, including the conduct of the corporation or other persons: s 46(7). It is not necessary to investigate whether there was hostile intent: Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Limited (1989) 167 CLR 177, Mason CJ and Wilson J at 191. It is not necessary that the proscribed purpose be achieved: ACCC v Baxter Healthcare (No 2) (2008) 170 FCR 16 at p 52. Danger in starting with a focus on purpose It is dangerous for the court to start by focusing on purpose or intent (as opposed to the other two elements). The court risks falling into error if it starts with a finding of a proscribed purpose (such as substantially damaging a competitor) and leaps to conclude that the business must have had substantial market power and taken advantage of that market power: Boral Besser Masonry (now Boral Masonry Ltd) v ACCC (2003) ATPR ¶41-915; [2003] HCA 5 at [123]. In Boral Be-sser, the High Court found the analysis of the Full Federal Court in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (t/a Auto Fashions Australia) (1999) ATPR ¶41-693 and ACCC v Boral (2001) ATPR ¶41-803 fell into error by focusing on purpose first, rather than the other two elements. Competitive conduct is exclusionary by its very nature. Business firms try to win market share from their competitors by engaging in research and development; making innovations and product improvements; and enhancing the level and quality of pre-sales and post-sales services. This is competitive rivalry that the Competition and Consumer Act seeks to promote, even though it may have an exclusionary effect on

rivals. It is the type of rivalry that enhances economic efficiency and consumer welfare. The danger of focusing on an exclusionary purpose is that it might lead one to characterise exclusionary competitive conduct as a taking advantage of market power. In order to avoid this error, one needs to ask the hypothetical question: would the business be likely to engage in the conduct at issue under competitive conditions? If so, it is not to be characterised as a taking advantage of market power. This is known as the hypothetical monopolist test. According to the High Court majority in Melway at p 42,754 [28], Deane J in Queensland Wire Pty Ltd v Broken Hill Proprietary Co Ltd (1989) ATPR ¶40-925: “… saw the case as one in which the identification of the purpose for which BHP was refusing to supply QWI led directly to the conclusion that BHP was taking advantage of its market power.” The High Court (at p 42,755 [31]) saw this approach as potentially flawed, since: “… there are cases in which it is dangerous to proceed too quickly from a finding of purpose to a conclusion about taking advantage.” The High Court majority in Melway accepted the finding of the trial judge that the refusal to supply the respondent was for an exclusionary purpose, namely, to deter or prevent competition at the wholesale level. One could not conclude from this alone, however, that there was a taking advantage of market power. One needed to ask the further question, would Melway have refused supply if it were acting in a competitive market? The High Court’s warning in Melway was repeated by Gleeson CJ and Callinan J in Boral Besser: “… where the conduct that is alleged to contravene s 46 is competitive pricing, it is especially dangerous to proceed too quickly from a finding about purpose to a conclusion about taking advantage of market power. Indeed, in such a case, a process of reasoning that commences with a finding of purpose of

eliminating or damaging a competitor and then draws the inference that a firm with that objective must have, and be exercising, a substantial degree of power in a market, is likely to be flawed.” The Full Federal Court in ACCC v Boral (2001) ATPR ¶41-803 had focused on intent. Finkelstein J (at p 42,696 [262]) concluded that “because intent is at the heart of the offence” there was no need to have recourse to notions of recoupment of losses as part of the taking advantage test. When the Boral case was considered by the High Court ((2003) ATPR ¶41-915), Gleeson CJ and Callinan J (at p 46,686 [141]) observed: “To a substantial extent, the reasoning of the Full Court appears to have been affected by an error of the same kind as was corrected by this Court in Melway. The Full Court began with the purpose of eliminating or damaging a competitor, and reasoned inferentially from that.” Gaudron, Gummow and Hayne JJ (at p 46,692 [181]) expressed the same view: “In Melway reference is made to the danger in proceeding too quickly from a finding about purpose to a conclusion about taking advantage.” Their Honours (at p, 46,695 [195]) referred to the judgment of Easterbrook J in AA Poultry Farms Inc v Rose Acre Farms Inc 881 F 2d 1396 at 1402 (1989) that: “… to fix upon intent does not assist in separating beneficial aggressive competition (where prices are set by reference to the market) from attempted monopolisation, that it invites juries to penalise hard competition, and that a ‘greed-driven desire to succeed’ over rival firms is neither a basis for liability nor a ground for inferring of the existence of such a basis.” The other majority judge of the High Court in Boral, McHugh J, agreed; saying at p 46,705 [263]: “In my opinion, the Full Court erred in finding that BBM had

breached s 46. Its error was the result of placing too great an emphasis on BBM’s purpose of removing competitors and its desire of holding or increasing its market share and raising prices to profitable levels.” McHugh J (at p 46,709 [283]) referred to the decision of the Full Court: “Finkelstein J also said that ‘under s 46 there is no need to have recourse to a test such as “selling below cost plus recoupment” because intent is at the heart of the offence’. But s 46 is concerned with much more than intent. Substantial market power is a key element of s 46. So is the taking advantage of market power. Proof of probable recoupment assists — may in fact establish — proof of those two elements.” .01 Law: Section 46, 46(1). .40 Cases. ACCC v Boral (2001) ATPR ¶41-803; Boral Besser Masonry (now Boral Masonry Ltd) v ACCC (2003) ATPR ¶41-915; Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) ATPR ¶41805; Queensland Wire Pty Ltd v Broken Hill Proprietary Co Ltd (1989) ATPR ¶40-925; AA Poultry Farms Inc v Rose Acre Farms Inc 881 F 2d 1396.

¶2-605 Competition defined

• Competition expresses itself as rivalrous market behaviour. Effective competition requires both flexible prices and independent rivalry in all dimensions of the price-productservice packages offered to customers (eg rivalry in service, technology, quality and consistency). Competition is affected by market structure, especially the height of barriers to entry. • A market is sufficiently competitive if there is a reasonable degree of rivalry between firms each of which suffers some constraint in their use of market power from actual competitors, potential competitors and customers. The

criteria for such competition are structural, conduct-based and performance-based. • Competition includes competition from imported goods or from services by non-residents.

A “substantial lessening of competition” test is the major test that must be satisfied in order to establish a contravention of s: • s 44ZZX (Corporation must not make disclosure of pricing information etc. for purpose of substantially lessening competition) • s 45 (Contracts, arrangements or understandings that restrict dealings or affect competition) • s 45B (Covenants affecting competition) • s 45DA (Secondary boycotts for the purpose of causing substantial lessening of competition) • s 47 (Exclusive dealing) • s 49 (Dual listed company arrangements that affect competition) • s 50 (Prohibition of acquisitions that would result in a substantial lessening of competition) and • s 50A (Acquisitions that occur outside Australia) of the Competition and Consumer Act 2010 (Cth) (CCA). In each case it is necessary to ask whether competition, in the sense of rivalry between independent firms, will be lessened substantially. The concept of “competition” is central to the application of the CCA. However, the definition in s 4(1) of the CCA merely provides that it “includes competition from imported goods or from services rendered

by persons not resident or not carrying on business in Australia”. Perhaps the most comprehensive definition of the term, for the purposes of the CCA, was provided by the Trade Practices Tribunal (now the Australian Competition Tribunal) (collectively “the Tribunal”) in Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd (1976) ATPR ¶40-012 where it noted at p 17,246: “Competition expresses itself as rivalrous market behaviour. In the course of these proceedings, two rather different emphases were placed upon the most useful form such rivalry can take. On the one hand it was put to us that price competition is the most valuable and desirable form of competition. On the other hand it was said that if there is rivalry in other dimensions of business conduct — in service, in technology, in quality and consistency of product — an absence of price competition need not be of great concern. In our view effective competition requires both that prices should be flexible, reflecting the forces of demand and supply, and that there should be independent rivalry in all dimensions of the priceproduct-service packages offered to consumers and customers. Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the structure of the markets in which they operate. The elements of market structure which we would stress as needing to be scanned in any case are these: (i) the number and size distribution of independent sellers, especially the degree of market concentration; (ii) the height of barriers to entry, that is the ease with which new firms may enter and secure a viable market; (iii) the extent to which the products of the industry are characterised by extreme product differentiation and sales promotion; (iv) the character of ‘vertical relationships’ with customers and

with suppliers and the extent of vertical integration; and (v) the nature of any formal, stable and fundamental arrangements between firms which restrict their ability to function as independent entities. Of all these elements of market structure, no doubt the most important is (ii), the condition of entry. For it is the ease with which firms may enter which establishes the possibilities of market concentration over time; and it is the threat of the entry of a new plant into a market which operates as the ultimate regulator of competitive conduct.” In Application by Chime Communications Pty Ltd (No 2) [2009] ACompT 2 at [39], the ACCC considered that effective competition: “• is more than the mere threat of competition — it requires that competitors be active in the market, holding a reasonably sustainable market position; • requires that, over the long run, prices are determined by underlying costs rather than the existence of market power (a party may hold a degree of market power from time to time); • requires that barriers to entry are sufficiently low and that the use of market power will be competed away in the long run, so that any degree of market power is only transitory; • requires that there be ‘independent rivalry in all dimensions of the price/product/service [package]’; and • does not preclude one party holding a degree of market power from time to time, but that power should ‘pose no significant risk to present and future competition’.” The Tribunal considered in that case that: “In the Tribunal’s view a market is sufficiently competitive if the market experiences at least a reasonable degree of

rivalry between firms each of which suffers some constraint in their use of market power from competitors (actual and potential) and from customers. The criteria for such competition are structural (a sufficient number of sellers, few inhibitions on entry and expansion), conduct-based (eg no collusion between firms, no exclusionary or predatory tactics) and performance-based (eg firms should be efficient, prices should reflect costs and be responsive to changing market forces)”: [48]. It is clear from the Tribunal’s comments that a detailed examination of the relevant market is required in determining the effect on competition of particular conduct. Such an analysis will necessarily involve consideration of the state of competition and the likely effect of the conduct on competition in the market in question. (See Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) 66 FLR 120).

¶4-815 Illustration of secondary boycott situations It is often helpful to refer to diagrams in gaining an understanding of the application of the boycott provisions.

In Diagram 1, in order to apply pressure to a target, a union instructs its members to withdraw their services from a third party, (their employer) either generally or in relation to the employer’s dealings with the target. While the third party (the employer) is the immediate victim, the object of the conduct is the target company and the purpose is to damage it unless it accedes to the union’s demands.

In Diagram 2, a union whose members are employees of the target persuade the employees of the third party (and/or their union) to withdraw their services from the third party so as to harm the target. This second kind of case is merely an extension in many instances of the first type of case in Diagram 1. A variation of this situation in practice occurs where an organisation of trade unions (eg a Trades and Labour Council) imposes a black ban at the request of the target’s employees’ union which is implemented by the third party’s employees’ union.

In Diagram 3 a union representing employees of a third party merely threatens strike action against the third party employer and the threat successfully coerces the employer into so acting so that the real target is harmed, eg as in Neasmith v Hely (the Caltex case) NSW Court of Appeal, 16 December 1976 (unreported), where direct interference with contract was alleged, or Woolley v Dunford (1972) 3 SASR 243. The matter which prompted the enactment of s 45E, Leon Laidely Pty Ltd v TWU (1980) ATPR ¶40-147, ¶40-149, is an example of this type of situation. A supplier who bows to union pressure and refuses to supply the target is not, however, caught by s 45D. This is because the supplier (who is the “third person”) for the purpose of s 45D), usually does not have the purpose of causing substantial loss or damage to the target, but is merely seeking to end a troublesome dispute. Section 45E now attempts to catch this party. .01 Law: Sections 45D; 45E.

¶4-950 Action by ACCC — secondary boycotts The Competition and Consumer Act 2010 (CCA) empowers the Australian Competition and Consumer Commission (ACCC) to take enforcement action in relation to secondary boycotts (see ¶4-970).

The ACCC’s enforcement of the secondary boycott provisions are summarised in the table in ¶4-800. Further details are provided below. TWU cases In August 1997 the ACCC instituted proceedings under s 45D for the first time. The ACCC alleged contraventions of the new s 45D by the Transport Workers’ Union (TWU) in Queensland. TWU members refused to load or unload vehicles of certain smaller transport companies which had not entered into enterprise bargaining arrangements with the TWU. The ACCC sought orders, among others, that the action cease and that compensation be paid to any smaller transport company which suffered loss or damage. Notably the ACCC did not seek pecuniary penalties in this case (FH Transport Pty Ltd & Anor v Transport Workers’ Union of Australia & Ors (1997) ATPR ¶41578; see also ACCC news release, 22 August 1997). In December 1997, the ACCC commenced further proceedings against the TWU for secondary boycott conduct against transport companies whose drivers were not financial members of the TWU (ACCC news release, 12 December 1997). The ACCC settled this litigation against the TWU in August 1998, when consent orders were made by the Federal Court. These included injunctions against the TWU, implementation by the TWU of a Trade Practices Compliance Program, and a contribution by the TWU to the costs of the ACCC’s proceedings (ACCC news release, 13 August 1998). CFEMEU 1997 case In December 1997, the ACCC commenced legal proceedings against the Construction Forestry Mining and Energy Union (CFMEU) for contraventions of s 45D. In this case the ACCC alleged that between 27 November and 2 December 1997, the CFMEU hindered or prevented operators of crane hire services supplying crane services to Western Portables to unload transportable buildings at a construction site at Collie in Western Australia. The ACCC settled this matter by consent with the CFMEU agreeing to

injunctions, to pay $15,000 towards ACCC’s costs and to make a payment of $29,087.89 to Western Portables by way of reimbursement of costs incurred (ACCC news release, 2 July 1999). CEPU 1998 case In March 1998, the ACCC commenced legal proceedings against the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union (CEPU) for alleged contraventions of s 45D. The ACCC alleged a number of contraventions between November 1997 and February 1998 of the secondary boycott provisions of the TPA in relation to subcontracting of the fitting of sprinkler pipe to a labour hire company. The case was settled in October 1998. The consent orders included an injunction requiring the CEPU not to engage in the conduct referred to, the implementation by the CEPU of a Trade Practices Compliance Program, notification by the CEPU to its members, contractors and builders that the conduct has ceased, an agreement by the CEPU to reinstate members who had been suspended, and an agreed contribution by the CEPU to the costs of the ACCC’s proceedings (ACCC news release, 20 March 1998, 13 October 1998). Maritime Union 1998 cases On 22 May 1998, the ACCC instituted proceedings against the Maritime Union of Australia (MUA) alleging breaches of the boycott provisions of the Trade Practices Act. The ACCC alleged that the MUA had: • taken steps to get the International Transport Workers Federation and its affiliates to organise and implement an international ban of ships, and shipping lines, loaded or unloaded with non-MUA labour in Australia • threatened ships, and shipping lines, that they would be the subject of such bans if they used Patrick, PCS or other stevedores using non-MUA labour • organised a campaign of domestic boycotts of Patrick operations because it used non-MUA labour, including: withdrawal of labour

for tugs and lines to impede ships berthing at Patrick; and blockading Patrick to stop transport companies delivering and picking up cargo from Patrick. The ACCC sought urgent injunctions in relation to the alleged involvement of the MUA in international boycott activities in conjunction with the ITF; declarations that the domestic blockades, refusal to work tugs and lines and the ITF international boycott actions breached the Trade Practices Act; findings of fact (which would enable business suffering loss or damage from the MUA conduct to seek damages); and permanent injunctions restraining the MUA from engaging in relevant primary and secondary boycott action. The ACCC also took action against the MUA national secretary, Mr John Coombs, and Mr Trevor Charles, an MUA official and the Australian International Transport Workers Federation representative, as respondents (ACCC news release, 22 May 1998). On 27 May 1998, the ACCC commenced further proceedings against the MUA in relation to the boycott of stevedores serving ships formerly contracted to Patrick Stevedores who refused to use labour from the Patrick labour hire companies. The ACCC alleged that the MUA and/or certain MUA officers had formed an understanding and an intention to make sure that all stevedoring work for vessels formerly contracted to Patrick at ports where Patrick had ceased operations (including Newcastle and Port Adelaide) was performed by employees of the Patrick labour hire companies, now under administration. The ACCC sought further declarations, injunctions and findings of fact (ACCC news release, 27 August 1997). The ACCC settled this case with an agreement for Patrick to pay a maximum of $7.5m compensation to small businesses damaged by the secondary boycotts and the MUA consenting to an injunction not to engage in similar conduct for two years (ACCC news release, 1 September 1998). Hold Cleaning case In April 2000, the ACCC instituted legal proceedings against the MUA and three senior MUA officials in relation to primary boycott conduct.

The ACCC alleged that the MUA, and a number of its officials and members, engaged in a pattern of conduct whereby they unlawfully hindered and prevented, or attempted to hinder and prevent, vessels from sailing from various Australian ports unless the ship owner agreed to use MUA labour to clean the hold of the vessel. The ACCC explained that the practice of making a hold cleaning demand involved a union official or members demanding that hold cleaning work which may be required by a ship operator be performed by particular union labour. The ACCC said that officials and members of the MUA made unlawful demands for hold cleaning work and that when a demand was not acceded to, it was followed by various forms of unlawful action to prevent the vessel from sailing. In some instances, it was alleged that persons unlawfully sat on the bollards where the vessel was tied to the wharf so as to prevent the linesmen from releasing the lines. Interestingly in addition to alleging a number of contraventions of s 45DB(1) of the TPA, the ACCC also claimed that the conduct contravened s 60 of the TPA which prohibits the use of physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer (ACCC news release, 17 April 2000). The MUA admitted two contraventions of s 45DB(1) but refused to admit any contravention of s 60. In November 2001, Justice Hill of the Federal Court of Australia ordered that the MUA pay penalties of $150,000 for two breaches of the secondary boycott provisions of the TPA ($75,000 for each breach) and the ACCC’s costs of $60,000. He also made declarations that the union’s conduct constituted undue harassment and coercion in breach of the TPA. In ordering these penalties Justice Hill stated: “99 While the question of the quantum of penalty is a matter upon which minds may differ and while it seems to me that the penalty agreed upon is at the bottom of the range, bearing in mind that the conduct engaged in was deliberate and involved the implementation of a policy by the MUA the forced implementation of which was most likely to contravene the Act, I am of the view

that the penalty of $75,000 for each contravention is, in all the circumstances, appropriate. In so concluding, I have taken into account that the respondents have cooperated with the ACCC to agree the facts and have accepted that their conduct did amount to a contravention, thereby reducing the expense which a contested hearing would have required. I am likewise of the view that the other orders contained in the draft orders and the terms of the proffered undertakings and statements are generally and in all the circumstances appropriate” Australian Competition and Consumer Commission v The Maritime Union of Australia (includes corrigendum dated 25 July 2002) [2001] FCA 1549 (5 November 2001). BLF case This case was resolved administratively rather than through a court proceeding. The ACCC obtained court enforceable undertakings from the Builders Labourers Federation (BLF) and its union organiser in Rockhampton, Queensland after the organiser had informed contractors and subcontractors that they were not to use the services of a mobile crane hire firm on the basis that the firm had not entered into an Enterprise Bargaining Agreement with the BLF (ACCC news release, 8 June 2000). Patricia Baleen gas plant case In ACCC v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union & Ors (2004) ATPR ¶42-002; [2004] FCA 517, the Federal Court imposed penalties totalling $300,000 against three unions for engaging in a secondary boycott ($100,000 each). Those unions were: • the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union • the Australian Workers Union, and • the CEPU.

The unions had maintained a picket at the entrance to the Patricia Baleen gas plant near Orbost, Victoria to prevent construction workers and vehicles delivering materials from entering the site. The unions had done so because the company that had been engaged to operate the plant post-construction had refused to negotiate certified agreements with the unions governing the terms and conditions of its employees, and proposed using non-local labour to operate the plant. Showmen’s Guild of Australasia case On 19 February 2004 the ACCC instituted proceedings against the Showmen’s Guild and certain individual members and their affiliated corporations alleging that on three occasions they had entered into an agreement, arrangement or understanding with one another not to supply amusement services to the independent organisers of the amusement areas for those events. In particular, the ACCC alleged that in relation to the Cessnock County Fair event proposed to be held in 1998, executive members of the Showmen’s Guild directed certain other members not to supply amusement services to the event upon threat of suspension or expulsion from the Showmen’s Guild. Furthermore, certain Showmen’s Guild executives arrived at an agreement, arrangement or understanding not to attend the 2002 and 2003 Newcastle Shows through the organisation of rival events (ACCC news release, 19 February 2004). The ACCC settled the case in May 2006. The Guild consented to injunctions to restrain them from discouraging showmen from taking part in “non-guild” shows. In addition the court: • declared that the Showmen’s Guild had breached s 45 and the Competition Code • granted injunctions for a period of five years • ordered the Guild to pay $155,000 towards the ACCC’s costs. The Guild also provided a court-enforceable undertaking to the ACCC that it would: • ensure members of its executive undertook trade practices law

compliance training • notify all of its members when a guild show became a non-guild show and that its members were free to attend and provide services at that show, and • publish a notice in the industry’s trade magazine outlining the terms of the settlement (ACCC news release, 10 May 2007). CEPU 2005 case In February 2005, the ACCC commenced legal proceedings against the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) and Edison Mission Operation and Maintenance Loy Yang Pty Ltd. The ACCC alleged that in August 2001, Edison entered into an agreement with the CEPU to allow only employees who were governed by the NECCIA and were members of the CEPU to work at the Long Yang B Power station. As a result of this alleged agreement, Edison stopped acquiring services from DJN Electrical. In this case, Justice Young found that in August 2001 IPM Operation and Maintenance Loy Yang Pty Ltd (previously known as Edison Mission Operation and Maintenance Loy Yang Pty Ltd), the operator of the Loy Yang B power station in Victoria, contravened s 45E of the Act by entering into an arrangement with the CEPU containing a provision which had the purpose of preventing IPM from engaging electrical contractors at the power station who did not have a current certified agreement with the CEPU. His Honour also found that IPM contravened s 45EA of the Act by giving effect to the arrangement until November 2003. Justice Young imposed a penalty of $125,000 (and a costs order of $200,000) against the CEPU for procuring and inducing IPM to enter into and give effect to the arrangement and for being a party to and knowingly concerned in the arrangement: Australian Competition and Consumer Commission v Edison Mission Operations and Maintenance Loy Yang Pty Ltd [2006] FCA 853 (7 April 2006). IPM did not contest the allegations made against it in the proceeding

and admitted that it breached s 45E and 45EA of the Act. On 9 February 2007 Justice Tracey imposed by consent a penalty of $120,000 against IPM. The CEPU appealed the pecuniary penalty imposed as manifestly excessive. The Full Federal Court comprising Justices Weinberg, Bennett and Rares affirmed the original decision of Justice Young. In rejecting the union appeal, the Full Federal Court upheld the penalty of $125,000 imposed by the trial judge noting that: “… had the matter been open to us to review … we would observe the penalty was at the lower end of the range for behaviour of the kind in which the CEPU engaged.” The Full Court added that the conduct by the CEPU: “… constituted a serious contravention of s 45E(3) (and that such conduct) should be deterred by the imposition of appropriately substantial penalties when contraventions have been established.” Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132 (17 August 2007). CFMEU and CFMEUW 2006 case In ACCC v the Construction, Forestry, Mining and Energy Union (2007) ATPR ¶42-140; [2006] FCA 1730, the Federal Court ordered the CMFEU and its state branch, known as the Construction, Forestry, Mining and Energy Union of Workers (CMFEUW), to pay pecuniary penalties of $50,000 each (amounting to a total of $100,000) for engaging in secondary boycott conduct at the Holiday Inn construction site next to the Burswood Casino in Perth. The orders were made with consent, after the CFMEU, CFMEUW and three union officials admitted liability. The union officials hindered or prevented third parties from supplying concrete, sand and associated services to Doric Constructions. This conduct was engaged in for the purpose, and would be likely to have the effect, of causing substantial loss or damage to Doric’s business. The conduct involved people forming a

human barrier and participating in a union line, and moving a chute. The conduct delayed a concrete pour for the central lift support well of the Holiday Inn, and, in a separate incident, delayed a delivery of sand. The court also ordered the CFMEU and CFMEUW to implement a trade practices law compliance program, to publish a disclosure notice to members setting out the gist of the court orders, and to pay the ACCC’s of $15,000. Cardiothoracic surgeons case In February 2007, the ACCC commenced legal proceedings against two cardiothoracic surgeons who operate in the Adelaide metropolitan area, Mr John Lincoln Knight and Mr Iain Kenneth Ross, for alleged breaches of the Competition Code of South Australia. The ACCC alleged that Mr Knight and Mr Ross engaged in alleged anticompetitive conduct in relation to two other cardiothoracic surgeons who were also operating in the Adelaide metropolitan area, including secondary boycott action to hinder or prevent another surgeon from providing his services at a private hospital in Adelaide and attempting to reach a market sharing arrangement with that surgeon (ACCC news release, 7 February 2007). The secondary boycott allegation was dropped as part of the ACCC settlement. Max Brenner boycotts On 2 September 2012, the ACCC issued a news release stating that the recent anti-Israel boycotts of Max Brenner outlets were not a secondary boycott. The ACCC explained that the various protests by the Boycott, Divestment and Sanctions campaign were referred to the ACCC by the Hon Michael O’Brien MP, Victorian Minister for Consumer Affairs on 5 August 2011. The Minister requested that the protests be investigated under the Competition and Consumer Act 2010 (CCA), which prohibits secondary boycotts. As stated in the ACCC news release: “Protesters had picketed the premises of the Max Brenner chain of chocolate shops as part of a campaign to boycott businesses with Israeli ownership and which carry on business with the Government of Israel. Protests have taken place in Melbourne,

Sydney and Brisbane and allegedly prevented potential customers from entering Max Brenner outlets.” The ACCC concluded as follows: “After careful assessment, the ACCC considers that this protest activity does not contravene section 45D of the CCA as it does not have the effect or likely effect of causing substantial loss or damage to the Max Brenner shops in question. Relevant factors here are the infrequent nature of the protests, their limited duration, and the difficulty in apportioning any revenue impact to this activity versus other factors.” The ACCC’s conclusion that the protests did not constitute a contravention of the secondary boycott provisions because they did not have the effect or likely effect of causing substantial loss or damage is open to serious question. The conclusion reached by the ACCC seems at odds with the decision of the Full Federal Court in Re Builders Workers’ Industrial Union of Australia; William Oliver; Jo Mcpartlin; Victorian State Building Trades Union; Hugh Harkins and Martin Bingham v Odco Pty Ltd [1991] FCA 87 (21 March 1991) which held: “104. The event stipulated by s. 45D is not the incurring of actual loss or damage but the likelihood that the relevant conduct would have that effect; so it is really no answer to say that, in the event, no loss or damage was sustained. …  106. The next matter raised by the appellant concerns the London Tavern site. It is said by counsel that the loss sustained by Troubleshooters as a result of the conduct of the union officials at this site cannot properly be regarded as ‘substantial’ since it was minor in relation to the company’s overall activities. Counsel point out that only three Troubleshooters men were engaged on the London Tavern job, as compared with about 300 Troubleshooters men working on building jobs at any one time.

107. No doubt the word ‘substantial’ does import into the text an element of relativity. Bowen C.J. said as much in Tillmanns Butcheries (supra) at p 339. But it is not necessary for a corporation complaining of a contravention of s. 45D to show that the loss or damage would be a major blow to its business. It is sufficient that the loss would be, in the circumstances, ‘real or of substance and not insubstantial or nominal’: see per Deane J in Tillmanns Butcheries at p 348.” It is difficult to see how the ACCC could have concluded that the boycotts of the Max Brenner stores was anything other than “real or of substance and not insubstantial or nominal”. CFMEU allegations 2014 In November 2014, the ACCC instituted court proceedings against the CFMEU, alleging it engaged in secondary boycott conduct targeted at two Boral companies. It alleged that the CFMEU instructed shop stewards to ban the use of Boral concrete at commercial construction sites in Melbourne. It alleged that shop stewards told Boral customers that Boral concrete was not allowed on certain sites, or that lengthy safety checks would be conducted on Boral concrete trucks if a customer acquired Boral concrete: ACCC media release, “ACCC takes court action against the CFMEU alleging secondary boycott and undue harassment or coercion”, MR 283/14, 20 November 2014. The conduct followed Boral’s involvement in the CFMEU’s industrial dispute with the builder Grocon at the Myer Emporium site. Boral was Grocon's exclusive supplier of concrete. Boral continued to supply Grocon during the dispute at the Myer Emporium site. The ACCC used its compulsory information gathering powers to conduct the investigation that led to the court proceedings. In separate proceedings related to the boycott, the Victorian Supreme Court ordered the CFMEU to pay Boral $4m in damages, and to also pay legal costs (which could bring the total up to $9m), following a settlement. This settlement will not affect the ACCC's Federal Court case. This proceeding is noteworthy because it is the first case in eight

years that the ACCC had brought against a union alleging a secondary boycott. .01 Law: Section 45D.

¶7-015 Resale price maintenance — the prohibited conduct Suppliers of goods or services must not engage in resale price maintenance: s 48, 96 and 96A of the Competition and Consumer Act 2010 (Cth). This means that suppliers must not set a minimum resale price, and must not try to stop a person lower in the distribution chain, such as a retailer, from reselling the goods or resupplying the services below a particular price. There are six types of conduct by suppliers that may constitute resale price maintenance: s 96 and 96A. These are listed below. It is important to note that the different types of conduct are not mutually exclusive: 1. Communication — conditional supply: Making it known to a person that the supplier will not supply goods or services unless the person agrees not to sell goods or resupply services below a specified price: see ¶7-350ff. 2. Inducement: Inducing or attempting to induce, a person not to sell goods or resupply services below a specified price, where the goods or services were supplied to that person directly or indirectly (eg through a third person) by the supplier: see ¶7-165ff. 3. Agreement — conditional supply: Entering into an agreement, or offering to enter into an agreement, for the supply of goods or services to a person, one of the terms of which is that the person will not sell goods or resupply services below a specified price: see ¶7-450ff. 4. Withholding supply: Withholding supply of goods or services to

a person because the person has sold goods or resupplied services below a specified price or will not agree not to sell goods or resupply services below a specified price: see ¶7-500ff. 5. Withholding supply — due to sales further down the chain: Withholding supply of goods or services to a person because a second person who has obtained, or wishes to obtain, goods or services from the first person has sold goods or resupplied services below a specified price or will not agree not to sell those goods or resupply those services below a specified price: see ¶7500ff. 6. Statement of minimum price: Using in relation to any goods or services supplied a statement of price which is likely to be understood as the minimum price for selling those goods or resupplying those services: see ¶7-550ff. Suppliers can set a maximum resale price (that is, a price ceiling): ¶7815.

¶10-015 Access to nationally significant infrastructure services — Structure of Pt IIIA There is a national access regime where the law helps to facilitate access to services provided by significant infrastructure facilities, such as railways, airports, port terminals and sewage pipes. It is set out in Pt IIIA of the Competition and Consumer Act 2010 (Cth). The regime focuses on Australian facilities of national significance that it would be uneconomic to duplicate, where access to the service supplied by the facility would promote competition in another market, such as an upstream or downstream market: s 44H(4), 44G(2), 44AA of the Competition and Consumer Act; Re Australian Union of Students (1997) ATPR ¶41-573 at 43,956; (1997) 140 FLR 167 at 171. Three alternative mechanisms The national access regime provides three alternative mechanisms to

secure access to a service provided by a nationally significant infrastructure facility: • Declaration and arbitration: There are two stages in this process for seeking access. The first stage is declaration. The second stage is negotiation or arbitration of the terms of access. The first stage is for an access seeker to apply for the service to be “declared”. The service can be declared by the designated minister, based on recommendations of the National Competition Council (NCC). If the minister declares the service, then access is available. In the second stage, the access seeker and the service provider (ie, the person who controls the facility) negotiate the terms of access to the service. If they agree, they can register their contract with the ACCC. If they cannot agree on the terms of access, then either party may ask the Australian Competition and Consumer Commission (ACCC) to arbitrate the access dispute. The arbitration is usually private. The ACCC’s decision can be appealed to the Australian Competition Tribunal (Tribunal): s 44F, 44G, 44H, 44S, 44V, 44ZD and 44ZP of the Competition and Consumer Act, In the Matter of Fortescue Metals Group Limited (2010) ATPR ¶42-319; [2010] ACompT 2, paragraph 3 of the Summary. • State or territory access regime: An alternative mechanism is for the Commonwealth Minister to decide that an existing state or territory access regime applying to that service is an effective access regime. • Access undertakings or codes: A third mechanism is the acceptance of access undertakings or an industry access code in relation to the service by the ACCC, upon application by a service provider or industry body. Structure of Pt IIIA Part IIIA is structured as follows:

• Division 1 — Preliminary: contains a number of special definitions and an objects clause, deals with the application of Pt IIIA to partnerships and joint ventures, and provides that the Crown is bound on the Commonwealth, state and territory level. • Division 2 — Declared Services: provides for the NCC to recommend to the designated minister whether a service should be declared, upon application by any person (the access seeker), and for the designated minister to make a decision on the declaration application following such recommendation. There is provision for review and revocation of a declaration, again on the recommendation of the NCC, and for the review of decisions of the minister by the Tribunal. Section 44H(4) states that the following criteira must all be met in order to declare a service: (a) promote competition: access (or increased access) to the service would promote a material increase in competition in at least one other market (b) uneconomical to duplicate: it would be uneconomical for anyone to develop another facility to provide the service (c) national significance: the facility is of national significance, in light of its size and importance to the national economy and to constitutional trade or commerce (e) not already covered by other regime: access to the service is not already covered by an effective state or territory access regime (f) public interest: access (or increased access) to the service would not be contrary to the public interest. • Division 2AA — Services that are ineligible to be declared: provides for the NCC to recommend to the designated minister whether a service should be found to be ineligible to be a declared service, upon application by the service provider, and for

the designated minister to make a decision on the ineligibility application following such recommendation. There is provision for review and revocation of an ineligibility decision. The NCC may recommend revocation of an ineligibility decision, and the designated Minister must decide whether to revoke it. The Tribunal can review an eligibility decision or an ineligibility decision. • Division 2A — Effective Access Regimes: provides for the NCC to recommend to the Commonwealth Minister whether an access regime submitted by a responsible minister of a state or territory that is a party to the Competition Principles Agreement (CPA) should be regarded as an effective access regime. The Commonwealth Minister must then decide whether it is an effective access regime. The decision must state the period for which it is in force. There is a mechanism for extending the period for which the Commonwealth Minister’s decision is in force, following a recommendation by the NCC. There is also a mechanism for review of decisions of the Commonwealth Minister by the Tribunal. If there is already a certified effective state or territory access regime for a service, then the NCC cannot recommend that the service be declared and the minister cannot “declare” the service (unless there have been substantial changes to the access regime or the Competition Principles Agreement): s 44H(4)(e), 44G(2)(e). • Division 2B — Competitive Tender Process for Government Owned Facilities: provides for the ACCC to approve a tender process, for the construction and operation of a governmentowned facility, as a competitive tender process upon the application of a relevant minister. The ACCC may also revoke an approval decision. There are time limits that the ACCC must meet — otherwise, it is deemed to have approved the tender process as competitive. The Tribunal can review the ACCC’s decision to grant, refuse or revoke approval.

A service provided by a government owned facility cannot be “declared” while an ACCC decision approving a tender process as competitive is in force: s 44H(3A). • Division 3 — Access to declared services — Arbitration of access disputes: sets out the basis on which the ACCC must arbitrate an access dispute in relation to a declared service, where the access seeker and service provider cannot agree on the terms of access to the service and one of them notifies the ACCC of the dispute. The ACCC’s decision can be reviewed by the Tribunal. The Tribunal’s decision can be appealed to the Federal Court, on a question of law. • Division 4 — Registered contracts for access to declared services: deals with decisions by the ACCC whether or not to register a contract providing for access to a declared service. If the contract is registered, the parties may enforce it as if the contract were an arbitration determination of the ACCC. If the ACCC decides not to register a contract, this decision can be reviewed by the Tribunal. • Division 5 — Hindering access to declared services: prohibits conduct for the purpose of preventing or hindering access to declared services. • Division 6 — Access undertakings and access codes for services: provides a mechanism by which a service provider or an industry body may undertake to provide access to a service (or services) covered by the undertaking or access code, subject to the undertaking or access code being accepted by the ACCC, without the need for the service to be declared under Pt IIIA. There is provision for the ACCC’s decision on whether to accept the proposed access undertaking or access code to be reviewed by the Tribunal. The ACCC is required to keep a public register of access undertakings and access codes accepted under Pt IIIA. A service cannot be “declared” if it is covered by an access undertaking: s 44H(3).

• Division 6A — Pricing principles for access disputes and access undertakings or codes: sets out the parameters of pricing principles to which the ACCC must have regard in making pricing decisions when arbitrating access disputes concerning declared services, and when considering whether to accept proposed access undertakings or access codes. • Division 6B — Overlap among determinations, registered contracts, access undertakings and Tribunal review: sets out the basis on which the ACCC can deal with overlaps between arbitration of access disputes and access undertakings; arbitration of access disputes and reviews of the declaration of the service; arbitration determinations and access undertakings; and registered contracts and access undertakings. • Division 7 — Enforcement and remedies: sets out the orders which the Federal Court may make where a person contravenes an arbitration determination or the prohibition on hindering access and provides for the enforcement of access undertakings that have been accepted under Pt IIIA. The principal remedies for contravention are injunctions and orders for compensation. • Division 8 — Miscellaneous: contains provision for a register of arbitration determinations, allows the ACCC to perform functions under a state or territory access regime, provides for the Commonwealth to pay compensation where an arbitration determination results in an acquisition of property, deals with conduct engaged in on behalf of a corporation, lists the information to be given to Tribunal, sets out the material that the Tribunal must consider and the material that it may disregard, sets a time limit for Tribunal decisions, and makes provision for regulations. Telecommunications — separate regime There is a separate regime for access to telecommunications facilities in Pt XIC of the Competition and Consumer Act. Part XIB is also relevant — it deals with anti-competitive conduct and record-keeping

rules in the telecommunications industry.

¶11-000 Prices surveillance by ACCC The Australian Competition and Consumer Commission (ACCC) can hold price inquiries, regulate prices and monitor prices under Pt VIIA (Prices surveillance) of the Competition and Consumer Act 2010 (Cth). This Part deals with three main things (see s 95F): • Price inquiries: The ACCC can hold price inquiries in relation to the supply of goods or services. For example, the ACCC has inquired into the price of groceries, unleaded petrol and wholesale gas prices in Eastern and Southern Australia. At the end of the inquiry, the ACCC gives the Minister a report. • Price notifications: “Declared” suppliers of “notified” goods or services must notify the ACCC of a proposed price rise. Broadly speaking, it is an offence for declared suppliers to raise prices, unless they have given the ACCC a “locality notice”, setting out their proposal to supply particular goods in a particular locality, on specified terms at a proposed price, and the ACCC does not object. The ACCC can set a new approved price (which is lower than the proposed price). For example, price notifications affect Australian Post (the price of certain types of letters), Sydney Airport (the price of providing aeronautical services and facilities to regional air services) and Airservices Australia (the price of en-route navigation, terminal navigation and aviation rescue and fire-fighting services). See the Price notifications register. In the past, price notifications affected beer and cigarettes. This meant that, before 1996, formal notifications were required before any proposed price increases, new product launches and excise recovery price increases for beer and cigarettes. • Price monitoring: The ACCC monitors the prices, costs and

profits in relation to the supply of goods or services in any industry or by any business that the Minister directs it to monitor. The ACCC then gives the Minister a report. For example, the ACCC monitors retail prices of unleaded petrol, diesel and LPG. It also monitors prices at Australian airports, and it monitors prices of container stevedoring operators in certain ports. It monitored prices to assess the impact of the carbon tax scheme. The ACCC also plays a role in regulating prices for access to nationally significant infrastructure services. See ¶10-015. The ACCC also enforces other provisions of the Competition and Consumer Act which relate to pricing, such as price fixing (¶2-816), price signalling (¶2-860), the simultaneous display of multiple prices for goods (¶29-710) and the requirement to display a single total price for goods or services (¶29-720). The ACCC was established on 6 November 1995. At that time, the ACCC succeeded the Prices Surveillance Authority as the Commonwealth authority responsible for administering pricing policies under the Prices Surveillance Act 1983. In the 1990s, the ACCC recast its price oversight functions, with a change to a more lighthanded, less interventionist approach. The Treasurer (in his press release dated 19 September 1996) indicated that price surveillance would only be used in markets where there were not sufficient competitive pressures to achieve efficient prices and protect consumers.

¶21-000 Roadmap — Telecommunications This roadmap summarises the law on anti-competitive conduct in the telecommunications industry and the law on regulated access to telecommunications services. The roadmap also guides you to more detailed commentary. Background to competition regulation: Part XIB and ¶21-012 Pt XIC of the Competition and Consumer Act 2010 (Cth) (CCA) (formerly the Trade Practices Act 1974 (Cth)

(TPA)) are specific to the telecommunications industry. Part XIB regulates anti-competitive conduct. Part XIB was designed as a stricter sectoral version of generic competition laws contained in Pt IV of the CCA. Part XIC regulates access to certain telecommunications services. It is based on the access regime contained in Pt IIIA of the CCA (see ¶10-015), but is different to that regime in many respects. An industry-specific regime for telecommunications was considered appropriate due to the underdeveloped state of competition in that industry prior to 1997. As from 1 January 2011, substantial reforms to the Pt XIC regime occurred to streamline its continued application and address industry concerns. Concerns about the continued absence of robust competition have also underpinned the government initiative to rollout a National Broadband Network (NBN) via a government-owned company known as “NBN Co Limited”. NBN Co is a wholesale-only company that will provide access to the NBN to telecommunications carriage service providers on an open and equivalent basis. As from 13 April 2011, Pt XIC contains provisions that have specific application to NBN companies and superfast broadband networks. Outline of Pt XIB: Part XIB of the CCA, “The ¶21-047 Telecommunications Industry: Anti-competitive conduct and record-keeping rules” sets up an industry-specific competition regime for regulating anti-competitive conduct by telecommunications “carriers” and “carriage service providers”. Carriage services include telephone, internet and Voice over Internet Protocol (VoIP) services. A carriage service provider uses a telecommunications network unit to supply carriage services to the public. A carrier owns such a telecommunications network unit. Part XIB supplements Pt IV of the CCA which contains

competition provisions that have generic application across the economy, including to the telecommunications industry. Anti-competitive conduct and the competition rule: The key operative provision in Pt XIB of the CCA is a statutory prohibition known as the “competition rule”: s 151AK. Under the competition rule, a carrier or a carriage service provider must not engage in “anticompetitive conduct” as that term is defined in s 151AJ(2) and 151AJ(3). To fall within the “competition rule” the conduct in question must involve a “carrier” or a “carriage service provider” and must relate to a “telecommunications market”. Examples of likely anticompetitive conduct for the purposes of Pt XIB of the CCA are the same as for Pt IV of the CCA and include predatory pricing, price fixing and exclusive dealing. Importantly, Pt XIB contains a unique misuse of market power provision directed at anti-competitive effects, supplementing the purpose-based s 46.

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Competition Notices: The Australian Competition and Consumer Commission (ACCC) may issue a written “Part A competition notice” stating that a specified carrier or carriage service provider has engaged, or is engaging, in anti-competitive conduct: s 151AKA.

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The ACCC may also issue a “Part B competition notice” stating that a specified carrier or carriage service provider has contravened, or is contravening, the competition rule and set out the particulars of that contravention. Part B competition notices have more severe consequences than Part A competition notices. A Part B competition notice is prima facie evidence of the matters in that notice. Competition notices can be varied (in minor ways) or revoked.

Advisory Notices: The ACCC may give a carrier or ¶21-240 carriage service provider a written notice advising of the action it should take in order to ensure that it does not engage, or continue to engage, in anti-competitive conduct: s 151AQB. The ACCC has no obligation to consider whether to issue an advisory notice before it issues a Part A competition notice. Exemption Orders: A carrier or carriage service ¶21-254 provider may seek an order from the ACCC to exempt specified conduct from the scope of s 151AJ of the CCA. An application for an exemption order must be in writing, in a form approved by the ACCC. The ACCC must give the applicant and any other person whom the ACCC considers interested a reasonable opportunity to make submissions to the ACCC about the order: s 151BB. The ACCC will consider the criteria in s 151BC when making a decision to grant/refuse an exemption order. Tariff filing direction: The ability to issue tariff filing ¶21-298 directions and to make record keeping rules ensures that the ACCC is able to monitor the conduct of carriers and carriage service providers in the telecommunications markets, particularly where the ACCC has concerns regarding potentially anticompetitive conduct. There are three types of tariff filing directions relating to charges for carriage services or ancillary goods/services: providing price information for relevant goods or services (s 151BK(3)), advance notification of change in price information (s 151BK(4)) and notification of change in price information after the event (s 151BK(5) of the CCA). Record keeping rules and disclosure directions: ¶21-334 The ACCC may make record keeping rules (RKR) under Div 6 of Pt XIB of the CCA. These rules may require one or more specified carriers or carriage service providers to keep and retain records and also to

prepare reports consisting of information contained in those records. RKR information is intended, for example, to assist the ACCC with investigations of possible anti-competitive conduct, in determining the terms and conditions of access to declared telecommunications services and in assessing any undertakings offered by an access provider on the terms and conditions of access to a declared service. Enforcement: Division 7 of Pt XIB of the CCA provides ¶21-368 for the enforcement in the Federal Court of the competition rule, tariff filing directions, record keeping rules and disclosure directions. In addition, s 87B dealing with the acceptance and enforcement of undertakings will also apply for the purposes of Pt XIB. The investigation process will usually initially involve gathering information in relation to the anti-competitive conduct and interviewing persons in, or connected with, the telecommunications industry. Remedies include pecuniary penalties and injunctions. Criminal proceedings will not be brought against a person for breaching the competition rule, a tariff filing direction, an RKR or a disclosure direction. However, criminal proceedings can be brought under s 151BV of the CCA, which deals with incorrect records. The ACCC must disclose certain documents, at the request of a person, where the documents tend to establish the person’s case and are connected to their application for an exemption order, their opportunity to make submissions about revocation of an exemption order, or enforcement proceedings against them: s 151CG(2). Review of ACCC decisions by the tribunal: Certain ¶21-415 decisions of the ACCC are reviewable on their merits by the Australian Competition Tribunal: s 151CI of the CCA. In conducting its review, the Tribunal will stand in the ACCC’s shoes and be able to affirm, set aside,

substitute for or vary, the ACCC’s decision: s 151CJ(1) of the CCA. Reviews of the operation of Pt XIB: The ACCC must ¶21-434 review and, as soon as practicable after 1 July each year, report to the minister on competitive safeguards within the telecommunications industry, including on matters relating to the operation of Pt XIB and Pt XIC of the CCA and any such other matters relating to competition in the telecommunications industry as the ACCC thinks appropriate: s 151CL(1). Outline of Pt XIC: Part XIC, entitled ¶21-460 “Telecommunications access regime”, establishes a regulated access regime for the telecommunications industry based on the general access regime set out in Pt IIIA (see ¶10-015). The telecommunications access regime provides for the declaration of carriage services, and services which facilitate the supply of carriage services, in certain circumstances. Once a service is declared, “standard access obligations” (SAOs) will apply to carriers or carriage service providers who supply those services, unless such persons are otherwise exempt. The ACCC may also make ex ante access determinations as the default terms and conditions for access to such services. Roadmap of Pt XIC: This subchapter provides a flowchart.

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Object of Pt XIC: Section 152AB provides that the object of Pt XIC is to promote the long-term interests of end-users (LTIE) of:

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• carriage services, including proposed carriage services, or • services provided by means of carriage services, which would include both content services and other services supplied by means of telecommunications

networks such as banking or retail shopping. When determining whether LTIE is promoted, it is necessary to have regard to competition, connectivity and investment considerations. Declaration of services: Section 152AL provides a ¶21-498 mechanism for the declaration of specified “eligible services”. Declaration may occur after a public inquiry by the ACCC or by the submission of a special access undertaking. For NBN corporations, declaration may also occur via the publication of a standard form of access agreement. The key consequence of declaration is that the standard access obligations apply. Standard access obligations: Standard access ¶21-543 obligations (SAOs) are statutory obligations imposed on “access providers” by Pt XIC in relation to “active declared services”: see s 152AR and 152AXB. Access providers owe these obligations to “service providers”, who are also known in Pt XIC as “access seekers”. Two categories of SAOs are created. Category B SAOs apply only to NBN corporations and are supplemented by additional non-discrimination requirements that are not part of the SAOs: s 152AXC, 152AXD. Special access undertakings: A carrier or carriage ¶21-613 service provider may give the ACCC a special access undertaking (SAU) before it supplies a declared service, or before an eligible service is declared. A SAU is a written undertaking in which the carrier or carriage service provider undertakes to comply with the terms and conditions specified in the undertaking in relation to the applicable standard access obligations: s 152CBA. A SAU overrides access determinations and hence is intended to provide greater regulatory certainty so as to promote infrastructure investment. Access determinations: The ACCC has the power to make access determinations on an ex ante (up-front)

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basis: s 152BC. Access determinations are intended to set out any or all of the default terms and conditions of access to a declared service and may be overridden by the terms and conditions of access agreements. Before making a final access determination, the ACCC must hold a public inquiry. In some circumstances, the ACCC may also issue interim access determinations without holding (or before completing) a public inquiry. Binding rules of conduct: The ACCC has the power ¶21-728 to make binding rules of conduct as a short-term “stop gap” regulatory measure where it considers there is an urgent need to do so: s 152BD. Binding rules of conduct are intended to enable the ACCC to urgently address concerns relating to the way an access provider is complying with the standard access obligations. Binding rules of conduct override access determinations and may be issued without the ACCC holding a public inquiry. Disclosure of access agreements: If access providers ¶21-768 and access seekers commercially agree to terms and conditions that are related to access to a declared service, the resulting agreements are known as “access agreements”: s 152BE. Access agreements and variations to access agreements must be disclosed to the ACCC as well as certain other related information. NBN corporations have a further obligation to give the ACCC statements of differences between their access agreements and certain key regulatory instruments. Model non-price terms and conditions: The ¶21-803 provisions relating to the telecommunications access code and model terms and conditions for core services have now been repealed. However, these historic documents are likely to still be persuasive for the ACCC in influencing the content of future access determinations and binding rules of conduct.

Access pricing: The minister may make a written ¶21-828 determination setting out principles dealing with pricerelated terms and conditions relating to the standard access obligations. This is known as a “Ministerial pricing determination”: s 152CH. When making an access determination, the ACCC must generally include terms relating to price: s 152BC(8). Miscellaneous Provisions: The smooth operation of ¶21-860 both the telecommunications access regime in Pt XIC and the general access regime in Pt IIIA is provided for in s 152CK. This section deals with the relationship between these two Parts of the CCA. Section 152CK does not restrict the declaration of a service under Pt XIC which has already been declared under Pt IIIA, or vice versa. However, to the extent that Pt XIC regulates access by service providers to a particular service, persons may not seek to have Pt IIIA regulate that access: s 152CK(1), 152CK(2), 152CK(3). The ACCC also has the ability to publish procedural rules to address procedural matters arising in the practical operation of Pt XIC. Transitional provisions and access arbitrations: The ¶21-888 access arbitration regime has been removed from Pt XIC with effect from 1 January 2011, but transitional provisions provide for its continued application in certain circumstances. Under the transitional application of the former Div 8 of Pt XIC, the ACCC has the power to arbitrate disputes relating to access to declared services in limited circumstances. Arbitral determinations of the ACCC are binding on the parties. The ability to notify new access disputes for arbitration for a declared service ends on the commencement date of the first access determination for that declared service. Key legislation:

• Competition and Consumer Act 2010 (Cth), Pt IIIA, IV, XIB, XIB Div 6 and 7, XIC, XIC Div 8, s 151AJ, 151AQB, 151BB, 151BC, 151BK, 151BV, 151CG, 151CJ, 151CL, 152AB, 152AL, 152AR, 152BS, 152CH, 152CK, 152EC (repealed).

¶25-800 Glossary — Australian Consumer Law Introduction More glossaries for different areas of law: This glossary explains the meaning of terms used in consumer law. The meaning of competition law terms is explained in the glossary at ¶2-100. Wolters Kluwer, CCH also publishes many glossaries relating to different areas of law. A list of some of these glossaries is available at the end of this glossary. CCH Note: When examining the terms contained in the Glossary, the following factors should be borne in mind. In the Australian Consumer Law (ACL), Sch 2 of the Competition and Consumer Act 2010, some words are defined by the use of the word “includes”, which generally involves an extension or clarification of any natural meaning the word may possess. However, where a definition gives an apparently full and comprehensive treatment of possible meanings, it may be held to be exhaustive despite the use of the word “includes”. In general, the definitions in this Glossary are sourced from s 2(1) of the ACL. However, in some cases further information is required to ascertain the full meaning of a word or phrase, beyond the definition supplied in s 2. For example, the definition of “acceptable quality” merely states “see sections 54(2) to (7)”. In such circumstances, this Glossary attempts to clarify the meaning of the word by providing further relevant information. Some of the definitions in the ACL have a limited meaning; they do not say what the definition really means, but rather what it stands for within the ACL. For example, in the definition of “business”, the real meaning of what constitutes a business is not supplied. Instead,

“business” is defined as follows: “business includes a business not carried on for profit.” Some definitions are not “real” definitions, in that the actual meaning of the term is not supplied. Where a “real” definition is not supplied, the Glossary will point this out and insert, where appropriate, the circumstances to which the definition is limited, or the circumstances included within the definition. An example of this is found in the Glossary’s treatment of the term “goods”. The ACL does not define the term “goods” but provides a list of items which are included in the definition of “goods”. The words defined in the Glossary are arranged in alphabetical order. ABN

(short for “Australian Business Number”) for an entity means the entity’s ABN as shown in the Australian Business Register (s 41 of the A New Tax System (Australian Business Number) Act 1999).

acceptable quality:

for goods, if they are as: (a) fit for all the purposes for which goods of that kind are commonly supplied (b) acceptable in appearance and finish (c) free from defects (d) safe, and (e) durable as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to:

(a) the nature of the goods (b) the price of the goods (if relevant) (c) any statements made about the goods on any packaging or label on the goods (d) any representation made about the goods by the supplier or manufacturer of the goods, and (e) any other relevant circumstances relating to the supply of the goods. Goods which are not of acceptable quality when supplied to a consumer will nevertheless be taken to be of acceptable quality if the only reason or reasons why they are not of acceptable quality were specifically drawn to the consumer’s attention before the consumer agreed to the supply. Such reasons will have been “specifically drawn to a consumer’s attention” if those reasons were disclosed on a written notice that was displayed with the goods and that was “transparent”. For the meaning of “transparent” see below. Goods do not fail to be of acceptable quality if: (a) the consumer to whom they are supplied causes them to become of unacceptable quality, or fails to take reasonable steps to prevent them from becoming of unacceptable quality, and (b) they are damaged by abnormal use. or

(a) the consumer acquiring the goods examines them before the consumer agrees to the supply of the goods, and (b) the examination ought reasonably to have revealed that the goods were not of acceptable quality. See s 54(2) to (7). For commentary on “acceptable quality” see ¶30-190. ACN

(short for “Australian Company Number”) is the number given by ASIC to a company on registration (s 9 of the Corporations Act 2001).

acquire

the Australian Consumer Law (s 2) and the Competition and Consumer Act (s 4(1)) does not define the word but explains that it “includes: (a) in relation to goods — acquire by way of purchase, exchange or taking on lease, on hire or on hire-purchase, and (b) in relation to services — accept”. To acquire means to gain, receive or come into possession of. There is no apparent reason to require that such possession results from the furnishing of consideration or value. The explanation does not purport to be exclusive and there is no reason to exclude acquisition by way of gift or gratuitous loan. The word has been held to cover “transactions of a purely passive nature” (in Congreve & Congreve v IRC (1946) 2 All ER 170 per Rottersley J at p 183).

Davies J in Clarke v New Concept Import Services Pty Ltd (1981) ATPR ¶40-264 at p 43,348 said that the definition of “acquire”: “is not a limiting definition but rather a definition which expands the ordinary meaning of the word to include matters such as leasing and hiring, which in the ordinary use of language may not constitute an acquisition”. The terms “acquire” and “supply” are defined in a similar manner, and it is clear from provisions such as those in s 65 that the term “supply” is intended to comprehend the supply of goods to a person who is merely a passive recipient. Therefore, no inference can be drawn from the use of the word “acquired” in the definition of “consumer” in s 4B of the Competition and Consumer Act (and s 3 of the Australian Consumer Law), which is indeed a common word in the English language with a very wide meaning. Goods are acquired in the same mode by which, on the other hand, they are supplied (see “supply”). The explanation of “acquire” was included in the TPA in 1977 to remove any doubts that the term was limited to acquisitions by way of purchase. It is now clear that the linked concepts of “acquire” and “supply” are not confined in their operation to the provision and acquisition of goods or services under legally binding contractual arrangements only. In particular, the concept of indirect acquisition “from another person” in s 47(6) and (7) is not confined to acquisition only from an entity which is in a legal relationship of agency with that other person:

ACCC v Flight Centre Limited (No 2) (2013) ATPR ¶42-458, per Logan J at [132], citing ACCC v IMB Group Pty Ltd (in liq) (2002) ATPR (Digest) ¶46-221. A reference to the acquisition: (a) of goods includes a reference to the acquisition of property in, or rights in relation to, goods pursuant to a supply of the goods (b) of goods or services includes a reference to agreeing to acquire goods or services (c) of goods includes a reference to the acquisition of goods together with other property or services, or both, and (d) of services includes a reference to the acquisition of services together with property or other services, or both (s 11). adverse publicity in relation to a person, is an order that requires order, the person: (a) to disclose, in the way and to the persons specified in the order, such information as is so specified, being information that the person has possession of or access to, and (b) to publish, at the person’s expense and in the way specified in the order, an advertisement in the terms specified in, or determined in accordance with, the order (s 247(2)). See further ¶35-260.

affected person,

in relation to goods, means: (a) a consumer who acquires the goods (b) a person who acquires the goods from the consumer (other than for the purpose of resupply), or (c) a person who derives title to the goods through or under the consumer. See further ¶30-220.

agreement document

is a document evidencing an unsolicited consumer agreement negotiated by telephone (see s 78(2)). See further ¶30-650.

ambush marketing

is an attempt by businesses to boost their brand by tapping into the publicity and enthusiastic interest associated with a major event without paying to become an official sponsor. This term is not used in the Australian Consumer Law. See ¶26-431 for a discussion of misleading conduct relating to sponsorship and ¶29-200 for a discussion of misrepresentations about sponsorship of goods or services.

applicable industry code

in relation to a corporation that is a participant in an industry, means: (a) the prescribed provisions of any mandatory industry code relating to the industry, and (b) the prescribed provisions of any voluntary industry code that binds the corporation (s 51ACA(1) of the Competition and

Consumer Act). See further ¶27-330. application law

means: (a) a law of a participating jurisdiction that applies the applied Australian Consumer Law, either with or without modifications, as a law of the participating jurisdiction (b) any regulations or other legislative instrument made under a law described in para (a), or (c) the applied Australian Consumer Law, applying as a law of the participating jurisdiction, either with or without modifications (s 140 of the Competition and Consumer Act).

applied Australian Consumer Law

means (according to the context): (a) the text described in s 140B of the Competition and Consumer Act, ie Sch 2 to the Competition and Consumer Act together with regulations made under s 139G of that Act; see Pt 6 of the Competition and Consumer Regulations, or (b) that text, applying as a law of a participating jurisdiction, either with or without modifications.

apply,

in relation to the applied Australian Consumer Law, means apply the applied Australian Consumer Law by reference:

(a) as in force from time to time, or (b) as in force at a particular time. article

includes a token, card or document. For the meanings of “document” and “token” see below.

ASIC

means the Australian Securities and Investments Commission.

assert a right to payment:

a right to payment is taken to have been asserted from another person if the person: (a) makes a demand for the payment or asserts a present or prospective right to the payment (b) threatens to bring any legal proceedings with a view to obtaining the payment (c) places or causes to be placed the name of the other person on a list of defaulters or debtors, or threatens to do so, with a view to obtaining the payment (d) invokes or causes to be invoked any other collection procedure, or threatens to do so, with a view to obtaining the payment, or (e) sends any invoice or other document that: (i) states the amount of the payment (ii) sets out the price of unsolicited goods or unsolicited services, or (iii) sets out the charge for placing, in a publication, an entry or advertisement,

and does not contain a statement, to the effect that the document is not an assertion of a right to a payment, that complies with any requirements prescribed by the regulations (s 10(1)). Regulation 77 provides that the statement must include the text “This is not a bill. You are not required to pay any money”. That text must also be the most prominent text in the document. See further ¶29-640. associate:

a person (the first person) is an associate of another person if: (a) the first person holds money or other property on behalf of the other person, or (b) if the other person is a body corporate — the first person is a wholly-owned subsidiary (within the meaning of the Corporations Act 2001 (Cth)) of the other person. For commentary on the expressions “whollyowned subsidiary” and “subsidiary” within the meaning of the Corporations Act see CCH Australian Company Law Commentary Premium (online) and Australian Corporations & Securities Law Reporter (print), at ¶25-800 and ¶26-820.

associate regulator

(a) for the purposes of the application of the Australian Consumer Law as a law of the Commonwealth — means a body that is, for the purposes of the application of the

Australian Consumer Law as a law of a state or a territory, the regulator within the meaning of the application law of the state or territory, or (b) for the purposes of the application of the Australian Consumer Law as a law of a state or a territory — means: (a) the Commission, or (b) a body that is, for the purposes of the application of the Australian Consumer Law as a law of another state or a territory, the regulator within the meaning of the application law of that other state or territory. Australian Consumer Law

means Sch 2 of the Competition and Consumer Act.

authority,

in relation to a state or a territory (including an external territory), means: (a) a body corporate established for a purpose of the state or the territory by or under a law of the state or territory, or (b) an incorporated company in which the state or the territory, or a body corporate referred to in para (a), has a controlling interest.

authority of the Commonwealth

means: (a) a body corporate established for a purpose of the Commonwealth by or under a law of the Commonwealth or a law of a territory, or

(b) an incorporated company in which the Commonwealth, or a body corporate referred to in para (a), has a controlling interest.

banker

includes, but is not limited to, a body corporate that is an ADI (authorised deposit-taking institution) for the purposes of the Banking Act 1959 (see s 4(1) of the Competition and Consumer Act).

ban period

for an interim ban starts on the day specified in the notice imposing the ban, and ends at the end of 60 days after the start day (see s 111(1)). See further ¶31-210.

business

includes a business not carried on for profit.

business day,

in relation to an unsolicited consumer agreement, means a day that is not: (a) a Saturday or Sunday, or (b) a public holiday in the place where the agreement was made. See further ¶30-440 and following.

business or professional relationship

includes a relationship between employer and employee, or a similar relationship. See further ¶32-560.

call on,

in relation to negotiating an unsolicited consumer agreement, does not include call by telephone. See further ¶30-600.

Chairperson

means the Chairperson of the ACCC (s 4(1) of the Competition and Consumer Act).

Commission

“means the Australian Competition and Consumer Commission established by s 6A, and includes a member of the Commission or a Division of the Commission performing functions of the Commission” (s 4(1) of the Competition and Consumer Act).

Commonwealth entity

means: (a) an authority of the Commonwealth, or (b) an officer of the Commonwealth.

Commonwealth mandatory standard,

in relation to goods, means a mandatory standard in respect of the goods imposed by a law of the Commonwealth. For the meaning of “mandatory standard” see below. See further ¶32-245.

Commonwealth Minister

means the minister who administers Pt XI of the Competition and Consumer Act.

Competition and Consumer Act

means the Competition and Consumer Act 2010.

conduct,

when that expression is used as a noun otherwise than as mentioned in reference to “engaging in conduct”, is a reference to the doing of or the refusing to do any act, including: (i) the making of, or the giving effect to a provision of, a contract or arrangement (ii) the arriving at, or the giving effect to a provision of, an understanding, or (iii) the requiring of the giving of, or the giving

of, a covenant (s 2(2)(b)). See also the definitions of “refusing to do an act” and “engaging in conduct”. consumer,

in the Australian Consumer Law, is separately defined in s 3(1) with respect to the supply of goods and the supply of services. A person is taken to have acquired particular goods as a consumer, if and only if: (a) the amount paid or payable for the goods, as worked out under s 3(4)–(9), did not exceed: (i) $40,000 (ii) if a greater amount is prescribed for the purposes of this paragraph — that greater amount, or (b) the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption, or (c) the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads (s 3(1)). A person is not taken to have acquired goods as a consumer if the person acquired the goods, or held himself or herself out as acquiring the goods: (a) for the purpose of resupply, or (b) for the purpose of using them up or transforming them, in trade or commerce:

(i) in the course of a process of production or manufacture, or (ii) in the course of repairing or treating other goods or fixtures on land (s 3(2)). A person is taken to have acquired particular services as a consumer, if and only if: (a) the amount paid or payable for the services, as worked out under subsections (4) to (9), did not exceed: (i) $40,000 (ii) if a greater amount is prescribed for the purposes of subsection (1)(a) — that greater amount, or (b) the services were of a kind ordinarily acquired for personal, domestic or household use or consumption (s 3(3)). Subsections (4)–(9) of s 3 contain rules for working out amounts paid or payable for purchases, for other acquisitions, and for obtaining credit. There is a rebuttable presumption that a person is a consumer with respect to the acquisition or possible acquisition of goods or services. Where a claimant has alleged that he or she is a consumer, then it is for the respondent to prove, according to the civil standard of proof, that the claimant is not a consumer within the meaning of s 3 of the Australian Consumer Law. See further ¶25-300.

consumer contract

is a contract for: (a) a supply of goods or services, or (b) a sale or grant of an interest in land, to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption (s 23(3)). For the purposes of s 23(1), a contract must also be a standard form contract. This expression is relevant to the unfair contract terms provisions in Pt 2-3 of the Australian Consumer Law. See also the definition of “small business contract”. See further ¶28-005.

consumer goods

means goods that are intended to be used, or are of a kind likely to be used, for personal, domestic or household use or consumption, and includes any such goods that have become fixtures since the time they were supplied if: (a) a recall notice for the goods has been issued, or (b) a person has voluntarily taken action to recall the goods. For the meaning of “recall notice” see below. See further ¶31-065.

continuing credit contract

is a credit agreement or credit dealing where: (a) a person (the creditor), in the course of a

business carried on by the creditor, agrees with a consumer to provide credit to the consumer in relation to: (i) payment for goods or services (ii) cash supplied by the creditor to the consumer from time to time, or (iii) payment by the creditor to another person in relation to goods or services, or cash, supplied by that other person to the consumer from time to time, and (b) the creditor: (i) has an agreement, arrangement or understanding (the credit agreement) with the consumer in relation to the provision of the credit, or (ii) is engaged in a course of dealing (the credit dealing) with the consumer in relation to the provision of the credit, and (c) the amounts owing to the creditor from time to time under the credit agreement or credit dealing are, or are to be, calculated on the basis that: (i) all amounts owing, and (ii) all payments made, by the consumer under, or in respect of, the credit agreement or credit dealing are entered in one or more accounts kept for the purpose of that agreement or dealing (s 14(1)).

Where a credit agreement relates to payment by the creditor to another person, as in para (a) (iii) above, the creditor is taken to have provided credit to the consumer in relation to any goods or services, or cash, supplied by another person to the consumer to the extent of any payments made, or to be made, by the creditor to that other person (s 14(2)). See further ¶30-710. contravening conduct

is a person engaging in conduct that contravenes any of the following provisions of Ch 2: • Pt 3-1 (unfair practices; see ¶29-000 and following) • Div 2 (unsolicited consumer agreements; see ¶30-440 and following), 3 (lay-by agreements; see ¶30-750 and following) or 4 (miscellaneous; see ¶30-830 and following) of Pt 3-2 • Ch 4 (offences; see ¶35-170 and following) (s 239(1)(a)(i)).

corporation

means a body corporate that: (a) is a foreign corporation (b) is a trading corporation formed within the limits of Australia or is a financial corporation so formed (c) is incorporated in a territory, or (d) is the holding company of a body corporate of a kind referred to in para (a),

(b) or (c) (s 4(1) of the Competition and Consumer Act). court,

in relation to a matter, means any court having jurisdiction in the matter.

covering

includes a stopper, glass, bottle, vessel, box, capsule, case, frame or wrapper.

credit card

is an article that is one or more of the following: (a) an article of a kind commonly known as a credit card (b) a similar article intended for use in obtaining cash, goods or services on credit (c) an article of a kind that persons carrying on business commonly issue to their customers, or prospective customers, for use in obtaining goods or services from those persons on credit, and includes an article that may be used as an article referred to in para (a), (b) or (c) (s 39(5)). See further ¶29-620, ¶29-625.

credit provider

means a person providing, or proposing to provide, in the course of a business carried on by the person, credit to consumers in relation to the acquisition of goods or services. See further ¶30-710.

dealer

is a person who, in trade or commerce: (a) enters into negotiations with a consumer with a view to making an agreement for the

supply of goods or services to the consumer, or (b) calls on, or telephones, a consumer for the purpose of entering into such negotiations, whether or not that person is, or is to be, the supplier of the goods or services (s 71). See further ¶30-560 and following; ¶30-630 and following. debit card

is: (a) an article intended for use by a person in obtaining access to an account that is held by the person for the purpose of withdrawing or depositing cash or obtaining goods or services, or (b) an article that may be used as an article referred to in para (a) (s 39(6)). See further ¶29-620, ¶29-625.

declared term

is a term of the contract in relation to which a court has made a declaration under s 250 (s 239(1)(a)(ii)). Under s 250, a court may declare a term of a standard form contract that is either a “consumer contract” or a “small business contract” to be an unfair term. See further ¶28-130.

defective goods action

means an action under s 138, 139, 140 or s 141, which are concerned with actions against manufacturers for goods with safety defects,

and includes such an action because of s 138(3) or s 145. See further ¶35-630. disclosed purpose,

in relation to the supply of goods to a consumer, is a particular purpose (whether or not that purpose is a purpose for which the goods are commonly supplied) for which the goods are being acquired by the consumer and that: (a) the consumer makes known, expressly or by implication, to: (i) the supplier (ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made, or (b) the consumer makes known to the manufacturer of the goods either directly or through the supplier or the person referred to in para (a)(ii) (s 55(2)). See further ¶30-250.

disclosure notice is a written notice requiring the supplier: (a) to give, in writing signed by the supplier, any such information to the person specified in the notice: (i) in the manner specified in the notice, and (ii) within such reasonable time as is specified in the notice, or (b) to produce, in accordance with such

reasonable requirements as are specified in the notice, any such documents to the person specified in the notice, or (c) to appear before the person specified in the notice at such reasonable time, and at such place, as is specified in the notice: (i) to give any such evidence, on oath or affirmation, and (ii) to produce any such documents (s 133D(3) of the Competition and Consumer Act). See further ¶35-100. displayed price

for goods is a price for the goods, or any representation that may reasonably be inferred to be a representation of a price for the goods: (a) that is annexed or affixed to, or is written, printed, stamped or located on, or otherwise applied to, the goods or any covering, label, reel or thing used in connection with the goods (b) that is used in connection with the goods or anything on which the goods are mounted for display or exposed for supply (c) that is determined on the basis of anything encoded on or in relation to the goods, or (d) that is published in relation to the goods in a catalogue available to the public if: (i) a time is specified in the catalogue as the time after which the goods will not

be sold at that price and that time has not passed (ii) in any other case — the catalogue may reasonably be regarded as not out of date, or (e) that is in any other way represented in a manner from which it may reasonably be inferred that the price or representation is applicable to the goods, and includes such a price or representation that is partly obscured by another such price or representation that is written, stamped or located partly over that price or representation (s 47(2)). For the purposes of para (2)(d) above, if a price or representation is included in a catalogue, and the catalogue is expressed to apply only to goods supplied at a specified location, or in a specified region, the price or representation is taken not to have been made in relation to supply of the goods at a different location, or in a different region, as the case may be (s 47(3)). Despite s 47(2), a price or representation is not a “displayed price” for goods if: (a) the price or representation is wholly obscured by another such price or representation that is written, stamped or located wholly over that price or representation (b) the price or representation: (i) is expressed as a price per unit of

mass, volume, length or other unit of measure, and (ii) is presented as an alternative means of expressing the price for supply of the goods that is a displayed price for the goods, or (c) the price or representation is expressed as an amount in a currency other than Australian currency, or (d) the price or representation is expressed in a way that is unlikely to be interpreted as an amount of Australian currency (s 47(4)). Despite s 47(2), a displayed price for goods that is a displayed price because it has been published in a catalogue or advertisement ceases to be a displayed price for the goods if: (a) the displayed price is retracted, and (b) the retraction is published in a manner that has at least a similar circulation or audience as the catalogue or advertisement (s 47(5)). See further ¶29-710. document

means any record of information, and includes: (a) anything on which there is writing (b) anything on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them

(c) anything from which sounds, images or writings can be reproduced with or without the aid of anything else, and (d) a map, plan, drawing or photograph.

embargo notice

must, under s 135S(3) of the Competition and Consumer Act: (a) be in writing (b) specify the consumer goods, or product related services, to which the notice relates (c) if the notice relates to consumer goods — state that the specified consumer goods must not be: (i) supplied in or from the premises, or (ii) transferred, moved, altered, destroyed or otherwise interfered with; during the period specified in the notice, and (d) if the notice relates to product related services — state that the specified product related services must not be supplied in or from the premises during the period specified in the notice, and (e) explain the effect of s 135V or 135W. See further ¶35-100.

embargo period

for an embargo notice means the period specified in the embargo notice under para 135S(3)(c) or (d) of the Competition and

Consumer Act. See further ¶35-100. enforcement order

if a person defaults in paying a fine that has been imposed on the person for an offence against a provision of Ch 4 of the Australian Consumer Law or s 137G of the Competition and Consumer Act, a court may: (a) exercise any power that the court has apart from this section in relation to the enforcement and recovery of the fine, or (b) make an order (the enforcement order), on the application of the Commonwealth Minister or the Commission, declaring that the fine is to have effect, and may be enforced, as if it were a judgment debt under a judgment of the court (s 139D(1)(b) of the Competition and Consumer Act). See further ¶35-000, ¶35-360.

enforcement proceeding

means: (a) a proceeding for an offence against Ch 4 (offences), or (b) a proceeding instituted under Ch 5 (enforcement and remedies) (other than under s 237 (compensation orders) and 239 (orders to redress loss or damage to non-party consumers)). See further ¶35-170 and following; ¶35-230 and following.

engaging in

in the Australian Consumer Law, is a reference

conduct,

to doing or refusing to do any act, including: (i) the making of, or the giving effect to a provision of, a contract or arrangement (ii) the arriving at, or the giving effect to a provision of, an understanding, or (iii) the requiring of the giving of, or the giving of, a covenant (s 2(2)(a)). See further ¶26-120. See also the definitions of “refusing to do an act” and “conduct”.

evidential burden, in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist. See further ¶28-500, ¶29-030. express warranty, in relation to goods, means an undertaking, assertion or representation: (a) that relates to: (i) the quality, state, condition, performance or characteristics of the goods (ii) the provision of services that are or may at any time be required for the goods (iii) the supply of parts that are or may at any time be required for the goods (iv) the future availability of identical goods, or of goods constituting or forming part of a set of which the

goods, in relation to which the undertaking, assertion or representation is given or made, form part, and (b) that is given or made in connection with the supply of the goods, or in connection with the promotion by any means of the supply or use of the goods, and (c) the natural tendency of which is to induce persons to acquire the goods. See further ¶30-350. Family Court Judge

means a Judge of the Family Court (including the Chief Judge, the Deputy Chief Judge, a Judge Administrator or a Senior Judge).

Federal Court

means the Federal Court of Australia.

financial product

is a facility through which, or through the acquisition of which, a person does one or more of the following: (a) makes a financial investment (b) manages financial risk (c) makes non-cash payments (s 12BAA of the Australian Securities and Investments Commission Act 2001). An unsolicited financial product means a financial product supplied to a person without any request made by the person or on the person’s behalf (s 12BA(1) of the Australian Securities and Investments Commission Act). See further ¶26-186.

financial service

is provided if a person: (a) provides financial product advice (b) deals in a financial product (c) makes a market for a financial product (d) operates a registered scheme (e) provides a custodial or depository service (f) operates a financial market or clearing and settlement facility (g) provides a service (not being the operation of a derivative trade repository) that is otherwise supplied in relation to a financial product (other than an Australian carbon credit unit or an eligible international emissions unit), or (h) engages in conduct of a kind prescribed in regulations made for the purposes of this paragraph (s 12BAB of the Australian Securities and Investments Commission Act). Section 12BAB(1A) of the ASIC Act also provides that the provision by a trustee company of a traditional trustee company service constitutes the provision, by the company, of a financial service. See further ¶26-186.

free item

includes a free service. See further ¶29-515.

get-up

means the appearance and presentation of a

product or the storefront of a business, such as its colour scheme, decoration, packaging, label, container, a distinctive shape, design, features or layout. This term is not used in the Australian Consumer Law. See ¶26-506 for a discussion on when get-up is misleading. goods

includes (and is therefore not confined to): (a) ships, aircraft and other vehicles (b) animals, including fish (c) minerals, trees and crops, whether on, under or attached to land or not (d) gas and electricity (e) computer software (f) second hand goods, and (g) any component part of, or accessory to, goods. See also the definition of “services”. See further ¶29-010; ¶29-030; ¶29-615; ¶30000; ¶30-020; ¶30-360; ¶32-205.

grown:

goods, or ingredients or components of goods, are grown in a country if they: (a) are materially increased in size or materially altered in substance in that country by natural development (b) germinated or otherwise arose in, or

issued in, that country, or (c) are harvested, extracted or otherwise derived from an organism that has been materially increased in size, or materially altered in substance, in that country by natural development (s 255(7)). See further ¶29-300. GST

means tax that is payable under the GST law and imposed as goods and services tax by any of these: (a) the A New Tax System (Goods and Services Tax Imposition — General) Act 1999 (b) the A New Tax System (Goods and Services Tax Imposition — Customs) Act 1999 (c) the A New Tax System (Goods and Services Tax Imposition — Excise) Act 1999 (d) the A New Tax System (Goods and Services Tax Imposition (Recipients) — General) Act 2005 (e) the A New Tax System (Goods and Services Tax Imposition (Recipients) — Customs) Act 2005 (f) the A New Tax System (Goods and Services Tax Imposition (Recipients) — Excise) Act 2005 (s 195-1 of the A New Tax System (Goods and Services Tax) Act

1999). See further ¶29-260. imposes a duty:

an application law imposes a duty on a Commonwealth entity if: (a) the law confers a function or power on the entity, and (b) the circumstances in which the function or power is conferred give rise to an obligation on the entity to perform the function or to exercise the power (s 140G of the Competition and Consumer Act).

industry code

means a code regulating the conduct of participants in an industry towards other participants in the industry or towards consumers in the industry (s 51ACA of the Competition and Consumer Act). See further ¶27-750 and following.

information provider

is a person who carries on a business of providing information, and includes: (a) the holder of a licence granted under the Broadcasting Services Act 1992 (b) a person who is the provider of a broadcasting service under a class licence under that Act (c) the Australian Broadcasting Corporation (d) the Special Broadcasting Service Corporation (s 19(5) and (6)).

See further ¶26-190; ¶26-195. information standard

for goods or services of a particular kind may: (a) make provision in relation to the content of information about goods or services of that kind (b) require the provision of specified information about goods or services of that kind (c) provide for the manner or form in which such information is to be provided (d) provide that such information is not to be provided in a specified manner or form (e) provide that information of a specified kind is not to be provided about goods or services of that kind, or (f) assign a meaning to specified information about goods or services (s 134(1)). The following may be declared by the Commonwealth Minister to be an information standard for goods or services of a kind specified in the instrument: (a) a particular standard, or a particular part of a standard, prepared or approved by Standards Australia International Limited or by an association prescribed by the regulations (b) such a standard, or such a part of a standard, with additions or variations

specified in the notice (s 135(1)). See further ¶31-815. infringement notice

means an infringement notice issued under s 134A(1) of the Competition and Consumer Act. It is a notice issued by the Commission to a person who the Commission believes on reasonable grounds has contravened an “infringement notice provision” (see below). Matters to be included in an infringement notice are listed in s 134B. See further ¶35-110.

infringement notice compliance period

an infringement notice compliance period, for an infringement notice, is the period of 28 days beginning on the day after the day on which the infringement notice is issued by the Commission (s 134F(1) of the Competition and Consumer Act). See further ¶35-110.

infringement notice provision

includes each of the following provisions of the Australian Consumer Law: (a) a provision of Pt 2-2 (b) a provision of Pt 3-1 (other than s 32(1), 35(1) or s 36(1), (2) or s (3) or s 40 or s 43) (c) s 66(2) (d) a provision of Div 2 of Pt 3-2 (other than s 85) (e) a provision of Div 3 of Pt 3-2 (other than s 96(2))

(f) s 100(1) or s (3), 101(3) or s (4), 102(2) or s 103(2) (g) s 106(1), (2), (3) or s (5), 107(1) or s (2), 118(1), (2), (3) or s (5), 119(1) or s (2), 125(4), 127(1) or s (2), 128(2) or s (6), 131(1), 132(1), 136(1), (2) or s (3) or s 137(1) or s (2) (h) s 221(1) or s 222(1) (s 134A(2) of the Competition and Consumer Act). injured person

a person who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that: (i) was engaged in a contravention of a provision of Ch 2 (general protections), 3 (specific protections) or s 4 (offences) of the Australian Consumer Law, or (ii) constitutes applying or relying on, or purporting to apply or rely on, a term of a contract that has been declared under s 250 to be an unfair term (s 237, 238). See further ¶28-850; ¶35-000 and following; ¶35-610 and following.

inner container

includes any container into which goods are packed, other than a shipping or airline container, pallet or other similar article. In the definition of “materials” (see below) the expression “materials” includes the inner containers in which the goods are packed.

inspector

means a person who is appointed as an inspector under s 133(1) of the Competition and

Consumer Act. See further ¶35-080 and following. interest,

in relation to land, means: (a) a legal or equitable estate or interest in the land (b) a right of occupancy of the land, or of a building or part of a building erected on the land, arising by virtue of the holding of shares, or by virtue of a contract to purchase shares, in an incorporated company that owns the land or building, or (c) a right, power or privilege over, or in connection with, the land. See further ¶28-000 and following; ¶29-375 and following; ¶29-390.

interim ban:

an interim ban may be imposed by written notice on consumer goods of a particular kind and product related services of a particular kind. In relation to good of a particular kind, the interim ban can be imposed if: (a) it appears to the responsible minister that: (i) consumer goods of that kind will or may cause injury to any person (ii) a reasonably foreseeable use (including a misuse) of consumer goods of that kind will or may cause injury to any person, or (b) another responsible minister has imposed, under para (a), an interim ban:

(i) on consumer goods of the same kind, or (ii) on consumer goods of a kind that includes those goods, and that ban is still in force (s 109(1)). An interim ban can be imposed on product related services if: (a) it appears to the responsible minister that: (i) as a result of services of that kind being supplied, consumer goods of a particular kind will or may cause injury to any person (ii) a reasonably foreseeable use (including a misuse) of consumer goods of a particular kind, to which such services relate, will or may cause injury to any person as a result of such services being supplied, or (b) another responsible minister has imposed, under para (a), an interim ban: (i) on product related services of the same kind, or (ii) on product related services that include those services, and that ban is still in force (s 109(2)). See further ¶31-210. involved:

a person is involved, in a contravention of a provision of the Australian Consumer Law or in

conduct that constitutes such a contravention, if the person: (a) has aided, abetted, counselled or procured the contravention (b) has induced, whether by threats or promises or otherwise, the contravention (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention (d) has conspired with others to effect the contravention. See further ¶35-750 and following. joint liability proceedings

are proceedings relating to the joint and several liability under s 278 of a linked credit provider and a supplier of goods or services.

label

includes a band or ticket. See further ¶26-490.

lay by agreement is an agreement between a supplier of goods and a consumer for the supply, in trade or commerce, of the goods on terms (whether express or implied) which provide that: (a) the goods will not be delivered to the consumer until the total price of the goods has been paid, and (b) the price of the goods is to be paid by: (i) three or more instalments, or (ii) if the agreement specifies that it is a lay-by agreement — two or more

instalments (s 96(3)). A deposit paid by the consumer for the goods is counted as an “instalment” (s 96(4)). See further ¶30-770. linked credit contract

is a contract that a consumer enters into with a linked credit provider (see below) of a person (the supplier) for the provision of credit in relation to: (a) the supply by way of sale, lease, hire or hire-purchase of goods to the consumer by the linked credit provider where the supplier supplies the goods, or causes the goods to be supplied, to the linked credit provider, or (b) the supply by the supplier of goods or services, or goods and services, to the consumer (s 278(2)). See further ¶30-710.

linked credit provider,

in relation to a supplier of goods or services, means a credit provider: (a) with whom the supplier has a contract, arrangement or understanding relating to: (i) the supply to the supplier of goods in which the supplier deals (ii) the business carried on by the supplier of supplying goods or services (iii) the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment

for those goods or services, or (b) to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit (c) whose forms of contract, forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier, or (d) with whom the supplier has a contract, arrangement or understanding under which contracts, applications or offers for credit from the credit provider may be signed by persons at premises of the supplier. See further ¶30-710. listed corporation means a body corporate that is included in an official list of a prescribed financial market (s 9 of the Corporations Act). listed public company,

has the meaning of s 995-1 of the Income Tax Assessment Act 1997, and means a company shares in which (except shares that carry a right to a fixed rate of dividend) are listed for quotation in the official list of an approved stock exchange. However, a company is not a listed public company if: (a) a person (who is not a company) controls, or is able to control, or up to 20 persons (none of them companies) between them control, or are able to control, 75% or more of the voting power in the company (whether directly, or indirectly through one

or more interposed entities) (b) a person (who is not a company) has, or up to 20 persons (none of them companies) have between them, the right to receive for their own benefit (whether directly, or * indirectly through one or more interposed entities) 75% or more of any * dividends that the company may pay (c) a person (who is not a company) has, or up to 20 persons (none of them companies) have between them, the right to receive for their own benefit (whether directly, or * indirectly through one or more interposed entities) 75% or more of any distribution of capital of the company. loan contract

means a contract under which a person in the course of a business carried on by that person provides or agrees to provide, whether on one or more occasions, credit to a consumer in one or more of the following ways: (a) by paying an amount to, or in accordance with the instructions of, the consumer (b) by applying an amount in satisfaction or reduction of an amount owed to the person by the consumer (c) by varying the terms of a contract under which money owed to the person by the consumer is payable (d) by deferring an obligation of the consumer to pay an amount to the person

(e) by taking from the consumer a bill of exchange or other negotiable instrument on which the consumer (whether alone or with another person or other persons) is liable as drawer, acceptor or endorser. See further ¶30-710. major failure,

a failure to comply with a guarantee referred to in s 259(1)(b) that applies to a supply of goods is a major failure if: (a) the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure (b) the goods depart in one or more significant respects: (i) if they were supplied by description — from that description (ii) if they were supplied by reference to a sample or demonstration model — from that sample or demonstration model (c) the goods are substantially unfit for a purpose for which goods of the same kind are commonly supplied and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose, or (d) the goods are unfit for a disclosed purpose that was made known to: (i) the supplier of the goods, or

(ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made (s 260). A major failure, in relation to a failure to comply with a guarantee referred to in s 267(1)(b) that applies to a supply of services, occurs if : (a) the services would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure (b) the services are substantially unfit for a purpose for which services of the same kind are commonly supplied and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose, or (c) both of the following apply: (i) the services, and any product resulting from the services, are unfit for a particular purpose for which the services were acquired by the consumer that was made known to the supplier of the services (ii) the services, and any of those products, cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose, or (d) both of the following apply: (i) the services, and any product resulting

from the services, are not of such a nature, or quality, state or condition, that they might reasonably be expected to achieve a result desired by the consumer that was made known to the supplier (ii) the services, and any of those products, cannot, easily and within a reasonable time, be remedied to achieve such a result, or (e) the supply of the services creates an unsafe situation (s 268). See further ¶30-020 and following. mandatory standard,

in relation to goods, means a standard: (a) for the goods or anything relating to the goods, and (b) that, under a law of the Commonwealth, a state or a territory, must be complied with when the goods are supplied by their manufacturer, being a law creating an offence or liability if there is such non compliance, but does not include a standard which may be complied with by meeting a higher standard. See further ¶32-240.

manufacturer

takes its ordinary meaning, and includes the following:

(a) a person who grows, extracts, produces, processes or assembles goods (b) a person who holds himself or herself out to the public as the manufacturer of goods (c) a person who causes or permits the name of the person, a name by which the person carries on business or a brand or mark of the person to be applied to goods supplied by the person (d) a person (the first person) who causes or permits another person, in connection with: (i) the supply or possible supply of goods by that other person, or (ii) the promotion by that other person by any means of the supply or use of goods; to hold out the first person to the public as the manufacturer of the goods (e) a person who imports goods, or on whose behalf goods are imported, into Australia if: (i) the person is not the manufacturer of the goods, and (ii) at the time of the importation, the manufacturer of the goods does not have a place of business in Australia (s 7). For the purposes of para (c) above, a name, brand or mark is taken to be applied to goods if it is woven in, impressed on, worked into or

annexed or affixed to the goods, or it is applied to a covering, label, reel or thing in or with which the goods are supplied. If the name of a person, a name by which a person carries on business or a brand or mark of a person is applied to goods, it is presumed, unless the contrary is established, that the person caused or permitted the name, brand or mark to be applied to the goods (s 7(2)). See further ¶32-220. market

means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services (s 4E of the Competition and Consumer Act).

materials,

in relation to goods, means: (a) if the goods are unmanufactured raw products — those products (b) if the goods are manufactured goods — all matter or substances used or consumed in the manufacture of the goods (other than matter or substances that are treated as overheads), and (c) in either case — the inner containers in which the goods are packed. See above for the definition of “inner container”.

member of the Commission

includes the Chairperson and a person appointed to act as a member of the Commission but does not include an associate

member of the Commission (s 4(1) of the Competition and Consumer Act). mixed supply

a purchase or other acquisition of goods or services is made by a mixed supply if the goods or services are purchased or acquired together with other property or services, or together with both other property and other services (s 3(11)).

modifications

includes additions, omissions and substitutions (s 140 of the Competition and Consumer Act).

National Credit Code

means Sch 1 of the National Consumer Credit Protection Act 2009 and includes: (a) regulations made under s 329 for the purposes of that Schedule, and (b) instruments made under that Schedule.

negotiated by telephone

means an unsolicited consumer agreement if the negotiations that resulted in the making of the agreement took place by telephone (whether or not other negotiations preceded the making of the agreement) (s 78(3)). See further ¶30-650.

negotiation,

in relation to an agreement or a proposed agreement, includes any discussion or dealing directed towards the making of the agreement or proposed agreement (whether or not the terms of the agreement or proposed agreement are open to any discussion or dealing) (s 72). See further ¶30-510 and following.

new participant

includes a person who has applied, or been invited, to participate in a pyramid scheme (s 45(2)). See also the definitions of “participant”, “participate”, “participation payment”, “pyramid

scheme” and “recruitment payment”. See further ¶29-670 and following. non-linked credit contract

is a contract that a consumer enters into with a credit provider for the provision of credit in relation to: (a) the supply by way of sale, lease, hire or hire-purchase of goods to the consumer where: (i) a person (the supplier) supplies the goods, or causes the goods to be supplied, to the credit provider (ii) the credit provider is not a linked credit provider of the supplier (iii) prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made with the consumer by or on behalf of the supplier, and (iv) the credit provider did not take physical possession of the goods before they were delivered to the consumer, or (b) the supply of services to the consumer by a person in relation to whom the credit provider is not a linked credit provider (s 287(5)). See further ¶30-710.

non-party consumer

means: (a) in relation to conduct referred to in s

239(1)(a)(i) — a person who is not, or has not been, a party to an enforcement proceeding in relation to the conduct, and (b) in relation to a term of a contract referred to in s 239(1)(a)(ii) — a person who is not, or has not been, a party to an enforcement proceeding in relation to the term. See further ¶28-850; ¶35-400. occupational liability

is civil liability arising directly or vicariously from anything done or omitted by a person who: (a) does or omits to do the thing in the course of his or her profession, trade or occupation, and (b) is a member of a body: (i) that represents the interests of persons who have the same profession, trade or occupation, and (ii) whose membership is limited principally to such persons (s 137(5) of the Competition and Consumer Act). See further ¶35-480.

offering to do an act,

or to do an act on a particular condition, includes a reference to the person making it known that the person will accept applications, offers or proposals for the person to do that act or to do that act on that condition, as the case may be (s 2(2)(d)). See further ¶7-460.

officer,

in relation to the Commonwealth, includes the following: (a) a minister (b) a person who holds: (i) an office established by or under an Act (ii) an appointment made under an Act, or (iii) an appointment made by the Governor-General or a minister but not under an Act (c) a person who is a member or officer of an authority of the Commonwealth, (d) a person who is: (i) in the service or employment of the Commonwealth, or of an authority of the Commonwealth, or (ii) employed or engaged under an Act (s 140 of the Competition and Consumer Act).

participant,

in a pyramid scheme, means a person who participates in the scheme. See also the definitions of “new participant”, “participate”, “participation payment”, “pyramid scheme” and “recruitment payment”. See further ¶29-670 and following.

participate,

in a pyramid scheme is: (a) to establish or promote the scheme

(whether alone or together with another person), or (b) to take part in the scheme in any capacity (whether or not as an employee or agent of a person who establishes or promotes the scheme, or who otherwise takes part in the scheme) (s 44(3)). See also the definitions of “new participant”, “participant”, ”participation payment”, pyramid scheme” and “recruitment payment”. See further ¶29-670 and following. participating jurisdiction

means a participating state or participating territory (s 140 of the Competition and Consumer Act).

participating State

means a state that is a party to the Intergovernmental Agreement for the Australian Consumer Law and applies the applied Australian Consumer Law as a law of the state, either with or without modifications (s 140 of the Competition and Consumer Act).

participating Territory

means a Territory that is a party to the Intergovernmental Agreement for the Australian Consumer Law and applies the applied Australian Consumer Law as a law of the territory, either with or without modifications (s 140 of the Competition and Consumer Act).

participation payment:

for some or all new participants to take part in a pyramid scheme, some or all of the new participants must provide either of the following to another participant or participants in the scheme: (i) a financial or non-financial benefit to, or for

the benefit of, the other participant or participants (ii) a financial or non-financial benefit partly to, or for the benefit of, the other participant or participants and partly to, or for the benefit of, other persons (s 45(1)). See also the definitions of “new participant”, “participant”, “participate”, “pyramid scheme” and “recruitment payment”. See further ¶29-670 and following. permanent ban,

under the ACL, can be imposed by the minister on consumer goods or product related services of a particular kind. A permanent ban can be imposed on consumer goods of a particular kind if: (a) one or more interim bans on consumer goods of that kind (the banned goods), or on consumer goods of a kind that include the banned goods, are in force, or (b) it appears to the Commonwealth Minister that: (i) consumer goods of that kind will or may cause injury to any person, or (ii) a reasonably foreseeable use (including a misuse) of consumer goods of that kind will or may cause injury to any person. A permanent ban can be imposed on product related services of a particular kind if:

(a) one or more interim bans on product related services of that kind (the banned services), or on product related services of a kind that include the banned services, are in force, or (b) it appears to the Commonwealth Minister that: (i) as a result of services of that kind being supplied, consumer goods of a particular kind will or may cause injury to any person, or (ii) a reasonably foreseeable use (including a misuse) of consumer goods of a particular kind, to which such services relate, will or may cause injury to any person as a result of such services being supplied (s 114(1) and (2)). See further ¶31-225. person assisting, means a person assisting an inspector in entering premises under s 135 and exercising search-related powers in relation to the premises (s 135D(2) of the Competition and Consumer Act). See further ¶35-100. personal injury

includes (but is not confined to): (a) prenatal injury (b) impairment of a person’s physical or mental condition, and

(c) disease, but does not include an impairment of a person’s mental condition unless the impairment consists of a recognised psychiatric illness (s 130 of the Competition and Consumer Act). premises

means: (a) an area of land or any other place (whether or not it is enclosed or built on) (b) a building or other structure (c) a vehicle, vessel or aircraft, or (d) a part of any such premises.

price

of goods or services means: (a) the amount paid or payable (including any charge of any description) for their acquisition, or (b) if such an amount is not specified because the acquisition is part only of a transaction for which a total amount is paid or payable: (i) the lowest amount (including any charge of any description) for which the goods or services could reasonably have been acquired from the supplier at the time of the transaction or, if not from the supplier, from another supplier, or (ii) if they could not reasonably have been acquired separately from another

supplier — their value at the time of the transaction. prior negotiations in relation to the acquisition of goods by a or arrangements, consumer, means negotiations or arrangements: (a) that were conducted or made with the consumer by another person in the course of a business carried on by the other person, and (b) that induced the consumer to acquire the goods, or otherwise promoted the acquisition of the goods by the consumer. See further ¶30-260. product related service

means a service for or relating to: (a) the installation of consumer goods of a particular kind (b) the maintenance, repair or cleaning of consumer goods of a particular kind (c) the assembly of consumer goods of a particular kind, or (d) the delivery of consumer goods of a particular kind, and, without limiting para (a) to (d), includes any other service that relates to the supply of consumer goods of that kind. See further ¶31-045 and following.

professional standards law

is a law that provides for the limitation of occupational liability by reference to schemes for limiting that liability that were formulated and published in accordance with that law (s 137(4) of the Competition and Consumer Act). See further ¶35-800.

proof of transaction,

for a supply of goods or services to a consumer is a document that: (a) identifies the supplier of the goods or services (b) if the supplier has an ABN — states the supplier’s ABN (c) if the supplier does not have an ABN but has an ACN — states the supplier’s ACN (d) states the date of the supply (e) states the goods or services supplied to the consumer, and (f) states the price of the goods or services. The note to s 100(4) of the ACL gives the following as examples of a proof of transaction: (a) a tax invoice within the meaning of the A New Tax System (Goods and Services Tax) Act (b) a cash register receipt (c) a credit card or debit card statement (d) a handwritten receipt

(e) a lay-by agreement (f) a confirmation or receipt number provided for a telephone or internet transaction. See further ¶30-840. proposed ban notice,

must be issued by the Commonwealth Minister if the Commonwealth Minister proposes to impose an interim ban, or a permanent ban: (a) on consumer goods of a particular kind, or (b) on product related services of a particular kind (s 132(1) of the Competition and Consumer Act). The proposed ban notice must: (a) be in writing (b) be published on the internet (c) set out a copy of a draft notice for the imposition of the interim ban or permanent ban (d) set out a summary of the reasons for the proposed imposition of the ban, and (e) invite any person who supplies, or proposes to supply: (i) consumer goods of that kind, or (ii) product related services of that kind; to notify the Commission, in writing and within a period specified in the

notice, if the person wishes the Commission to hold a conference in relation to the proposed imposition of the ban (s 132(1) of the Competition and Consumer Act). See further ¶31-195 and following; ¶31-555. proposed recall notice,

must be issued by the Commonwealth Minister if the Commonwealth Minister proposes to issue a recall notice for consumer goods of a particular kind (s 132A(1) of the Competition and Consumer Act). The proposed recall notice must: (a) be in writing (b) be published on the internet (c) set out a copy of a draft recall notice (d) set out a summary of the reasons for the proposed issue of the recall notice, and (e) invite any person who supplies, or proposes to supply, consumer goods of that kind to notify the Commission, in writing and within a period specified in the notice, if the person wishes the Commission to hold a conference in relation to the proposed issue of the recall notice (s 132A(3) of the Competition and Consumer Act). See further ¶31-195 and following; ¶31-555.

publish,

in relation to an advertisement, means include

in a publication intended for sale or public distribution (whether to the public generally or to a restricted class or number of persons) or for public display (including in an electronic form). See further ¶26-190. pyramid scheme

is a scheme with both of the following characteristics: (a) to take part in the scheme, some or all new participants must provide, to another participant or participants in the scheme, either of the following (a participation payment): (i) a financial or non-financial benefit to, or for the benefit of, the other participant or participants (ii) a financial or non-financial benefit partly to, or for the benefit of, the other participant or participants and partly to, or for the benefit of, other persons, (b) the participation payments are entirely or substantially induced by the prospect held out to new participants that they will be entitled, in relation to the introduction to the scheme of further new participants, to be provided with either of the following (a recruitment payment): (i) a financial or non-financial benefit to, or for the benefit of, new participants (ii) a financial or non-financial benefit partly to, or for the benefit of, new participants and partly to, or for the benefit of, other persons (s 45(1)).

See also the definitions of “new participant”, ”participant”, “participate” and “recruitment payment”. See further ¶29-670 and following. recall notice,

for consumer goods, may require one or more suppliers of the goods, or (if no such supplier is known to the responsible minister who issued the notice) the regulator, to take one or more of the following actions: (a) recall the goods (b) disclose to the public, or to a class of persons specified in the notice, one or more of the following: (i) the nature of a defect in, or a dangerous characteristic of, the goods as identified in the notice (ii) the circumstances as identified in the notice in which a reasonably foreseeable use or misuse of the goods is dangerous (iii) procedures as specified in the notice for disposing of the goods, (c) if the identities of any of those suppliers are known to the responsible minister — inform the public, or a class of persons specified in the notice, that the supplier undertakes to do whicheverof the following the supplier thinks is appropriate: (i) unless the notice identifies a dangerous characteristic of the goods

— repair the goods (ii) replace the goods (iii) refund to a person to whom the goods were supplied (whether by the supplier or by another person) the price of the goods (s 123(1)). The recall notice may specify the manner in which the action required to be taken by the notice must be taken, and the period within which the action must be taken (s 123(2)). Under s 122(1), a recall notice for consumer goods of a particular kind may be issued, by a responsible minister by internet notice, if: (a) a person, in trade or commerce, supplies consumer goods of that kind, and (b) any of the following applies: (i) it appears to the responsible minister that such goods will or may cause injury to any person (ii) it appears to the responsible minister that a reasonably foreseeable use (including a misuse) of such goods will or may cause injury to any person (iii) a safety standard for such goods is in force and the goods do not comply with the standard (iv) an interim ban, or a permanent ban, on such goods is in force, and

(c) it appears to the responsible minister that one or more suppliers of such goods have not taken satisfactory action to prevent those goods causing injury to any person (s 122(1)). See further ¶31-045 and following. reckless conduct, in relation to supplier’s conduct, occurs if the supplier: (a) is aware, or should reasonably have been aware, of a significant risk that the conduct could result in personal injury to another person, and (b) engages in the conduct despite the risk and without adequate justification (s 139A(5) of the Competition and Consumer Act). See also the definition of “personal injury”. recovery period,

in relation to unsolicited goods, is whichever of the following periods ends first: (a) the period of three months starting on the day after the day on which the person received the goods; (b) if the person who receives the unsolicited goods gives notice with respect to the goods to the supplier or sender in accordance with subsection (5) — the period of one month starting on the day after the day on which the notice is given (s 41(4)). See further ¶29-615 and following.

recreational services

are services that consist of participation in: (a) a sporting activity or a similar leisure time

pursuit, or (b) any other activity that: (i) involves a significant degree of physical exertion or physical risk, and (ii) is undertaken for the purposes of recreation, enjoyment or leisure (s 139A(2) of the Competition and Consumer Act). recruitment payment

is: (i) a financial or non-financial benefit to, or for the benefit of, new participants, (ii) a financial or non-financial benefit partly to, or for the benefit of, new participants and partly to, or for the benefit of, other persons (s 45(1)(b)). See also the definitions of “new participant”, ”participant”, “participate” and “pyramid scheme”. See further ¶29-670 and following.

refusing to do an act

includes a reference to: (i) refraining (otherwise than inadvertently) from doing that act, or (ii) making it known that that act will not be done (s 2(2)(c)).

regulations

means regulations made under s 139G of the Competition and Consumer Act.

regulator

(a) for the purposes of the application of this Schedule as a law of the Commonwealth — means the Commission, or (b) for the purposes of the application of this Schedule as a law of a state or a territory — has the meaning given by the application law of the state or territory.

rejection period,

for goods, is the period from the time of the supply of the goods to the consumer within which it would be reasonable to expect the relevant failure to comply with a guarantee referred to in s 259(1)(b) to become apparent having regard to: (a) the type of goods (b) the use to which a consumer is likely to put them (c) the length of time for which it is reasonable for them to be used, and (d) the amount of use to which it is reasonable for them to be put before such a failure becomes apparent (s 262(2)). See further ¶30-020 and following.

related,

in relation to a body corporate, occurs when bodies corporate would, under s 4A(5) of the Competition and Consumer Act, be deemed to be related to each other (s 6). This means that, where a body corporate: (a) is the holding company of another body corporate

(b) is a subsidiary of another body corporate, or (c) is a subsidiary of the holding company of another body corporate, that first-mentioned body corporate and that other body corporate are deemed to be related to each other. In proceedings under the Australian Consumer Law, it is presumed, unless the contrary is established, that bodies corporate are not, or were not at a particular time, related to each other (s 6(2)). related contract or instrument,

in relation to an unsolicited consumer agreement, is: (a) any contract of guarantee or indemnity that is related to the agreement (b) any instrument related to the agreement that creates a mortgage or charge in favour of the supplier under the contract or the dealer in relation to the contract (or a person nominated by the supplier or dealer), or (c) any contract or instrument (other than an instrument of a kind referred to in para (b)) that is collateral or related to the agreement, but does not include a tied continuing credit contract (within the meaning of s 127(2) of Sch 1 to the National Consumer Credit

Protection Act 2009), or a tied loan contract (within the meaning of s 127(3) of that Schedule) (s 83(2)). See further ¶30-670. rely on,

in relation to a term of a consumer contract or small business contract, includes the following: (a) attempt to enforce the term (b) attempt to exercise a right conferred, or purportedly conferred, by the term (c) assert the existence of a right conferred, or purportedly conferred, by the term. See further ¶28-000 and following.

responsible Minister

means: (a) the Commonwealth Minister (b) the minister of a state who administers the application law of the state, or (c) the minister of a territory who administers the application law of the territory. See further ¶31-045 and following.

re-supply:

A reference to the re-supply of: (e) goods acquired from a person includes a reference to: (i) a supply of the goods to another person in an altered form or condition

(ii) a supply to another person of goods in which the first-mentioned goods have been incorporated, and (f) services (the original services) acquired from a person (the original supplier) includes a reference to: (i) a supply of the original services to another person in an altered form or condition, and (ii) a supply to another person of other services that are substantially similar to the original services, and could not have been supplied if the original services had not been acquired by the person who acquired them from the original supplier (s 11). See further ¶32-235. safety defect,

in relation to goods, is where the safety of the goods is not such as persons generally are entitled to expect (s 9). See further ¶32-225.

safety standard

can be made by the Commonwealth Minister for one or both of a consumer goods of a particular kind, or product related services of a particular kind (s 104(1)). A safety standard for consumer goods of a particular kind may consist of such requirements about the following matters as are reasonably necessary to prevent or reduce risk of injury to any person: (a) the performance, composition, contents,

methods of manufacture or processing, design, construction, finish or packaging of consumer goods of that kind (b) the testing of consumer goods of that kind during, or after the completion of, manufacture or processing (c) the form and content of markings, warnings or instructions to accompany consumer goods of that kind (s 104(2)). A safety standard for product related services of a particular kind may consist of such requirements about the following matters as are reasonably necessary to prevent or reduce risk of injury to any person: (a) the manner in which services of that kind are supplied (including, but not limited to, the method of supply) (b) the skills or qualifications of persons who supply such services (c) the materials used in supplying such services (d) the testing of such services (e) the form and content of warnings, instructions or other information about such services (s 104(3)). The Commonwealth Minister may, by written notice on the internet, declare that the following is a safety standard for consumer goods, or

product related services, of a kind specified in the instrument: (a) a particular standard, or a particular part of a standard, prepared or approved by Standards Australia or by an association prescribed by the regulations (b) such a standard, or such a part of a standard, with additions or variations specified in the notice (s 105(1)). See further ¶31-105. sale by auction,

in relation to the supply of goods by a person, means a sale by auction that is conducted by an agent of the person (whether the agent acts in person or by electronic means). See further ¶30-130.

search-related powers:

that an inspector may exercise in relation to premises in or from which the inspector has reason to believe that a person supplies consumer goods of a particular kind: (a) if entry to the premises is under a search warrant — the power to seize consumer goods of that kind (b) the power to inspect, handle and measure consumer goods of that kind (c) the power to take samples of consumer goods of that kind (d) the power: (i) to inspect, handle and read any documents relating to consumer goods

of that kind, and (ii) to make copies of, or take extracts from, those documents (e) the power: (i) to inspect, handle and measure equipment used in the manufacturing, processing or storage of consumer goods of that kind, and (ii) if entry to the premises is under a search warrant — to seize such equipment (f) the power to make any still or moving image or any recording of: (i) consumer goods of that kind (ii) the premises, or (iii) any equipment referred to in subpara (e)(i) (s 135A(1) of the Competition and Consumer Act). Search-related powers, in relation to product related services of a particular kind, includes: (a) the power: (i) to inspect, handle and read any documents relating to services of that kind, and (ii) to make copies of, or take extracts from, those documents (b) the power:

(i) to inspect, handle and measure equipment used to supply services of that kind, and (ii) if entry to the premises is under a search warrant — to seize such equipment (c) the power to make any still or moving image or any recording of: (i) any consumer goods to which product related services of that kind relate (ii) the premises, or (iii) any equipment referred to in subpara (b)(i) (s 135A(2) of the Competition and Consumer Act). See further ¶35-080. search warrant

means a warrant issued or signed under s 135Z or s 136 of the Competition and Consumer Act. See further ¶35-000.

send

includes deliver, and sent and sender have corresponding meanings.

serious injury or illness

means an acute physical injury or illness that requires medical or surgical treatment by, or under the supervision of, a medical practitioner or a nurse (whether or not in a hospital, clinic or similar place), but does not include: (a) an ailment, disorder, defect or morbid condition (whether of sudden onset or gradual development), or

(b) the recurrence, or aggravation, of such an ailment, disorder, defect or morbid condition. See further ¶31-730. services

includes (and is therefore not confined to): (a) any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce, and (b) without limiting para (a), the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under: (i) a contract for or in relation to the performance of work (including work of a professional nature), whether with or without the supply of goods (ii) a contract for or in relation to the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction (iii) a contract for or in relation to the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction (iv) a contract of insurance (v) a contract between a banker and a

customer of the banker entered into in the course of the carrying on by the banker of the business of banking, or (vi) any contract for or in relation to the lending of money, but does not include rights or benefits being the supply of goods or the performance of work under a contract of service. See also the definition of “goods”. See further ¶29-010; ¶29-030; ¶29-615; ¶30000; ¶30-020; ¶30-360 share

includes stock.

ship

has the meaning given by s 3(1) of the Admiralty Act 1988, and means a vessel of any kind used or constructed for use in navigation by water, however it is propelled or moved, and includes: (a) a barge, lighter or other floating vessel (b) a hovercraft (c) an off-shore industry mobile unit as defined in s 3(1) of the Admiralty Act, and (d) a vessel that has sunk or is stranded and the remains of such a vessel; but does not include: (e) a seaplane, (f) an inland waterways vessel, or

(g) a vessel under construction that has not been launched. single price,

is the minimum quantifiable consideration for the supply of the goods or services at the time of the representation, including each of the following amounts (if any) that is quantifiable at that time: (a) a charge of any description payable to the person making the representation by another person (other than a charge that is payable at the option of the other person) (b) the amount which reflects any tax, duty, fee, levy or charge imposed on the person making the representation in relation to the supply (c) any amount paid or payable by the person making the representation in relation to the supply with respect to any tax, duty, fee, levy or charge if: (i) (the amount is paid or payable under an agreement or arrangement made under a law of the Commonwealth, a state or a territory), and (ii) the tax, duty, fee, levy or charge would have otherwise been payable by another person in relation to the supply. Section 48(7) of the ACL also provides three examples: Example 1: a person advertises lounge suites

for sale. Persons have the option of paying for fabric protection. The fabric protection charge does not form part of the single price because of the exception in para (a). Example 2: the GST may be an example of an amount covered by para (b). Example 3: the passenger movement charge imposed under the Passenger Movement Charge Act 1978 may be an example of an amount covered by para (c). Under an arrangement under s 10 of the Passenger Movement Charge Collection Act 1978, airlines may pay an amount equal to the charge that would otherwise be payable by passengers departing Australia. See further ¶29-705; ¶29-720.

small business contract:

a contract is a small business contract if: (a) the contract is for a supply of goods or services, or a sale or grant of an interest in land (b) at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons, and (c) either of the following applies: (i) the upfront price payable under the contract does not exceed $100,000 (ii) the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $250,000. In counting the persons employed by a business for the purposes of (b) above, a casual employee is not to be counted unless he/she is employed by the business on a regular and systematic basis (former s 23(4)). See also the definition of “consumer contract”. See further ¶28-000 and following.

smoking

means smoking tobacco products (s 8 of the Tobacco Advertising Prohibition Act 1992) (s 130 of the Competition and Consumer Act).

See further ¶35-450. standard form contract

is not defined as such in the Australian Consumer Law, and therefore takes its full legal meaning. However, if a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless another party to the proceeding proves otherwise (s 27(1)). In determining whether a contract is a standard form contract, a court may take into account such matters as it thinks relevant, but must take into account the following: (a) whether one of the parties has all or most of the bargaining power relating to the transaction (b) whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties (c) whether another party was, in effect, required either to accept or reject the terms of the contract (other than the terms referred to in s 26(1)) in the form in which they were presented (d) whether another party was given an effective opportunity to negotiate the terms of the contract that were not the terms referred to in s 26(1) (e) whether the terms of the contract (other than the terms referred to in s 26(1)) take into account the specific

characteristics of another party or the particular transaction (f) any other matter prescribed by the regulations (s 27(2)). See further ¶28-700 and following. state of mind,

of a person, includes (and is therefore not confined to) a reference to: (a) the knowledge, intention, opinion, belief or purpose of the person, and (b) the person’s reasons for the person’s intention, opinion, belief or purpose. See further ¶35-000; ¶35-680.

substantially transformed:

goods are substantially transformed in a country if they undergo a fundamental change in that country in form, appearance or nature such that the goods existing after the change are new and different goods from those existing before the change (s 255(3)). See further ¶29-291.

substantiation notice may be given to the person who made the claim(s) or representation(s) under s 219(1) of the Australian Consumer Law requiring the person to do one or more of the following: (a) give information and/or produce documents to the regulator that could be capable of substantiating or supporting the claim or representation

(b) if the claim or representation relates to a supply, or possible supply, of goods or services by the person or another person — give information and/or produce documents to the regulator that could be capable of substantiating: (i) the quantities in which, and (ii) the period for which the person or other person is or will be able to make such a supply (whether or not the claim or representation relates to those quantities or that period), (c) give information and/or produce documents to the regulator that are of a kind specified in the notice, within 21 days after the notice is given to the person who made the claim or representation (s 219(2)). Any kind of information or documents that the regulator specifies as above must be a kind that the regulator is satisfied is relevant to: (a) substantiating or supporting the claim or representation, or (b) if the claim or representation relates to a supply, or possible supply, of goods or services by the person or another person — substantiating the quantities in which, or the period for which, the person or other person is or will be able

to make such a supply. The notice must: (a) name the person to whom it is given (b) specify the claim or representation to which it relates, and (c) explain the effect of s 220, 221 and 222. See further ¶35-130. substantiation notice for a substantiation notice, is: compliance period, (a) the period of 21 days specified in the notice, or (b) if the period for complying with the notice has been extended under s 220 — the period as so extended, and includes (if an application has been made under s 220(1) for an extension of the period for complying with the notice) the period up until the time when the applicant is given notice of the regulator’s decision on the application (s 221(2)). supply,

when used as a verb, includes (and is therefore not confined to): (a) in relation to goods — supply (including re-supply) by way of sale, exchange, lease, hire or hire-purchase,

and (b) in relation to services — provide, grant or confer and, when used as a noun, has a corresponding meaning, and supplied and supplier have corresponding meanings. Note: s 5 deals with when a donation is a supply. A reference to the: (b) supply of goods or services includes a reference to agreeing to supply goods or services (c) supply of goods includes a reference to the supply of goods together with other property or services, or both (d) supply of services includes a reference to the supply of services together with property or other services, or both, and (e) re-supply of goods acquired from a person includes a reference to: (i) a supply of the goods to another person in an altered form or condition (ii) a supply to another person of goods in which the first-mentioned goods have been incorporated, and

(f) re-supply of services (the original services) acquired from a person (the original supplier) includes a reference to: (i) a supply of the original services to another person in an altered form or condition, and (ii) a supply to another person of other services that are substantially similar to the original services, and could not have been supplied if the original services had not been acquired by the person who acquired them from the original supplier (s 11). It is now clear that the linked concepts of “acquire” and “supply” are not confined in their operation to the provision and acquisition of goods or services under legally binding contractual arrangements only. In particular, the concept of indirect acquisition “from another person” in s 47(6) and (7) is not confined to acquisition only from an entity which is in a legal relationship of agency with that other person: ACCC v Flight Centre Limited (No 2) (2013) ATPR ¶42-458, per Logan J at [132], citing ACCC v IMB Group Pty Ltd (in liq) (2002) ATPR (Digest) ¶46-221. supply of limited title occurs if an intention that the supplier of the goods should transfer only such title as the supplier, or another person, may have: (a) appears from the contract for the

supply, or (b) is to be inferred from the circumstances of that contract (s 51(2)). See further ¶30-140. telecommunications service

is a service for carrying communications by means of guided or unguided electromagnetic energy or both (s 65(2)). See further ¶30-020.

termination charge

a charge for the termination of a lay-by agreement (s 97(2)). See further ¶30-750 and following.

termination period,

in relation to an unsolicited consumer agreement, means the period within which the consumer under the agreement is, under s 82 or under the agreement, entitled to terminate the agreement. See further ¶30-610.

Territory

means the Australian Capital Territory or the Northern Territory.

tied continuing credit means a continuing credit contract under contract which a credit provider provides credit in respect of the payment by a consumer for goods or services supplied by a supplier in relation to whom the credit provider is a linked credit provider. See also the definitions of “continuing credit contract” and “linked credit provider”. See further ¶30-710. tied loan contract

means a loan contract entered into between a credit provider and a consumer where: (a) the credit provider knows, or ought

reasonably to know, that the consumer enters into the loan contract wholly or partly for the purposes of payment for goods or services supplied by a supplier, and (b) at the time the loan contract is entered into the credit provider is a linked credit provider of the supplier. See also the definitions of “loan contract” and “linked credit provider”. See further ¶30-710. tobacco product

means: (a) tobacco (in any form), or (b) any product (for example a cigar or cigarette): (i) that contains tobacco as its main or a substantial ingredient (ii) that is designed or intended for human consumption or use, and (iii) that is not included in the Australian Register of Therapeutic Goods maintained under the Therapeutic Goods Act 1989, or (c) a cigarette paper, cigarette roller or pipe (s 8 of the Tobacco Advertising Prohibition Act 1993 (Cth)) (s 130 of the Competition and Consumer Act).

trade or commerce

(a) trade or commerce within Australia, or

means:

(b) trade or commerce between Australia and places outside Australia, and includes any business or professional activity (whether or not carried on for profit). See further ¶26-060.

transparent:

(a) in relation to a document — means: (i) expressed in reasonably plain language (ii) legible (iii) presented clearly, and (b) in relation to a term of a consumer contract or small business contract — readily available to any party affected by the term (see s 24(3)). See further ¶28-230.

unfair,

in relation to a term of a consumer contract or small business contract, means: (a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract (b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, and

(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on (s 24(1)). See further ¶28-200 and following. unsolicited consumer agreement,

under s 69 of the ACL, means: (a) it is for the supply, in trade or commerce, of goods or services to a consumer (b) it is made as a result of negotiations between a dealer and the consumer: (i) in each other’s presence at a place other than the business or trade premises of the supplier of the goods or services, or (ii) by telephone, whether or not they are the only negotiations that precede the making of the agreement, and (c) the consumer did not invite the dealer to come to that place, or to make a telephone call, for the purposes of entering into negotiations relating to the supply of those goods or services (whether or not the consumer made such an invitation in relation to a different supply), and (d) the total price paid or payable by the consumer under the agreement:

(i) is not ascertainable at the time the agreement is made, or (ii) if it is ascertainable at that time — is more than $100 or such other amount prescribed by the regulations. An agreement is also an unsolicited consumer agreement if it is an agreement of a kind that the regulations provide are unsolicited consumer agreements. However, an agreement is not an unsolicited consumer agreement if it is an agreement of a kind that the regulations provide are not unsolicited consumer agreements. Regulation 81 of the Competition and Consumer Regulations provides that the following kinds of agreement are not unsolicited consumer agreements: (a) a business contract (b) a discontinued negotiations agreement (c) an agreement made in the course of a party plan event (d) a renewable agreement of the same kind (e) a subsequent agreement of the same kind. The expressions “business contract”,

“discontinued negotiations agreement”, “party plan event”, “invitation” (for a party plan event), “inviter” (for a party plan event), “renewable agreement of the same kind” and “subsequent agreement of the same kind” are defined in reg 81. See further ¶30-440 and following. unsolicited goods

means goods sent to a person without any request made by the person or on his or her behalf. See further ¶29-000 and following.

unsolicited services

means services supplied to a person without any request made by the person or on his or her behalf. See further ¶29-000 and following.

upfront price,

payable under a consumer contract or small business contract, is the consideration that: (a) is provided, or is to be provided, for the supply, sale or grant under the contract (b) is disclosed at or before the time the contract is entered into, but does not include any other consideration that is contingent on the occurrence or non-occurrence of a particular event (s 26(2)). See further ¶28-630.

warranty against defects

is a representation communicated to a consumer in connection with the supply of goods or services, at or about the time of supply, to the effect that a person will

(unconditionally or on specified conditions): (a) repair or replace the goods or part of them (b) provide again or rectify the services or part of them, or (c) wholly or partly recompense the consumer, if the goods or services or part of them are defective, and includes any document by which such a representation is evidenced (s 102(3)). See further ¶30-860. Other glossaries This is a list of some of the glossaries published by Wolters Kluwer, CCH:

Area

Glossary

Accounting

Australian Standards Accounting Board

Audit and assurance

¶4-000 of Australian Audit and Assurance Manual Auditing and Assurance Standards Board

Business terms

¶950 of Australian Corporate Practice Manual

Competition law

¶2-100 of Australian Competition and Consumer Law Reporter

Consumer law

¶25-800 of Australian Competition and Consumer

Law Reporter Contract law

¶1-000 of Australian Contract Law Reporter

Estate planning

¶2-000 of Australian Estate Planning

Family law — financial agreements

¶33-050 of Australian Family Law & Practice

Family law — superannuation

¶25-120 of Australian Superannuation Law & Practice ¶18-010 of Australian Family Law & Practice

GST

¶530 of Australian GST Guide ¶38-950 of Australian Sports Law

Insurance

¶1-900 of Australia and New Zealand Insurance Law Reporter

Internet and ecommerce

¶13-240 of Australian Proprietary Companies Guide

Medical terms

¶1-700 of Australian Medical Liability Commentary

Laboratory safety

¶2-500 of Australian Laboratory Safety Manual

Legal compliance

¶1-130 Glossary of terms of Australian Legal Compliance — Making it Work

Personal Property

¶200 of Australian Personal

Securities

Property Securities Law Reporter

Superannuation abbreviations

¶680-095 of Australian Premium Tax Navigator

WHS work, health and safety

¶95-100 of Australian Managing Work Health and Safety

¶26-180 Limitations of s 18 of the ACL The law prohibits misleading or deceptive conduct in trade or commerce: s 18 of the Australian Consumer Law (Sch 2 of the Competition and Consumer Act 2010 (Cth)). However, there are some limits on s 18. The wording of s 18 of the Australian Consumer Law is equally as broad and ambiguous as the former s 52 of the Trade Practices Act 1974 (TPA) that it replaces. While the provision was originally viewed as part of a consumer protection arsenal aimed at unfair trading practices and at ameliorating the principle of caveat emptor (let the buyer beware), the section has grown to encompass a multitude of scenarios never contemplated by the draftsmen. Financial services Some constraints, both legislative and judicial, have been imposed on this broad wording, particularly by the Australian Securities and Investments Commission Act 2001 (Cth) and the Corporations Act 2001 (Cth), which now deal exclusively with misleading or deceptive conduct in relation to financial services. Following several decisions, particularly Fraser & Anor v NRMA Holdings Ltd & Ors (1995) ATPR ¶41-374, the business community and professional advisers sought to have the overlap between the then s 52 and the then Corporations Law provisions relating to fundraising and takeover liability removed, on the basis that the defences available under the Law were not available in respect of s 52 of the TPA (¶26-180.20).

Information providers Section 19 of the Australian Consumer Law deals with the restricted application of the misleading and deceptive conduct prohibition to “information providers” set out in s 18 (see ¶26-190 and ¶26-195). Previously, government concern about the effects of the operation of the provision on certain areas involving reporting of news and the issue of free speech led to the enactment of provisions exempting certain publishers of information (prescribed information providers) from the operation of all of former Pt V Div 1 of the TPA (see ¶26198). Other potential limits Two limitations on the operation of s 18 appear from the wording of the section itself. 1. The section prohibits a “person” from engaging in the proscribed conduct. Section 131 of the Competition and Consumer Act applies the ACL as a law of the Commonwealth to the conduct of corporations and certain dealings with corporations. A corporation is therefore a person to whom the ACL applies: see ACCC v Valve Corporation (No 3) (2016) ATPR ¶42-518, and see the commentary on s 131 at ¶35-840. 2. The proscribed conduct must be engaged in “in trade or commerce”: see ¶26-060. Other potential limitations on the scope of the provision have related to statutory interpretation and have included the “reading down” of its operation to take account of sectional headings, etc, within the Act itself (¶26-200), to further the objects of the Act, or to allow for the concurrent operation of other legislation (“the external legal order” — see ¶26-205). The relationship with existing common law remedies is considered briefly at ¶26-600. These potential limitations aside, the provision has shown the potential to apply to many areas, be they novel or already covered by other legal remedies. In the latter circumstances, action taken under the provision may often provide a simpler means of proving a

particular case. .20 Task Force recommendation. Calls for the removal of the overlap between s 52 and the Corporations Law were noted by the Corporations Law Simplification Task Force in its report titled “Section 52 of the Trade Practices Act and Dealings in Securities” at p 7 (September 1996). .40 Freedom of political speech. The issue of the interaction between former s 52 and the guarantee in the Constitution of freedom of political speech was considered briefly in Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1993) ATPR ¶41-222. There Hill J stated at pp 41,073–41,074: “There is nothing in any of the judgments of their Honours in the recent decisions of Australian Capital Television Pty Ltd v Commonwealth of Australia (No 2) (1992) 108 ALR 577 and Nationwide News Pty Ltd v Wills (1992) 108 ALR 681 which suggests for a moment that a law prohibiting misleading or deceptive conduct could infringe any constitutional protection of free speech. … While accepting that the borderline between political communication and communication of matters involving mere commercial interest is, at best, ill-defined, it is in my view beyond argument that the guarantee in the Constitution of political speech in no way permits there to be made out an argument that there is in the Constitution an inviolable guarantee of the ability to make misleading or deceptive statements, even where the subject matter is political communication”. .41 Relationship with former Companies Code. The TPA provides additional remedies. It specifically does not “… limit, restrict or otherwise affect any right or remedy” under state legislation. This included the former Companies Code, which was not exhaustive in this respect (Full Court of Supreme Court of WA, allowing appeal against strike out of s 52 claim where claims also arose under the former Companies Code of that state): Cooper & Dysart Pty Ltd v

Sargon & Anor (1991) ATPR (Digest) ¶46-073. .42 Relationship with winding up provisions of Code. The High Court (Mason CJ, Deane, Dawson and Toohey JJ, McHugh J dissenting) stated: “The Trade Practices Act is unquestionably a piece of innovative legislation. But it is not to be seen as eliminating, ‘by a side-wind’, the detailed provisions established for more than a hundred years to govern the winding up of a company. Furthermore, in Trade Practices Commission v Milreis (1977) ATPR ¶40-028; (1977) 14 ALR 623 Brennan J and Deane J, as members of the Federal Court, made it clear that sec 87(2)(a) is not to be understood as conferring a power to declare void a contract which was valid at its inception, other than through the operation of some other provision of the Trade Practices Act or by reason of some alteration in circumstances”. Webb Distributors (Aust) Pty Ltd & Ors v The State of Victoria (1993) ATPR (Digest) ¶46-113 at p 53,516. .43 Relationship with provisions relating to misleading prospectus. The relationship between s 52 and 995(2) of the Corporations Law was considered briefly in the NRMA case (Fraser & Anor v NRMA Holdings Limited (1994) ATPR ¶41-346; (1995) ¶41374). In that case at first instance, counsel for the ASC, as amicus curiae, submitted that the whole arrangement dealt with by the documentation the subject of the proceedings, being a prospectus and related information, would fall within this provision. Gummow J at first instance agreed that it would but added that the provision had not been relied upon in the case. On appeal, counsel for the ASC further argued that, in interpreting s 52 in the current circumstances in order to establish whether conduct had been misleading or deceptive, established company law principles should be considered insofar as they may affect the characterisation of the conduct complained of, and that the applicants should not be able to avoid an unfavourable construction of s 995 in connection with

a dealing in securities by resorting to s 52. The Full Federal Court agreed with this proposition, finding also that Gummow J was not relying on s 1022 of the Corporations Law in applying the concept of reasonable expectation at first instance, although his Honour had accepted that the relationship between the directors and members was of a fiduciary nature. In considering the issue of breach of s 52 in the context of the fiduciary relationship between the directors and the members, the Full Court noted that disclosure which was not full and fair in these circumstances would fall within s 52. The Full Court cautioned against the assumption that the consideration of the s 52 issue was necessarily the same question as the one which would have arisen if the applicants had alleged breaches of directors’ duties under the general law. .44 Statement regarding solvency; payment of debts falling due. New England Agriculture Traders Pty Limited v Adams & Anor (1994) ATPR ¶41-361. .45 Claim re prospectus. Morey v Transurban City Link Limited & Anor (1996) ATPR ¶41-492; (1997) ATPR ¶41-548; (1997) ATPR ¶41571 (appeal allowed; new trial ordered on basis that statements in prospectus arguably capable of more than one meaning which was likely to mislead or deceive). .46 Offsetting claim. A claim based on s 52 would satisfy the description of a cross-demand, and thus constitute an “offsetting claim” as defined in s 459H of the Corporations Law. A court will not, however, stay judgment on proceedings to recover monies owing until the hearing of any cross-claim or cross-demand for an unliquidated amount. In this case, while the applicant potentially had an offsetting claim, it was not sufficiently particularised or shown to be genuine. Appeal dismissed: John Shearer Limited & Anor v Gehl Company (1996) ATPR ¶41-499. .47 Statements re election candidature not within s 995(2) of the Corporations Law. Yates v Whitlam & Ors (1999) ATPR ¶41-722. .48 Public policy considerations. Order staying winding up proceedings refused on public policy grounds as undermining public

policy of Pt 5.4 of the Corporations Act 2001 (Cth): MGM Bailey Enterprises v Austin Australia (2002) ATPR ¶41-875.

¶26-280 Approach to assessment of conduct Assessing misleading or deceptive conduct “Conduct” can include actions and statements and may be made by way of advertisements, promotions, quotations, written and oral statements of various kinds and any representation made by a person or organisation. Business will overstep or offend the misleading or deceptive conduct prohibition if it creates a misleading impression about price, value or quality of goods or services in dealings with or representations made to the public or a member of the public in the course of trade. Whether a business intended to mislead or deceive is not an issue. The ultimate test is whether statements and actions by the business conduct have or could affect the impressions or beliefs of a person or consumer in the conduct of trade or commerce. The nature of s 18 of the Australian Consumer Law (Sch 2 of the Competition and Consumer Act 2010) (formerly s 52 of the Trade Practices Act 1974 (TPA)) means that it is impossible to formulate precise guidelines for its application. A majority of the Full Federal Court in Taco Company of Australia Inc & Anor v Taco Bell Pty Ltd & Ors (1982) ATPR ¶40-303 emphasised that there could be no breach of s 52 unless conduct conveyed a misrepresentation. The majority then set out (at pp 43,751–43,752) what it described as “… established propositions affording guidance” in ascertaining whether conduct falls within s 52. These oft-quoted tests are set out in full. “First, it is necessary to identify the relevant section (or sections) of the public (which may be the public at large) by reference to whom the question of whether conduct is, or is likely to be, misleading or deceptive falls to be tested. (Weitmann v Katies Ltd (1977) ATPR ¶40-041; (1977) 29 FLR 336, per Franki J at ATPR pp 17,441–17,443; FLR pp 339–340, cited with approval by Bowen CJ and Franki J in Paula Brock v The Terrace Times Pty Ltd (1982) ATPR ¶40-267 at p 43,412.)

Second, once the relevant section of the public is established, the matter is to be considered by reference to all who come within it, ‘including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated, men and women of various ages pursuing a variety of vocations’: Puxu Pty Ltd v Parkdale Custom Built Furniture Pty Ltd (1980) ATPR ¶40-171; (1980) 31 ALR 73, per Lockhart J at ATPR p 42,360; ALR p 93); see also World Series Cricket v Parish (supra); [(1977) ATPR ¶40-040], per Brennan J at ATPR p 17,437; ALR p 203. Thirdly, evidence that some person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself conclusively establish that conduct is misleading or deceptive or likely to mislead or deceive. The Court must determine that question for itself. The test is objective. (See, generally, Annand & Thompson Pty Ltd v TPC (1979) ATPR ¶40-116; (1979) 25 ALR 91, per Franki J at ATPR p 18,272; ALR p 102; Sterling v TPC (1981) ATPR ¶40212; (1981) 35 ALR 59 per Franki J (with whom Northrop J agreed) at ATPR pp 42,918–42,919; ALR p 66 and per Keely J at ATPR p 42,921; ALR p 69; Snoid v Handley, supra, (1981) ATPR ¶40-219; per the Court (Bowen CJ, Northrop and Morling JJ); and Brock v Terrace Times, supra, per Bowen CJ and Franki J). Finally, it is necessary to inquire why proven misconception has arisen (Hornsby Building Information Centre v Sydney Building Information Centre supra, [(1978) ATPR ¶40-067]; at ATPR p 17,690; CLR p 228). The fundamental importance of this principle is that it is only by this investigation that the evidence of those who are shown to have been led into error can be evaluated and it can be determined whether they are confused because of misleading or deceptive conduct on the part of the respondent”. Taco Bell case example These propositions have been almost routinely cited by courts since that time. The Taco Bell case itself provides a good example of the way in which they are generally applied.

The case involved a situation where two Mexican food restaurants operated under the name “Taco Bell”. The Bondi restaurant, known as “Taco Bell” or “Taco Bell’s Casa” had been known by those names since approximately 1976. In September 1981 a company associated with a chain of US restaurants known as “Taco Bell” changed the name of one restaurant at Granville, and opened another in George Street, Sydney under the name “Taco Bell”. The Bondi company alleged that the US company was in breach of s 52 and was also passing off its goods as those of the Bondi company. The US company cross-claimed on both issues. The Full Federal Court found that at the time the respondent changed its name, the applicant restaurant had acquired a reputation throughout Sydney in respect of its Mexican food. The US company had a reputation in connection with overseas operations and not in connection with local business. The cause of any actual or likely misconception as to connection between the two restaurants was the use of the name by the US company. Miki House case example A similar result was reached in Merv Brown Pty Ltd v David Jones (Australia) Pty Ltd & Anor (1987) ATPR ¶40-791. One party owned the trade mark “Miki House” in Australia while the other parties were the originator of Japanese garments under that name, which had never been sold in Australia, and the retailer who proposed to import its goods. The owner of the trade mark had undertaken detailed preliminary activities in order to market clothing under the name. It was held that the importation and sale of the goods would be misleading in the circumstances. This finding was not disturbed on appeal (Miki Shoko Co Ltd & Anor v Merv Brown Pty Ltd (1988) ATPR ¶40-858). The major distinction between the facts of the two cases was that in the Miki House case no one was actually engaged in sales of the product in question in Australia. High Court case: Butcher v Lachlan Elder Realty — advertisement by real estate agent The High Court held in Butcher v Lachlan Elder Realty Pty Ltd (2004) ATPR ¶42-033 that it is necessary to consider the entire context of the

conduct and not to separate particular or specific aspects for close examination. In this case, the appellants purchased real estate, with the respondent the agent employed by the vendor. The agent printed an advertising brochure which included a survey of the property which detailed the boundaries of the property. This survey was incorrect. The brochure included a disclaimer clause. Given that the buyers were intelligent, business-orientated people, the respondent was a suburban real estate agent without any professed expertise in the verification of title details, the legibility of the disclaimers, and the lack of any representation by the agent that it had particular expertise, the court, by a majority, concluded that there was no misleading or deceptive conduct. Dalton v Lawson Hill Estate — mistake on invoice about the capacity of a bore A similar result was achieved in the Full Federal Court decision of Dalton v Lawson Hill Estate Pty Ltd (2005) ATPR ¶42-079. The vendors, in selling their vineyard and winery, handed the purchasers a two-year-old invoice which represented that the bore had a capacity of 1,800 gallons per hour. This was a mistake. The correct capacity was 1,800 litres per hour, and this correct figure had been verbally passed on to the vendors. The contractor who had prepared the invoice was not liable. The invoice was only meant to be confirmation of the verbal advice, and the invoice was not something that the contractor would have assumed would be passed onto potential purchasers some two years later. Helpful summary of the case law The Full Court of the Federal Court offered the following helpful summary of the case law on conduct by representation, in Global One Mobile Entertainment Pty Ltd v ACCC (2012) ATPR ¶42-419: “108. Whether impugned conduct conveys the making of the representation is always a question of fact to be determined having regard to all of the contextual circumstances within which something was said or done. When that assessment is being made in the context of conduct said to involve representations to the public at large (or a section of the public) such as prospective

buyers of ringtones, games or similar applications, ss 52 and 53(e) contemplate the effect of the impugned conduct on reasonable members of the relevant class of buyers (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 per Gibbs CJ at 199) or ordinary members of that class (Parkdale per Mason J at 204–205) (‘Parkdale’). In order to test whether a misconception has arisen or might arise among members of the relevant cohort by reason of the impugned conduct, the inquiry is to be made notionally of the hypothetical individual excluding ‘assumptions by persons whose reactions are extreme or fanciful’: Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 at [105] (‘Campomar’). The question is, ‘whether the misconceptions, or deceptions, alleged to arise or to be likely to arise are properly to be attributed to the ordinary and reasonable members of the classes of prospective purchasers’: Campomar at [105]. In determining whether a contravention has occurred, the focus of the inquiry is whether a not insignificant number within the class or cohort have been misled or deceived or are likely to be misled or deceived by the conduct, whether in fact or as a matter of inference: Hansen Beverage Co v Bickfords (Aust) Pty Ltd (2008) 171 FCR 579 at [46], per Tamberlin J and at [66] per Siopsis J; ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302 at 380 and 381 per French J. In ConAgra, French J observed that the notion of ‘insignificant’ identified the threshold of public awareness below which such conduct is not misleading. His Honour observed that the term ‘insignificant’ in this formulation is thus ‘normative’ but not inappropriate in understanding the scope of the prohibition upon misleading conduct which is directed to consumer protection. The issue, however, is not whether the impugned conduct simply causes confusion or wonderment but whether the conduct is or is likely to mislead or deceive: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 201 per Deane and Fitzgerald JJ. The proper approach to determining whether a person has engaged in conduct in contravention of ss 52 and 53(e) involves normative considerations of whether a not insignificant number of persons within the cohort being ordinary or

reasonable members of the class of prospective purchasers would be or would be likely to be misled by the impugned conduct: Peter Bodum A/S v DKSH Australia Pty Ltd (2011) 280 ALR 639 at [203]–[208]; National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 61 IPR 420 at [23], [70] and [71].” Overlap with false or misleading representation under s 29 The making of a representation that is false or misleading within s 29 may also constitute misleading or deceptive conduct within s 18 and, in practice, proceedings are often brought which allege that the same course of conduct infringes both provisions. The case law on s 18 is therefore relevant to s 29. The relevant legal principles relating to misleading or deceptive conduct have been summarised by various courts. For a useful and convenient modern summary see the judgment of Griffiths J of the Federal Court in Specsavers Pty Ltd v Luxottica Retail Pty Ltd (2013) ATPR ¶42-444 at [49]. See also ACCC v Homeopathy Plus! Australia Pty Limited [2014] FCA 1412 at [116] and following. .40 Other references. See also Chase Manhattan Overseas Corp & Ors v Chase Corp & Anor (1986) ATPR ¶40-661; affirmed by majority on appeal (1986) ATPR ¶40-750. .41 Tender of mortgage in erroneous form. Money v Westpac Banking Corp & Anor (1988) ATPR (Digest) ¶46-034. .42 Similar names — sound relevant. In the “Moove”/“Moo” flavoured milk case, Wilcox J found that the use of the latter name by a new manufacturer was not misleading in the written sense as the target audience could easily distinguish the two products on the supermarket shelf. The situation was otherwise in the case of sales made through the intervention of a shop assistant. Where either the purchaser or the assistant communicated the names there would be a measure of confusion. His Honour concluded that there was a serious question to be tried on this point, and granted an interlocutory injunction limited in scope to the area of Moove sales in NSW and ACT: New South Wales Dairy Corporation v Murray Goulburn Co-operative Co Pty Ltd (1988)

ATPR ¶40-904. .43 Overstatement of trading figures not substantial enough to constitute misleading conduct. See Hill & Anor v Tooth & Co Limited & Ors (1998) ATPR ¶41-649 at p 41,221 where Einfeld J found that a misstatement of average monthly trading figures by less than 5% was not sufficiently material to fall within the provision. His Honour relied to some extent on evidence that Australian Accounting Standard 5 stated that an amount of less than 5% is not material unless there is evidence to the contrary. .44 Enforcement of contract terms not misleading. A domain name registrar (Capital), appointed by the sole administrator of the country code top level domain names (au. Domain), took action claiming breaches of s 51AA, 51AC, 51AD and 52 in relation to the handling of complaints against it; au. Domain threatened to suspend Capital’s accreditation when it failed to supply information to deal with the complaints. The court found that it was not misleading or deceptive to demand information or to threaten to suspend its accreditation having regard to the terms of the agreement between the parties: Capital Networks Pty Ltd v au. Domain Administration Limited (2004) ATPR (Digest) ¶46-254. .45 Liability as an accessory. Reckless indifference to truth of the representations is insufficient to establish accessorial liability against people allegedly knowingly involved in a contravention. Knowledge or wilful blindness is required: Doney v Palmview Sawmill Pty Ltd (2005) ATPR ¶42-064.

¶27-280 Factors indicating unconscionability — Introduction The roadmap at ¶27-275 summarises the law on the factors indicating unconscionable conduct and provides links to further commentary. The Australian Consumer Law prohibition against unconscionable conduct is subject to a list of factors that the courts may have regard to in determining unconscionability (s 22(1) and 22(2) of the Australian Consumer Law) (Sch 2 of the Competition and Consumer Act 2010)

(formerly s 51AC(3) and (4) of the Trade Practices Act 1974 (Cth) (TPA)). While the list is drawn from the previous s 22 which dealt with the prohibition of unconscionable conduct towards businesses, the list is intended to apply equally to business and consumer transactions. There are two lists of factors — one which applies to conduct by a supplier, and another which applies to conduct by an acquirer. Factors relevant to supplier’s conduct The factors in s 22(1) may be used to determine whether a supplier’s conduct is unconscionable. These factors are: (a) relative bargaining power: the relative strengths of the bargaining positions of the supplier and the customer (¶27-285) (b) necessity to protect the supplier’s legitimate interests: whether, as a result of the supplier’s conduct, the customer was required to comply with conditions that were not reasonably necessary to protect the supplier’s legitimate interests (¶27-290) (c) customer’s ability to understand: whether the customer was able to understand any documents relating to the supply (or possible supply) of the goods or services (¶27-295) (d) undue influence, pressure, unfair tactics: whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer (or a person acting on their behalf) by the supplier (or a person acting on their behalf) in relation to the supply (or possible supply) of the goods or services (¶27-300), (¶27-305), (¶27-310), (¶27-315) (e) price and terms of acquiring equivalent goods or services: the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from another person (¶27-320) (f) comparison with the supplier’s treatment of other similar customers: the extent to which the supplier’s conduct towards the customer was consistent with its conduct in similar

transactions with other like customers (¶27-325) (g) applicable industry code: the requirements of any applicable industry code (¶27-330) (h) other industry code: the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code (¶27-330) (i) unreasonable failure to disclose intended conduct: the extent to which the supplier unreasonably failed to disclose to the customer: i. any intended conduct of the supplier that might affect the customer’s interests ii. any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer) (¶27-335) (j) if there is a contract between the supplier and the customer for the supply of the goods or services: i. willingness to negotiate: the extent to which the supplier was willing to negotiate the terms of the contract with the customer ii. contractual terms: the terms of the contract iii. the parties’ conduct in complying with the terms: the supplier’s conduct and the customer’s conduct in complying with the terms of the contract iv. the parties’ conduct after entering the contract: any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract (¶27-340) (k) right to unilaterally vary a term : without limiting (j), whether

the supplier has a contractual right to vary unilaterally a term of a contract between the supplier and the customer for the supply of the goods or services (¶27-345) It is worth noting that such a term is an example of an unfair contract term: s 25(1)(d), see ¶28-520. To check whether the unfair contract terms regime applies to a particular contract or term, see ¶28-005. (l) good faith: the extent to which the supplier and the customer acted in good faith (¶27-350). Factors relevant to acquirer’s conduct The factors in s 22(2) may be used to determine whether an acquirer’s conduct is unconscionable. The factors are: (a) relative bargaining power: the relative strengths of the bargaining positions of the acquirer and the supplier (¶27-285) (b) necessity to protect the acquirer’s legitimate interests: whether, as a result of the acquirer’s conduct, the supplier was required to comply with conditions that were not reasonably necessary to protect the acquirer’s legitimate interests (¶27-290) (c) supplier’s ability to understand: whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the goods or services (¶27-295) (d) undue influence, pressure, unfair tactics: whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier (or a person acting on their behalf) by the acquirer (or a person acting on their behalf) in relation to the acquisition or possible acquisition of the goods or services (¶27300), (¶27-305), (¶27-310), (¶27-315) (e) price and terms of supplying equivalent goods or services: the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent goods or services to another person (¶27-320)

(f) comparison with the acquirer’s treatment of other similar suppliers: the extent to which the acquirer’s conduct towards the supplier was consistent with the acquirer’s conduct in similar transactions between the acquirer and other like suppliers (¶27325) (g) applicable industry code: the requirements of any applicable industry code (¶27-330) (h) other industry code: the requirements of any other industry code, if the supplier acted on the reasonable belief that the acquirer would comply with that code (¶27-330) (i) unreasonable failure to disclose intended conduct: the extent to which the acquirer unreasonably failed to disclose to the supplier: i. any intended conduct of the acquirer that might affect the supplier’s interests ii. any risks to the supplier arising from the acquirer’s intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier) (¶27-335) (j) if there is a contract between the acquirer and the supplier for the acquisition of the goods or services: i. willingness to negotiate: the extent to which the acquirer was willing to negotiate the terms of the contract with the supplier ii. contractual terms: the terms of the contract iii. the parties’ conduct in complying with the terms: the acquirer’s conduct and the supplier’s conduct in complying with the terms of the contract iv. the parties’ conduct after entering the contract: any conduct that the acquirer or the supplier engaged in, in

connection with their commercial relationship, after they entered into the contract (¶27-340) (k) right to unilaterally vary a term: without limiting (j), whether the acquirer has a contractual right to vary unilaterally a term of a contract between the acquirer and the supplier for the acquisition of the goods or services (¶27-345) It is worth noting that such a term is an example of an unfair contract term: s 25(1)(d), see ¶28-520. The unfair contract terms regime probably will not apply in this scenario, under the law as it exists before 12 November 2016, because it only applies to “consumer contracts”: s 23, see ¶28-005. However, unfair contract term protections have been extended to small business contracts, and this extension will take effect on 12 November 2016: ¶28-890. (l) good faith: the extent to which the acquirer and the supplier acted in good faith (¶27-350). Exception — starting legal proceedings or arbitration Section 21(2) of the Australian Consumer Law provides that a person will not be taken to have engaged in unconscionable conduct under s 21 merely because legal proceedings or an arbitration process have been commenced between two parties. Disregard unforeseeable circumstances Section 21(3) also states that the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged breach (s 21(3)(a) of the Australian Consumer Law). The court may have regard to conduct engaged in, or circumstances existing, before 1 January 2011: s 21(3)(b). .40 Sale of property; deception by agents. In a situation where agents had deceived low income earning migrants, the court rejected claims under s 51AB and ordered specific performance. The agents were, however, found liable to the plaintiffs on a cross-claim: Lee v

Berouty & Anor (1994) ATPR (Digest) ¶46-118.

¶29-000 Roadmap — Unfair practices This roadmap summarises the law protecting consumers against various types of unfair practices, and guides you to more detailed commentary. The editorial commentary on Misrepresentation is based on material by Simon Roberts, BA, LLB (Syd), LLM (Lond). Unfair practices — introduction: This chapter deals ¶29-005 with Pt 3-1 of the Australian Consumer Law (ACL), Sch 2 of the Competition and Consumer Act 2010 (Cth) (CCA) (formerly the Trade Practices Act 1974 (Cth) (TPA)). The provisions in Pt 3-1 of the ACL are directed towards “a person”, rather than “a corporation”, as was the case in the former TPA. There are criminal provisions which correspond with the civil provisions in Pt 3-1 of the ACL. See ¶35-030 for a comparative table listing the parallel civil and criminal provisions, together with a short description of the prohibited conduct. Misrepresentation: The main general prohibition on ¶29-020 misrepresentations is a prohibition against false or misleading representations in connection with the actual supply, possible supply or promotion of goods or services in trade or commerce, contained in s 29 of the ACL. A similar legislative prohibition covers false or misleading representations about land: ACL s 30. Other provisions deal with misleading conduct relating to employment (s 31) and the nature of goods and services (s 33 and 34), and misleading representations about certain business activities (s 37). There is some overlap between the various provisions dealing with misrepresentations. Most of the misrepresentation and misleading conduct

provisions are subject to an exemption in the case of “information providers”. Section 38 of the ACL states that the above-mentioned provisions (except s 31, which deals with employment) do not apply to a publication of matter by an information provider if certain conditions are fulfilled (¶29-020, ¶26-190, and also at ¶35-550). The information providers exemption also applies to the criminal offence provisions which correspond with the above-mentioned provisions (except s 31): s 160. Prizes, bait, payment: This subchapter deals with s 32 (offering rebates, gifts, prizes, etc), s 35 (bait advertising) and s 36 (wrongly accepting payment). These three provisions fall within Div 1 (False or misleading representations, etc) of Pt 3-1 of the ACL, but are not directly expressed in terms of “false or misleading representations” or “misleading conduct”. Offering certain inducements without a genuine intention of providing them is prohibited under s 32 of the ACL. The prohibition extends to rebates, gifts, prizes and other free items offered in connection with goods, services and interests in land. Bait advertising involves the advertisement of goods or services at a low, attractive price, despite the knowledge that the goods or services will not be able to be supplied at that price for a reasonable period, and in reasonable quantities. Bait advertising is prohibited under s 35 of the ACL. The prohibition also applies if the advertiser should reasonably be aware that there are reasonable grounds for believing in this lack of ability. Furthermore, if goods or services are advertised at a particular price, they must be offered for supply at that price for a reasonable period and in reasonable quantities. Section 36(1), (2) and (3) forbid a person from accepting payment for goods or services, if they do not intend to supply them, or if they intend to supply

materially different goods or services, or if they know or reasonably should know that they will not be able to supply the goods or services within the specified time, or a reasonable time. Furthermore, if payment is accepted, the goods or services must be supplied within the specified time, or a reasonable time: s 36(4). Subsection 36(4) was introduced for the first time with the ACL reforms: Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010, para 6.32. There is an exception to s 36(4) where the failure to supply was not the person’s fault, and the person took reasonable precautions to avoid it. There is also an exception where the customer agrees to receive different goods or services as a replacement. Unsolicited supplies: Division 2 (unsolicited supplies) of Pt 3-1 of the ACL deals with unsolicited credit cards, debit cards (s 39), goods, services (s 40–42), advertisements and other entries into publications (s 43). Broadly speaking, s 39 prohibits the sending of unsolicited credit and debit cards. By contrast, it is permissible to send unsolicited goods and services to consumers. However, a person must not assert a right to payment for unsolicited goods or services, unless they have reasonable cause to believe that there is a right to payment. The recipient is not liable to pay for the goods or services. At the end of the recovery period (which may be either one month or three months) unsolicited goods become the recipients’ property, unless the sender or owner recovered possession of the goods or was unreasonably prevented from doing so, or the recipient should have known that they were not the intended recipient. Similarly, a person must not assert a right to payment against another person for placing certain kinds of

entries or advertisements in a publication unless they know, or have reasonable cause to believe, that the other person authorised the placing of the entry or advertisement. Prior to the ACL, the corresponding provision was confined to unauthorised directory entries, but it was expanded under the ACL: Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010, para 6.44. Pyramid schemes: Participation in a pyramid scheme is prohibited: s 44(1) of the ACL. Inducing, or attempting to induce, another person to participate is also prohibited. “Pyramid scheme” is defined in s 45 of the ACL, and further guidance is provided in s 46. If, as a matter of substance, members of a scheme are rewarded for the mere recruitment of new members, the scheme could be an illegal pyramid scheme. Pyramid schemes are undesirable and illegal because the rewards are substantially given for the recruitment of new participants, who in turn get their rewards substantially for recruiting even more members, and so on. If the rewards are not based on genuine sales of goods or services or other economic activity, the scheme will eventually collapse, meaning that many people were induced to pay money for nothing. Pricing: Section 47 and 48 provide two specific rules in relation to multiple pricing and specifying a single price. See also ¶29-260 and ¶29-265 in relation to false or misleading representations with respect to the price of goods or services. If more than one price is simultaneously displayed for goods, the goods must either be sold at the lowest of the prices, or not sold at all. Businesses are not required to sell the goods; they can choose to withdraw the goods from sale. (Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer

Law) Bill (No 2) 2010, para 6.51). The provision on multiple pricing applies only to goods, not services. A single total price must be prominently specified in certain circumstances: ACL s 48. Section 48 applies to both goods and services, but only those that are commonly acquired for personal, domestic or household use or consumption. Referral selling, harassment and coercion: Section 49 (referral selling) of the ACL prohibits a person from inducing a consumer to buy goods or services by promising them a rebate, commission or other benefit in exchange for help in selling the goods or services to other people, where the benefit is conditional on an event which may or may not occur after the contract is made. Section 50 (harassment and coercion) prohibits the use of physical force or undue harassment or coercion in relation to the actual or possible sale of, or payment for, goods, services or land. Key legislation: Competition and Consumer Act 2010 (Cth), Sch 2, Pt 3-1, s 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50 of the Australian Consumer Law.

¶30-040 “Guarantees”, “warranties”, “conditions” When the consumer guarantees regime replaced the former provisions (which “implied” conditions and warranties into consumer contracts) , this involved a notable shift in terminology, from the use of the words “warranty” and “condition” to the single word “guarantee”. For example, the former s 69 of the Trade Practices Act 1974 (Cth) (TPA) (implied undertakings as to title, encumbrances and quiet possession) spoke of “an implied condition” and “an implied warranty”. The same expressions were used in equivalent provisions in state and territory sale of goods and fair trading legislation. The effect was that certain specified “conditions” and “warranties” were “implied” into

contracts for the supply of goods to consumers. The various provisions of Div 1 (Consumer guarantees) of Pt 3-2 (Consumer transactions) of the Australian Consumer Law (ACL), Sch 2 of the Competition and Consumer Act 2010 (Cth) (formerly the TPA), on the other hand, simply provide that, when goods or services are supplied to a consumer, “there is a guarantee” that certain specified rights or other circumstances exist. What is the significance of the shift from the words “warranty” and “condition” to the word “guarantee”? The words “warranty” and “condition” have specific legal meanings. A condition is a term which goes to the very essence of a contract: Wickman Machine Tool Sales Ltd v L Schuler AG [1972] 1 WLR 840. The breach of a condition gives rise to a right to treat the contract as repudiated. The party who suffers is entitled to rescind the contract and to be compensated for the loss he or she has suffered as a result of the breach. A warranty is a term of lesser import, collateral to the main purpose of the contract. Breach of warranty gives rise to a claim for damages but not to the right to reject the goods and terminate the contract: Oscar Chess Ltd v Williams [1957] 1 WLR 370; [1957] 1 All ER 325. The word “guarantee” is not defined in the Competition and Consumer Act. It therefore takes its meaning from the general law, to the extent to which it applies, and from ordinary English usage. In contract law, in the context of what is known as a “contract of guarantee”, the word “guarantee” connotes a binding promise by one person to be answerable for the debt or obligation of another if that other defaults. In such an arrangement, there are always at least three parties: creditor, debtor and guarantor (or surety). As Jordan CJ, with whom Davidson and Nicholas JJ agreed, said in Jowitt v Callaghan (1938) 38 SR (NSW) 512: “A contract of guarantee or suretyship is a contract between two persons which is intended by them to secure the performance of the obligation of a third person to one of them. The existence, present or future, of the obligation of a third person, and an intention in the parties to the contract to secure the performance of that obligation, are essential features of a contract of

guarantee.” This, however, cannot be its meaning in the context of the consumer guarantees rules, in particular because those rules apply to arrangements to which there will most frequently be only two parties, the supplier and the consumer. It is plain from the statutory context that the word “guarantee” is not used in the sense that it has in the expression “contract of guarantee”, but must take its ordinary English meaning of an undertaking or promise by one person to another, to do something, or that certain conditions exist. Heisler v Anglo Dal Ltd [1954] 1 WLR 1273 is an example of the use of “guarantee” in a commercial contract as meaning simply a promise by one of the contracting parties. As Somervell LJ said at [1276], the word is often used not in its legal sense, but as meaning simply an undertaking by the contracting party. The meaning will always be influenced by the context in which the word appears. (See also: Hassan v Secretary, Department of Family and Community Services [1999] FCA 1720). Clearly, that must be the sense in which the word is used in the consumer guarantees regime of the ACL. In any event, the consumer guarantees cannot be excluded by contract: s 64. This is intended to ensure that consumers cannot be pressured or tricked into surrendering their rights by agreeing that the guarantees do not apply. It is also not possible to avoid providing consumer guarantees by agreeing that the law of another country applies: s 67. Note also s 276, which makes a term of a contract void to the extent that it attempts to modify or exclude a remedy for breach of a consumer guarantee. Statutory remedies regardless of the availability of contract law remedies Furthermore, Pt 5-4 of the ACL provides a suite of specific remedies for breaches of consumer guarantees, regardless of whatever remedies may be available at contract law for a breach of a “guarantee” given as part of a contract; see ¶30-070.

¶30-450 Unsolicited consumer agreements — introduction

The roadmap at ¶30-440 summarises the law on unsolicited consumer agreements, and gives links to further commentary. A single national law regulating the making of unsolicited offers to supply goods and services to a consumer, and the agreements arising from such offers, can be found in Div 2 of Pt 3-2 of the Australian Consumer Law (ACL), Sch 2 of the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth) (TPA)). Division 2 is intended to be a single national law covering unsolicited sales practices, including door-to-door selling, telephone sales — to the extent not already covered by the Do Not Call Register Act 2006 (Cth) — and other forms of direct selling which do not take place in a retail context. The unsolicited selling provisions in this division replace the former state and territory regulatory regimes that applied to unsolicited sales. In addition, industry specific regulation for telephone sales practices exists or is being developed — such as the National Energy Customer Framework (NECF) — and is intended to exist alongside the ACL. There has long existed legislation in every jurisdiction regulating doorto-door sales, either contained within the Fair Trading Act of the jurisdiction concerned or in separate legislation. The purpose has been to protect the ordinary consumer against high pressure sales techniques exhibited by traders in this area. The various enactments were not uniform but had a basic pattern that where a purchaser (other than a dealer or body corporate) agreed, usually at his or her place of residence or employment, to purchase goods or services following an unsolicited approach by the supplier, certain statutory requirements were required to be met before the agreement would be binding on the purchaser. In addition the purchaser was given a “cooling-off” period of 10 days in which to withdraw from the transaction. A recent tendency has been to expand coverage to contracts via telemarketing, as technology has developed, and to fold protections into fair trading Acts. Following the enactment and coming into force of the ACL, as noted above, all of these protections have been integrated into a single national law, housed in Div 2 of Pt 3-2 of the ACL, regulating what are now known as “unsolicited consumer agreements”.

A comparative table of provisions is located at ¶25-200 to assist readers in finding comparable provisions of the ACL, repealed provisions of the TPA, the Australian Securities and Investments Commission Act 2001 (Cth) and the state and territory fair trading legislation. The unsolicited selling provisions of the ACL regulate both: • face-to-face marketing, and • telephone marketing and sales. The rules regulating these practices fall into four principal categories. 1. Face-to-face marketing approaches: there are express supplier obligations about the way in which consumers are approached and about the making of agreements, including: • permitted hours of visiting consumers • a duty clearly to advise the consumer at the outset of an approach of the purpose of the approach and to display or produce identification containing certain prescribed information, and • a duty to leave a consumer’s premises on request. 2. Face-to-face and telephone marketing approaches: there are express supplier disclosure obligations about the making of agreements, including: • the duty to inform the consumer prior to making the agreement of the consumer’s rights to terminate the agreement, and • formal requirements for valid agreements arising from suppliers approaching consumers by telephone or otherwise. A valid agreement must include, for instance, the terms of the agreement, a termination notice (containing prescribed information), and supplier information. An agreement must comply with clarity requirements, and must be given to the consumer.

3. Face-to-face and telephone sales: there are express consumer rights and obligations, including: • a 10-day termination right, exercisable by providing the supplier with a termination notice (containing prescribed information) via a wide range of delivery methods • provisions specifying that the consumer can also terminate an agreement after the 10-day period in various circumstances related to breaches by the supplier of certain supplier obligations specified in the regime • provisions specifying the effect of termination, and • provisions specifying the entitlement of a consumer to goods and services on termination. 4. Face-to-face and telephone sales: there are express supplier obligations about post-contractual behaviour, including: • prohibitions during the 10-day termination period against a supplier supplying goods or services, or accepting trade-in goods, and requiring or accepting payment for goods or services to be supplied • a requirement that a supplier immediately repay money received under the agreement if the agreement is terminated • prohibitions against a supplier taking action against a consumer under a terminated agreement, including for the purpose of recovering amounts allegedly payable, and • prohibitions against a supplier seeking to avoid provisions concerning a termination right or operation of the regime. Structure of Div 2 Subdivision A of Div 2 of Pt 3-2 of the ACL, comprising s 69–72, sets out definitions of terms crucial to the unsolicited consumer agreements regime, namely:

• “unsolicited consumer agreement” • “dealer” • “negotiation”. Subdivision B, comprising s 73–77, regulates the negotiation of unsolicited consumer agreements, including: • permitted hours for negotiating an unsolicited consumer agreement • disclosing purpose and identity • ceasing to negotiate on request • informing the consumer of the termination period, etc • liability of suppliers for contraventions by dealers. Subdivision C, comprising s 78–81, sets out detailed requirements for the form and delivery of unsolicited consumer agreements. Subdivision D, comprising s 82–88, provides rules for terminating unsolicited consumer agreements, and the consequences of termination. Subdivision E, comprising s 89–95, provides a range of miscellaneous rules in support of the unsolicited consumer agreements regime. Regulations Division 2 of Pt 3-2 includes a regulation-making power, whereby the application of the Division may be limited in prescribed circumstances: s 94.

¶30-770 Lay-by agreements: form, content, delivery The following topics are covered below: • What is a lay-by agreement?

• Does “lay-by agreement” include an agreement where the supplier can provide alternative goods if the consumer doesn’t pay in full? • Form and delivery of lay-by agreement. What is a lay-by agreement? The phrase “lay-by agreement” is defined in detail in s 96(3) of the Australian Consumer Law (ACL), Sch 2 of the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)). A lay-by agreement is an agreement that has all of the following characteristics: • it is an agreement between a supplier of consumer goods and a consumer; “consumer goods” is a defined term: see below • the agreement takes place in trade or commerce, that is, it is a business-to-consumer transaction • it is an agreement for the supply of consumer goods; the definition does not say, in so many words, that the consumer goods are to be supplied to the consumer who is party to the agreement, but that is clearly the thrust of the definition • the agreement includes a term, whether express or implied, that the goods will not be delivered to the consumer until the total price for the goods has been paid • the agreement includes a term, whether express or implied, that the price will be paid in instalments, as follows: – if the agreement specifies that it is a lay-by agreement, the price will be paid in two or more instalments, that is, both the consumer and supplier agree that an agreement involving only two instalments is a lay-by agreement – if the agreement does not specify that it is a lay-by agreement, the price will be paid in three or more instalments – any deposit paid by the consumer counts as an instalment for

this purpose: s 96(4). For the meaning of: • “trade or commerce” — see ¶25-800, ¶26-060 • “consumer” — see ¶25-300, ¶25-800 • “price” — see ¶25-800 • “supply” — see ¶25-800. “Consumer goods” are “goods that are intended to be used, or are of a kind likely to be used, for personal, domestic or household use or consumption, and includes any such goods that have become fixtures since the time they were supplied if: (a) a recall notice for the goods has been issued [under s 122 of the ACL]; or (b) a person has voluntarily taken action [under Subdiv B of Div 3 of Pt 3-3 of the ACL] to recall the goods”: s 2 of the ACL. Does “lay-by agreement” include an agreement where the supplier can provide alternative goods if the consumer doesn’t pay in full? A lay-by agreement includes an agreement which provides for the possibility of the supply of alternative goods if full payment has not been made: ACCC v Chrisco Hampers Australia Limited (2015) ATPR ¶42-513; (2015) Aust Contract Reports ¶90-420; [2015] FCA 1204 at [8]. In this case, the supplier contended that a “lay-by agreement” was limited to an agreement for the supply of particular goods on condition of full payment. The supplier argued that the definition of “lay-by agreement” did not include an agreement which gives the supplier the option to supply substitute goods if the consumer did not pay in full for the goods that they had ordered. The court held that there was no warrant in the terms or the purpose of s 96(3) to construe the

definition of “lay-by” so narrowly: [8], [150]–[157]. Form and delivery of lay-by agreement A lay-by agreement must be in writing. A copy of the agreement must be given to the consumer to whom the goods which are the subject of the agreement are supplied, or are to be supplied. It is the responsibility of the supplier of the goods to ensure both that the agreement is in writing and that it is given to the consumer: s 96(1) of the ACL. Note that a copy of the agreement is to be given to “the consumer to whom the goods are, or are to be, supplied” (emphasis added). This suggests that there is no specified time at which, or by which, the agreement must be given to the consumer. It is therefore permissible to give the agreement to the consumer at any point of the transaction, from the initial making of the agreement to the final delivery of the goods after the price has been paid. Section 188 of the ACL creates offences of failing to comply with requirements that are parallel to the requirements of s 96(1). A supplier who contravenes this provision commits an offence, punishable by a fine of $30,000 if the supplier is a body corporate, or $6,000 if the supplier is not a body corporate. This is an offence of strict liability. This means, in effect, that in a prosecution for an offence against s 188, it is not necessary to prove intention, knowledge, recklessness or negligence on the part of the accused. However, the defence of mistake of fact under s 9.2 of the Criminal Code (Cth) is available. A supplier who contravenes s 96(1), or who attempts to contravene it, or who aids, abets, counsels, procures or induces a contravention, or is in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this subsection may also be liable to a pecuniary penalty under s 224 of the ACL. The maximum penalty is $30,000 if the person is a body corporate, or $6,000 if the person is not a body corporate. As an alternative to proceedings under s 224, the Australian Competition and Consumer Commission may issue an infringement

notice in relation to a contravention of s 96(1). The amount of the penalty under an infringement notice is 55 penalty units for a body corporate, or 11 penalty units for a person who is not a body corporate: s 134C of the Competition and Consumer Act. The supplier must also ensure that the agreement is transparent: s 96(2). This means that it must be expressed in reasonably plain language, it must be legible and must be presented clearly: see the definition of “transparent” in s 2 of the ACL, and see ¶25-800. A lay-by agreement may not be transparent if, for example, terms and conditions are hidden in fine print or schedules, phrased in legal jargon, or given in complex or technical language. Failure to comply with the transparency requirement, however, does not expose the supplier to prosecution for an offence, a pecuniary penalty or an infringement notice.

Tax Institute CommLaw3 Module 4 — Commentary ¶26-184 The Financial System Inquiry In March 1997 the Financial System Inquiry reported to the federal government (the “Wallis Report”). It had been given a wide brief to: • “stocktake” the results of the deregulation of the Australian financial system • examine the forces driving further change, particularly technology, and • recommend changes to the regulatory system to ensure an “efficient, responsive, competitive and flexible financial system to underpin stronger economic performance, consistent with financial stability, prudence, integrity and fairness”. The Wallis Report recommended a number of changes and in particular, supported a restructuring of financial market regulation. The report had identified two types of regulatory activity. (a) Market Integrity Regulation. This seeks to ensure that markets are sound, orderly and transparent, users are treated fairly, the price formation process is reliable and markets are free from misleading, manipulative or abusive conduct. This type of regulation was at the time of the inquiry conducted on a functional basis by one agency alone, the Australian Securities Commission (ASC). (b) Consumer Protection Regulation. This seeks to ensure that retail customers have adequate information, are treated fairly and have adequate avenues for redress. Most of this regulation was based on the institutional form of the service provider and at the time of

the inquiry involved several Commonwealth agencies, such as the Insurance and Superannuation Commission (ISC), the ASC, the Australian Competition and Consumer Commission (ACCC) and the Australian Payments System Council (APSC). This regulatory structure was seen by the inquiry to be inconsistent with the broadening structure of financial markets and had led to inefficiencies, inconsistencies and regulatory gaps which were not conducive to competition in the financial system. As a result of the problems identified, the Wallis Report recommended that a single agency, the Corporations and Financial Services Commission (later modified to the Australian Securities and Investments Commission (ASIC)) be established to oversee Commonwealth regulation of corporations, financial market integrity and financial consumer protection. It would combine the existing market integrity, corporations and consumer protection roles of the ASC, the ISC and APSC as well as take over the administration of consumer protection in the financial system from the ACCC. The federal government accepted most of the recommendations of the Wallis Report and implemented many of the suggestions. In particular, the Financial Sector Reform (Amendments and Transitional Provisions) Act 1998 (Cth) established ASIC, which absorbed the ASC and its responsibility for corporate regulation, together with the additional functions of consumer protection and market integrity for the financial system. This included absorbing relevant responsibilities previously performed by the ISC and APSC, both of which were disbanded. The functions of both these bodies were split between ASIC and the Australian Prudential Authority (APRA). This latter agency oversees the single licensing and prudential regulatory regime also established under this reform package. ASIC is now the pre-eminent consumer protection and market integrity regulator across the finance industry.

¶35-500 Anti-Money Laundering and Counter-Terrorism Financing Act

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML Act or the Act) is the first tranche of AML legislation. It applies to services provided by the financial and gambling sectors and like financial services provided by professionals, such as lawyers and accountants. The second tranche of legislation will focus on services provided by real estate agents, jewellers and professional service firms (offering services other than financial services). Given the compliance burden it imposes on business, why has the federal government embarked on the AML legislative program? The reason is that AML legislation is necessary if Australia is to meet the standards set by the Financial Action Task Force. In turn, meeting these standards is essential if Australia’s financial sector is to be able to carry on business internationally. The AML regulatory scheme is similar to the FTRA scheme, in that there are several “levels” of regulation: • the AML Act • the AML Regulations (the Regulations) • the AML/CTF Rules, issued by AUSTRAC (the Rules), and • AML Guidance Notes, issued by AUSTRAC. All of these forms of regulation are legally binding, except for the Guidance Notes. What are the main differences between the FTRA and the AML Act? The AML Act Explanatory Memorandum includes a table that shows the new obligations that are included in the Act. Existing requirement under the FTRA?

Requirement under the AML Act and Rules?

Customer identification

Yes

Yes

Ongoing customer due diligence

No

Yes

Record keeping

Yes

Yes

Suspicious matter reporting

Yes

Yes

Transaction monitoring

No

Yes

Threshold transaction reporting

Yes

Yes

International funds transfer instructions

Yes

Yes

AML/CTF programs

No

Yes

Correspondent banking

No

Yes

Implementation of the AML Act Different Parts of the Act came into operation on different dates. While a particular provision came into operation on the implementation date, reporting entities had a 15 month prosecution-free period to become fully compliant with the provision, so long as they were making their best endeavours to comply. The final prosecution-free period ended on 11 March 2010. The key concept While the FTRA applies to “cash dealers”, the AML Act takes a different approach. Under the AML Act, it is the provision of certain services that attracts the operation of the Act. More specifically, the Act applies to the provision “designated services” by “reporting entities”. A “reporting entity” is defined simply as a person who provides a designated service. What are “designated services”? Section 6 of the Act includes four tables which list different types of designated services. Table 1 lists financial services which are designated services. Such services include:

• opening of accounts by an ADI, a bank, building society or credit union • allowing a person to become a signatory to an account • allowing a transaction to be conducted in relation to an account • making a loan, where the loan is made in the course of carrying on a loans business • supplying goods under a commercial finance lease or by hire purchase where the supply is made in the course of carrying on such a business • providing cheque books, money orders, postal orders and travellers cheques (or cashing them) although in the case of money and postal orders, only when the face value is $1,000 or more • issuing debit cards and certain stored value cards (and topping up certain stored value cards) • making money available or accepting electronic funds transfer instructions • carrying on a business of giving effect to remittance arrangements, accepting an instruction from a transferor entity for the transfer of money or property under a designated remittance arrangement • carrying on a business of giving effect to remittance arrangements, making money or property available, or arranging for it to be made available, to an ultimate transferee entity as a result of a transfer under a designated remittance arrangement • dealing with securities or derivatives in the course of carrying on such a business • certain life policies or sinking fund policies

• as trustee of a superannuation fund (other than a self managed fund) or an approved deposit fund or as an RSA provider, accepting a contribution, roll-over or transfer in respect of a new or existing member, or cashing the whole or part of an interest held by a member • accepting payment of the purchase price for a new pension or annuity, where the pension or annuity is provided in the course of carrying on a business of providing pensions or annuities and making certain payments (including the payment of the pension or annuity) to a person • providing custodial, depository or safe deposit box services in the course of carrying on such a business • exchanging one currency for another, where the exchange is provided in the course of carrying on a currency exchange business • in certain circumstances, collecting or holding physical currency and making up or delivering pay-rolls, and • AFSL holders making arrangements for a person to receive a designated service. Table 3 in s 6 lists gambling services which are designated services. It is important to note that many popular forms of gambling are exempt from the customer identification and ongoing customer due diligence obligations contained in Div 4 and 6 of the Act. Customers of casinos will not need to be identified unless they: • purchase or redeem gaming chips valued at $10,000 or more • make a bet of $10,000 or more, or receive winnings of $10,000 or more, unless the bet is made, or the winnings are received, in gaming chips • are paid winnings of $10,000 or more in respect of a game played

on a gaming machine • open an account with a casino • exchange $1,000 or more in Australian or foreign currency equivalent at a casino, or • receive a financial service that is listed in Table 1 of s 6 from a casino. Customers of on-course bookmakers and totalisator agency boards (TABs) will not need to be identified unless they • are paid winnings of $10,000 or more • open, or become a signatory to, an account with a bookmaker or TAB • exchange $1000 or more in Australian or foreign currency equivalent, or • receive a financial service that is listed in Table 1 of s 6. Businesses that offer an account for online gambling services have 90 days after the account is opened to identify the customer of the account. The customer may not withdraw any money from the account prior to identification being carried out. Persons who gamble on gaming machines will not need to be identified unless they are paid winnings of $10,000 or more. Lotteries are not covered by the AML Act. Further, the Explanatory Memorandum to the AML Act observes that “… activities similar in nature to lotteries will also not be included, for example Keno and instant lottery tickets are regarded as covered by the term lottery and therefore not captured by the definition of game. Other similar activities would likewise not be captured by the definition.” (EM, page 34). Enrolment and registration

Section 51B of the AML Act requires a reporting entity to enrol with AUSTRAC within 28 days after commencing to provide a designated service. A Reporting Entities Roll is maintained by AUSTRAC and an application for enrolment must include the enrolment details prescribed by the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No 1) (Rules Instrument 2007 No 1). AUSTRAC must be advised within 14 days of any change in the reporting entity’s enrolment details. In addition to enrolling, providers of remittance services must apply for registration (s 74). The providers who are required to be registered are: • remittance network providers: organisations that operate a network of remittance affiliates by providing the systems and services that enable its affiliates to provide remittance services • affiliates of remittance network providers: businesses that provide remittance services to customers as part of a remittance network facilitated by a remittance network provider, and • independent remittance dealers: businesses that provide remittance services to customers using their own systems and processes, independent of a remittance network. A person may apply for registration as a remittance affiliate of a registered remittance network provider only if: • when the person makes the application, the person is a registered independent remittance dealer, or the application is made in conjunction with an application by the person for registration as a registered independent remittance dealer, and • the registered remittance network provider has consented to the making of the application. Subject to any exceptions set out in the Rules, a registrable remittance service is defined by the Act as a service provided by a permanent establishment of the person in Australia, that is a

designated service of either: • accepting money or property from a transferor entity to be transferred, or • making money or property available to an ultimate transferee entity as a result of a transfer, under a remittance arrangement: • where a person (other than an ADI, bank, building society, credit union or other person specified in the Rules) accepts money or property from a transferor entity to be transferred, or • where a person (other than an ADI, bank, building society, credit union or other person specified in the Rules) makes money or property available to the ultimate transferee, and • which satisfies such other conditions (if any) as are specified in the Rules. ADIs, banks, building societies and credit unions are not required to be registered. A Remittance Sector Register is maintained by AUSTRAC and an application for registration must include the details prescribed in schedules to AML r 56. AUSTRAC must be advised of material changes in the circumstances of a remittance provider (s 75M). Section 75G gives the AUSTRAC CEO the power to cancel the registration of a person if the CEO is satisfied that it is appropriate to do so, having regard to: • whether the continued registration of the person involves, or may involve, a significant money laundering, financing of terrorism or people smuggling risk, or • one or more breaches by the person of a condition of registration. Also, s 75H and ch 59 of the AML Rules provide that the AUSTRAC CEO may suspend the registration of a remittance services provider.

This power has been exercised on a number of occasions. Customer identification Customer identification procedures are addressed in Pt 2 of the Act and in the Rules. Reporting entities will generally be required to identify customers by carrying out an applicable identification procedure before providing them with a designated service. However, this requirement will not apply to existing customers, or to customers provided with a low risk service (although the identity of these customers will need to be verified if a suspicious matter occurs). A reporting entity may identify a customer after commencing providing a service but only if this is allowed by the Rules, and any relevant conditions in the Rules are satisfied. How is a customer to be identified? A reporting entity must put in place an AML/CTF program (see discussion, below) and Pt B of that program must set out customer identification procedures. The procedures must comply with any requirements specified in the Rules for the identification and verification of customers and agents. Generally speaking, Pt B of a reporting entity’s AML/CTF Program must require it to collect the following Know Your Customer (KYC) information from customers who are individuals: • the customer’s full name • the customer’s date of birth, and • the customer’s residential address. Part B must include a procedure for a reporting entity to verify KYC information about a customer, either by document-based verification or electronic-based verification, or by a combination of both. In the case of individuals whose money-laundering or terroristfinancing risk is medium or lower, para 4.2.10 to 4.2.13 of Rules Instrument 2007 No 1 set out procedures a reporting entity may follow

in order to comply with its verification obligations. A reporting entity may satisfy documentation-based verification procedures by verifying: • the customer’s name and either the customer’s residential address or date of birth (or both) from an original or certified copy of a primary photographic identification document, or • the customer’s name and either the customer’s residential address or date of birth (or both) from an original or certified copy of a primary non-photographic identification document and an original or certified copy of a secondary identification document, and • that any document produced by the customer has not expired (other than an Australian passport, which is acceptable if it expired within the preceding two years). A reporting entity may satisfy electronic verification procedures by verifying: • the customer’s name and residential address using reliable and independent electronic data from at least two data sources, and either • the customer’s date of birth using reliable and independent data from at least one data source, or • that the customer has a transaction history for at least the past three years. In the case of a domestic company, Pt B must include a procedure for the reporting entity to collect the following KYC information: • the full name of the company as registered by ASIC • the full address of the company’s registered office • the full address of the company’s principal place of business (if any)

• the company’s ACN • whether the company is registered as a proprietary or public company, and • in the case of a proprietary company, the name of each director of the company. Part B must also include a procedure for the verification of the following information: • the full name of the company as registered by ASIC • whether the company is registered as a proprietary or public company, and • the company’s ACN. Paragraph 4.3.8 of Rules Instrument 2007 No 1 provides for a simplified verification procedure in respect of a company that is: • a domestic listed public company • a majority-owned subsidiary of a domestic listed public company, or • licensed and subject to the regulatory oversight of a Commonwealth, state or territory statutory regulator in relation to its activities as a company. If the company has a beneficial owner, there are provisions in Rules Instrument 2007 No 1 which require the collection and verification of information concerning that person. Rules Instrument 2007 No 1 also includes information collection and verification requirements for: • other types of companies • trustees

• partners • associations • registered co-operatives, and • government bodies. Existing customers Customers who were existing customers at the time of commencement of the Act do not need to be identified except where a suspicious matter reporting obligation arises in relation to the customer. In this case, the reporting entity must take the actions specified in the Rules within the time specified in those Rules. Obligations to report to AUSTRAC There are four types of reports which reporting entities may be required to give to the AUSTRAC CEO: • reports about suspicious matters • reports about designated services in relation to transactions which exceed a specified financial threshold (threshold transactions) • reports about the provision of designated services in relation to an international funds transfer instruction, and • AML/CTF compliance reports. Although the suspicious matters, threshold transactions and international funds transfer reports are required by the FTRA, the reporting obligations are broader under the AML Act than under the FTRA. Section 41 of the AML Act: Reports of suspicious matters The obligation to make a report is triggered by: • the reporting entity commencing or proposing to provide a designated service to a person, or

• a request by a person to a reporting entity for the provision of a designated service, or a query as whether the reporting entity would be willing to provide a designated service, and • the reporting entity suspecting, on reasonable grounds, that a matter specified in the first column of the table has arisen. In these circumstances, the reporting entity must make a report to the AUSTRAC CEO within the period set out in the second column of the table. Subject matter of suspicion That the person is not who they claim to be.

Time limit for reporting to AUSTRAC Within three business days after the day on which the suspicion is formed.

That an agent of the person who Within three business days after deals with the reporting entity in the day on which the suspicion is relation to the provision or formed. prospective provision of the designated service is not who the agent claims to be. That information that the reporting entity has about the provision, or prospective provision, of the designated service may be: (a) relevant to investigation of, or prosecution of a person for, an evasion or an attempted evasion of a Commonwealth, state or territory taxation law, or (b) relevant to investigation of, or prosecution of a person for, an offence against a

Within three business days after the day on which the suspicion is formed.

Commonwealth, state or territory law, or (c) of assistance in the enforcement of the Proceeds of Crime Act 2002 (Cth) (and regulations) or corresponding state or territory laws. That the provision, or prospective Within 24 hours after the time provision, of the designated when the suspicion is formed. service is preparatory to the commission of a financing of terrorism offence, or the information the reporting entity has concerning the provision, or prospective provision, of the designated service may be relevant to the investigation or prosecution of a financing of terrorism offence. That the provision, or prospective Within three business days after provision, of the designated the day on which the suspicion is service is preparatory to the formed. commission of a money laundering offence, or the information the reporting entity has concerning the provision, or prospective provision, of the designated service may be relevant to the investigation or prosecution of a money laundering offence. Because a reporting entity has an obligation to report about the prospective provision of a designated service, a reporting entity may have to lodge a suspicious matter report even if the service is not actually provided.

The Rules may specify matters that are to be taken into account in determining if there are reasonable grounds for a reporting entity to form a suspicion of a kind listed in the table, but to date, no such rule has been made. A report of suspicious matters will be required to be in the form approved by AUSTRAC and contain the information specified by the Rules. Section 43: Reports of threshold transactions The obligation to report threshold transactions is broadly analogous to the current FTRA obligation to report significant cash transactions. If a reporting entity provides a designated service to a customer, and the provision of the service involves a threshold transaction, the reporting entity must within 10 business days after the date of the transaction, give the AUSTRAC CEO a report of the transaction in the approved form. Failure to do so is an offence and can also incur a civil penalty. A threshold transaction means: • the transfer of not less than $10,000 in physical currency, or • the transfer of money in the form of e-currency of not less than $10,000. “E-currency” is defined by the AML Act to mean an internet-based, electronic means of exchange that is backed either directly or indirectly by precious metal, bullion or a prescribed thing and is not issued by or under the authority of the government body. Examples could include a means of exchange such as e-cash or loyalty points tradeable on the internet. The Act provides that “e-currency” includes anything that under the regulations is taken to be e-currency for the purposes of the legislation. A report of a threshold transaction will be required to be in the form approved by AUSTRAC and contain the information specified by the Rules. Section 45: Reports of international funds transfer instructions

The requirement to make a report under this section applies to: • the sender of an international funds transfer instruction transmitted out of Australia, or • the recipient of an international funds transfer instruction transmitted into Australia. The type of instructions which constitute an “international funds transfer instruction” are specified in s 46. In simple terms, the funds transfer instruction must involve a permanent establishment of the ordering institution or the beneficiary institution or the payer or payee remitting entity in Australia. The reporting entity must within 10 business days after the date on which the service commenced to be provided the AUSTRAC CEO a report about the provision of the service, in the approved form containing such information as is specified in the Rules. Failure to do so is an offence and can also incur a civil penalty. A report must still be provided even if the person who sent or received the international funds transfer instruction is only a link in chain of such instructions, and not the originator or ultimate recipient of the instruction. Section 47: AML/CTF compliance reports A reporting entity is required to give the AUSTRAC CEO a report relating to its compliance with the AML Act, Regulations and Rules during the reporting period. The report must be lodged annually by 31 March and covers the previous calendar year. Compliance reports must be in the approved form and AUSTRAC has a strong preference for electronic submission of reports. A sample of the approved form can be downloaded from the AUSTRAC website. AML/CTF programs From the compliance point of view, the major difference between the FTRA and the AML Act is that under the AML Act, having a compliance program is now a legislative requirement. Part 7 of the AML Act requires reporting entities to have and comply with an AML/CTF program. A reporting entity cannot provide (or even

commence to provide) a designated service without such a program. Reporting entities have the option of developing their own tailored program (a “standard” program) or can adopt a “joint” program that applies to other reporting entities in a particular designated business group. If a reporting entity is an AFSL holder and it is only providing the designated service of “arranging” for a designated service to be received (s 6, Table 1, item 54) then it must have a “special” AML/CTF program. The primary purpose of the AML/CTF program is to identify, mitigate and manage the risk that the reporting entity may reasonably face “that the provision of the designated services … might (whether inadvertently or otherwise) involve or facilitate money laundering or financing of terrorism” (s 84(2)). The program must be in writing and comply with the Rules. Section 84(7) recognises the benefit of integrating compliance programs by allowing a reporting entity that is the responsible entity of a managed investments scheme to include the standard AML/CTF program in the same document as the registered scheme’s compliance plan. An AML/CTF program may be varied, or revoked, and a new plan substituted for the revoked plan. What must the program contain? Standard or joint AML/CTF programs must consist of two parts, Pt A and Pt B. Part A contains the general provisions of the program while Pt B contains the customer identification provisions of the program. Chapter 8 of Rules Instrument 2007 No 1 discusses what must be included in Pt A of a standard AML/CTF program. Clause 8.1.3 allows the use of appropriate risk based systems or controls by a reporting entity in its AML/CTF program. In determining what are appropriate risk based systems or controls, the reporting entity must have regard to the nature, size and complexity of its business and the type of money laundering and terrorist financing (ML/TF) risk that it might reasonably face. These criteria are similar to the risk management requirements set out in ASIC Regulatory Guide 164 Licensing: Organisational Capacities. It illustrates once again how

the same basic principles of compliance are applicable to different types of compliance systems. A reporting entity must consider the following factors in identifying its ML/TF risk: • its customer types, including any politically exposed persons • the types of designated services it provides • the methods by which it delivers designated services, and • the foreign jurisdictions with which it deals. Part A must be designed to enable the reporting entity to identify significant changes in ML/TF risk for the purposes of its Pt A and Pt B programs. In particular, it must facilitate the assessment of the ML/TF risk posed by: • all new designated services prior to introducing them to the market • all new methods of designated service delivery prior to adopting them, and • all new technologies used for the provision of a designated service prior to adopting them. A reporting entity must apply Pt A to all areas of its business that are involved in the provision of a designated service, including any function carried out by a third party. This is consistent with many other regulatory regimes, which provide that a person or body who outsources a function remains responsible for that function. AML/CTF Risk Awareness Training Program A reporting entity must include a suitable AML/CTF Risk Awareness Training Program in Pt A. The program must be designed to give its employees appropriate training at appropriate intervals, having regard to the ML/TF risk it might reasonably face, and enable employees to understand:

• the obligations of the reporting entity under the AML Act and Rules • the consequences of non-compliance • the type of ML/TF risk the reporting entity might face and the potential consequences of such risk, and • the processes and procedures provided for by the entity’s AML/CTF program that are relevant to the work carried out by the employee. Employee Due Diligence Program A reporting entity must include a suitable Employee Due Diligence Program in Pt A. The program must put in place appropriate risk based systems and controls regarding screening potential employees or re-screening employees when they are promoted or transferred, and who may be in a position to facilitate the commission of a money laundering or financing terrorism offence in connection with the provision of a designated service. The program must also establish a system for the reporting entity to deal with any employee who fails, without reasonable excuse, to comply with any part of the entity’s AML/CTF program. Oversight by board and senior management A reporting entity’s Pt A program must be approved and subject to ongoing oversight by its governing board and senior management. Where the reporting entity does not have a board, it must be approved and overseen by its chief executive officer or equivalent. AML/CTF Compliance Officer Part A must provide for a reporting entity to designate a person at management level as the AML/CTF Compliance Officer. This officer may also have other duties. AUSTRAC guidance note 08/02 sets out issues to consider when deciding who should be appointed as a reporting entity’s compliance

officer and a list of suggested duties of compliance officers. As would be expected, the guidance given on these subjects is similar to the guidance in relation to them given by AS 3806/ISO 19600. In late 2009, AUSTRAC conducted a survey of 150 compliance officers, most of whom were employed by reporting entities providing financial services. The survey found that compliance officers were experienced and qualified, had sufficient resources, and around twothirds of compliance officers said they had responsibility for a broader compliance function. AUSTRAC was concerned by survey findings that: • Almost half of all respondents said they spend only 10% or less of their time on AML/CTF matters. In the light of this finding, it is AUSTRAC’s view that entities should review the amount of time they spend on AML/CTF matters. • While 72% of respondents reported one or more AML/CTF matters to the board in the last financial year, some 28% of respondents did not report a single matter. AUSTRAC believes entities should review the criteria for reporting AML/CTF matters to their board (or equivalent executive body). A copy of the survey can be downloaded from www.austrac.gov.au/files/surveyseries_comp_officer.pdf. Independent review Part A of a reporting entity’s AML/CTF program must be subject to regular independent review. This review can be internal or external. The review is to assess: • the effectiveness of the Pt A program, having regard to the ML/TF risk of the reporting entity • whether the Pt A program complies with the Rules • whether the Pt A program has been effectively implemented, and • whether the reporting entity has complied with its Pt A program.

The result of the review, including any report prepared, must be provided to the board and senior management. AUSTRAC feedback Part A must include appropriate procedures for the reporting entity to deal with any feedback provided by AUSTRAC in respect of the reporting entity’s performance in relation to the management of ML/TF risk. Reporting obligations Finally, a reporting entity’s Part A program must include: • a list of the types of reports which the entity is required to provide to AUSTRAC as a result of the business activities carried on by the entity. (The reports which reporting entities may be required to provide are suspicious matter reports, threshold transaction reports, international funds transfer instructions and AML/CTF Compliance Reports), and • a description of the entity’s systems and controls (in other words, the entity’s compliance measures) designed to ensure compliance with the reporting obligations of the entity. Ongoing customer due diligence An important element of an entity’s AML/CTF program is ongoing customer due diligence (OCDD), as required by s 36 of the AML Act. All reporting entities must conduct OCDD. The three mandatory components of OCDD are set out in Rules Instrument 2007 No 1. These components are: • collection of further KYC information and beneficial owner information • a transaction monitoring program, and • an enhanced customer due diligence program. Collecting further KYC information

As has already been discussed, before providing a designated service to a customer, a reporting entity must collect and verify information about the customer’s identity and, if the customer has a beneficial owner, information about the beneficial owner. Additionally, to satisfy its OCDD obligation, a reporting entity’s AML/CTF program must set out the circumstances in which the entity will collect further KYC information and beneficial owner information, or update or verify existing KYC information and beneficial owner information, in order to counter the risk that providing a designated service may facilitate money laundering or the financing of terrorism. Reporting entities must also undertake reasonable measures to keep, update and review the documents, data or information collected under the applicable customer identification procedure and the beneficial owner identification requirements. This requirement will raise a number of practical challenges for reporting entities in determining what constitutes “reasonable measures”. Transaction monitoring program An entity’s transaction monitoring program must be included in Pt A of its AML/CTF program, and must be able to identify any transaction that meets the criteria of a suspicious transaction, as set out in s 41 of the AML Act. The program should be able to detect complex, unusual large transactions and unusual patterns of transactions, which have no apparent economic or visible lawful purpose. AUSTRAC has stated that transaction monitoring does not have to be conducted by using a computer software package, but this would seem to be the only practical method of monitoring for reporting entities dealing with large volumes of transactions. Enhanced customer due diligence Part A of a reporting entity’s AML/CTF program must include an enhanced customer due diligence program, which is applied when the reporting entity determines there is a high money laundering or terrorist financing risk, or a reportable suspicious matter has arisen. In applying enhanced customer due diligence, a reporting entity must consider whether it should:

• seek further information in order to clarify or update a customer’s KYC information, or to clarify the nature of the customer’s business with the reporting entity, or to consider any suspicion that may have arisen pursuant to s 41 of the AML Act • undertake a more detailed analysis of a customer’s KYC information • verify or re-verify a customer’s KYC information • carry out a more detailed analysis and monitoring of a customer’s past and future transactions, or • lodge a suspicious matter report in accordance with s 41 of the AML Act. Compliance implications It can be seen immediately that an AML/CTF program which meets the requirements of the Rules will include many of the elements of AS 3806/ISO 19600. As it would be preferable to fully integrate the AML/CTF program with the organisation’s overall compliance framework, we suggest it would be prudent for the AML/CTF program to aspire to reach the AS 3806/ISO 19600 standard. The challenge for those in charge of a reporting entity’s AML/CTF program will be to ensure that they can: • provide ongoing and convincing evidence of the program’s effectiveness to the satisfaction of the board, senior management, and, if necessary, AUSTRAC, and • achieve the correct level of “mitigation and management” of ML/TF risk within the newly articulated risk based systems and controls model. Risk management for small and medium sized businesses AUSTRAC has issued a guide to risk management for small and medium sized reporting entities.

The guide sets out an approach to risk management based on the Australian Standard for risk management AS/NZS 4360. The guide notes that reporting entities face two main risks: business risk and regulatory risk. Business risk is the risk that a reporting entity may be used for money laundering or terrorist financing. As we have already discussed above, Chapter 8 of Rules Instrument 2007 No 1 requires four different sources of business risk to be assessed by reporting entities. The guide defines regulatory risk as the risk that a reporting entity will not meet its obligations under the AML Act. Examples of regulatory obligations that may be breached include verifying the identity of customers and reporting certain transactions such as international funds transfer instructions. The risk management process suggested by the guide comprises four steps: • risk identification • risk assessment • risk treatment, and • risk monitoring and review. Use of the risk management method set out in the guide is not mandatory and reporting entities may choose an alternative method which is appropriate to their business and the money laundering and/or terrorism financing they face. A copy of the guide can be downloaded from www.austrac.gov.au/sites/default/files/documents/risk_management_tool.pdf Other obligations In brief, some of the other AML Act obligations include: Cross border movements of physical currency and bearer negotiable instruments Pursuant to Pt 4 of the Act, movements of physical currency of

$10,000 or more into or out of Australia must be reported to AUSTRAC, a customs officer or a police officer. In addition, persons leaving or arriving in Australia must, if required to do so by a police officer or a customs officer, declare whether or not they have with them any bearer negotiable instruments (such as cheques), declare the amount payable under each instrument and produce them. The person may also be required to give AUSTRAC, a customs officer or a police officer a report about those instruments as soon as possible. Electronic funds transfer instructions Part 5 requires reporting entities to include certain information about the origin of the transferred money with electronic funds transfer instructions. The originator information must be verified by the originating institution and included in all electronic messages relating to the funds transfer. These obligations apply irrespective of the number of institutions or people involved in the transfer (for example, the rules apply in relation to same-person, same-institution transfers). The institution(s) involved in the funds transfer chain (which includes the originating institution, the destination institution, and each institution interposed between the originating institution and the destination institution, if any) may be prevented from forwarding the funds that are the subject of the instruction unless the appropriate originator information has been received. There are some important exceptions. Part 5 does not apply to: • approved third party bill payment systems (such as BPAY), or • instructions arising from the use of a debit or credit card (except cash advances) provided the card number is included in the instruction, unless the Rules provide otherwise, or • instructions arising from the use of a debit or credit card at a branch of a financial institution provided the card number is included in the instruction, or • instructions given by use of an ATM, unless the Rules provide otherwise, or

• instructions given by the operation of a merchant terminal provided the operation is authorised by a financial institution, unless the Rules provide otherwise, or • the transfer of funds between two financial institutions each acting on its own behalf, or • an instruction of a kind prescribed by the Rules. Correspondent banking As s 94 explains, Pt 8 provides that: • a financial institution must not enter into a correspondent banking relationship with: (a) a shell bank, or (b) another financial institution that has a correspondent banking relationship with a shell bank, • a financial institution must carry out a due diligence assessment before it enters into a correspondent banking relationship with another financial institution, and • a financial institution must carry out regular due diligence assessments if it has entered into a correspondent banking relationship with another financial institution. A “correspondent banking relationship” is defined as a relationship involving a financial institution (financial institution A) providing banking services to another financial institution (financial institution B) where: • financial institution A carries on an activity or business at or through its permanent establishment in a particular country, and • financial institution B carries on an activity or business at or through its permanent establishment in another country, and • the correspondent banking relationship relates (wholly or partly) to

those permanent establishments, and • the relationship is not of a kind specified in the relevant AML/CTF Rules, and • the banking services are not of a kind specified in the relevant AML/CTF Rules. A “shell bank” is a corporation that: • is incorporated in a foreign country, and • is authorised to carry on banking business in its country of incorporation, and • does not have a physical presence in its country of incorporation, and • is not an affiliate of another corporation that: (i) is incorporated in a particular country, and (ii) is authorised to carry on banking business in its country of incorporation, and (iii) has a physical presence in its country of incorporation. (Section 15 of the Act.) In order for Pt 8 to apply to a financial institution, the institution must have a link to Australia. In brief, Pt 8 will apply if: • the financial institution carries on an activity/business at or through its permanent establishment in Australia, or • the financial institution is an Australian resident carrying on an activity/business at or through its permanent establishment in a foreign country, or • the financial institution is a subsidiary of a company resident in Australia, and the financial institution carries on an

activity/business at or through its permanent establishment in a foreign country. Countermeasures Part 9 of the Act provides that the Regulations may prohibit or regulate the entering into of transactions with residents of prescribed foreign countries (PFCs). Under s 102, the Regulations may have general application or be limited by reference to the following: • a specified transaction, or • a specified party, or • a specified PFC. Section 5 of the Act prescribes that PFCs are those foreign countries that are declared by the Regulations to be prescribed foreign countries for the purposes of the Act. Record keeping requirements A reporting entity must: • retain records of information relating to the provision of a designated service to a customer • keep documents relating to the provision of a designated service given to it by a customer, and • retain a record of an applicable customer identification procedure. These records must be kept for a period of seven years. In addition, s 116 requires a reporting entity to: • make a record of its adoption of an AML/CTF program and retain the record for seven years • retain the program, and any variation of the program, for seven years.

AUSTRAC’s powers The AML Act has transformed AUSTRAC’s role into that of a regulator, much like ASIC or APRA. AUSTRAC takes a pro-active role in enforcing compliance with the Act. Under Pt 13, AUSTRAC has power to monitor compliance with the Act, the Regulations and the Rules. When breaches of the Act are detected, AUSTRAC has a wider range of enforcement tools than are available under the FTRA. These tools include civil penalty orders and enforceable undertakings, as well as others that are discussed below. In addition, AUSTRAC may require a reporting entity to arrange for the conduct of an audit. If the AUSTRAC CEO has reasonable grounds to suspect that a reporting entity has not taken, or is not taking, appropriate action to identify, mitigate and manage AML/CTF risks that the reporting entity may reasonably face in providing designated services at or through a permanent establishment in Australia, the AUSTRAC CEO may require the reporting entity to: • appoint an external auditor • arrange for that auditor to carry out an external audit of the reporting entity’s capacity and endeavours to identify, mitigate and manage such AML/CTF risks • arrange for the external auditor to give the reporting entity a written audit report, and • give the AUSTRAC CEO a copy of the audit report. If the AUSTRAC CEO has reasonable grounds to suspect that a reporting entity has contravened, is contravening, or is proposing to contravene, the Act, the Regulations or the Rules, AUSTRAC may require the reporting entity to: • appoint an external auditor • arrange for that auditor to carry out an external audit of the

reporting entity’s overall compliance with the Act, the regulations or the Rules, or one or more specified aspects of such compliance • arrange for the external auditor to give the reporting entity a written audit report, and • give the AUSTRAC CEO a copy of the audit report. If the AUSTRAC CEO is satisfied that a reporting entity has not carried out a money-laundering and terrorism-financing risk assessment, or the assessment is inadequate or no longer current, s 165 allows notice to be given requiring the entity to: • carry out an assessment, and • prepare a written report of the results of the assessment, and • give the AUSTRAC CEO a copy of the report. Section 191 empowers AUSTRAC to give directions, which may include a direction in relation to a reporting entity’s compliance program. Under this section, if the AUSTRAC CEO is satisfied a reporting entity has contravened, or is contravening a civil penalty provision of the Act, a direction may be given to the entity to take specified action directed towards ensuring that the entity is unlikely to contravene the provision in the future. Section 191(3) lists two examples of such a direction: • a direction that a reporting entity implements administrative systems for monitoring compliance with a civil penalty provision, and • a direction that a reporting entity implements a system to give the entity’s officers, employees and agents “a reasonable knowledge and understanding” of the requirements of a civil penalty provision, in so far as those requirements affect them. In summary, the Act gives AUSTRAC a number of compliance

enforcement powers which are similar to ASIC’s and APRA’s powers to enforce compliance with the Acts administered by them. Due diligence defences Sections 232 (Civil liability of corporations) and 233 (Liability of persons other than corporations) of the Act are similar to s 34 of the FTRA (which is discussed at ¶35-400). Like s 34 they include a due diligence defence. A corporation or a person other than the corporation will not be liable for the conduct of another if the corporation or person establishes they took reasonable precautions and exercised due diligence to avoid the conduct. Section 236 of the Act is a general due diligence defence that has no equivalent in the FTRA. Under this section, it is a defence to: • criminal proceedings for an offence against the Regulations • civil penalty proceedings, and • proceedings under the Proceeds of Crime Act 2002 (Cth) that relate to the AML Act, if the defendant proves that they took reasonable precautions and exercised due diligence to avoid the contravention. AUSTRAC compliance resources Compliance resources that are available on the AUSTRAC website include: • The AUSTRAC Compliance Guide, which can be downloaded from the AUSTRAC website, provides detailed information for reporting entities regarding their AML/CTF obligations. • The AUSTRAC self assessment questionnaire is designed to help reporting entities understand, self-assess and monitor their progress in meeting the requirements of the Act. • The small business checklist is specifically designed for a small business to use to check that the business is meeting its AML/CTF obligations.

• Risk management — A tool for small to medium-sized businesses is designed to help small and medium-sized businesses to identify, assess and treat risk. • Guidance notes do not have the force of law, but they do provide information for reporting entities on particular provisions of the AML Act and its Regulations and Rules. Public comment is sought on draft guidance notes, which are posted on the AUSTRAC website for the duration of the consultation period. • Public Legal Interpretations which fulfil a similar function to ASIC’s Regulatory Guides in that they explain how AUSTRAC interprets the law. • AUSTRAC’s Typologies and Case Studies Report, published annually, is intended to assist a business to identify potential money laundering risks, and includes examples of methods used to launder the proceeds of crime. • The AUSTRAC survey series which are reports of surveys conducted by AUSTRAC. • Information circulars provide information on particular issues that are relevant to regulated entities. • AUSTRAC has announced it will produce a series of publications offering practical guidance on compliance specifically for particular types of reporting entities. AML/CTF compliance guides for bookmakers, independent remittance dealers, and hotels and clubs have been published. (Note: Some material in this section is taken from the Briefing Note on the Anti-Money Laundering and Counter-Terrorism Financing Legislation written by the Clayton Utz Anti-Money Laundering Team. It is reproduced here with the kind permission of the authors and Clayton Utz.) Review of the AML Act

Section 251 of the AML Act requires a review of the operation of the Act to commence before 13 December 2013, and a report of the review to be prepared and tabled in Parliament. The review commenced in December 2013 with the release of the terms of reference and an issues paper. The review was conducted by the Attorney-General’s department. As well as considering the submissions received in response to the issues paper and conducting face-to-face consultations, the department took into account the international evaluation of Australia’s AML/CTF regime by the Financial Action Taskforce (FATF). The FATF report which was released on 21 April 2015, includes some criticisms of the effectiveness of AUSTRAC. A copy of the report can be downloaded from the FATF website at www.fatf-gafi.org. The Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and Associated Rules and Regulations was released on 29 April 2016. The report makes 84 recommendations including: • Overarching issues: The Act and Rules should be simplified to enable reporting entities to better understand and comply with their obligations (Recommendations 2.1 and 2.2). • Objects of the Act: Obligations under the Act, Rules and Regulations should be proportionate to the ML/TF risks faced by reporting entities (3.2). • Regime scope: Existing designated services: The use of the term “in the course of carrying on a business” should be qualified for the activities currently within tables 2 and 3 of s 6 of the Act to ensure that only activities routinely or regularly provided by a reporting entity are captured under AML/CTF regulation (4.5). • Regime scope: Designated non-financial businesses and professions: The Attorney-General’s Department and AUSTRAC, in consultation with industry, should: – develop options for regulating lawyers, conveyancers,

accountants, high-value dealers, real estate agents and trust and company service providers under the Act, and – conduct a cost-benefit analysis of the options for regulating lawyers, accountants, high-value dealers, real estate agents and trust and company service providers under the AML/CTF Act (4.6) • Customer due diligence: The AML/CTF Rules for customer due diligence should be rationalised and simplified as a priority, using plain language to facilitate ease of use and supplemented by enhanced guidance (5.2). • Reporting obligations: The Act and Rules should be amended to simplify and streamline transaction reporting obligations and produce regulatory efficiencies (6.4). • AML/CTF programs: The Act and Rules should be amended to merge and streamline the Part A and Part B requirements for AML/CTF programs into a single requirement for reporting entities to develop, implement and maintain an AML/CTF program that is effective in identifying, mitigating and managing their ML/TF risks (7.1). • AML/CTF compliance reports: AUSTRAC should develop, in consultation with industry, a new compliance reporting process that is relevant to the information needs of AUSTRAC and reduces unnecessary regulatory burden (9.1). • Remittance sector: A government-industry working group should be established to develop options for strengthening regulatory oversight of remitters, including consideration of the existing enforcement power and penalty regimes, under the AML/CTF Act (11.1). • Financial Transactions Reports Act 1988: Repeal the FTR Act and Regulations and amend the AML/CTF Act and Rules to: – retain reporting requirements in relation to traveller’s

cheques, motor vehicle dealers and solicitors while the broader consideration of the regulation of these businesses under the Act occurs, and – address any transitional issues resulting from the repeal of the FTR Act and Regulations. In the repeal of the FTR Act, insurance intermediaries and general insurance providers, apart from motor vehicle dealers, should not retain their reporting obligations (18.1 and 18.2).

A complete list of all recommendations can be found at pages 150– 159 of the report which can be downloaded from www.ag.gov.au/consultations/pages/StatReviewAntiMoneyLaunderingCounterTer A number of the recommendations take into account the issues identified by FATF in its report. Although the reach of the Act is to be extended, the positives to come out of the review are a simplifying of obligations, consultation with reporting entities on changes to the Act, Rules and Regulations and more assistance for reporting entities to comply with their AML/CTF obligations. When releasing the report, the Minister said reforms to the AML/CTF regime will be progressed in two stages, with one package progressed in the short-term and a second package comprising longer-term reforms. Industry will be consulted on both the timing and the content of these stages. The federal government is yet to fully consider the report, but it has identified a number of recommendations for action. These recommendations include deregulatory reforms to customer due diligence obligations (recommendation 5.2 and others), narrowing definitions to ensure that businesses are not unintentionally captured by the AML/CTF regime (recommendation 4.5 and others), 18.1 and 18.2, as well as a number of recommendations to combat terrorism financing. AML/CTF statutory review implementation In October 2016, the Attorney-General’s Department released a project plan. Phase 1 of the plan includes priority projects scheduled

for completion in 2017. In relation to Phase 2, the project plan states: “Phase 2 will progress significant reforms, the detail of which need to be developed in close consultation with Government agencies and industry. These include measures to simplify, streamline and clarify AML/CTF obligations, and strengthen compliance with the FATF standards. These reforms will be developed in the longer–term (2016–2019), with some commenced concurrently with Phase 1 initiatives. The outcomes of a number of Phase 1 initiatives may generate additional initiatives for Phase 2.” The project plan includes a list of the recommendations that comprise Phase 1 of the plan and a list of Phase 2 recommendations. The recommendations that will be actioned in Phase 1 include: • amending the infringement notice provisions in s 184(1A) of the AML/CTF Act to include a wider range of minor offences against the AML/CTF Act that are regulatory in nature • amending the provisions of the Financial Transaction Reports Act 1988 to exclude insurance intermediaries and general insurance providers — apart from motor vehicle dealers — from the definition of a “cash dealer”. The amendment is proposed because services provided by insurance intermediaries and general insurance providers (apart from motor vehicle dealers) are not considered to pose a high ML/TF risk. The repeal of the remaining provisions of the FTR Act will be completed under Phase 2. Phase 1 industry consultation papers were released in December 2016. These papers are: • Enhancing Australia’s AML/CTF regime: Phase 1 amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 • Regulating digital currencies under Australia’s AML/CTF regime • Accountants: a model for regulation under Australia’s anti-money

laundering and counter-terrorism financing regime • High-value dealers: a model for regulation under Australia’s antimoney laundering and counter-terrorism financing (AML/CTF) regime • Legal practitioners and conveyancers: a model for regulation under Australia’s anti-money laundering and counter-terrorism financing regime • Real estate professionals: a model for regulation under Australia’s anti-money laundering and counter-terrorism financing regime • Trust and company service providers: a model for regulation under Australia’s anti-money laundering and counter-terrorism financing regime. The consultation papers can be downloaded from www.ag.gov.au/Consultations/Pages/Amlctf-statutory-reviewimplementation.aspx. Public submissions closed on 31 January 2017.

¶273-440 When a financial services licence may be granted: s 913B ASIC is under an obligation to grant an Australian Financial Services Licence (AFSL) where an application is made under s 913A and all of the criteria in s 913B are met. ASIC has no express discretionary power to refuse to grant an AFSL. Conversely, if any of the criteria in this section are not met, ASIC must refuse the application. ASIC must also refuse an application if the applicant is subject to a banning order under s 920A or a disqualification order under s 921A. ASIC has no discretionary power to grant an AFSL in either of these circumstances. If ASIC considers that any of the criteria in s 913B have not been met, and consequently proposes to refuse the application, it must first give the applicant an opportunity to appear or be represented at a private hearing to be held by ASIC, and to make submissions to ASIC: s

913B(5). The criteria are as follows: (a) the application was duly and properly made under s 913A (b) ASIC has no reason to believe that the applicant is likely to contravene the obligations that will apply under s 912A if the licence is granted (c) the “good fame or character” test (see further below) is satisfied — that is: (i) if the applicant is a natural person, ASIC must be satisfied that there is no reason to believe that the applicant is not of good fame or character (ii) if the applicant is a company, ASIC must be satisfied that there is no reason to believe that any of the company’s responsible officers are not of good fame or character or, if ASIC cannot be satisfied about the responsible officers, it must be satisfied that the company’s ability to provide the financial services covered by the AFSL would nevertheless not be significantly impaired (iii) if the applicant is a partnership or the trustees of a trust, ASIC must be satisfied that there is no reason to believe that any of the partners or trustees who would perform duties in connection with the holding of the AFSL are not of good fame or character, and (d) the applicant has provided any other information required by ASIC that is relevant to deciding whether to grant the licence. Foreign natural persons, trusts or partnerships must appoint a local agent before applying for an AFSL: reg 7.6.03A. A memorandum of appointment or a power of attorney duly executed by or on behalf of the foreign entity must be lodged with the licence application. The local agent must be a natural person or a company which is resident in Australia and must be authorised to accept, on behalf of the foreign

entity, service of process and notices. Those foreign entities must continue to have a local agent as a condition of holding the AFSL: reg 7.6.03B. ASIC must be given notice of any change to the agent or of the name and address of the agent. Notice of these changes must be given within one month after the change. Foreign companies which are carrying on business in Australia must be registered with ASIC under Pt 5B.2 Div 2. The requirement to appoint a local agent (to accept service of process and notices) forms a part of that registration process. The “good fame or character” test Section 913B states that ASIC must be satisfied that there is no reason to believe that the applicant (or any of the applicant’s responsible officers, if the applicant is a company, or any of the partners, if a partnership) is not of good fame or character. This does not mean that an applicant has to demonstrate positively his or her good fame or character, nor does it mean that ASIC needs to be satisfied that a person is of good fame or character. In assessing whether there is reason to believe that person is not of good fame or character, ASIC is required to have regard to the following specific criteria: (a) whether the person has been convicted, within the previous 10 years, of an offence that involves dishonesty and is punishable by imprisonment for at least three months (b) whether the person has held an AFSL which has been suspended or cancelled (see s 915B and 915C for the circumstances in which an AFSL may be suspended or cancelled) (c) whether a banning order or disqualification order under Div 8 has previously been made against the person. ASIC may also take into account any other matter it considers relevant: s 913C. ASIC’s power to inquire whether an applicant has been convicted of serious fraud is subject to Pt VIIC of the Crimes Act 1914 (Cth) which,

among other things, provides that in certain circumstances a person need not disclose spent convictions, and that persons who become aware of such convictions must disregard them. “Serious fraud” is defined in s 9 (¶25-125) as an offence involving fraud or dishonesty, being an offence against an Australian law or any other law which is punishable by imprisonment for life or for a period, or maximum period, of at least three months. None of the criteria listed above is decisive in itself, in the sense that its presence necessarily leads to refusal of an application. The primary test is whether ASIC is satisfied that there is no reason to believe that the applicant is not of good fame or character. The criteria are matters to be taken into account by ASIC in forming a state of satisfaction or otherwise. In relation to the presence or absence of convictions for fraud, it has been pointed out by the New Zealand Court of Appeal in R v Falealili [1996] 3 NZLR 664 that: “[t]here are logical difficulties with the proposition that an absence of previous convictions is in itself evidence establishing a person’s good character. It may be a factor in assessing good character, but standing on its own it is generally neutral. A person of bad repute may well have no convictions.” Conversely, a person who has been convicted of a serious crime and thereafter held in contempt in the community, nevertheless may show that he or she has reformed and is of good character: Irving v Minister for Immigration, Local Government and Ethnic Affairs (1996) 139 ALR 84, per Lee J at 94. The expression “good fame or character” is a composite one, conflated from the two expressions “good fame” and “good character”, the conjunction “or” signifying that they are alternatives. The effect is that if there is reason to believe that an applicant is either: (a) not of good “fame”, or (b) not of good “character” then the application must be refused.

“Fame” in this context may be taken as synonymous with “reputation”, and is therefore a subjective test. “Character” is usually taken to mean the aggregate of a person’s inherent qualities which may be demonstrated by a combination of subjective and objective means. In Re The Medical Practitioners Act 1995; Ex parte Tziniolis (1966) 84 WN (Pt 2) (NSW) 275 at 301, Holmes JA said: “‘Good character’ is not a summation of acts alone, but relates rather to the quality of a person. The quality is to be judged by acts and motives, that is to say, behaviour and the mental and emotional situations accompanying that behaviour. However, character cannot always be estimated by one act or one class of act. As much about a person as is known will form the evidence from which the inference of good character or not of good character is drawn.” On the distinction between “reputation” and “character”, Lord Denning observed in Plato Films Ltd v Speidel [1961] AC 1090 at 1138: “A man’s ‘character’, it is sometimes said, is what he in fact is, whereas his ‘reputation’ is what other people think he is.” One difficulty is that in law it is not always clear what is meant by character. As Gummow J pointed out in Melbourne v R [1999] HCA 32: “In the law, the notion of ‘character’ takes varying significance and shades of meaning from particular fields of discourse and the particular fact in issue. It may be said that ‘character’, that which marks out an individual, may not correspond with the reputation attributed to that person. However, as will appear, the law does not always clearly distinguish between the two, nor indicate the probative force to be attributed to whichever of them is to be established as a fact in issue, nor specify the evidentiary means, including permissible inference, by which that fact in issue may be proved. The matter is well put by the New Zealand Law Commission in its Preliminary Paper, Evidence Law: Character and Credibility (1997). Paragraphs 99 and 100 include the following:

‘On the one hand, the law distinguishes between evidence of general reputation and evidence of individual opinion and, in the case of the defendant in criminal proceedings, has historically recognised only the former [R v Rowton (1865) Le & Ca 520 [169 ER 1497]]. On the other hand, it is not always clear what is meant by reputation. On occasion, it appears to be used interchangeably with character. It may be important therefore to distinguish between character as public estimation — which is perhaps more correctly referred to as reputation — and character as disposition — which is something more intrinsic to the individual in question.’” It appears, however, that most if not all of the confusion between “character as public estimation” and “character as disposition” (to adopt the words of the New Zealand Law Commission) has arisen in the context of the criminal law: see the remarks of McHugh J in Melbourne v R [1999] HCA 32 at para [33]. In s 913B, on the other hand, the question of good fame or character does not arise in the context of attempting to prove criminal conduct; ASIC’s task is to consider the good fame or character of a person in the context of considering whether the person is fit to hold an AFSL and, by extension, to carry on a financial services business or to provide financial services. In this context, and having regard to the fact that the tests of “good fame” and “good character” are alternatives, any confusion that may exist as to the meaning of “character” may not be relevant, and ASIC’s task is relatively easier. The meaning of the expression “good character” was considered in Irving v Minister for Immigration, Local Government and Ethnic Affairs (1996) 139 ALR 84. Referring to the requirements in the Migration Act 1958, Lee J said (at 94): “Unless the terms of the Act and the regulations require some other meaning be applied, the words ‘good character’ should be taken to be used in their ordinary sense, namely, a reference to the enduring moral qualities of a person, and not to the good standing, fame or repute of that person in the community. The former is an objective assessment apt to be proved as a fact, while the latter is a review of subjective public opinion... A person

who has been convicted of a serious crime and thereafter held in contempt in the community, nevertheless may show that he or she has reformed and is of good character... Conversely, a person of good repute may be shown by objective assessment to be a person of bad character.” In Kippe v Australian Securities Commission (1998) 16 ACLC 190 (¶273-440.40) the Administrative Appeals Tribunal held that a similar interpretation should be applied to former s 829(e) of the Corporations Law, which allowed the Commission to make a banning order against an unlicensed person who was not of good fame and character. In Kippe it was held that regard should be had to a person’s conduct, both criminal and general. The focus should be on the person’s disposition and qualities, rather than on his or her reputation. The decision in Kippe was, however, based on the phrase “good fame and character” in the former s 829(e) [emphasis added]. Given that the corresponding phrase in s 913B has been changed to “good fame or character”, the focus may now be on either or both of the person’s disposition and reputation. Reason to believe ASIC must be satisfied that there is no “reason to believe” that the applicant (or any of its responsible officers or partners) is not of good fame or character. In Story v NCSC (1988) 6 ACLC 560 at 572 Young J had this to say about the phrase “reason to believe”: “This phrase is commonly used in Statutes, and although it can have a different meaning in particular Statutes, its ordinary construction is that the person in question had the relevant belief and there were reasonable grounds or cause for that belief, see e.g. Liversidge v Anderson [1942] AC 206; Nakkuda Ali v Jayaratne [1951] AC 66 and WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559.” ASIC provides guidance on licence authorisations for registered schemes and investor-directed portfolio services in RG 105 . Among other matters, the regulatory guide sets out the circumstances in which it will be prepared to grant either a narrow authorisation to

operate a “named scheme” or “named IDPS” (investor directed portfolio service), on the one hand, or a broad authorisation to operate “schemes of a particular kind” on the other hand. In Re One RE Services and ASIC (2012) 30 ACLC ¶12-021, ASIC had refused the “kind” scheme authorisation because it did not believe One RE would comply with s 912A(1)(c), (d), (e) and (h) of the Act if the broad “kind” authorisation were to be approved. In its reasons for decision, ASIC stated that it was not satisfied One RE had the necessary level of organisational competence and capacity as a first time applicant, there was insufficient detail about the nature of the proposed business to be conducted and it was concerned about whether One RE had sufficient resources (financial and management) or adequate compliance and risk management arrangements to operate multiple registered managed investment schemes. ASIC instead granted a licence with certain conditions that did not include “kind” scheme authorisation. The Administrative Appeals Tribunal held firstly that such a decision was a decision within s 913B(1). Noting that s 913B(1) requires ASIC to make an assessment of whether there is “no reason to believe” the applicant will not comply with the general obligations of s 912A, the tribunal said that when considering a licence application, the decision-maker must form a view about whether there is “no reason to believe” the person or entity “will not comply”. The test is more difficult to establish for an applicant seeking the right to be licensed as it is clear from the words of the section that the applicant must establish the negative to the reasonable satisfaction of the decision-maker. Act: Section 913B. .30 RG 20: Disclosure of convictions. ASIC’s RG 20provides guidance as to the requirements on applicants for a licence to disclose prior convictions, pending proceedings or disciplinary actions to ASIC. Applicants are required to disclose prior convictions or pending proceedings which may lead to a conviction, other than convictions for traffic offences. Details of a “spent” conviction are not required to be disclosed,

meaning those offences where a person was not sentenced to a term of imprisonment, or was sentenced to not more than 30 months imprisonment more than 10 years before the application form was completed. Disciplinary proceedings may include the applicant disclosing where a disciplinary proceeding may result in a conviction, or where the applicant has been dealt with by a professional body, for example, the Tax Agents Board. .40 Actions judged objectively. Mr Kippe was a representative of Morgans, a licensed securities dealer. The Commission banned Kippe for three years under s 829 on a number of grounds, including the ground that Kippe was not of good fame and character: s 829(e). Amongst other things, Kippe had used assumed names to buy and sell shares through Morgans on his own account and had failed to make payments on time. The AAT held that the banning order was justified. In relation to Kippe’s good fame and character, it was noted that Kippe was a person of good fame amongst those called to give evidence on his behalf. However, having regard to the evidence of his actions he was not, when judged objectively, a person of good character. Kippe v Australian Securities Commission (1998) 16 ACLC 190.

¶2-798 Obligations of holder of an Australian Financial Services Licence (AFSL) The primary obligations imposed on a holder of an AFSL are set out in Div 3 of Pt 7.6 of the Corporations Act 2001. These are not, however, the only obligations with which a licensee must comply (see below). Section 912A sets out a range of general obligations. These are supplemented by specific obligations imposed by s 912E–912F. General obligations Section 912A(1) imposes the following general obligations on the holder of an AFSL: • to do all things necessary to ensure that the financial services

covered by the licence are provided efficiently, honestly and fairly • to have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative • to comply with any conditions imposed by ASIC on the licence under s 914A • to comply with the financial services laws (defined in s 761A as, in effect, Ch 7 and other specified provisions of the Corporations Act 2001, the Australian Securities and Investments Commission Act 2001 and any other Commonwealth, state or territory legislation that covers conduct relating to the provision of financial services) • to take reasonable steps to ensure that its representatives comply with the financial services laws • to maintain the competence to provide those financial services • to ensure representatives are adequately trained and are competent to provide those financial services • to have internal and external dispute resolution procedures to handle complaints from retail clients. These procedures must be approved by ASIC in accordance with regulations, and • to comply with any other prescribed obligations. For ASIC’s policy in relation to the requirements about compliance with financial services laws, training of representatives and maintenance of competence to provide the licensed financial services see: • Regulatory Guide RG 105 Licensing: Organisational competence • Regulatory Guide RG 146 Licensing: Training of financial product

advisers • Regulatory Guide RG 167 Licensing: Discretionary powers. Dispute resolution system requirements If financial services are provided to clients as retail clients, the licensee must have a dispute resolution system that complies with s 912A(2). Under that subsection, the licensee must have both: (a) an internal dispute resolution procedure that meets standards and requirements imposed by ASIC in accordance with the regulations, and which covers complaints made by retail clients in respect of all financial services covered by the licensee’s licence, and (b) membership of at least one external dispute resolution scheme that is approved by ASIC under the regulations, and which covers complaints made by retail clients in respect of all financial services covered by the licensee’s licence (with the exception of complaints that can be dealt with by the Superannuation Complaints Tribunal, under the Superannuation (Resolution of Complaints) Act 1993 (Cth)). As between the parties, on the one hand, and the operator of the dispute resolution scheme (the panel), on the other the panel’s decision should not be scrutinised over zealously for error amounting to a breach of contract and going to jurisdiction for the purpose of judicial review: AXA Australia v Financial Industry Complaints Services (2006) 14 ANZ Insurance Cases ¶61-695. Quaere whether the procedure was an arbitration coming within the provisions of arbitration legislation. Regulation 7.6.02(1) requires ASIC to take the following matters into account when considering whether to make or approve standards or requirements relating to internal dispute resolution: (a) Australian Standard AS 4269-1995 known as Complaints

Handling, published by Standards Australia, and as in force on 11 March 2002, and (b) any other matter ASIC considers relevant. ASIC may vary or revoke a standard or requirement that it has made in relation to an internal dispute resolution procedure, and may vary or revoke the operation of a standard or requirement that it has approved in its application to an internal dispute resolution procedure: reg 7.6.02(2). In relation to external dispute resolution schemes, reg 7.6.02(3) requires ASIC to take into account, when considering whether to approve a scheme, the accessibility, independence, fairness, accountability, efficiency and effectiveness of the scheme and any other matter ASIC considers relevant. ASIC may: (a) specify a period for which an approval of an external dispute resolution scheme is in force, and (b) make an approval of an external dispute resolution scheme subject to conditions specified in the approval, including conditions relating to the conduct of an independent review of the operation of the scheme, and (c) vary or revoke: (i) an approval of an external dispute resolution scheme, or (ii) the specification of a period for which an approval is in force, or (iii) a condition to which an approval of an external dispute resolution scheme is subject: reg 7.6.02(4). For ASIC’s policy in relation to these requirements see Regulatory Guide RG 165 Licensing: Internal and external dispute resolution and Regulatory Guide RG 139 Approval and oversight of external dispute resolution schemes. ASIC has approved the following external dispute resolution schemes:

• Financial Ombudsman Service Ltd (FOS) (this service, which operates from 1 July 2008, is essentially a merger of the Banking and Financial Services Ombudsman (BFSO), Financial Industry Complaints Service (FICS) and Insurance Ombudsman Service (IOS)) • Financial Co-operative Dispute Resolution Scheme (FCDRS). See ASIC’s Class Order CO 09/340 External dispute resolution schemes. Specific obligations The following obligations are also imposed on the holder of an AFSL (any that are not relevant to insurers are not included): • to maintain compensation arrangements for retail clients (s 912B), • to provide ASIC, at ASIC’s direction, with information about its financial services business or the financial services provided by the licensee or its representatives (s 912C), • to notify ASIC of any significant actual or likely breaches of the licensee’s obligations (s 912D(1)), • to give ASIC, or a person authorised by ASIC, any assistance reasonably required in the course of checking whether the licensee and its representatives are complying with their obligations, or in the course of performing ASIC’s other functions (s 912E), • to quote the AFSL number (s 912F). Compensation arrangements An AFSL holder which provides financial services to retail clients must have arrangements for compensating those clients in the event of loss or damage suffered as a result of breaches of obligations under Ch 7 by the licensee or its representatives: s 912B(1). Who are “retail clients” is discussed at ¶2-085.

For detailed explanation of the rules relating to compensation arrangements see ¶2-080. Direction to provide information ASIC may direct an AFSL holder to give a written statement containing specified information about its financial services business or the financial services provided by the licensee or its representatives: s 912C(1). ASIC may make such a requirement by sending out written notices. These may be sent out at any time, to any or all licensees, and may require the same or different information. ASIC may send a notice requiring information to be provided periodically, without having to send further notices: s 912C(1A). ASIC may require the statement to be audited before it is given to ASIC: s 912C(2). Compliance with a direction under s 912C(1) is required as specified (if reasonable) or within a reasonable period: s 912C(3). ASIC may extend the time within which the licensee must provide the information. Failure by a licensee to comply with a direction by ASIC under this section is an offence, punishable by a fine of 25 penalty units or imprisonment for six months, or both: s 1311(1) and Sch 3. Notification of breaches If an AFSL holder becomes aware that it has breached, or is likely to breach, one of its general obligations under s 912A or the obligation to maintain compensation arrangements for its retail clients under s 912B, and the breach, or likely breach, is significant, having regard to the following: (i) the number or frequency of similar previous breaches (ii) the impact of the breach or likely breach on the licensee’s ability to provide the financial services covered by the licence (iii) the extent to which the breach or likely breach indicates that the licensee’s arrangements to ensure compliance with those obligations is inadequate

(iv) the actual or potential financial loss to clients of the licensee, or the licensee itself, arising from the breach or likely breach (v) any other matters prescribed by regulations, it must notify ASIC accordingly: s 912D(1). Notification must be in writing, and must be given as soon as practicable, and in any event no later than 10 business days after the licensee became aware of the breach or likely breach: s 912D(1B). A licensee is “likely to breach” an obligation for this purpose only if the person is no longer able to comply with the obligation: s 912D(1A). Failure to comply with this obligation is an offence, punishable by a fine of 50 penalty units or imprisonment for one year, or both: s 1311(1) and Sch 3. Assisting ASIC’s surveillance functions When ASIC, or a person authorised by ASIC, makes a reasonable request for assistance from an AFSL holder or any of its representatives, the licensee and representatives are obliged to comply: s 912E(1). The request must relate to whether the licensee and its representatives are complying with their obligations under the financial services laws, and to the performance of ASIC’s functions. The assistance requested may include access to the licensee’s books or other information: s 912E(2). Failure to comply with a request under this section to assist ASIC is an offence, punishable by a fine of 25 penalty units or imprisonment for six months, or both: s 1311 and Sch 3. Quoting the AFSL number Each AFSL will have a unique number. Whenever a licensee identifies itself in any of the following documents, the document must quote the AFSL number: • Financial Services Guide (FSG) or supplementary FSG • Product Disclosure Statement (PDS) or supplementary PDS or replacement PDS

• Statement of Advice (SoA) • application forms for certain financial products, including superannuation, investment life insurance and RSA products • a document containing superannuation fund information as required by regulations made under s 1017DA • a document notifying holders of financial products of changes and events as specified in s 1017B: reg 7.6.01C. Other obligations of an AFSL holder An AFSL holder has several further obligations, in addition to those described above. They can be summarised as follows: • obligations concerning the licensee’s authorised representatives, including the obligation to notify ASIC about any new authorisation, or a change to or revocation of an authorisation: s 916F • a licensee’s general liability for the conduct of its representatives: Div 6 of Pt 7.6 (see below) • obligation to comply with banning or disqualification orders: s 920A, 921A • obligation to lodge annual profit and loss statements and balance sheets: s 989B. Authorised representatives A licensee may authorise a person to provide a specified financial service, or some or all of the financial services, covered by the licence. The authorisation must be in writing. An authorised representative’s authority may be withdrawn by the licensee at any time, again by written notice to the representative: s 916A. A licensee can issue authorisations in respect only of financial services covered by its licence. To the extent that an authorisation

purports to authorise a person to provide a financial service that is not covered by the licence, or that is contrary to a banning order or disqualification order under Div 8 of Pt 7.6 (s 920A–926B), the authorisation is void. A person who gives an authorisation that is void to any extent under s 916A commits an offence, punishable by a fine of up to 100 penalty units or imprisonment for up to two years, or both: s 1311(1) and Sch 3. For example, an insurer might, inadvertently or by design, authorise a broker to provide a range of financial services, one of which is not covered by the licence. In that event, the insurer is guilty of the offence against this section. A body corporate which is an authorised representative of a financial services licensee can sub-authorise an individual person, by written notice, to provide specified financial services on the licensee’s behalf, provided the licensee consents in writing given to the body corporate: s 916B. The licensee must keep a copy of its consent for five years after the consent ceases to have effect. Failure to keep a copy of a consent in this way is an offence, punishable by a fine of 50 penalty units or imprisonment for one year, or both: s 1311(1) and Sch 3. The licensee may consent in respect of specified individuals or a class of individuals. This is intended to allow the authorised representative some flexibility in appointing further representatives, without having to seek the licensee’s consent in respect of each new representative. The financial services specified in the sub-authorisation may be some or all of the financial services covered by the licensee’s licence. A person authorised in this manner becomes an authorised representative of the licensee, although the authorisation itself is taken to have been given by the body corporate that is the authorised representative, not the licensee itself. A sub-authorisation given to an individual person under this section may be revoked at any time, by either the body corporate who gave the authorisation or the licensee giving written notice to the person authorised, with a copy to the other person who could have revoked the authorisation. Otherwise than as provided in s 916B, an authorised representative of a financial services licensee cannot sub-authorise another person to represent either the licensee or the authorised representative, whether that

person be a natural person, a body corporate or a partnership. Purporting to give a sub-authorisation otherwise than in accordance with this section is an offence, punishable by a fine of up to 100 penalty units or imprisonment for two years, or both: s 1311(1) and Sch 3. A licensee which issues an authorisation to provide a financial service must notify ASIC in writing (using Form FS30 or Form FS35) within ten business days. Similarly, if a body corporate issues a valid subauthorisation, in circumstances where the licensee has given its consent in relation to a class of individuals rather than a specified individual, the body corporate must notify the licensee in writing within ten business days of issuing the sub-authorisation. Failure to comply with any of the above requirements is an offence, punishable by a fine of up to 25 penalty units or imprisonment for six months, or both: s 1311(1) and Sch 3. Liability for conduct of representatives For commentary on the liability of an AFSL holder for the conduct of its representatives, see ¶8-250ff. Banning and disqualification orders ASIC and the courts have extensive powers under Div 8 of Pt 7.6 of the Corporations Act 2001 (Cth) to make banning and disqualification orders the effect of which is to exclude persons from participating in the financial services industry. A banning order is a written order that prohibits a person from providing any financial services or specified financial services, permanently or for a specified period. A disqualification order is an order by the court, on application by ASIC, disqualifying a person, permanently or for a specified period, from providing any financial services, or specified financial services, in specified circumstances or capacities. Under s 920A ASIC may make a banning order against a person for any of the following reasons: (a) ASIC has already cancelled or suspended the person’s AFSL under s 915B or 915C: s 920A(1)(a)

(b) the person has failed to comply with the obligations which s 912A imposes on licensees: s 920A(1)(b) (c) ASIC has reason to believe the person will not comply with those obligations: s 920A(1)(ba) (d) the person becomes an insolvent under administration: s 920A(1)(bb) (e) the person has been convicted of fraud: s 920A(1)(c) (f) the person has not complied with a financial services law (see the definition of “financial services law” in s 761A): s 920A(1)(e) (g) ASIC has reason to believe the person will not comply with a financial services law: s 920A(1)(f). If ASIC imposes a banning order because the person has been convicted of serious fraud, or because the person’s licence was suspended or cancelled under s 915B, then the banning order takes effect immediately it is given to the person. ASIC does not have to give the person an opportunity to argue against the imposition of the banning order: s 920E. If the banning order is to be imposed for any of the other reasons listed above, then before it is made ASIC must afford the person an opportunity to make submissions and to appear, or be represented, at a private hearing before ASIC. It is not necessary that a hearing actually take place, or that the person actually make submissions. If ASIC duly offers the opportunity, and the person fails to take it up, then ASIC may proceed to make the banning order. ASIC may also make a banning order following a hearing or submissions from the person. A banning order is a written order by ASIC directed to a specified person, prohibiting that person from providing financial services. It may either: • prohibit the person from providing all financial services, or

• prohibit the person from providing specified financial services, in specified circumstances or capacities: s 920B. The order may exempt specific types of conduct from its effect. A banning order may be permanent or temporary. If, however, ASIC has reason to believe the person is not of good fame or character, the banning order must be permanent. A banning order is properly characterised as protective and is not an order to punish or impose a penalty: Farley v Australian Securities Commission (1998) 16 ACLC 1,502. A banning order must be accompanied by a statement or reasons for the making of the order. If an order is varied, ASIC must also give reasons for the variation, but only on request by the person the subject of the order: s 920F. While a banning order remains in place against a person, that person cannot obtain an AFSL contrary to the order. If the person breaches the banning order by engaging in conduct contrary to the order, ie, by providing financial services in contravention of the order, the person commits an offence, punishable by a fine of 25 penalty units, or imprisonment for six months, or both: s 920C. A banning order may be varied or cancelled, by ASIC acting on its own volition or on application by the person to whom the order is directed: s 920D. An application for variation or cancellation of an order is to be accompanied by the documents (if any) specified in the regulations, and by the appropriate fee. If, on considering an application, ASIC intends to refuse it, ASIC must offer the applicant the opportunity of a private hearing, and to make submissions to ASIC. A banning order, or a variation or cancellation of a banning order, takes effect when it is given to the person who is the subject of the order: s 920E. ASIC must publish a notice in the Gazette as soon as practicable after a banning order is made, varied or cancelled, stating when the action took effect, and including a copy of the order, or the order as varied,

as the case may be. The gazette notice may include a summary of the banning order, instead of the full text of the order: s 920E. ASIC may apply to the court for a disqualification order against a person whose licence it has cancelled or against whom it has made a permanent banning order: s 921A. Having heard the application, the court may make an order disqualifying the person, permanently or for a specified period, from providing any financial services, or financial services as specified, in specified circumstances or capacities. The court may make such other order as it sees fit or to refuse the application. It may also revoke or vary an order at any time. An AFSL cannot be granted to a person during a period in which there is in force a disqualification order from the court.

¶275-850 Overview — best interests obligations and remuneration Part 7.7A of Ch 7 of the Corporations Act 2001 (Cth), which is headed “Best interests obligations and remuneration”, implements the socalled Future of Financial Advice (FOFA) reforms. These reforms have effect (generally speaking, and subject to transitional measures) from 1 July 2013, although financial services licensees may choose to opt into the FOFA regime at any time on or after 1 July 2012 and before 1 July 2013. Since their enactment, the FOFA reforms have themselves undergone further reform and refinement, by means of amendments to the Corporations Regulations; see further below under the heading Further reform of the FOFA rules. The FOFA reforms focus on the provision of financial advice. The underlying objective of the reforms, according to the Explanatory Memorandum to the Corporations Amendment (Future of Financial Advice) Bill 2011, is to improve the quality of financial advice while building trust and confidence in the financial advice industry through enhanced standards which align the interests of the adviser with the client and reduce conflicts of interest. The reforms also focus on

facilitating access to financial advice, through the provision of simple or limited advice. The FOFA reforms represent the Commonwealth government’s response to the 2009 Inquiry into Financial Products and Services in Australia by the Parliamentary Joint Committee on Corporations and Financial Services, that considered a variety of issues associated with corporate collapses, including Storm Financial and Opes Prime. Part 7.7A has the following features: • a best interests obligation for financial advisers, requiring them to act in the best interests of their clients and to place the interests of their clients ahead of their own when providing personal advice to retail clients • a requirement for providers of financial advice to obtain client agreement to ongoing advice fees and enhanced disclosure of fees and services associated with ongoing fees • a ban on conflicted remuneration (including product commissions), where licensees or their representatives provide financial product advice to retail consumers • a ban on volume-based shelf-space fees from asset managers or product issuers to platform operators • a ban on asset-based fees on borrowed amounts • enhancement of ASIC’s ability to supervise the financial services industry through changes to its licensing and banning powers. Part 7.7A was enacted by two amending Acts, namely: • the Corporations Amendment (Future of Financial Advice) Act 2012, and • the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012.

Date of effect; transition period Both amending Acts came into effect on the same day, namely, 1 July 2012. There are, however, transitional provisions which affect the timing of the operation of particular aspects of the Pt 7.7A regime: s 966–968. These transitional rules have the effect that: • compliance with the FOFA rules will be compulsory from 1 July 2013, but • individual licensees and other persons who will be subject to the FOFA rules can opt into the regime at any time from 1 July 2012 until 30 June 2013 (the “transition period”: s 966). Opting into Pt 7.7A: s 967, 968 An AFSL holder (financial services licensee) can opt into the Pt 7.7A regime at any time between 1 July 2012 and 30 June 2013 inclusive, by lodging the prescribed form (FS92) with ASIC and paying the appropriate fee: s 967(1). It appears that the licensee must do so on its own behalf and on behalf of all of its current representatives. There is no scope for including some but not all, or none, of a licensee’s representatives in a s 967 notice. The notice must specify a date, on or after the date on which it is lodged with ASIC, on and from which the requirements of Pt 7.7A will apply to the licensee and its representatives. ASIC must then publish details of the notice on its website: s 967(2). Similarly, a person who would be subject to an obligation or prohibition under Pt 7.7A, but not in the capacity of a financial services licensee or a representative of a licensee, may opt into the Pt 7.7A regime in the same way by lodging a notice with ASIC: s 967(3). A financial services licensee who opts into the Pt 7.7A regime in this way must give a notice to that effect to each client to whom the licensee or its representatives will have obligations under the Part: s 968(1). A notice given to a particular client must be given on or before the “notice day” that is relevant to that client. The notice day will be: • where the licensee or representative has an obligation to the client

under Div 2 (the best interests obligation) — the first day on which personal advice is provided to the client during the transition period (1 July 2012 to 30 June 2013 inclusive) • where the licensee or representative is obliged to give a fee disclosure statement to the client under s 962G during the transition period — either the disclosure day for the relevant arrangement, or if a fee disclosure statement is given before the end of a period of 30 days beginning on that disclosure day, the day on which it is given. The “disclosure day” is either: – the anniversary of the day the arrangement was entered into, if there has been no previous fee disclosure statement, or – if a fee disclosure statement has been given to the client since the arrangement was entered into, within a period of 30 days beginning on the anniversary of the day on which a disclosure statement was last given • where the licensee or representative has an obligation to the client or is subject to a prohibition in relation to charging an asset-based fee under Subdiv B of Div 5 during the transition period — the first day on which the client is charged an asset-based fee • the earliest of the dates described above, if two or more of those dates will apply to the client: s 968(4). It is important to understand that if a provider does not opt into the FOFA rules prior to 1 July 2013, the existing rules in the Corporations Act continue to apply until that date, as appropriate, including the requirement in s 945A to have a reasonable basis for advice. Further reform of the FOFA rules A range of amendments to and refinements of the original FOFA rules were subsequently made, by way of amendments to the Corporations Regulations. The commentary on Pt 7.7A reflects these changes as and where appropriate.

Structure of Pt 7.7A Part 7.7A is structured as follows: • Division 1: Preliminary (including definitions) • Division 2: Best interests obligations – Subdivision A: Preliminary – Subdivision B: Provider must act in the best interests of the client – Subdivision C: Resulting advice must be appropriate to the client – Subdivision D: Where resulting advice still based on incomplete or inaccurate information – Subdivision E: Provider to give priority to the client’s interests – Subdivision F: Responsibilities of licensees under this Division – Subdivision G: Responsibilities of authorised representatives under this Division • Division 3: Charging ongoing fees to clients – Subdivision A: Preliminary – Subdivision B: Termination, disclosure and renewal – Subdivision C: Disclosure for arrangements to which Subdivision B does not apply • Division 4: Conflicted remuneration – Subdivision A: Preliminary – Subdivision B: What is conflicted remuneration?

– Subdivision C: Ban on conflicted remuneration • Division 5: Other banned remuneration – Subdivision A: Volume-based shelf-space fees – Subdivision B: Asset-based fees on borrowed amounts • Division 6: Anti-avoidance • Division 7: Transition. No application to foreign clients Part 7.7A does not apply to a financial services licensee or an authorised representative in respect of financial services provided to retail clients who are not in this jurisdiction: reg 7.7A.40. (For the meaning of “this jurisdiction”, see ¶25-545.) No contracting out of this Part Financial services licensees and their clients cannot contract out of Pt 7.7A. That is, if a contract or other arrangement contains a condition that purports to require or bind a party to the contract to waive any right under Pt 7.7A, or to waive compliance with any requirement of this Part, that condition is void: s 960A. Obligations are additional to other obligations Section 960B makes it clear that any obligations imposed on a person by any provision of Pt 7.7A are in addition to any other obligations imposed on the person by the Corporations Act or by any other law. Anti-avoidance Section 965 is an anti-avoidance measure. It is intended to prevent a person from entering into a scheme if the sole purpose, or a purpose that is not incidental, of doing so was to avoid the application of any provision of Pt 7.7A. The section operates in the following circumstances: 1. A person is a participant, or one or more persons are, participants

in a scheme. 2. The conclusion is open that one or more of the persons who participated in the scheme, or any part of the scheme, did so for the sole purpose, or for a purpose that is not incidental, of avoiding the application of any provision of Pt 7.7A in relation to any person or persons, whether or not participants in the scheme. 3. The scheme, or the relevant part of the scheme, has achieved the avoidance purpose, or would have achieved it apart from this section. Section 965 is a civil penalty provision. The maximum penalty for contravention of s 965 is $200,000 for an individual or $1m for a body corporate: s 1317G(1F). Record-keeping Section 912G, as notionally inserted into the Corporations Act by ASIC Class Order CO 14/923, imposes record-keeping requirements for AFS licensees when licensees or their representatives (including advice providers) give personal advice to retail clients. These record-keeping requirements apply in relation to the provision of personal advice on or after 23 March 2015. Class Order CO 14/923 effectively replaces ASIC’s standard licence condition on record-keeping for personal advice, set out in Pro Forma PF 209: Australian financial services licence conditions. The recordkeeping licence condition in PF 209 does not apply to new records created by AFS licensees after 1 July 2013. The terms of that licence condition refer to the previous obligation in s 945A, which was repealed by the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012. Section 912G is intended to complement the Future of Financial Advice reforms contained in Pt 7.7A of the Corporations Act. For details of the records required to be kept, see ¶273-400. Act: Sections 960A, 960B, 965.

Tax Institute CommLaw3 Module 5 — Commentary ¶35-310 Electronic Transactions Acts The Electronic Transactions Act 1999 (Cth) came into operation on 15 March 2000. All states and territories have enacted complementary legislation based on the Commonwealth Act. In his second reading speech, the Commonwealth Attorney-General, the Honourable Daryl Williams, stated that the legislation ensures that paper-based commerce and electronic commerce are treated equally by the law and the application of the law is not limited to certain types of electronic communications, but applies to all electronic communications that meet the legislative requirements. When announcing that the states and territories had agreed to pass uniform legislation, the Attorney-General said “[the uniform legislation] will apply to contract law. All contracts in Australia are based in the laws of the States and Territories. Enactment of the uniform Bill will mean that, for the first time in Australia, the law will make absolutely clear the general principle that a person can enter into contracts electronically.” (News Release, 3 April 2000). Types of electronic communications covered by the Act (s 9) (a) Electronic communications between persons and Commonwealth Government entities The Act allows a person (defined to include individuals and bodies corporate) who is required or permitted to give information in writing to the Commonwealth, its employees or agencies (described in the Act as “entities”) to give that information by means of an electronic communication. The federal government’s information and communications technology strategy, policies and standards are available at

www.finance.gov.au/policy-guides-procurement/. (b) Electronic communications between persons If a person is required or permitted to give information under a law of the Commonwealth to another person, then, with the consent of the other person, the information may be given by electronic communication. Consent does not need to be specifically sought. Consent can be constituted by the actual consent of the person or can be inferred by conduct. Things such as past consent to the receipt of electronic communications, or the knowledge of the sender that the receiver carries on business with others by electronic means, could give rise to a reasonable inference of consent. Other provisions Section 10 provides for an electronic signature method where a signature is required by law. This provision was criticised in some quarters because it does not specify how an electronic signature is to be effected. Instead, s 10 provides that an electronic signature is valid if: (a) in all cases [covered by this legislation] — a method is used to identify the person and to indicate the person’s intention in respect of the information communicated, and (b) in all [such] cases the method used was either: • as reliable as appropriate for the purpose for which the electronic communication was generated or communicated, in the light of all the circumstances, including any relevant agreement, or • proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence, and (c) if the signature is required to be given to a Commonwealth entity, or to a person acting on behalf of a Commonwealth entity, and the entity requires that the method used as mentioned in

paragraph (a) be in accordance with particular information technology requirements — the entity’s requirement has been met, and (d) if the signature is required to be given to a person who is neither a Commonwealth entity nor a person acting on behalf of a Commonwealth entity — the person to whom the signature is required to be given consents to that requirement being met by way of the use of the method mentioned in paragraph (a). The reason for the general words of the provision is that a choice had to be made between stating principles which were capable of adaptation as e-commerce expands and prescribing particular methods which could rapidly become outdated. The former course was chosen and it seems to be the more appropriate given the rapid rate of change in this area. By the same token, it leaves room for legal argument about whether the means employed for a particular signature do or do not meet the requirements of the Act. The operation of s 10 was considered by the Federal Court in Getup Ltd v Electoral Commissioner [2010] FCA 869. In this case, a woman used a laptop computer connected to the internet to complete an online enrolment form to be enrolled as a voter. She signed the enrolment form with a digital pen, using the trackpad of the laptop. The Electoral Commissioner rejected the enrolment on the grounds that the electronic signature did not meet the requirements of the Electoral Act 1918 (Cth). Justice Perram noted that there was no doubt a method had been used, as required by s 10(1)(a). The method was the use of the signature tool and the submission of the enrolment form via the internet. The question to be determined was whether or not the method was sufficiently reliable. The Court held that the electronic signature was sufficiently reliable because: ☐ Although the signature tool produced a “slightly jagged” signature “subject to a noticeable but not serious degree of pixelation”, it was of sufficient quality. This was because the electronic signature was no worse than the quality of signatures on

enrolment forms submitted by facsimile, or as a scanned PDF of a JPEG file, which were accepted by the Commissioner. ☐ As the Electoral Commissioner accepted JPEG files which could be “easily manipulated or photo shopped”, the fact that the signature tool permitted a signature to be forged wasn’t a valid reason for rejecting the enrolment application. The Act also allows a person who is required or permitted by a law of the Commonwealth to produce a document, to do so electronically (s 11). Other sections allow information to be recorded electronically rather than in writing (s 12) and deal with communications sent without authority (s 15). Sections 14, 14A and 14B set out the default rules for determining the time and place of dispatch and receipt of electronic communications. These rules are: ☐ an electronic communication is dispatched at the time the communication leaves the information system of the originator ☐ the time of receipt of an electronic communication is the time when it becomes “capable of being retrieved” by the addressee at a designated electronic address. An electronic communication is presumed to be capable of being retrieved by the addressee when it reaches the addressee’s electronic address ☐ an electronic communication is taken to have been dispatched at the place where the originator of the communication has its place of business, and ☐ an electronic communication is taken to have been received at the place where the addressee has its place of business. A contract formed by the interaction of an automated message system and a natural person, or by the interaction of automated message systems, is not invalid merely because automated message systems were used (s 15C).

Practical problems The Electronic Transactions Acts enable transactions to be conducted electronically, but they do not override the requirements of other legislation. In order for a particular electronic transaction to be valid, the parties to it should ensure it meets any other applicable legislative requirements. If the parties in a business relationship wish to carry out transactions electronically, the contract between them should deal comprehensively with any potential issues this may raise. Limitations on the operation of the Act The Act permits the making of regulations exempting a particular Commonwealth law from one or more sections of the Act. The Electronic Transactions Regulations 2000 exempt the whole or parts of more than 150 Commonwealth Acts from the operation of at least one section of the Act. Because of this, it is important to check the regulations if there is any doubt about whether or not a particular electronic communication is permitted. Sources of information The ASIC website is a valuable source of information on e-commerce. It is important to note that the attitude of the various governments, Treasury and ASIC is to encourage the development of e-commerce because of the efficiency gains that it can deliver — provided this is done with due protection of users and consumers. The following ASIC Regulatory Guides are relevant to this issue: ☐ RG 107: Fundraising: Facilitating electronic offers of securities ☐ RG 141: Offers of securities on the internet ☐ RG 152: Lodgment of disclosure documents ☐ RG 162: Internet discussion sites. The ePayments Code (which replaced the Electronic Funds Transfer Code of Conduct on 20 March 2013) includes provisions dealing with internet and telephone banking and stored value facilities.

Tax Institute CommLaw3 Module 6 — Commentary ¶4-008 Mutual intention to contract The following principles, mostly standard, were adopted in Leading Synthetics Pty Ltd v Adroit Insurance Group Pty Ltd (2011) 16 ANZ Insurance Cases ¶61-908; [2011] VSC 46. Much of the controversy lay in their application. • In establishing whether the parties had the intention to create a legal relation by way of contract, first, what is relevant is not the subjective intention of the parties but rather their intention as judged on an objective basis, that is, what a reasonable person in the position of each party would believe. Secondly, it is necessary to limit the material relied upon to what is known and to the language and conduct of the parties as between them in the existing circumstances. It is permissible to refer to such matters before and after the alleged contract and to its evident commercial circumstances, including the nature and purpose of the transaction. • There will not be an inference preventing the formation of a contract of insurance that the insured knows that the insurer will as a continuous course of business monitor the subject matter of the risk, and it will not be assumed that any preliminary monitoring must antedate the conclusion of the agreement if the parties’ words and conduct indicate that one is concluded. Further, the insured’s mere knowledge that the insurer had to attend to its own internal processes before becoming bound by a contract would not generally enable the insured to discern between a communication by which the insurer intended to signify it was bound from one that did not evince that intention.

• A requirement in an insurance quote that the agreement would not be concluded until it was confirmed in writing by the insurer does not mean that there should be formal writing, and it may be met by writing which implies conclusion of the agreement if a particular term is agreed to, and it is agreed to. Silence may not imply a response of affirmation, but even in the absence of confirmation in writing, a party may be estopped from denying the concluded contract. The usual principles of estoppel apply. • Among the requirements for estoppel is a representation, which may lead to an assumption by the party claiming estoppel, and it may be an issue of fact whether the assumption was in fact held and whether it was reasonable to draw it from the representation. Silence may be important to the issue whether a representation was made and is usually not treated as an affirmative representation, but the strength and nature of the question or implied question and the circumstances may lead to an inferential representation. • The element of actual or constructive knowledge by the party to be estopped of the consequences is not difficult, but there has been an issue as to whether that party should have intended it, has aroused some controversy. The answer is that intention is not necessary if it would be unconscionable for the representor to enjoy the consequence that should at least have been known. Of course, if it is foreseen, it is usually also likely that it was intended. In this case, the insurer ought to have known that the proposed insured believed that it was covered under a concluded agreement, and was estopped from denying that technically it had not been concluded.

¶4-025 Terms must be agreed upon In order to conclude a binding contract, the parties must be ad idem as to its terms — that is, they must both have finally agreed to its essential components. Of course, the fact of this mutual and final agreement must be proved by one party if the other calls it into

question. This proof is usually furnished by a written contract, signed by both parties when final agreement has been reached, recording the terms agreed upon. Although terms of a contract are invariably expressly agreed upon, particularly where there is a written document, terms may also be implied. However, to imply a term into a contract, both parties must have clearly intended the term, or would certainly have included it if the contingency had occurred to them during negotiations, or it must be so obvious that it goes without saying: eg Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 56 ALJR 459; Norwich Winterthur Insurance (Australia) Ltd v Con-Stan Industries of Australia Pty Ltd (1983) 2 ANZ Insurance Cases ¶60-513 per Glass JA at p 77,921; (1983) 1 NSWLR 461 at p 473. Terms implied in contracts are often implied on the basis of mercantile custom or usage. “Such a custom or usage must be strictly proved as a question of fact and it must be so notorious that everybody in the trade enters into a contract with that custom or usage as an implied term. It must be uniform as well as reasonable and it must have quite as much certainty as the written contract itself” (per Jessel MR in Nelson v Dahl (1879) 12 ChD 568 at p 575, approved in Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1972-1973) 129 CLR 48 at p 61)(¶4-025.40). In insurance contracts, the terms will vary with the type of cover being effected and according to the particular preferences and requirements of the particular insured and insurer involved. However, all insurance contracts should evidence agreement regarding: • the names and addresses of the insured and the insurer • the nature of the subject matter of the contract (eg the property or life insured) • the risk or risks covered by the policy (eg fire, accident, death, disability, theft) • the amount of indemnity payable (including, if it is not a fixed amount, the method by which it is to be computed) (ie the sum

insured) • the amount, date and method of premium payment • the duration of the contract • any other terms agreed on by the parties as being essential to their contract. In many contracts, the terms are finalised after a series of negotiations between the parties during which a number of offers and counteroffers have been made and considered. The final agreement usually represents somewhat of a compromise between the parties. This is because a rough equality of bargaining power exists between the parties, which generally enables each party to have some input as to what goes into their agreement. It is generally true of insurance contracts, however, that there is an inequality of bargaining power between insurers and insureds. In most cases, the insurer is dealing with a client (whether an individual or a corporation) in a less powerful position than it, and accordingly it “calls the shots” — in the sense that it sets out standard terms which the applicant, the potential contracting party, can either take or leave. If he chooses not to accept one insurer’s standard offer, the applicant usually finds himself in the same position with another insurer — with the choice of contracting on the insurer’s terms or not at all. This is, of course, not to say that insurers are always totally inflexible, or that insureds never have sufficient bargaining power to impose their own terms or at least make the insurer’s terms less onerous; indeed large corporations taking out insurance often have a great deal of input into the terms of the finalised contract and market forces, such as competition among insurers, can improve an applicant’s bargaining position remarkably. It is simply a fact that most insurance companies, where they can do so, provide a standard offer to applicants and are not willing to deviate much — if at all — from it. Neither is it necessary to consider whether such a situation is desirable or undesirable — it simply is, and seems likely to remain, a fact of commercial life.

It is perhaps as a result of this inequality of bargaining power that some insurers have made binding insurance contracts without even indicating to the insured beforehand what the terms of the policy are to be. This has been encouraged by the apathy or naiveté of insureds in failing to enquire as to the insurer’s contractual terms before entering into a binding agreement and by a strict legal interpretation of the course of events so that the applicant, in applying for insurance cover, is making an offer which automatically implies acceptance and incorporation of the insurer’s standard form conditions (¶4-025.41). Whatever the case, while some insurers may contrive to exploit their superior bargaining position, it is encouraging to note that many others make a practice of distributing copies of standard form policies to potential applicants, in order to avail the latter of the opportunity to at least be informed in advance of the terms on which the insurer contracts. .40 Cases. See also Norwich Winterthur Insurance (Aust) Ltd v ConStan Industries of Aust Pty Ltd (1983) 2 ANZ Insurance Cases ¶60513 per Hutley JA at p 77,915 and Glass JA at p 77,920; (1983) 1 NSWLR 461 at pp 466 and 472. .41 General rule. As Walsh J noted in The Steadfast Insurance Co Ltd v F & B Trading Co Pty Ltd & Ors (1971) 125 CLR 578 at p 586: “The general rule … is that the conditions of the company’s usual policy are binding on the insured, whether he has seen them or become acquainted with them or not …”

¶4-130 Agents Today, relatively few insurance contracts are created as a result of a direct insurer-insured relationship. Rather, it is agents or intermediaries acting on behalf of the insurer or the insured who conduct most of the negotiations and attend to most of the details leading to the formation of the modern insurance contract. So important is the role of the professional agent or broker in the contractual process that a separate section of this Reporter has been

devoted to a detailed examination of their legal responsibilities: see “Intermediaries”, beginning at ¶8-000. The precise contractual relationship between a principal and agent is significant to any duty of care an agent may owe the principal: Hawkins v Clayton (1988) Aust Torts Reports ¶80-163; (1988) 164 CLR 539, 544. The duty is to act with the proper skill and diligence of an insurance agent of ordinary skill and ability: Chapman v Walton (1833) 10 Bing 57, 63; 131 ER 827, 828; Veljkovic v Vrybergen (1984) 3 ANZ Insurance Cases ¶60-613; [1985] VR 419, 422. An insurance agent is usually the agent of the insurer and not of the insured, and in certain circumstances, the insurer’s agent may become the agent of the insured for particular matters, such as the filling out of the proposal: Western Australian Insurance Co Ltd v Dayton (1924) 35 CLR 355; but then the agent’s duty is limited to filling it in accurately according to the proponent’s instructions and does not extend to taking reasonable steps to tender advice as to the quality, extent or conditions of the cover being sought. The insurer’s agent may, according to the circumstances and the general law of negligence (as to which, see, for example, San Sebastian Pty Ltd The Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 341), have a duty of care in the process of selling the insurer’s product. An insurer’s agent who is asked simply to obtain for the customer a particular nominated policy in the insurer’s standard form is not required to take reasonable steps to advise the customer as to the availability of better or cheaper policies with a competitor, or that the insurer had a reputation for taking points, or that the customer should take out a different kind of cover, or that the policy contained any particular exclusions, or of the meaning and effect of the exclusions that it contained, unless, perhaps, an exclusion seriously reduced the scope of the cover in relation to an important part of the insured activity, as should be known to the agent. Nor is an insurer’s agent under any contractual liability for stating to the insured that he or she would obtain the insurance requested, but may be liable in negligence: Caldwell v JA Neilson Investments Pty Ltd (2007) 14 ANZ Insurance Cases ¶61-724. A broker is usually the agent of the insured: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 4 ANZ Insurance Cases ¶60-700; (1986)

160 CLR 226, 235. An insurance producer’s designation as an agent or broker is not determinative of the producer’s status in a particular transaction. A broker may become an agent of the insurer for the purpose of delivering policies and collecting premiums thereon, since the actual relationship is determined by what the parties did and said and not by the name they are called: Maloney v Rhode Is Insurance Co (1953) 115 Cal App 2d 238, 245; Marsh & McLennan of Cal Inc v City of Los Angeles (1976) 62 Cal App 3d 108, 117; Garamendi v Golden Eagle Insurance Co (2006) Cal App LEXIS 1375. A broker, however, must use reasonable care and skill to ascertain its customer’s needs by instruction or otherwise: Provincial Insurance Australia Ltd v Consolidated Wood Products Pty Ltd (1991) 6 ANZ Insurance Cases ¶61-066; (1991) 25 NSWLR 541, 555; Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd (1982) 2 ANZ Insurance Cases ¶60-480; [1982] 2 NSWLR 57, 62. The broker must use reasonable care and skill to procure the cover that the customer has asked for, either expressly or by implication. If the broker cannot obtain what is required, it must advise the customer in what respects it has failed and seek the customer’s alternative instructions: McNealy v The Pennine Insurance Co Ltd [1978] 2 Lloyd’s Rep 18; Youell v Bland Welch & Co Ltd (No 2) (Superhulls Cover Case ) [1990] 2 Lloyd’s Rep 431; Harvest Trucking Co Ltd v PB Davis [1991] 2 Lloyd’s Rep 638; Aneco Reinsurance Underwriting Ltd (in liq) v Johnson & Higgins Ltd [1998] 1 Lloyd’s Rep 565, 590; Caldwell v JA Neilson Investments Pty Ltd (supra). If the insurer’s agent is asked to provide a certain category of insurance cover to a prospective customer, the agent assumes no greater relevant duty of care to the customer than does a person who sells any product having technical properties beyond the knowledge or understanding of the general public. In this context, there is no difference between an insurance agent who is carrying on business in an office separate from that of the insurer, and an employee of the insurer who is sitting behind the counter at the insurer’s offices, whose task is, like that of the agent, to sell the insurer’s products. If the principal seeks to recover compensation from the agent for an alleged

breach of the agent’s duty, the principal must prove the breach’s causation of the loss. For example, if the agent failed to inform the insured of a relevant exclusion in the policy obtained for the insured, and its presence excludes the operation of the cover in circumstances that arise, the insured must prove that, if informed, he would have made other arrangements that would have avoided the loss: Caldwell v JA Neilson Investments Pty Ltd (supra). The capacity of an agent to enter into a transaction with a third party which will be binding upon his principal is usually based on the nature and terms of the agreement (express or implied) which creates their agency relationship. Thus acts of an agent in exercise of powers expressly conferred on him by the terms of the agency agreement will bind the principal (the agent’s actual authority — see ¶8-320). An agent’s actual authority may also be implied, in that he has implied authority to do all things necessary in the ordinary course of business for the efficient and proper performance of his duties (see ¶8-320). An agent’s acts will also be binding on his principal if they fall within his apparent (or ostensible) authority, namely that authority which the agent is held out to have as a result of the principal’s words and conduct. The scope of an agent’s apparent authority is determined by the nature of the duties entrusted to the agent and will depend on the circumstances of each case (see ¶8-320). An agent’s actions may also bind his principal, even where an agent has purported to act on the principal’s behalf in the absence of any agency agreement or authorisation, either actual or apparent, if the principal subsequently ratifies and adopts the agent’s actions. Ratification (which may be express or implied) is only effective where: (a) the agent has notified the third party that it is contracting as the agent of a named or identifiable principal; (b) the principal is in existence and has the capacity to contract, both at the time the contract is made and at the time it is ratified; and (c) the principal ratifies all the terms of the contract and does so within a reasonable time of its making.

See further ¶8-360. Where an agent acts beyond the scope of his actual authority, the principal will not be bound where the third party dealing with the agent has notice of the lack of, or limitation on, the agent’s authority (see ¶8340). A principal may revoke an agent’s authority to act on his behalf at any time before a contract has in fact been signed (Weekes v Dale (1888) 14 VLR 159). Where the agent’s authority has been withdrawn, the principal should communicate the fact of revocation to persons dealing with his former agent, in order to ensure that the doctrine of apparent authority does not arise against him if the agent should continue, in spite of revocation, to purport to act on his behalf. Once a contract has been concluded, however, the principal’s revocation of the agent’s authority cannot affect it, and the contract is enforceable by the third party against the principal. Revocation may also be ineffective where an agent’s authority to contract is coupled with an interest; as for example, where he is authorised to sell land and retain certain proceeds of the sale in respect of a debt owed to him by the principal (Gaussen v Morton (1830) 10 B de C 731). As regards the agent, revocation of his authority by the principal may entitle him to an award of damages against the principal for wrongful dismissal and loss of commission. Conversely, an agent who renounces his authority may be liable to the principal for breach of the agency contract. Revocation may also be effected by the parties’ mutual agreement, by the happening of certain events, such as the death, insanity, or bankruptcy of either party, or by the performance (or impossibility of performance) of the acts specified in the agency agreement. While both the principal and the third party must have the legal capacity to enter into a valid contract, the agent need not himself possess that capacity in order to arrange a valid contract between them. The agent’s lack of capacity may, however, create problems in the validity and enforcement of the agency agreement as between the principal and the agent.

These general principles of agency law apply in the insurance sphere, except where they have been modified to suit the special relationships that exist among insurance agents, brokers, insurers and insureds or where Ch 7 of the Corporations Act 2001 (Cth) provides otherwise. Those relationships and the legal principles and rules (statutory and common law) applicable to them are examined in detail under “Intermediaries”, beginning at ¶8-000. In particular, the common law has been modified by Div 6 of Pt 7.6 of the Corporations Act 2001 (Cth), so that an insurer which holds an Australian Financial Services Licence will be responsible, as between itself and an insured or intending insured, for the conduct of its representatives. A “representative” of a financial services licensee is defined in s 910A as: (i) an authorised representative of the licensee; or (ii) an employee or director of the licensee; or (iii) an employee or director of a related body corporate of the licensee; or (iv) any other person acting on behalf of the licensee. A “representative” of a person who is not a financial services licensee is: (i) an employee or director of the person; or (ii) an employee or director of a related body corporate of the person; or (iii) any other person acting on behalf of the person. An “authorised representative” of a financial services licensee is a person authorised under s 916A or 916B to provide a financial service or services on behalf of the licensee (see further ¶2-798). The conduct of its representatives for which a licensee is responsible is conduct on which a client could reasonably be expected to rely and

on which the client did in fact rely in good faith: s 917A(1). It does not matter whether or not the conduct is within the scope of the representative’s authority (s 917B, 917C), unless the lack of authority was disclosed to the client: s 917D. In such circumstances, the insurer will be liable for any loss or damage suffered by the client as a result of the representative’s conduct, although any liability of the representative is unaffected: s 917E, 917F. Insurer and representative cannot contract out of these provisions; they may, however, enter into agreements whereby a representative indemnifies the insurer, or an insurer indemnifies another insurer, in respect of liability arising from the conduct of the representative: s 917F. For further discussion of these rules, see ¶8-250ff. If one party only enters into the contract with the insurer but does so as the disclosed agent or trustee for the others as well as for himself or herself because he or she also has an interest, the effect is generally identical with that where all the insured are direct parties to the contract and they are named in the schedule as the primary insured. In these circumstances, the named insured, if duly authorised as the agent of the others and having an interest, would be entitled to enforce the policy in respect of all the parties the named insured represents and receive from the insurer any indemnity recoverable for their losses, which the named insured will hold in trust for them: Allstate Explorations NL v Blake Dawson Waldron (2010) 16 ANZ Insurance Cases ¶61-847.

¶13-350 Policy conditions — common law position It is usual to find in contracts of indemnity insurance, eg fire and theft policies, a clause excluding the insurer’s liability or avoiding the policy where the risk of a loss is increased, unless the insurer admits such increase, for example: “The insurer shall not be liable for loss arising ... if the hazard is increased by any means within the control or knowledge of the insured ...”

; or “This Policy shall be avoided with respect to any item thereof in regard to which there be any alteration after the commencement of this insurance ... whereby the risk of destruction or damage is increased ... unless such alteration be admitted by memorandum signed by or on behalf of the Insurers ...” ; or “The extent of the liability of the insurer is conditional upon the notification as soon as possible by the insured to the insurer of any change materially varying any of the facts and circumstances existing at the commencement of this policy.” The second clause set out above was considered in Farnham v Royal Insurance Co Ltd (1976) 2 LlR 437 (¶13-350.40). In that case, the insured allowed a third party to store and repair metal cargo containers in a barn, which formed part of the insured premises. The premises had previously been used for storage purposes only. While a container was being repaired with the use of oxy-acetylene and electric arc welding equipment, sparks escaped and the barn caught fire and was destroyed. It was held that, by the change in the use of the premises, there had been a material increase in the risk and the insured’s claim was not allowed. Ackner J accepted “that even if all cutting and welding was done outside and at a safe distance, there would still be a material increase in the risk of destruction or damage. A fortiori, if there was some, albeit a relatively small amount of, cutting and welding done inside the barn. Moreover, even if, contrary to my findings, the cutting and welding was all to be done outside and at a safe distance, there would always be a risk, human nature being what it is, that liberties would be taken and instructions, if given, disregarded so that on occasions cutting and welding would be carried out too close, if not inside, the building”. If the insured had installed fire fighting equipment and had instituted efficient procedures to ensure that all welding work was carried out at a substantial distance from the barn and in circumstances where sparks could not escape, the result might, it is submitted, have been different. The same clause was considered in Exchange Theatre Ltd v Iron

Trades Mutual Insurance Co Ltd & Ors (1984) 1 LlR 149, where it was held that the introduction of petrol in a plastic container into the insured building did not constitute an alteration of the risk in regard to the building. In Dawson v Monarch Insurance Co of New Zealand Ltd (1977) 1 NZLR 372, the relevant condition provided “no claim shall be payable ... if ... at any time (unless expressly provided for by endorsement) the risk be in any way increased”. Somers J, citing dictum of Baron Parke in Barrett v Jermy (1849) 3 Exch 535 at p 545; 154 ER 957 at p 962, said that the need for endorsement suggested that something of a more permanent nature than a mere casual use of hazardous equipment was required for the relevant condition to apply. His Honour went on to say that the temporary use of an oxy-acetylene welding torch in a garage in which the insured goods were stored, although increasing the likelihood of loss, did not relevantly increase the risk. His Honour also pointed out that to speak of an increase in risk necessarily involves starting from the definition of the risk undertaken by the insurer. The distinction between Farnham’s case (supra) and Dawson’s case (supra) lies in the wording of the policies concerned. In Farnham’s case the particular condition referred to an increase in the risk of destruction or damage, whereas in Dawson’s case the particular condition referred solely to an increase of the risk. The distinction is between an increase in the danger of loss occurring and a change in the character of the risk. In Prime Forme Cutting Pty Ltd v Baltica General Insurance Co Ltd (1991) 6 ANZ Insurance Cases ¶61-028, Tadgell J of the Supreme Court of Victoria said (at pp 76,880–76,881): “... the concept of the alteration of the increase of an insurance risk has long been regarded as one quite different from the concept of the nature of the risk: eg Baxendale v Harvey (1859) 4 H&N 445; 157 ER 913. The distinction was clearly recognised and stated by Jordan CJ and Nicholas J in Southern Cross Assurance Co Ltd v Australian Provincial Assurance Assoc Ltd (1939) 39 SR (NSW) 174, 199 thus, ‘The obligation of an insurer who has insured against a particular

risk extends to everything comprehended within the risk but covers nothing else. A mere change in the hazard of the risk does not affect the liability of the insurer. The happening of something which increases the chance of the occurrence of the event insured against of itself supplies no more reason for relieving the insurer from liability than would be the occurrence of the event itself. But if a change in conditions subjects the assured to a risk which is not the risk insured against, the insurer is subject to no liability for the new risk created by the changed conditions whether its hazard be less or greater than that of the risk insured.’ ... The question then is whether, by reason of the change of circumstances on which [the insurer] relies, the identity of the insurance became different from that comprehended by the contract of insurance that was made. That is a question of fact.” It is also not enough for there to be an increase in the risk or risk of destruction or damage, as the case may be. The relevant increase must be caused by a breach of the relevant condition: Brown v Ocean Accident and Guarantee Corp Ltd (1916) 35 NZLR 377, per Cooper J at p 383. A breach of such an “increase of risk” clause may occur without the insured’s knowledge or consent. In the absence of any specific provision to the contrary (such as in Avon House Ltd v Cornhill Insurance Co Ltd (infra)), the insured’s knowledge or consent is irrelevant: Rhodes v Union Insurance Co (1884) 2 NZLRSC 106. In Avon House Ltd v Cornhill Insurance Co Ltd (1980) 1 ANZ Insurance Cases ¶60-429, the relevant clause was somewhat different. It provided: “It is hereby declared and agreed that this insurance shall not be invalidated by any breach of warranty or increase in the risk taking place in the property insured without the knowledge of the Insured, provided that the Insured shall, immediately they become aware thereof, give notice to the Company and pay the Additional Premium which may be required by them from the date of such increase in risk.”

The purpose of that clause was to limit the insurer’s right to rely on a breach of warranty or increase in the risk occasioned by tenants’ actions of which the insured was unaware. It was held that the insured bore the onus of establishing its ignorance, although the insurer bore the onus of proving a breach of warranty or increase in the risk. On the facts, the insured was able to establish that it was unaware of a breach of warranty (a dangerous goods clause) by a tenant. The standard of materiality in this context is not the same as that relating to pre-contractual material misrepresentation or nondisclosure. If it were, it would mean that the post-contractual occurrence of any event or situation that would meet that standard would cause the insured to lose the benefit of the insurance. It means that the alteration must have a significant bearing on the risk: Ansari v New India Assurance Ltd [2009] EWCA Civ 93, where the sprinkler system of the insured building was turned off indefinitely. This was a material alteration to the risk as distinct from occasional periods of disablement. Cf Kausar v Eagle Star Insurance Co Ltd [2000] Lloyd’s Rep IR 154, where the insured’s tenant was in an acrimonious dispute with the insured and had done some damage to the insured premises. This was held not to be a material alteration to the risk. At common law, in the absence of any such “increase of risk” clause, an increase in the risk of loss or damage which does not change the identity of the insured property or render its description inapplicable does not vitiate the insurance in the absence of fraud: Pim v Reid (1843) 6 M & G 1; 134 ER 784; Baxendale v Harvey (1859) 4 H & N 445; Wilshire v Guardian Assurance Co Ltd (1912) 15 CLR 516 at pp 525-526. In QBE Mercantile Mutual Ltd v Hammer Waste Pty Ltd (2004) 13 ANZ Insurance Cases ¶61-586, the NSW Court of Appeal applied basic principle to the issue of alteration of the risk. It recalled that the description inserted in a policy of the subject matter and its circumstances defines the risk undertaken by the insurer: Shaw v Royce Ltd (1911) 1 Ch 138, 148; and that any alteration made during the currency of the policy that affects the subject matter or circumstances as so described is an alteration of the risk, since the state of facts contemplated by the insurer no longer exists in its entirety. However, there is no alteration of the risk where an alteration,

though apparently on the face of it an alteration of the risk, is not a real alteration of the risk at all, but only such as, on the true construction of the policy might be taken to have been within the contemplation of the parties at the time when the contract was made: Law Guarantee Trust & Accident Society Ltd v Munich Reinsurance Co (1912) 1 Ch 138, 154; Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd (1939) 39 SR (NSW) 174, 200. A mere increase in the danger is not thereby an alteration of the risk: Baxendale v Harvey (1859) 4 H&N 4455; 157 ER 913. The essential point is that in order to have the consequences associated with an alteration of the risk, the change must be more than technical: it must amount to change outside the reasonable contemplation of the parties as to permissible variation in the degree or nature of risk. A representation as to the use of the insured premises in the proposal may, however, amount to a continuing warranty applicable throughout the duration of the policy (see ¶13-310), in which case a change of use would amount to a breach of warranty, irrespective of whether the risk was increased; eg Hales v Reliance Fire and Accident Insurance Corp Ltd (1960) 2 LlR 391, although see also R v National Insurance Co (1887) 13 VLR 914 and Provincial Insurance Co Ltd v Morgan (1933) AC 240. A decrease in the risk will always be irrelevant; and policies do not usually require a decrease in the risk to be notified to the insurer. Legislation restricting an insurer’s right to avoid liability where there has been an increase in the risk is briefly considered at ¶13-360 (and considered in more detail at ¶14-000 ff). .40 No breach of warranty. In Farnham’s case (supra) Ackner J also held that the use of the welding equipment did not amount to a breach of a warranty that no artificial heat would be used, no petrol be stored and no cellulose paint or cellulose thinners be used or stored in the insured premises. .41 Scope of risk. In Baxendale v Harvey (supra) Sir Frederick Pollock CB said: “If a person who insures his life goes up in a balloon, that does not vitiate his policy ... A person who insures may light as many

candles as he pleases in his house, though each additional candle increases the danger of setting the house on fire.” .42 Change of use — house. Change in use of premises from a private dwelling to that of a motor cycle club was a material change in the risk. Iacobelli v Federation Insurance Co of Canada (1975) 7 OR (2d) 657. .43 Change of use — commercial premises. When a building with iron walls and roof and a cement floor used solely as a bulk store was converted into a wool-scouring establishment, with fireplaces, flues and boilers added, there was an increase in the risk of loss or damage by fire within the terms of the building insurance. Guardian Assurance Co v Wilshire & Feely (1911) 13 WAR 210; affirmed (1912) 15 CLR 516. .44 Change in occupation of house. A fire policy on a dwelling house provided that “if the nature of the occupation of, or other circumstances affecting, the building insured ... be changed in such a way as to increase the risk of loss or damage by fire”, the insurance should cease to attach. At the date of the fire, the tenant had a small number of paying boarders in addition to her family. It was held that the building had continued to be a dwelling house notwithstanding the boarders and there had therefore been no change in the “nature of occupation”; nor was the taking in of boarders a change in the “circumstances affecting the building”. Brown v Ocean Accident and Guarantee Corp Ltd (supra). .45 Change in occupation of house. When contents insurance was first effected, the house (rented) was occupied by a married couple and their son. When the couple separated, the man stayed in the house and later took in a male friend to share rent etc. At the time of the fire a third person was staying in the house as a guest. The Supreme Court of Ontario held that there had been no material change in the risk: two men sharing a house was not necessarily more hazardous than a married couple and occupation by a man, his wife and one child was not per se material to the risk; nor would the inclusion of more children, a relative or friend be material to the risk. Ryan v The Citadel General Assurance Co (1983) ILR ¶1-1670 (CCH

Canadian Ltd). .46 Change of use — crane. A crane was insured under an extraneous damage policy, with cover to continue until a successful load test had been carried out. Use of the crane for limited commercial purposes constituted a material change in the risk, relieving the insurers from liability under the terms of the policy. Linden Alimak Ltd v British Engine Insurance Ltd & Ors (1984) 1 LlR 416. .47 Material variation. Where a crane insured under an unregistered mobile machinery policy was subsequently registered as a motor vehicle, this constituted a material variation in the facts and circumstances existing at the commencement of the policy and required to be notified to the insurer in accordance with the terms of the policy. Ferrcom Pty Ltd v Commercial Union Assurance Co of Aust Ltd (1989) 5 ANZ Insurance Cases ¶60-907; reversed (1993) 7 ANZ Insurance Cases ¶61-156; (1993) 176 CLR 332. .48 Construction of heating shed. The insured installed a heating system in the insured propagation house. To heat the water he built a small fire shed, with concrete base and lower wall and plywood upper wall, next to the house. He used gibraltar board as a temporary cover over a wetback and galvanised iron pipe as a temporary flue, which was in contact with the plywood. When he tested the system, the plywood caught fire through over-heating from the flue; the flames spread and substantially damaged the propagation house and its insured contents (orchids). Although the gibraltar board cover and galvanised iron flue were experimental, and thus only temporary, the insured intended to have a permanent fire to heat the propagation house. Construction of the fire shed was therefore such a change in circumstances as to increase the risk of loss or damage to the insured property within the terms of the policy (fire and windstorm insurance). Robinson v SIGM (1984) 3 ANZ Insurance Cases ¶60-599. .49 Change of house hauliers. The refusal of a claim by the insurer to cover losses incurred in the transportation of a house from one site to another was upheld by the Court of Appeal of New Zealand. In the proposal for contractors’ all risks insurance, which was taken out to cover the house whilst being transported, it stated that the

haulage work would be carried out by experienced contractors. At the time of the loss, however, the insured himself and a bulldozer driver, neither of whom had any relevant experience, were carrying out the work. The Court of Appeal confirmed the view of the High Court which was that this change of hauliers exposed the insurers to a degree of risk which they had not agreed to accept and which was materially greater than one carried out as proposed. Hing & Anor v Security and General Insurance Co (NZ) Ltd (1989) 5 ANZ Insurance Cases ¶60696. .50 Additional woodwork not increase in risk. A broker was instructed by the plaintiff to arrange insurance in respect of its business of manufacturing bean bags, cushions and padded headboards for beds. The broker had an agency agreement with the insurer under which it could accept proposals. Under the agreement the insurer had to specifically approve certain risks including “upholsterers and woodworkers”. The broker inspected the plaintiff’s business and was told that the amount of woodwork was minimal. A policy was issued. However, the broker did not report the fact that on inspecting the premises prior to renewal of the policy he became aware that the plaintiff had also undertaken the manufacture of bedheads. It was held that the description of the amount of woodwork as “minimal” was not a misdescription and the additional work of manufacturing padded frames for waterbeds did not constitute a material alteration to the risk. Dovewell Pty Ltd v Manufacturers Mutual Insurance Ltd & Anor (1986) 4 ANZ Insurance Cases ¶60-726. .51 Alteration to the risk. If a policy is affected by alteration to an insured item that increases the risk, then as the building is the insured item, it is only an alteration to that which is relevant; and an alteration to the circumstances by the presence of a petrol-driven generator is not an insured item to which the condition applies: Exchange Theatre Ltd v Iron Trades Mutual Insurance Co Ltd [1984] 1 Lloyd’s Rep 149. But if the fire sprinkler system, which is part of the insured building, is shut down, that is an alteration to the risk within the meaning of the requirement: Ansari v New India Assurance Ltd [2009] EWCA Civ 93 .52 “Material alteration” to risk. Whether there is a material alteration to the risk is a matter of fact: Placer (PNG) Pty Ltd v Dyno Nobel Asia

Pacific Pty Ltd [1999] NSWSC 1292; Shimizu Corporation v Lim Tiang Chuan [1993] 3 SLR 77. This may involve a number of factors, including whether the risk was present at the inception of the policy or whether in changed circumstances the risk increased at all: Middleton v AON Risk Services Aust Ltd (2009) 15 ANZ Insurance Cases ¶61788.

¶4-210 Application of the Insurance Contracts Act and exemptions Common law and other legislation The Insurance Contracts Act 1984 (Cth) (reproduced at ¶70-050) does not “codify” the law relating to contracts of insurance, although it does provide extensive rules in a number of areas. Section 7 specifically provides that the Insurance Contracts Act does not affect the operation of any Commonwealth, State or Territory law or of any principle or rule of the common law (including the law merchant) or equity, except insofar as the Act, either expressly or by necessary intendment, otherwise provides. Thus the Act is, in effect, superimposed on the existing law (at 1 January 1986). Where the Insurance Contracts Act expressly or by necessary intendment affects the operation of any State legislation, the Federal Act operates to the exclusion of the State Act by virtue of the Federal Government’s powers in relation to insurance (see ¶1-820ff) and s 109 of the Australian Constitution. Section 109 provides that where State law is inconsistent with Federal law (which is within the Federal Government’s powers), the latter prevails and the State law is invalid to the extent of the inconsistency. The greatest impact on State legislation is made by s 15. Under s 15, State and Territory legislation that provides for relief, including relief by way of variation, avoidance or termination of a contract, in respect of harsh, oppressive, unconscionable, unjust, unfair or inequitable contracts (see ¶4-156) or from the legal consequences of making a misrepresentation (see ¶7130) cannot apply to contracts of insurance to which the Federal Act applies. Thus the Insurance Contracts Act is the only source for such relief in respect of contracts of insurance to which the Act applies (see

below as to where the Act does not apply). Section 15 clearly relies in part on the provisions of s 109 of the Australian Constitution. Proper law of the contract The Act applies to contracts of insurance and proposed contracts of insurance the proper law of which is or would be the law of a state or the law of a territory in which the Insurance Contracts Act applies or to which it extends: s 8(1). The proper law of a contract is the system of law by which the parties intend the contract to be governed and a detailed treatment of the subject will be found in standard texts on the conflict of laws. The intention of parties is paramount and the traditional method of ascertaining this intention is to adopt a three-tiered approach. If the parties have expressly stated in the contract what the proper law of the contract will be, effect will be given to this selection, provided it is bona fide and legal and not against public policy. If the parties have not expressly stated what they intend the proper law of the contract to be, the approach most commonly adopted (although one not free from controversy) is to consider whether an intention can be implied from the terms and nature of the contract and the circumstances of the case. Only if this approach fails can recourse be had to the “objective test” whereby the contract is governed by the system of law with which the transaction has its closest and most real connection. This approach does not however hold true for contracts of insurance coming within the ambit of the Insurance Contracts Act. The Act is intended to apply to insurance contracts having a clear Australian nexus, and since an express statement as to the proper law of a contract would otherwise be controlling, the Act provides in s 8(2) that where the proper law of a contract or proposed contract of insurance would, but for an express provision to the contrary included or to be included in the contract, be the law of a state or a territory in which the Act applies or to which the Act extends, then the proper law of the contract is to be the law of that state or territory. This, in effect, prohibits the selection of a particular locality as being the proper law of the contract in circumstances where the proper law would otherwise be within Australia. The ramifications of s 8(2) and in particular the

true construction of the words but for an express provision to the contrary” were considered by the High Court of Australia in Akai Pty Ltd v People’s Insurance Co Ltd (1997) 9 ANZ Insurance Cases ¶61347. As a result of the decision of the majority in that case (Toohey, Gaudron and Gummow JJ; Dawson and McHugh JJ dissenting) the position with regard to contracts of insurance within the Act is as follows. The determination of the proper law in such contracts involves only a two-tiered approach, with emphasis being placed on the system of law with which the contract has the closest and most real connection, as opposed to the intention of the parties expressed in words or ascertained from the terms and nature of the contract and the circumstances of the case. An “express provision to the contrary” includes within its ambit not only an express choice of law clause but also the situation where no expressly stated clause as to a choice of law exists but such a choice might be inferred from the provisions of the contract (including a submission to the exclusive jurisdiction of the tribunals of a particular country). These two categories are but species of the one genus, ie that concerned with giving effect to the intention of the parties, and the only question to be asked is whether upon the true construction of the contract the parties have chosen a governing law for their contract. If they have, this choice is to be ignored in accordance with s 8(2) for the purposes of ascertaining the proper law of the contract. Put another way, the words “express provision” in s 8(2) embrace those provisions in the contract which establish that the parties, either expressly or by inference, have chosen a proper law which is not the law of an Australian State or Territory. Notwithstanding those provisions, if (viewed objectively) the proper law of the contract under the rules of Private International Law would be the law of an Australian State or Territory, then s 8 operates to attract the application of the Act to the relevant contract. In applying this objective test of the system of law with which the contract has the closest and most real connection, the expressed intention of the parties is ignored. In the Akai case, there was a choice of law clause applying English law which was clearly void under s 8(2), and a choice of forum clause whereby any dispute was to be referred to the English courts. This

choice of forum clause was ignored under s 8(2) as an expression of intention as to the proper law of the contract and the objective test applied. As a result, New South Wales law was held to be the proper law and the Insurance Contracts Act governed the contract. There is thus little point in the parties to a contract of insurance which would otherwise be governed by Australian law agreeing to a foreign choice of forum clause or arbitration clause in the hope of circumventing s 8(2) of the Act. A choice of forum clause comes within the proscription in that subsection as an express provision showing the intention of the parties as to the proper law of the contract. Apart from the operation of s 8(2), where the contract of insurance contains a choice of jurisdiction clause, and the reference is to a foreign jurisdiction, the court has a discretion whether or not to grant a stay of proceedings in the local jurisdiction. The correct approach is to grant a stay unless a strong cause for not doing so is shown by the party resisting the application for a stay. All the circumstances of a particular case should be taken into account, but the two major factors guiding the court will be the desirability of holding the parties to their agreement and the need to avoid the same issues being dealt with in different forums, thereby leading to duplication of litigation and the possibility of conflicting judgments. A further factor is the principle that a foreign jurisdiction clause may be disregarded if to implement it would be to offend notions of public policy or “the policy of the law” as discerned from the scope and purpose of the particular statute. (The Akai case (supra); Gem Plastics Pty Ltd v Satrex Maritime (Pty) Ltd (1995) 8 ANZ Insurance Cases ¶61-283 (SC NSW).) External Territory and Crown The operation of the Act also extends to an external Territory which is proclaimed to be a Territory to which the Act extends: s 6(1). Where such a proclamation is made, the Act will commence in that external Territory on the day nominated in the proclamation: s 6(2). The Act also binds the Crown in right of the Commonwealth or of a Territory in which the Act applies or to which it extends, but does not bind the Crown in right of a State (that would extend beyond the jurisdictional capacity of the federal government): s 5(1). The Crown in right of the Commonwealth or of a Territory is not liable to be prosecuted,

however, for an offence arising under the Act: s 5(2). Contracts of insurance Section 10(1) provides that a reference in the Act to a contract of insurance includes a reference to a contract that would ordinarily be regarded as a contract of insurance even though some of its provisions are not by way of insurance. (As to what would “ordinarily be regarded as a contract of insurance”, see ¶1-150ff.) The counterpart to s 10(1) is s 10(2), which provides that even if a contract would not ordinarily be regarded as a contract of insurance, the Act applies to any provisions of that contract which are insurance provisions (but not to the other provisions of the contract). Section 10(3) provides that where a provision in a contract, which would not ordinarily be regarded as a contract of insurance, affects the operation of a contract of insurance to which the Act applies, that provision is to be regarded as included in the contract of insurance for the purposes of the Act (and therefore subject to its provisions). For example, a Deed of Release between an insurer and insured, agreeing to the distribution of any amount recovered by the insured from a third party, taking into account the insurer’s subrogated rights, was regarded as part of the original insurance agreement and subject to the terms of the Insurance Contracts Act 1984, such as utmost good faith: Small Business Consortium Lloyd’s Consortium No 9056 v Angas Securities Limited [2015] NSWSC 1511; (2015) 18 ANZ Insurance Cases ¶62-086. The rationale behind s 10 was stated in the Attorney-General’s explanatory memorandum to the legislation as follows: “This provision will ensure that the reforms effected by the [Act] cannot be circumvented by an insurer’s requiring an insured to enter into a contract which would not ordinarily be regarded as a contract of insurance. The [Act] will apply equally to a contract of household insurance as to a term in a contract for the sale and purchase of property to the effect that the seller, who happens to be an insurer, also insures the property.” As originally drafted, s 10(2) referred to “provisions by way of

insurance” in a contract that would not ordinarily be regarded as a contract of insurance. The words “by way” were deleted so as “to exclude schemes such as mutual aid and extended warranty schemes which it is not intended should be subject to the legislation. Such schemes do not amount to the carrying on of insurance but may be considered as being ‘by way of insurance’ under [sec 10 as originally] drafted” (Attorney-General’s explanatory memorandum). The application of s 10(2) was considered by the Full Court of Western Australia in the following circumstances. One P, rented a car from the appellant Bayswater Car Rental Pty Ltd on the terms contained in the rental agreement, one of which stipulated that, “not being an insurer”, Bayswater would indemnify P against any liability incurred arising out of a collision during the hiring, provided a court judgment has been obtained against P. A collision due to P’s negligence occurred, and the third party involved in the collision, unable to locate P who had gone overseas, sued Bayswater direct under s 51 of the Insurance Contracts Act 1984, alleging that the relevant clause in the rental agreement constituted a contract of liability insurance pursuant to s 10(2) and accordingly that s 51 applied. The issue was whether this contention was sustainable and on this score the majority of the Court (Kennedy, Steytler JJ; Pidgeon J dissenting) held that the words “not being an insurer” were not controlling and that on true construction of the clause the owner, Bayswater, intended to indemnify the hirer itself and not merely to arrange for cover by some insurer. Accordingly, the relevant clause amounted to a contract of insurance, the premium for which was contained in the rental charge. Nevertheless, the contract was subject to the obtaining of a judgment against P and this had not been effected. Consequently, Bayswater was not liable on the contract of insurance. (Bayswater Car Rental Pty Ltd v Hannell (1999) 10 ANZ Insurance Cases ¶61-437). Exemptions — categories of insurance The Act is capable of applying to all types of contract of insurance, other than those specified in s 4 and 9 of the Act. By s 9(1) and (3),

the Act does not apply to or in relation to contracts or proposed contracts of— • reinsurance • medical or hospital insurance where the insurer is an organisation registered under Part VI of the National Health Act 1953 (Cth) (it is unlawful to offer such insurance if not registered — see ¶2-305) • insurance entered into, or proposed to be entered into, by a friendly society (which seems to include a friendly society as the insured) or by the Export Finance and Insurance Corporation • marine insurance, ie insurance to or in relation to which the Marine Insurance Act 1909 (Cth) applies — although the insurance industry has in practice regarded certain contracts of insurance, such as those covering cargo transported principally over land or by air, as being marine insurance, they in fact fall outside the provisions of the Marine Insurance Act and therefore will fall within the provisions of the Insurance Contracts Act (this will require insurers to either amend existing documentation substantially or to require insureds to enter into two different types of contract because the one open-ended cargo contract effected annually may well cover risks falling both under the Insurance Contracts Act as well as the Marine Insurance Act) (see further ¶33-805) • workers’ compensation insurance entered into, or proposed to be entered into, for the purposes of a law, including a State or Territory law, or • compulsory insurance, including under a State or Territory law, relating to compensation for the death of a person, or for injury to a person, arising out of the use of a motor vehicle (ie compulsory third party motor vehicle insurance). Exemptions — workers’ compensation insurance Section 9(1) provides that:

“Except as otherwise provided by this Act, this Act does not apply to or in relation to contracts and proposed contracts … (c) entered into or proposed to be entered into for the purposes of a law (including a law of a State or Territory) that relates to (i) workers’ compensation ….” Where an insurance policy covers both the statutory scheme and the common law liability of an employer for injury to an employee due to negligence, it has been held that the exemption will apply only to the statutory scheme and not to the common law liability cover, at least where the legislation only requires that cover be taken out for workers’ compensation and not for common law liability as well. In Moltoni Corp Pty Ltd v QBE Insurance Ltd (2001) 11 ANZ Insurance Cases ¶61-512 the High Court of Australia rejected the argument that the Insurance Contracts Act was inapplicable to a policy which included both types of cover. It said that there were two kinds of risks involved, and that the criterion for the operation of s 9(1)(c) was not the fact that a single policy document recorded the arrangements between the parties. Account had to be taken of the fact that there were distinct insurances reflected in the two different insuring clauses in the policy, with one form of liability arising under a statutory scheme and the other stemming from the common law, and the fact that both concerned liability to provide compensation to workers was not to the point. What was important was that one form of insurance was undertaken for the purposes of a relevant law, while the other was not. The exception was identified by reference to a contract which was entered into for the purposes of a law relating to a particular subject matter. It was not identified by reference to the way in which the risk which was insured could be described. It is submitted that the same position occurs where the relevant Act requires that the employer’s common law liability must be covered as well as the statutory liability (see Workers’ Compensation Act 1987 (NSW) s 155). “A law that relates to workers’ compensation” surely does not embrace legislation which requires an employer to obtain insurance against all other forms of liability for personal injury to a worker. The latter risks refer to a different kind of subject matter — a law relating to workers’ compensation is to be distinguished from a

common law liability for damages for personal injury caused through negligence. Exemptions — State and Northern Territory insurance By s 9(2) the Act does not apply to or in relation to “contracts and proposed contracts of insurance entered into, or proposed to be entered into, in the course of State insurance or Northern Territory insurance including contracts and proposed contracts entered into, or proposed to be entered into, by (a) a State or the Northern Territory and (b) some other insurer, as joint insurers”. This provision reflects the limitation of the Commonwealth’s legislative power in relation to State insurance under s 51(xiv) of the Constitution (see ¶1-870ff), although the Government has also elected not to use its power under s 51(xiv) in relation to State insurance “extending beyond the limits of the State concerned” and to treat the Northern Territory as a State. In effect, therefore, the Insurance Contracts Act is expressed not to apply to or in relation to contracts of insurance, or proposed contracts of insurance, where the insurer, or proposed insurer, is a State Government Insurance Office or the Territory Insurance Office. There are, however, certain exceptions to this as a result of legislation enacted in some States, and it must be noted that privatisation of Government Insurance Offices puts those offices back within the jurisdiction of the Commonwealth. See ¶3-090 for details. Exemptions — previous contracts Section 4(1) provides that the Insurance Contracts Act does not apply to or in relation to contracts of insurance entered into before 1 January 1986. For this purpose “entered into” includes renewed (but not in the case of life insurance), extended, varied or reinstated: s 11(9). Thus where a contract of insurance was initially entered into before 1 January 1986, it may be necessary to ascertain its duration and whether an extension, variation, reinstatement or renewal was effected on or after that date (a renewal will generally result in a new contract of insurance being entered into — see ¶14-305). The exceptions to this are that s 32 (remedies where non-disclosure or misrepresentation by member of a superannuation or retirement

scheme — see ¶6-030), s 54 (restrictions on insurer’s right to refuse to pay claims — see ¶14-050) and s 56 (fraudulent claims — see ¶18550) extend to and in relation to a blanket superannuation contract that was entered into before 1 January 1986, in so far as concerns a person who becomes a member of the relevant superannuation or retirement scheme on or after that date: s 4(2). A blanket superannuation contract is a contract of life insurance maintained for the purposes of a superannuation or retirement scheme, where the insured is a trustee for the purposes thereof and under which there must be more than one life insured: s 11(4).

¶4-215 Summary of the Act Although the provisions of the Insurance Contracts Act 1984 (Cth) (reproduced at ¶70-050) are discussed where appropriate throughout the Reporter, a brief summary of the substantive provisions of the Act is provided below. The basic purpose of the Act ``is to improve the flow of information from the insurer to the insured so that the insured can make an informed choice as to the contract of insurance he enters into and is fully aware of the terms and limitations of the policy; and to provide a uniform and fair set of rules to govern the relationship between the insurer and the insured'' (second reading speech, Senate, 1 December 1983, Hansard p 3136). Duty of utmost good faith • In every insurance contract there is an implied provision requiring each party to act with the utmost good faith towards the other in respect of any matter arising under or in relation to the contract, eg making and settling claims: s 13 (see ¶5-630). • A party to an insurance contract cannot rely on a provision thereof if to do so were to fail to act with the utmost good faith: s 14 (see ¶5-650). Insurable interest • An insurable interest is no longer required at the time the contract is entered into, except in respect of life or accident insurance: s

16 and 18. • An insured will be able to recover under a contract of general insurance if he suffers a pecuniary or economic loss as a result of damage to or destruction of the insured property, irrespective of whether or not he has an insurable interest at the time of the loss: s 17. Disclosure and misrepresentation • An insured's duty of disclosure is limited only to those facts which he knew, or a reasonable person in the circumstances would have known, to be relevant to the insurer's assessment of the risk: s 21 (see ¶6-015). • An insurer is taken to have waived compliance with the duty of disclosure unless, before the contract is entered into, the insurer (i) requests the insured to answer specific questions that are relevant to the insurer's decision concerning whether to accept the risk and, if so, on what terms; or (ii) requests information as outlined in (i) and asks the insured to disclose exceptional circumstances known to the insured and that the insured knows, or could reasonably be expected to know, would be relevant to the insurer's decision: s 21A (see ¶6-025). • An insurer is required to clearly inform the insured in writing, before or at the time the contract is either initially entered into or first renewed, extended or reinstated after 1 January 1986, whichever is the sooner, of the general nature and effect of the duty of disclosure — the form of writing is prescribed by regulation: s 22 and reg 3 (see ¶6-025). Except in the case of contracts entered into by way of renewal, the insured must also be informed of the general nature and effect of s 21A. • An insurer is deemed to have waived compliance with the duty of disclosure where a person has failed to answer, or has given an obviously incomplete or irrelevant answer to a question in a proposal form: s 21 (see ¶6-023). Such a failure or an incomplete

or irrelevant answer does not constitute a misrepresentation either: s 27 (see ¶4-270). • An untrue statement does not constitute a misrepresentation where the person making it believes it is true and it is a belief that a reasonable person in the circumstances would have held: s 26 (see ¶4-270). • A warranty of existing fact has effect as though it were a representation made during negotiations: s 24 (see ¶4-270). • Non-disclosure or misrepresentation only entitles an insurer to avoid a contract of general insurance if it is fraudulent, although the court will be able to disregard such avoidance if it would be harsh and unfair not to do so and the insurer has not been prejudiced by the non-disclosure or misrepresentation, or any prejudice is minimal: s 28(2), 29(2), and 31 (see ¶6-030). • An innocent non-disclosure or misrepresentation does not entitle an insurer to avoid a contract; instead the insurer's liability is reduced by an amount which represents the loss suffered by the insurer by reason of the non-disclosure or misrepresentation: s 28 (see ¶6-030). Standard cover • Standard cover, ie specifying the risks insured against, exclusions and the minimum sum payable, has been prescribed by the Insurance Contracts Regulations for motor vehicle (property damage), home buildings, home contents, sickness and accident, consumer credit and travel insurance (see ¶13-110). An insurer has to give prior notice to the insured if it offers less than the prescribed standard cover: s 35 (see ¶13-110). Unusual terms • In the case of an insurance contract for which standard cover has not been prescribed, an insurer will not be able to rely on a provision which is not usually included in similar contracts unless,

before or at the time the contract is either initially entered into or first renewed, extended or reinstated after 1 January 1986, whichever is the sooner, the insurer clearly informs the insured in writing of the effect of that provision: s 37 (see ¶13-100). Interim cover • A provision in an interim contact of insurance, eg a cover note, making the insurer's liability dependent upon the submission of a satisfactory proposal is void: s 38 (see ¶5-580). • Where a proposal is submitted before the interim cover has expired, the insurer's liability continues until the earliest of the cancellation of the interim cover, the effecting of replacement insurance or the withdrawal of the proposal: s 38(2) (see ¶5-560). Instalment contracts • Where an insured under a contract of general insurance pays premiums by seven or more instalments a year, the insurer cannot refuse to pay a claim unless at least one instalment has remained unpaid for at least 14 days and, before or at the time the contract was entered into, the insurer informed the insured in writing that the contract permitted it to deny liability for nonpayment of a premium instalment: s 39 (see ¶14-050). Liability insurance • A provision in a contract of liability insurance excluding or limiting the insurer's liability because notice of a claim against the insured is not given to the insurer before the expiry of the insurance does not apply if, before the cover expires, the insured gives notice of facts which might give rise to a claim as soon as reasonably practicable after he becomes aware of those facts: s 40 (see ¶14050). An insurer must inform the insured of the effect of s 40, and of the fact that the contract does not provide cover in relation to events occurring before the contract is concluded (if that is the case), before or at the time the contract is either initially entered into or first renewed, extended or reinstated after 1 January 1986,

whichever is the sooner: s 40(2). • Where it would be a breach of a contract of liability insurance for the insured to settle or compromise a claim against the insured, or to make an admission or payment in respect of such a claim, without the insurer's consent, the insured may require the insurer to advise whether it admits that the contract applies to the claim and, if so, whether it proposes to conduct the negotiations and any legal proceedings on behalf of the insured. If the insurer does not so inform the insured within a reasonable time, any settlement of the claim etc by the insured in breach of the contract will not enable the insurer to refuse payment of the claim: s 41 (see ¶23780). Maximum cover • The maximum amount of cover under a contract of general insurance is the highest amount which the insurer would, at the time of entering into the contract, have been prepared to provide for the same premium: s 42 (see ¶23-062). Arbitration • Compulsory arbitration clauses are void, but once the dispute has arisen the parties can agree to arbitration: s 43 (see ¶19-450). Average clauses • An average clause in a contract of general insurance is ineffective unless the insurer clearly informed the insured in writing of its nature and effect before or at the time the contract is either initially entered into or first renewed, extended or reinstated after 1 January 1986, whichever is the sooner: s 44(1). The effect of average clauses is also restricted in the case of insurance of property used principally as a residence for the insured and/or persons with whom he has a family or personal relationship and/or the contents thereof: where the sum insured is not less than 80% of the value of the insured property, an average clause has no effect, and where the sum insured is less than 80% of the

value of the insured property, an average clause only operates to reduce the insurer's liability: s 44(2) and (3) (see ¶23-240). Other insurance • A provision in a contract of general insurance excluding or limiting the insurer's liability because of other insurance effected by the insured is void, except where the contract provides cover in respect of loss not covered by the other insurance (ie excess insurance) or the other insurance is compulsory: s 45 (see ¶23600). Latent defect or disability • Where a loss occurs as a result, in whole or in part, of a defect in the insured property or a sickness or disability of the insured, the insurer will not be able to rely on any provision in the contract excluding liability in such circumstances if the insured was not aware of, and a reasonable person in the circumstances could not be expected to have been aware of, the defect or the sickness or disability, as the case may be (s 46 and 47). Regulations have been made excluding certain classes of insurance from the operation of s 46 (pre-existing defect or imperfection) (see ¶14050). This does not apply to an exclusion based on the diagnosis of a medical condition within a specified period after the date of the contract: Asteron Life Ltd v Zeiderman (2004) 13 ANZ Insurance Cases ¶90-120. Third parties • A third party who is specified or referred to in a contract of general insurance as a person to whom cover extends can recover any loss from the insurer: s 48 (see ¶5-150). • Persons other than the insured who have an interest in the insured property may be able to recover under a contract of general insurance, unless the contract excludes liability for any interest other than the insured's and the insurer clearly informed the insured of that exclusion before the contract was either initially

entered into or first renewed, extended or reinstated after 1 January 1986, whichever is the sooner: s 49 (see ¶4-945). An interested third party must notify the insurer of his interest within three months of a loss. • Where the insured under a contract of liability insurance is liable in damages to a third party and the insured has died or cannot be found, the third party may recover direct from the insurer: s 51 (see ¶27-505). Renewal and cancellation • An insurer under a contract of general insurance which is usually renewed has to serve a renewal notice at least 14 days before expiry of the contract: s 58 (see ¶14-310). The insurer must give written reasons for refusing to renew a contract if so requested: s 75 (see ¶14-315). • An insurer has to give notice of an intention to cancel a contract: s 59 (see ¶14-340). It is also obliged to give written reasons for cancelling a contract if so requested: s 75 (see ¶14-340). • An insurer may only cancel a contract of general insurance if there has been a breach of the duty of utmost good faith, a breach of the duty of disclosure, a misrepresentation, a breach of the terms of the contract, a fraudulent claim by the insured under the contract or under any other contract of insurance which overlaps in time or a failure to notify the insurer of a specified act or omission as required by the contract: s 60 (see ¶14-340). Claims • An insurer cannot refuse to pay a claim where a breach of a term of an insurance contract cannot be reasonably regarded as causing or contributing to the loss. The insurer can only reduce its liability by an amount representing the extent to which its interests are prejudiced: s 54 (see ¶14-050). • A fraudulent claim does not entitle the insurer to avoid the

contract, but only to refuse to pay the claim. However, the Court has the power to order the insurer to pay a just and equitable amount if only a minimal part of the claim is fraudulent and nonpayment of the remainder would be harsh and unfair: s 56 (see ¶18-550). • An insurer will have to pay interest on a claim from the day on which the claim should reasonably have been paid: s 57. The formula to determine the relevant rate of interest is set out in reg 32 of the Insurance Contracts Regulations (see ¶23-400). Subrogation • An insurer is not entitled to be subrogated to the insured's rights against an uninsured third party who has a family or other personal relationship with the insured or, in the case of motor vehicle insurance, had his consent to use the vehicle concerned, unless the third party's conduct occured in the course of or arose out of his employment by the insured or was serious or wilful misconduct: s 65 (see ¶27-220). Rights of subrogation to an insured employer's claim against an employee are also restricted: s 66 (see ¶27-255). • Where an insurer exercises rights of subrogation, the insured is entitled to any moneys so recovered by the insurer (which can deduct its costs of recovering the money) up to the maximum of his loss; any surplus will be retained by the insurer: s 67 (see ¶27300). • An insurer cannot rely on a provision in a contract of general insurance which excludes or limits the insurer's liability because the insured is a party to an agreement excluding or limiting his right to recover damages for a third party, unless the insurer clearly informs the insured of the effect of the provision before or at the time the contract is initially entered into or first renewed, extended or reinstated after 1 January 1986, whichever is the sooner: s 68 (see ¶27-320).

Contribution • Where an insured has more than one general insurance contract in respect of a loss, he or she may recover all loss from one or more of the insurers as may be necessary. (Each insurer is only liable for the maximum sum insured under the relevant contract). The insurer(s) who pays the claim will be able to seek contribution from the other insurer(s) in accordance with common law principles: s 76 (see ¶27-100). Information to be given to insureds • Statutory notices required by s 22 (duty of disclosure), s 35 (standard cover excluded), s 37 (unusual terms), s 40 (liability insurance), s 44 (average provisions), s 49 (others interested) or s 68 (if rights of subrogation affected), are only required to be given to an intending insured when the contract is first entered into, or on the first renewal, extension or reinstatement of the contract after 1 January 1986: s 11(10) (see ¶7-250). Where a contract is subsequently varied, the requirement to provide a notice under s 35, 37, 44, 49, 68 and 71A is limited to the provision of information regarding the contractual provision(s) varied or proposed to be varied: s 11(10). Information under s 22 and 40 need only be given upon a variation of a contract if the variation is involved in a renewal, extension or reinstatement of the contract: s 11(11) (see ¶7-250). • Upon receiving a written request from an insured, the insurer has to provide a written statement of all the provisions of the contract (eg a copy of the policy): s 74. • Written reasons for an insurer's refusal to accept a proposal, or for an offer of cover on less advantageous terms to the insured than usual, have to be given: s 75 (see ¶4-405). Miscellaneous • Where a provision in the Act requires something to be done before a contract is entered into, it will be sufficient if it is done at the

time the contract is entered into: s 11(11) (see ¶7-250). • A provision in an insurance contract which permits the insurer to vary the contract to the prejudice of any other person is void (s 53), although regulations have been made excluding certain classes of insurance contract from the operation of s 53 (see ¶13100). • The provisions of the Act cannot be excluded, restricted or modified to the prejudice of anyone other than the insurer (with certain specific exceptions): s 52. .40 Insurer's rights modified. The fact that a policy was designed to protect innocent partners in a firm, or related companies and innocent directors of the companies, had the consequence that a fraudulent director of one of the companies was also one of the insured and, notwithstanding his guilty acts, was entitled to indemnity. The Full Court of the Supreme Court of South Australia held it was sufficient to justify the hearing and determination of a preliminary issue if to do so would dispose of some substantial issue in an action, or would at least substantially narrow the area of dispute. But when the question in issue was one of law and fact, the question of the factual basis upon which the question was to be answered was critical: Sherry & Ors v FAI General Insurance Company Limited (in liq) (2002) 12 ANZ Insurance Cases ¶61-516; FAI General Insurance Co Ltd (in liq) v Sherry & Ors (2003) 12 ANZ Insurance Cases ¶61-561. .41 Avoidance. To avoid a policy under s 29(3) of the Insurance Contracts Act 1984 an insurer had to establish that it would have entered into the contract even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into: Hanna v Australian Casualty & Life Ltd (2002) 12 ANZ Insurance Cases ¶61-536. .42 Conditions and exclusions. A condition may sometimes be drafted in the form of an exclusion. In Belz v Clarendon America Insurance Co2007 Cal App Lexis 2104, an exclusion as to liability for any default judgment, etc, was held to be a condition as to notification

and co-operation.

¶1-850 General principles Every life insurance company must have at least one statutory fund in respect of its life insurance business (s 31, Life Insurance Act 1995 (Cth); see ¶1-850.01 below). A statutory fund is a fund that: • is established in the records of a life company, and • relates solely to the life insurance business of the company or a particular part of that business (s 29). Principal requirements A valuable outline of the principal requirements pertaining to statutory funds is set out in the Act itself (s 30): • all amounts received by a life company in respect of the business of a fund must be credited to the fund • all assets and investments related to the business of a fund must be included in the fund • all liabilities (including policy liabilities) of the company arising out of the conduct of the business of a fund must be treated as liabilities of the fund • the assets of a fund are only available for expenditure related to the conduct of the business of the fund • statutory funds may not be restructured or terminated without the approval of the Australian Prudential Regulation Authority (APRA) • profits and losses of a statutory fund may only be dealt with in accordance with Pt 4 Div 5 and 6 of the Life Insurance Act (see ¶1-874).

Separate funds Separate statutory funds are to be maintained for business of a similar risk profile. Accordingly, separate statutory funds must be maintained for: (a) investment-linked benefits (s 31(b); see ¶1-850.91 below), to the extent that such business is carried on in Australia, and (b) life insurance business carried on outside Australia (s 31(c)). A life company may maintain a fund for life business carried on in and outside Australia: • if the statutory fund was established before 1 July 1995, and • so far as it relates to business carried on outside Australia, the fund relates only to business carried on in a country or countries in which the company was carrying on life insurance business immediately before 1 July 1995 (s 31). Policies referable to fund Every policy document must specify the statutory fund to which it is referable (s 35). A provision in a policy document that the policy is referable to two or more funds will be effective only if it specifies: (a) the benefits under the policy which are to be provided out of each fund, and (b) either the proportion, or the way in which it is to be calculated, of the premium that is related to the benefits to be provided out of each fund and is to be credited to the fund (s 35(3)). Notice to APRA Whenever a life company establishes a statutory fund, it must give written notice in accordance with regulations to APRA of the following: (a) the establishment of the fund (b) the date on which the fund was established

(c) the nature of the life insurance business of the company to which the fund relates, and (d) other such matters as are prescribed by the regulations (s 33). Restructuring, termination of statutory funds Section 46 requires that a life insurer must not (a) change the statutory fund or funds to which a policy is referable, or (b) terminate a statutory fund, except in accordance with: • s 55 and 35(4) Life Insurance Act 1995, which require assets to be transferred between statutory funds, and notice to be given to policyholders, when a policy document has been endorsed so as to change the statutory fund or funds to which the policy is referable, and • Div 3 of Pt 4, which contains provisions enabling APRA to make prudential standards regulating the restructure and termination of statutory funds. .01 Law: The Life Insurance Act 1995 (Cth) replaced the Life Insurance Act 1945 with effect from 1 July 1995. .91 Investment-linked contract. An “investment-linked contract” is a contract: (a) the principal object of which is the provision of benefits calculated by reference to units the value of which is related to the market value of a specified class or group of assets of the party by whom the benefits are provided, and (b) that provides for benefits to be paid: (i) on death, or (ii) on a specified date or specified dates or on death before the specified date as the case may be (s 14(4), Life Insurance Act 1995).

¶1-905 Duty of directors Life company directors owe a duty to policyholders in respect of: • compliance with the Life Insurance Act 1995 (see ¶1-905.01 below) • compliance with notices under the Act, and • winding up. Compliance with the Act Directors have a duty to ensure that the life company complies with the Act in relation to its statutory funds. If this duty is breached and the breach causes a loss to a statutory fund, the directors guilty of the breach are personally liable to make good that loss. It must be noted at the outset that there is no specific defence afforded to directors in respect of a claim against them for a breach of this duty. The director’s duty in this regard is to take reasonable care and use due diligence to see that, in the investment, administration and management of the assets of a fund, the life company: • complies with Pt 4 of the Act (which deals with the statutory funds of life companies), and • gives priority to the interests, as a group, of owners and prospective owners of policies referable to the fund. There is a clarification in the Act that in the event of conflict between the interests, a director’s duty is to see that the company gives priority to the interests of owners and prospective owners over the interests of shareholders (s 48(3)). As discussed in ¶1-900, this clarification leaves unclear the scope of the requirement for priority in situations where there are no shareholders and where there is no conflict of interest. A director of a company does not commit a breach of his or her duty under this provision because of the doing of an act by the company if

the company is permitted by Pt 4 to do that act (s 48(5)). The scope of this provision is also unclear. However, it seems that it would not override the duty to give priority to policyholders. For example, s 40 authorises the company to mortgage or charge the assets of a fund (see ¶1-858). The directors, when giving such a mortgage, would still have to give priority to policyholders. A director is liable to make good the loss if a loss is caused to a statutory fund of the company as a result of a breach by that director of the duty owed in respect of statutory funds (s 48(6)). If two or more directors are liable for the loss, their liability is joint and several (s 48(7)). An action may be brought to enforce this liability either by the company itself, or with APRA’s approval by the owner of a policy referable to the fund involved. Such approval may be given subject to conditions relating to the persons, or the number of persons, who may join in the action as plaintiffs (s 48(6), (8), (9)). It is important to note that, in respect of the same act or omission of a life company, a person cannot be made liable for both (i) not seeing to the priority of policyholders; and (ii) not complying with a notice to take remedial action (see below) (s 48(10)). Compliance with notices If a life company contravenes Pt 4 of the Act (which deals with statutory funds), APRA may, with the Treasurer’s agreement, give the company written notice to take such remedial action, within such period, as APRA thinks appropriate and reasonable (s 49(1), (3)). The period specified must be no less than one month after notice to take remedial action is given and may be extended by APRA, again with the Treasurer’s agreement, as he or she thinks fit (s 49(2), (4)). The life company is obliged to comply with the notice to take remedial action and the directors must use due diligence to ensure that the company complies with the notice (s 49(5)). If the company fails to comply with the notice to take remedial action with the result that there is a loss to a statutory fund, the directors are jointly and severally liable for the loss (s 50). A person will not be liable if the person can

prove that he or she used due diligence to ensure that the company complied with the notice (s 50(2)). The derivation of the wording of this due diligence defence is unclear. It appears to be partially based on the language of s 85 of the former Trade Practices Act (see now s 207–211 of the Competition and Consumer Act 2011) and on s 1011 of the Corporations Law (see now s 731 and 733 Corporations Act 2001 (Cth)). However, each of these sections provides a wider defence based on: (i) reasonable mistake; or (ii) reasonable reliance on information provided by another person; or (iii) in a situation where a contravention is due to the act or default of another person, to an accident or to some other cause beyond the defendant’s control, a defence that the defendant took all reasonable precautions and exercised due diligence to avoid the relevant contravention. These defences are materially different from that set out in s 50(2). They clearly enable a director to rely on a defence of reasonable reliance on information provided by another. In other words, a director can rely on a due diligence program put in place by the company so long as it is reasonable in the circumstances to rely on that program. However, on the wording of s 50(2), a director must prove that he or she personally used due diligence. Liability on winding up Directors are liable on winding up if the life company contravenes the Act resulting in a loss to a statutory fund. A due diligence defence is available to directors in relation to this liability (s 188; see ¶1-950). .01 Law: The Life Insurance Act 1995 (Cth) replaced the Life Insurance Act 1945 with effect from 1 July 1995.

¶2-300 Primary Commonwealth legislation The Insurance Act 1973 (Cth) (reproduced at ¶70-100) is the primary Commonwealth law in relation to the regulation of the general (nonlife) industry. An overview of the Act is given below. A detailed discussion of the application of the Act and its relationship with state legislation is at ¶2-310ff. For a brief note on the regulation of the general insurance industry prior to the introduction of the Insurance

Act see ¶2-300.30 below. The Financial Services Reform (FSR) regime embodied in Ch 7 of the Corporations Act 2001 (Cth), and regulations made under that Chapter, is also important in the regulation of general insurers, and their intermediaries, which provide insurance products to retail clients. The FSR regime is relevant in particular to: • the licensing and conduct of providers of general insurance products • the licensing and conduct of insurance intermediaries, and • financial services and financial product disclosure to retail consumers of general insurance products. In Australian Prudential Regulation Authority v ACN 000 007 492 (2010) 16 ANZ Insurance Cases ¶61-868, Perram J in the Federal Court noted: “Generally speaking a natural person may not carry on the business of a general insurer at all (s 9) and a corporation cannot carry on that business without holding a licence from the Australian Prudential Regulation Authority (‘APRA’): ss 10(1)(b), 11 and 12(1). Part IIIA of the Act is concerned with prudential supervision. By s 32, APRA may determine prudential standards and, by s 35, a general insurer is required to comply with those standards. One of the functions conferred upon APRA by s 38 is the monitoring of prudential matters which, by s 3, include those relating to the ability of an insurer to keep itself in a sound financial position. In Part IV of the Act extensive provision is made for the appointment of auditors and actuaries to a general insurer and Division 3 of Part IV explicitly empowers APRA, should it think it necessary, to appoint an independent actuary to investigate the liabilities of a general insurer: s 49E(1). More severely, Part V of the Act, which is entitled ‘Investigations of General Insurers’, gives APRA considerable scope to investigate, inter alia, a general insurer which it believes is, or may be, unable to meet its liabilities: s 52(1)(aa)(i).

That ability is supported by a power to enter premises and to inspect, and if necessary to remove, books, a term which is very broadly defined: s 54. It may also appoint inspectors to carry out any such investigation. In the course of carrying out an investigation, notices may be issued, including to third parties, requiring production of documents or assistance with an investigation or requiring a person to attend and be examined: s 55(1). At the conclusion of the investigation a report must be prepared: s 60. Part VB then regulates the external administration of general insurers. There are two aspects to it. The first concerns the relationship between regulation under the Act and external administration under the Corporations Act 2001 (Cth). Because all general insurers must be corporations they are subject to the provisions of the Corporations Act 2001 (Cth). Chapter 5 of that Act regulates the external administration of corporations providing various paths by which they may be placed into the hands of external administrators. Not all of these require the making of a court order as is shown by the appointment of administrators under Part 5.3A and the commencement of a member’s voluntary winding-up under Part 5.5. However, to the extent that a Court order is required — for example, as it is in the case of a winding-up in insolvency under Part 5.4B or the court appointment of a receiver and manager under Part 5.2 — s 62ZQ of the Insurance Act 1973 (Cth) requires APRA to be notified of the application and s 62ZQ(2) gives APRA an entitlement to be heard on any such application. Likewise, APRA is entitled to be notified of, and to be heard on, any application made by a liquidator of a general insurer to a court: s 62ZR. There is thus exhibited a clear legislative intention to place the external management of general insurers on a special footing which includes notification to APRA. The second aspect of Part VB concerns a sui generis form of external management known as judicial management. Part VB was inserted into the Act by cl 11 of Schedule 3 to the Financial System Legislation Amendment (Financial Claims Scheme and

Other Measures) Act 2008 (Cth) which commenced on 18 October 2008. Upon the second reading of the Bill in the House of Representatives on 15 October 2008 the Treasurer indicated those provisions were intended to ‘bring APRA’s powers for general insurers in line with those currently existing for life insurers’ …” Detailed discussion of the application of the FSR regime to general insurers is at ¶2-060 and ¶2-794. Insurance Act 1973 (Cth) The Insurance Act 1973 (reproduced at ¶70-100) applies to all those authorised to carry on “insurance business” as defined in the Act (see ¶2-350). If an insurer underwrites both life and general insurance, it must comply with the provisions of both the Life Insurance Act 1995 (see the CCH Australian & New Zealand Life Insurance Reporter) and the Insurance Act 1973. Allsop CJ in Burroughs v Australian Prudential Regulation Authority [2016] FCA 775; (2016) 19 ANZ Insurance Cases ¶62-109 at [50]–[54] considered the history and objects of the Insurance Act 1973, and stated as follows: “General insurance in Australia is regulated under the Act which, since its inception, has been underpinned by its protective purpose. The provisions of the Act are directed to safeguarding the interests of policyholders of insurance policies to the greatest extent possible as well as ensuring the competiveness and sustainability of the Australian insurance industry more generally. The main object of the Act, which was inserted in 2001 by the General Insurance Reform Act 2001 (Cth) reinforces this purpose. It reads: ‘The main object of this Act is to protect the interests of policyholders and prospective policyholders under insurance policies (issued by general insurers and Lloyd’s underwriters) in ways that are consistent with the continued development of a viable, competitive and innovative insurance industry.’ Since 1973, all insurers carrying on an insurance business in

Australia have been required to hold an authorisation under the Act. … Importantly, many of the requirements of writing insurance are now set out in subordinate prudential standards determined by APRA under s 32 of the Act. The prudential standards apply to all general insurers, authorised [non-operating holding companies], their subsidiaries and specified classes of the above. The standards deal, amongst other things, with capital adequacy requirements, risk management, reinsurance, the transfer and amalgamation of insurance businesses, outsourcing arrangements, governance issues and the fitness and proprietary of individuals holding positions of senior responsibility in those institutions regulated by APRA. Section 2A(2) states that the Act and the prudential standards determined by APRA achieve the main object of the Act mainly by: (a) restricting who can carry on insurance business in Australia by requiring general insurers, and the directors and senior management of general insurers, to meet certain suitability requirements; and (b) imposing primary responsibility for protecting the interests of policyholders on the directors and senior management of general insurers; and (c) imposing on general insurers requirements to promote prudent management of their insurance business (including requirements concerning capital adequacy, the valuation of liabilities, reinsurance arrangements and the effectiveness of risk management strategies and techniques); and (d) providing for the prudential supervision of general insurers by APRA; and (e) providing for judicial management of general insurers whose continuance may be threatened by unsatisfactory management or an unsatisfactory financial position, so as to protect the interests of policyholders and financial system

stability in Australia; and (f) providing for policyholders, who have valid claims connected with certain policies issued by certain general insurers that are under judicial management and that APRA believes are insolvent, to be paid by APRA the amounts to which the policyholders are entitled before they would receive payment in winding up of the general insurers. … The definition of ‘prudential matters’ in s 3(1) also reinforces the objects of the Act. It provides: prudential matters, concerning a general insurer, authorised NOHC or a subsidiary of a general insurer or authorised NOHC, means matters relating to: (a) the conduct by the insurer, NOHC or subsidiary of any of its affairs in such a way as: (i) to keep itself in a sound financial position; or (ii) not to cause or promote instability in the Australian financial system; or (b) the conduct by the insurer, NOHC or subsidiary of any of its affairs with integrity, prudence and professional skill.” An insurer cannot carry on “insurance business” (defined to effectively mean general (non-life) insurance business) in Australia unless authorised to do so, or unless APRA has made a determination under s 7(1) of the Act allowing a particular person to carry on insurance business without authorisation. Only bodies corporate and Lloyd’s underwriters are able to obtain the necessary authority. The General Insurance Reform Act 2001 (Cth) made considerable changes to the Insurance Act which had remained largely unaltered since its enactment in 1973. The amendments were aimed at modernising and strengthening the prudential supervisory regime for general insurers and sought to protect the interests of policy-holders

by requiring general insurers and senior management to meet suitability requirements, and by imposing conditions designed to promote prudent management of insurance business. A “pivotal reform” of the Act was the power given to APRA to make, vary and revoke so-called “prudential standards” to which all general insurers, all authorised non-operating holding companies (“NOHCS”) and their subsidiaries must conform. These standards deal with capital adequacy valuation of liabilities, reinsurance arrangements and the effectiveness of risk management. A standard may impose different requirements for different classes of insurers, or for different situations or activities, so that a high risk insurer may have to hold a higher minimum capital than specified as the norm, to meet its underlying risk profile. Part I of the Act (s 1–7A) concerns the interpretation and application of the Act. Part II (s 8) gives APRA the general administration of the Act, subject to the overriding power of the Treasurer to give directions in respect of the exercise of its powers, while Pt III and IV were repealed and substituted by the General Insurance Reform Act 2001. Part III sets out new provisions for the obtaining of authorisation to act as a general insurer and for the revocation of such authorisation: s 9–31. A NOHC may apply for authorisation, which, if granted, will cover its subsidiaries as well as itself. A decision to refuse an authorisation to an applicant is subject to an administrative review: s 12(6). There is provision for the transfer or amalgamation of insurance business, but the Federal Court is required to give its approval to the scheme under which the arrangement is to be carried out: s 17B. A disqualified person cannot act as a director or senior manager of a general insurer or of an authorised NOHC, although APRA may disregard a disqualification if satisfied that the person is “highly unlikely” to be a prudential risk to an insurer: s 24, 26. A disqualified person is defined in s 25 to include a person who has been or becomes bankrupt, or one who has been convicted of an offence involving dishonesty or an offence under the Act or the Corporations Act 2001 (Cth), or a person whom APRA is satisfied is not a fit and proper person to act as a director or senior manager of a general insurer: s 25A. APRA is empowered to direct the removal from office of a director or senior manager if that person is disqualified or does not meet one or more of

the criteria for fitness and proprietary set out in the prudential standards: s 27. The following principles were established in Stitt v Australian Prudential Regulation Authority (2009) 15 ANZ Insurance Cases ¶61819: • The expression “fit and proper person” calls for a general overall assessment, taking into account the person’s competence, character, diligence, honesty, integrity and judgment to perform properly the duties of director or senior management in the particular industry. Compliance with professional standards was relevant and a prerequisite to suitability. • Negligence, error, mistake or want of awareness are evidence of incompetence. • Earlier incompetence may be forgiven if the evidence and subsequent conduct indicate that the person had learned from such past experience. • A good reputation for character, general professional competence, diligence, integrity and experience are relevant. • Whether the conduct complained of went to any moral turpitude or blameworthy aspect of the person’s character is relevant. • The issue of competence goes to the need to protect the community from persons in the business at a senior level which had failed to exercise due care and diligence. • It is relevant whether the person had been a non-executive director and had been misled by executive directors and senior management without the knowledge of the person, and that there was nothing known to the person that ought to have put him on notice or have aroused suspicion requiring closer scrutiny of the activities and recommendations of management. • The assessment of the person’s past conduct should be

conducted with care as to the danger of hindsight. A decision by APRA is subject to review by the Administrative Appeals Tribunal (AAT) on the application of a respondent to APRA’s proceedings. That party cannot insist upon APRA’s proving that it had a proper basis for making its decision. Rather, there is an application to the AAT to have the decision reviewed in the light of the available relevant material. The AAT may consider the material before APRA, any material required by the AAT and any material that the parties may wish to tender. The standard of proof is the balance of probabilities, and there is no onus of proof on either party. The AAT, standing in the shoes of APRA, is required to look afresh for the correct decision or one that might be preferable to that of APRA on the whole of the material before it and the relevant statutory provisions. APRA has an obligation to assist the AAT in this. Applying the facts of which the AAT is satisfied with, it should then decide whether the party should be disqualified under the Act. Re Stephenson and Australian Prudential Regulation Authority (2008) 15 ANZ Insurance Cases ¶61754. The discretion to disqualify must be supported by an antecedent affirmative satisfaction as to the necessary facts for the engagement of the discretion. If such satisfaction is reached, the discretion will then be considered: Re VBN and Australian Prudential Regulation Authority (No 5) (2006) 92 ALD 259, 330. For an example of conduct justifying disqualification, see Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 19 ANZ Insurance Cases ¶62-109. When requesting reconsideration of a decision, an applicant is required by s 63 of the Insurance Act 1973 to state the reasons for the request. There is controversy as to whether the reasons must be such as to advise the decision maker of the reasons for dissatisfaction with the decision (Re VJB and APRA (2005) 87 ALD 747), or whether they need merely state the reasons for making the application (Comcare v Willems [1996] FCA 1586, followed in Re Stephenson and Australian Prudential Regulation Authority (supra)). Appeals to the AAT may be struck out if they are frivolous or vexatious, but this will be applied only in very clear cases: Re

Stephenson and Australian Prudential Regulation Authority (supra). In deciding this, the tribunal is required to consider any allegation of APRA’s abuse of power, and may take into account the purpose of the party instituting the review proceedings and any collateral purposes. The tribunal is also required to consider any issue of alleged oppression by APRA, any burden that might be placed upon the applicant for review, whether the applicant is capable of serving any legitimate purpose, and the likelihood of failure of the application. In Burroughs v Australian Prudential Regulation Authority [2016] FCA 775; (2016) 19 ANZ Insurance Cases ¶62-109 at [55]–[56], Allsop CJ noted that “prior to the changes brought in by the [Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 (Cth)], APRA had the power to disqualify a director or senior manager under s 25A in its then form”. His Honour then held that “the courtbased process of disqualification was introduced in response to the report of a government taskforce concerned with regulatory compliance … The idea was to ensure greater consistency between the disqualification regime administered by APRA under the [Insurance] Act and the disqualification regime administered by the courts in the area of corporations law. For this reason, a court-based disqualification regime was enacted in respect of numerous statutes, including the [Insurance] Act, Banking Act 1959 (Cth), Life Insurance Act 1995 (Cth), Superannuation Industry (Supervision) Act 1993 (Cth) and Retirement Savings Accounts Act 1997 (Cth).” According to Allsop CJ (at [3]), the amendments to the Insurance Act introduced by the Financial Sector Legislation Amendment (Review of Prudential Decisions) Act “changed the legislative scheme as it operates in respect of the disqualification of directors, senior managers, other representatives of general insurers and other authorised non-operating holding companies (NOHCs). … [P]owers of disqualification and revocation are [now] vested in [the Federal Court which is also empowered] to revoke disqualification orders made by APRA prior to 2008.” Section 26(1) of the Insurance Act enables a disqualified person or APRA to apply to the Federal Court for a variation or a revocation of the order made under s 25A. According to Allsop CJ (at [42]–[46]) “the

first kind of order made under s 26(1)(a) operates to vary or revoke an order made under s 25A. The only circumstance in which it can be sought is if ‘the person is a disqualified person only because he or she was disqualified under s 25A’. … The second kind of order is an ‘order that the person is not a disqualified person’. It should be sought ‘otherwise’, namely in circumstances where a person’s disqualification under s 25A is not the only reason why he or she is a disqualified person for the purposes of the Act. A person is a disqualified person for reasons other than s 25A where any of the matters in s 25(1)(a)– (d) are engaged. When applying to the court under s 26, the moving party must therefore identify whether an order under s 26(1)(a) or s 26(1)(b) is sought, as both kinds of order are mutually exclusive. Further, the moving party must furnish the court with evidence to demonstrate why the particular circumstances of the disqualified person make it appropriate that the court exercise its jurisdiction to make either order.” If the applicant was a disqualified person only because of his or her disqualification under s 25A, he/she could seek an order, and the court had jurisdiction to make an order, only pursuant to s 26(1)(a) of the Insurance Act. According to Allsop CJ (at [61]), “the length of disqualification under s 25A is for a period that the court considers to be ‘appropriate’ [which is] one that best serves the protective purposes of the [Insurance] Act. The court must make a value judgment on the length of time that must pass before a person is no longer a prudential risk to the insurance industry. …[I]n setting an ‘appropriate’ disqualification period, the court will consider the seriousness of a person’s wrongdoing as part of its inquiry and in so doing send a clear message of deterrence to others in the industry.” His Honour held (at [62]–[67]) that s 26 “is the type of provision that confers upon [the Federal Court] ‘a discretionary authority to make orders which create rights or impose liabilities’: Precision Data Holdings Ltd v Willis [1991] HCA 58; 173 CLR 167 at 191. Specifically, s 26(1)(a) performs the ‘double function’ of creating the relevant rights, namely the variation or revocation of a disqualification order, and the enlivening of the court’s jurisdiction with respect to those rights: See R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett [1945] HCA 50; 70 CLR 141 at 165. …

The Act in its current form creates a court-based disqualification regime. This, coupled with the constitutional status of [the Federal Court] … means any order made under s 26 is an exercise of the judicial power of the Commonwealth and, as a result, only exercisable ‘according to legal principle or by reference to an objective standard or test prescribed by the legislature and not by reference to policy considerations or other matters not specified by the legislature’: Precision Data 173 CLR at 191. This is the case despite the fact that the Federal Court, under s 26(1)(a) in its transitional operation, is required to determine whether a disqualification order made in the exercise of APRA’s executive power be varied or revoked. … While s 25A should be read together with s 26, the test … where the court is required to be ‘not satisfied’ of a negative, ie that a person is not fit and proper, [is] unnecessarily cumbersome. The inquiry of the court under s 26(1)(a) is whether to vary or revoke a disqualification order. The question to be asked by the court, therefore, is whether a disqualification continues to be justified or whether it should be revoked or varied. The court’s analysis will have regard to previous conclusions pertaining to an applicant’s fitness and propriety … and whether these continue to be sufficiently justified to warrant the revocation or variance of the disqualification. This formulation avoids the court’s having to make a positive finding of a person’s fitness and propriety in the nature of a jurisdictional fact and yet continues to be guided in its content by the considerations found in the current s 25A of the Act.” In Burroughs v APRA, Allsop CJ also considered the meaning of “fit and proper person”, in the context of the Insurance Act. According to Allsop CJ (at [68]–[76]), “as noted in Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321 per Gaudron and Toohey JJ at 380, such an expression always derives its meaning from the its statutory context: “The expression fit and proper person, standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of ‘fit and proper’ cannot be entirely divorced from the conduct of the person who is

or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur.” To better understand the meaning of this expression in this context of the [Insurance] Act, s 25A(3) directs the court to consider any relevant criteria set out in the prudential standards. Prudential Standard GPS 520 at [24] sets out the minimum standards expected of individuals holding positions of responsibility within APRA-regulated institutions and specifies the following aspects of fitness and propriety including whether: (a) it would be prudent for an APRA-regulated institution to conclude that the person possesses the competence, character, diligence, honesty, integrity and judgement to perform properly the duties of the responsible person position (b) the person is not disqualified under an applicable prudential act from holding the position (c) the person either: (i) has no conflict of interest in performing the duties of the responsible person position, or (ii) if the person has a conflict of interest, it would be prudent for an institution to conclude that the conflict will not create a material risk that the person will fail to perform properly the duties of the position, and (d) for a senior manager of a corporate agent of a general insurer, the person is ordinarily resident in Australia [see ¶48-420]. The list of personal qualities found at (a) are directed both to the ethics of a person’s conduct (“character” “honesty” and “integrity”) as well the level of skill that a person must be expected [to] bring to a responsible role (“competence” and “diligence”).

The requirement of judgment encompasses considerations of both ethics and competency. In the context of the [Insurance] Act, judgment demands decision-making that is prudent, technically sound, approached with an independence of thought and that is cognisant of the protection that must be afforded to policyholders. “Judgment” could likewise be defined by what it is not: it does not involve reckless or ill-considered choices that fail to consider the relevant business and financial implications, nor is it dishonest. What constitutes good judgement will depend on the particular office held by a person and the particular responsibilities that attach to that office. Considering that the [Insurance] Act imposes primary responsibility for protecting the interests of policyholders on the directors and senior management of general insurers, a person with judgment in this statutory context would be a person who is not only aware of the obligations of an insurer under the [Insurance] Act and under the prudential standards that attach to it but who is duly attentive to those obligations in the course of his or her day-to-day decision-making. In the case of the insurance industry, a senior manager’s or director’s level of diligence and competency must be very high. While corporate failure is sometimes inevitable and could even be seen as part and parcel of entrepreneurial venture and of the taking of commercial risk in a capitalist country, the very purpose of prudential supervision is to prevent failure as far as is possible by ensuring that risk is wellmanaged. … Ultimately, it is the board and senior managers who carry the primary responsibility of ensuring the financial viability of the industry through the diligent and honest participation in the industry and, for this reason, directors and senior managers must be held to high standards. When the court disqualifies a person from being or acting in a senior insurance role pursuant to s 25A, it is concerned with whether that person, at the point in time of forming its state of satisfaction, is not a fit and proper person. Under s 26(1)(a), the court is required to evaluate past conclusions made with regard to an applicant’s lack of fitness and propriety … and assess whether those conclusions, at the time at which the application for variance or revocation is before the

court, continue to be sufficiently justified to warrant the revocation or variance of the disqualification. This does not mean that a person’s past conduct which led to the disqualification and its objective seriousness is irrelevant or even peripheral to the court’s enquiry. It may well be central. However, the court will consider the passage of time since a person’s disqualification and, importantly, whether a person can demonstrate clear insight into the nature of his or her past wrongdoings, and a consciousness for the need for change and the human capacity to change. If a person does not apprehend fully why their past conduct led to disqualification, the court may consider that a disqualification continues to be justified.” Allsop CJ (at [77]–[80]) also considered the meaning of the word ‘justified’ in the statutory context. “Section 25(A)(4) sets out what the court may have regard to in deciding whether a disqualification is justified, namely: (a) the person’s conduct in relation to the management, business or property of any corporation; and (b) any other matters the court considers relevant. … In light of the fact that the [Insurance] Act imposes the primary responsibility for protecting the interests of policyholders on the directors and senior management of general insurers, the likelihood of a person being a prudential risk certainly constitutes a relevant consideration in addressing the ‘justified’ criterion. The protective underpinnings of the legislative scheme mean that disqualification will continue to be justified if there is any real or remote chance that a person will pose a prudential risk. … APRA’s view assists the court’s inquiry on the questions of fitness and propriety, given that a ‘fit and proper’ person is one who maintains the confidence of APRA. … APRA’s supervisory approach is one therefore that relies on a high level of cooperation with industry in order that risk is managed in the best possible way. … If APRA is of the view that an individual is or is not fit and proper, this will necessarily influence whether the relationship between APRA and the individual can be one of mutual trust so as to give effect to APRA’s supervisory approach which relies

on close collaboration with directions and senior management. This, in turn, will influence the court’s views whether a disqualification should be revoked.” See Allsop CJ’s expanded analysis in Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 19 ANZ Insurance Cases ¶62-109. Part IIIA of the Insurance Act deals with prudential standards to be determined by APRA, the necessity to consult beforehand with general insurers and NOHCs which will be affected thereby, the monitoring of such standards by APRA and compliance therewith: s 32–38. Part IV of the Insurance Act (s 39–49Q) sets out new requirements for the appointment and eligibility of auditors and actuaries who must comply with the prudential standards in performing their duties on pain of their appointment being revoked by APRA. It is the duty of auditors and actuaries to give information about an insurer to APRA on request if the latter considers such information will assist it to perform its functions under the Act: s 49. There is also an obligation on the part of auditors and actuaries to advise APRA where they have reasonable grounds for believing that the insurer is insolvent or likely to be so, or has failed to comply with prudential standards: s 49A. An indemnity is given to a person who gives such information in good faith and without negligence: s 49C. The role of an auditor and an actuary is specified in s 49J and 49K respectively. So far as accounts are concerned, new provisions in s 49M and 49N give APRA the power, with the Treasurer’s agreement, to direct a general insurer to make provision in its accounts so as to alter its liabilities to a specified amount, or to revalue its assets to a specified figure, where APRA is not satisfied with the valuations made by the insurer under the prudential standards. Part V of the Insurance Act is concerned with the wide powers of investigation of an insurer’s affairs possessed by APRA. Part VI deals with the review of certain decisions of APRA (specified in the Act) by the Administrative Appeals Tribunal, while Pt VII has special provisions relating to Lloyd’s underwriters doing business in Australia. They are authorised to carry on business in Australia (s 93), but they

are required to ensure that they have established so-called “designated security trust funds” out of which final judgments obtained in Australia against a Lloyd’s underwriter in respect of certain insurance liabilities can be satisfied. APRA has extensive powers of investigation in relation to the trust funds which correspond to the powers conferred by Pt V in relation to general insurers. The Insurance Regulations (reproduced at ¶70-150) primarily prescribe information and documents to be provided upon applying for an authority to carry on insurance business (see ¶2-350ff). .30 Background. Prior to the commencement in August 1974 of the Insurance Act 1973, the general insurance industry in Australia was not subject to any detailed form of supervision. Commonwealth control of the industry was limited to the Insurance (Deposits) Act 1932, which required persons conducting insurance business in Australia to lodge a deposit with the Treasurer as a precondition to carrying on such business. The provisions of the Insurance (Deposits) Act 1932 ceased to have effect as from 1 August 1979, except in relation to those insurers in liquidation. Interest earned on the moneys constituting the statutory deposit under the Insurance (Deposits) Act 1932 is part of the company’s general funds: Re Saltergate Insurance Co Ltd (No 3) (1984) 2 ACLC 740, per Needham J at p 745.

¶1-805 State and territory legislation In order to carry on life insurance business in most states or territories of Australia, it is necessary either to obtain a licence or to register under the stamp duties or equivalent legislation of the relevant state or territory, in addition to registering with the Australian Prudential Regulation Authority (APRA) under the Life Insurance Act 1995 (Cth) (see ¶1-810ff). New South Wales In New South Wales, a life company that writes life insurance (or a general insurer) must register with the Chief Commissioner of State Revenue (s 248 Duties Act 1997 (NSW)). Failure to do so when required attracts a maximum penalty of 100 penalty units. Application

for registration must be made in the approved form (s 248 Duties Act). “Life insurance” is defined in s 240 as: “insurance described in section 9(1)(a)–(g) and 9A of the Commonwealth Life Insurance Act 1995 in respect of: (a) a life or lives, or (b) any event or contingency relating to or depending on a life or lives, of a person whose principal place of residence is, or persons whose principal places of residence are, in New South Wales at the time the policy that effects the insurance is issued.” Victoria In Victoria, a life insurer, ie, a person who writes life insurance otherwise than as an insurance intermediary, and who is registered under the Life Insurance Act 1995 (Cth), may apply in the approved form for registration as an approved life insurer (s 203 Duties Act 2000 (Vic)). “Life insurance” is defined in s 198 as: “any insurance or assurance in respect of— (a) a life or lives, or (b) an event or contingency relating to or depending on a life or lives, of a person who is, or persons who are, domiciled in Victoria at the time the insurance policy is issued, but does not include insurance against accident.” Queensland In Queensland, a life insurer (or a general insurer) must be registered under Pt 1 of Ch 12 of the Duties Act 2001 (Qld) in order to carry on insurance business (s 369 Duties Act 2001 (Qld)). Failure to be registered carries a maximum penalty of 200 penalty units. A “life insurer” is a person who writes life insurance, other than as an insurance intermediary; and is registered under the Life Insurance Act

1995 (Cth) (s 355 Duties Act 2001). “Life insurance” is defined as insurance applying to a life or lives, or any event or contingency relating to or depending on a life or lives, of a person or persons whose place of residence is in Queensland when the policy effecting the insurance is issued (s 351 Duties Act). South Australia In South Australia, a company, person or firm of persons must not carry on any assurance or insurance business in any year in South Australia, whether the head office or principal place of business of that company, person or firm is in South Australia or elsewhere, unless the company, person or firm has taken out an annual licence for that year in a form determined by the Commissioner of State Taxation, on penalty of a fine of $10,000 (s 33 Stamp Duties Act 1923 (SA)). Application for a licence must be made in approved form, and accompanied by the duty (if any) payable under Sch 2 on the annual licence application (s 34 Stamp Duties Act). “Assurance or insurance business” is defined (s 32 Stamp Duties Act) as meaning and including: “(a) the granting or issuing of any life, personal accident, fire, fidelity, guarantee, livestock, plate glass, marine or other assurance or insurance policies; or (b) the acceptance, either directly or indirectly, of any premium, renewal premium or consideration for, or in respect of, the granting or issuing or keeping alive or in force of any life, personal accident, fire, fidelity, guarantee, livestock, plate glass, marine or other policy; or (c) the receiving of any letter or declaration of interest attaching to any life, personal accident, fire, marine or other policy issued in South Australia or elsewhere; or (d) the carrying out, by means of assurance or insurance effected out of South Australia, of any written, verbal or implied contract or undertaking to effect assurance or insurance.”

Tasmania Insurers must be registered with the Commissioner of State Revenue under the Duties Act 2001 (Tas), on penalty of a fine of up to 100 penalty units (s 179 Duties Act). “Insurer” is defined as a life company that writes life insurance or a general insurer (s 178 Duties Act). “Life company” has the same meaning as in the Life Insurance Act 1995 (Cth) (s 3 Duties Act). “Life insurance” is defined as any insurance or assurance in respect of a life or lives, or an event or contingency relating to or depending on a life or lives of a person whose principal place of residence is, or persons whose principal places of residence are, in Tasmania at the time that the policy that effects the insurance is issued, but does not include insurance against accident (s 172 Duties Act). Registration is via application in the approved form (s 180 Duties Act). The Commissioner may cancel an insurer’s registration if, among other things, the insurer ceases to be a life company, or for any other reason the Commissioner thinks sufficient (s 181 Duties Act). A registered insurer who ceases to write insurance business in Tasmania must notify the Commissioner in writing, on penalty of a fine of up to 100 penalty units. Notification cancels the insurer’s registration (s 182 Duties Act). Australian Capital Territory In the Australian Capital Territory, a life company that writes life insurance (or a general insurer) must register with the Commissioner for Revenue (s 189 Duties Act 1999 (ACT)). Tax is payable on most insurance premiums with a few exceptions. Northern Territory In the Northern Territory, an insurer cannot carry on life insurance business unless registered with the Territory Commissioner of Taxes (s 45(1) Taxation Administration Act (NT); s 4 and Sch 1 (item 18) Stamp Duty Act (NT)). Application for registration must be in the approved form (s 47 Taxation Administration Act). Failure to register where required to do so attracts a maximum penalty of $5,000, plus $100 for each further day of non-registration, but does not affect the insurer’s liability, including contingent liability, under any policy issued by the insurer in the course of carrying on insurance business in the

Territory (s 45 and 123 Taxation Administration Act). See further ¶2310 in the Australian & New Zealand Insurance Reporter. Application of state and territory laws The application of the law of a state or territory will be overridden by the Life Insurance Act 1995 (Cth) (see ¶1-805.01 below) to the extent that that law is incapable of operating concurrently with the Life Insurance Act. There are exceptions: the Life Insurance Act applies to the exclusion of a superseded state Act (see ¶1-805.02 below); and any state Act amending or substituting such an Act (s 233). This does not affect, prejudicially, the rights, powers or privileges of the owner or person entitled to the benefit of a policy issued before 20 June 1946 (the commencement date of the Life Insurance Act 1945). .01 Law: The Life Insurance Act 1995 (Cth) replaced the Life Insurance Act 1945 with effect from 1 July 1995. .02 Superseded state Act. Section 233(4), Life Insurance Act 1995 provides that for this purpose a “superseded State Act” is one which is referred to in s 8(1), Life Insurance Act 1945, as in force immediately before the commencement of the Life Insurance Act 1995 (ie 1 July 1995).

Tax Institute CommLaw3 Module 1 — Cases Ruapehu Alpine Lifts Limited v State Insurance Limited (1998) 10 ANZ Insurance Cases ¶61-404 High Court of New Zealand Judgment delivered 8 June 1998 Insurance — Contract — Business interruption as a result of spoiled snow from volcanic eruption — Whether snow constituted “property” — Whether insurer liable for business interruption. Substantial areas of the slopes of Mt Ruapehu have been developed as popular ski fields. Ruapehu Alpine Lifts (“RAL”) held an exclusive licence to operate one such ski field over a defined area. The licence area encompassed 450 hectares and RAL had extensive assets, equipment, ski lifts and buildings that were used in its operations. In September 1995 Mt Ruapehu erupted and the volcanic activity continued until the end of October. The mountain erupted again in June 1996 and continued until August. As a result of the large quantities of volcanic ash that deposited on the snow, RAL had to cease operating the ski field for lengthy periods. RAL held insurance policies with State Insurance Limited (“SIL”) which provided cover for material damage to RAL’s property and business assets. RAL also held consequential business interruption cover. The consequential loss policy provided that SIL was not liable unless the damaged property was also the subject of the material damage cover, unless the damage or destruction arose out of earthquake, geothermal activity, volcanic eruption, boiler and/or economiser explosion. SIL met RAL’s claims in respect of the material damage to RAL’s property but declined to meet RAL’s claims pursuant to the business interruption insurance cover. The parties were nevertheless in

agreement that if liability existed it was at the level of $4,668,993 plus GST, licence fees and interest. RAL commenced proceedings against SIL in respect of its loss. RAL submitted that “property” encompassed both real and personal property and that the snow either formed a part of the land, so as to be part of the realty and therefore property, or alternatively that the snow was a movable substance above the land but lying on it and was personalty so as to be property. SIL contended that snow did not constitute “property” for the purposes of the consequential loss policy. Further, SIL submitted that the terms of the policy were intended to cover property not owned by the insured but, for example, leased by it from others and used by it in carrying out its business. Held: application granted. 1. Whilst items of property were described in the material damage policy, such definitions of property did not automatically apply to the interpretation of that word in the consequential loss policy because it was clear that the latter policy envisaged cover for “property” that was outside the material damage policy. The material damage policy related to property belonging to or held by the insured or for which the insured held in trust or on commission and was responsible for it, and the cover was fixed relating to its assessed value. 2. The consequential loss policy insured against the peril of volcanic eruption interrupting or interfering with the business of the insured through such peril destroying or damaging “any building or other property or any part thereof” used for the purposes of the business. The relevant factor was not the value of the item that was being insured against, but rather the worth to the business of the item of property. 3. The ejusdem generis rule assisted in the interpretation of a contract of insurance. Where there is an enumeration of words followed by a more general term, and the preceding words relate to a category or series of categories, the general words following them shall not extend beyond the categories defined by the preceding words. The courts

have to construe words used to give effect to the intention of the parties and to use the ejusdem generis rule only as an aid to that end. 4. The policy envisaged cover for consequential loss from property not only insured under the material damage policy but other property not so insured, but nevertheless having cover for damage through volcanic eruption, which was used for the purposes of RAL’s business. To limit the definition of property to that class of item falling within the genus of building, structure or erection was not justified. 5. The general words “other property” related to the identity of the object being used, and required to be destroyed or damaged. The cover related to the loss of use of that article or item of property so as to affect profits or business income, rather that the value of the item. The clause was a standard form of business interruption wording, well known in the insurance industry. 6. The fact that snow was a product of nature produced through a type of precipitation did not exclude it from falling into the category of being ``property''. Snow is ``property'' whilst that commodity is located at and situated upon the licence areas, the licensor is entitled to the use of its natural advantages which nature may have deposited there, although it had been supplemented by artificially created snow. Provided that the product was tangible, capable of being used in a real sense, capable of being moved, transported, shaped and ``harvested'' then it was capable of being ``property''. RAL engaged in extensive shaping and grooming of the snow which fell on their licence area, and which they also created, through the use of machinery known as snow groomers. 7. The ``premises'' comprised the total licence area that RAL occupied. It used those premises in the sense that it utilised them for the purposes of the business, primarily but not exclusively, for use as a ski field. Whilst snow was capable of being used, and was acknowledged to be used, it was incapable of being occupied. It was not the snow which comprised the premises, the subject of the occupation, but the total licence area which, it so happened, had a snow covering from time to time arising through natural and artificial means.

8. The business loss cover was important to RAL and SIL would, or should, have been aware that clarity was essential. It knew that loss to the business through damage by volcanic eruption, was within contemplation of the parties. [Headnote by the CCH INSURANCE LAW EDITORS] R Asher QC with SL Rees-Thomas (instructed by Kensington Swan, Wellington) for the plaintiff. JR Parker with AB Darroch (instructed by Morrison Kent, Wellington) for the defendant. Before: Gendall J. Gendall J: The three mountain peaks located on the central North Island volcanic plateau, Mts Ruapehu, Ngauruhoe and Tongariro were gifted to the people of New Zealand in 1887 by the paramount chief of Ngati Tuwharetoa, Horonuku TeHeu Heu Tukino. Those mountains form the nucleus of Tongariro National Park owned by the Crown and managed and administered by the Department of Conservation. Mt Ruapehu is an active volcano and although for lengthy periods apparently placid, its capricious forces are well known, having directly led to the loss of 151 lives in the Tangiwai railway tragedy in early 1953, when the crater lake sent its devastation upon a railway bridge far outside the National Park area. Substantial areas of the slopes of Mt Ruapehu have been developed as popular ski fields. The plaintiff, Ruapehu Alpine Lifts, operates one such ski field providing facilities for skiing, snowboarding and other mountain sports on the north western slopes in what is known as the Whakapapa Skifields. Its business is operated under an exclusive licence granted to it by the Minister of Conservation over a defined area known as the licence area. It has the exclusive right to possess buildings and facilities and land, with rights to use the remainder of the licence area to carry on its business and no person may engage in any business within that licence area unless Ruapehu Alpine Lifts is first given the opportunity. The right of the public to enter onto and use and enjoy the ski field, it being within the National Park, of course remains, but it is Ruapehu Alpine Lifts which has the exclusive right to operate their business on the ski field area. The licence area encompasses 450 hectares and Ruapehu Alpine Lifts has extensive

assets, equipment, ski lifts and buildings used in its operations. On 23 September 1995 Mt Ruapehu erupted. It continued to erupt with significant volcanic activity, periodically, until the end of October 1995. Again, at the height of the ski season, the mountain erupted on 24 June 1996 and continued to display its capriciousness until August 1996. The eruptions led to large quantities of volcanic ash being deposited on snow on the Whakapapa Skifield to such an extent that Ruapehu Alpine Lifts had to cease operating its business at the ski field for lengthy periods in both 1995 and 1996. The snow was covered, or heavily impregnated, by corrosive volcanic ash, and was rendered incapable of use whether for skiing, snowboarding or otherwise. The very essence of the core winter time business of Ruapehu Alpine Lifts had been removed. Ruapehu Alpine Lifts (hereafter described as ``RAL'') had insurance policies with the defendant (``State'') since 1992 providing cover for material damage to property and assets of the plaintiff's business at Whakapapa. In addition it had consequential business interruption cover. Claims brought by RAL in respect of material damage to property, arising out of the two eruptions have been met. However State has declined to meet claims brought by RAL pursuant to the business interruption insurance cover and the Court is asked to determine the liability, or otherwise, of State in respect of such insurance cover. Although there was a change of wording in the policy terms in 1995, the relevant provisions remained the same and the policy provided: “STATE HEREBY AGREES that if during the Period of Insurance specified in the Schedule or during any subsequent period for which State shall agree to accept the premium required for renewal of this Policy, any building or other property or any part thereof used by the Insured at the Premises, or as provided herein, for the purposes of the Business be destroyed or damaged by 1 Accidental loss or damage covered by the Insured's Material Damage Policy effected with State

2 Boiler and/or economiser explosion on the premises or elsewhere 3 Earthquake, geothermal activity or volcanic eruption (all such loss, damage or destruction being hereinafter termed `Damage') and the Business carried on by the Insured by in consequence thereof interrupted or interfered with THEN State will pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the provisions contained herein. PROVIDED THAT (a) State will not be liable for any loss under this Policy unless the Insured's property destroyed or damaged at the Premises is insured against such damage (loss arising out of destruction or damage by earthquake, geothermal activity, volcanic eruption, boiler and/or economiser explosion excepted) and State shall have paid for or admitted liability in respect of the Damage unless the sole reason such payment has not been made or liability has not been admitted shall be the operation of a proviso in such insurance excluding liability for losses below a specified amount. (b) from the amount payable under this Policy in respect of loss arising from earthquake, geothermal activity or volcanic eruption State will deduct 2% of the amount of such loss with a minimum deduction of $2,000 [this provision is only in the 1996-1997 Policy] (c) the liability of State shall in no case exceed in respect of each Item the Sum Insured expressed in the Schedule”. The parties have agreed on certain facts which I record, in full, as follows: ``1.1 The defendant has provided both material damage, and business interruption (consequential loss) insurance cover to the

plaintiff, under a material damage policy and a consequential loss policy respectively since 1 May 1992, in relation to the operation by the plaintiff of its business at Whakapapa Skifield on Mt Ruapehu. 1.2 The `Premises' as defined in the consequential loss policy includes the Whakapapa Skifield which the plaintiff occupies and uses pursuant to a licence granted to it by the Minister of Conservation under section 49 of the National Parks Act 1980. 1.3 The material damage and consequential loss policies have been renewed on a yearly basis on principally the same terms as they were at the date of their inception in 1992, with such renewals taking effect as at 1 May in each year. 1.4 The plaintiff has paid all premiums due in respect of the policies referred to since the inception of those policies up until 1997, when those policies were terminated. 1.5 On Saturday, 23 September 1995 Mt Ruapehu, on which the Whakapapa Skifield is situated, erupted and continued erupting periodically from that date through to the end of October 1995, and again erupted on Monday, 24 June 1996 and continued erupting through to August 1996 and the eruptions deposited volcanic ash on the snow and thereby damaged the snow on Whakapapa Skifield. 1.6 Due to the damage caused to the snow on Whakapapa Skifield by the ash in both the 1995 and 1996 years, the plaintiff had to close the skifeld and as a result lost business. 1.7 The plaintiff and the defendant have now agreed between them the quantum of the loss suffered by the plaintiff as a result of Whakapapa Skifield being closed because of the ash damage to the snow as follows: (a) As to the 1995 year: $325,874 (plus GST); (b) As to the 1996 year: $4,343,119 (plus GST); (c) In addition to these amounts will be any licence fees which

are properly payable by the plaintiff under the licence. 2 The plaintiff and the defendant have agreed that in the event the Court should grant the plaintiff the relief it seeks in its amended statement of claim of a declaration that it is entitled to cover from the defendant under the policies in respect of losses it has suffered by interruption to its business as a result of ash on snow on the skifield, the Court should also enter judgment for the plaintiff against the defendant for the amount as quantified in the previous paragraph (`The Sum Owing'), plus interest up to 31 July 1997 of $343,725 and since that date interest calculated monthly on The Sum Owing at the rate of 1% per annum above the National Bank 30 day bank bill buy rate applying as at the first day of the month in question, plus costs.'' The claim is substantial. The parties agree that if liability exists it is at the level of $4,668,993 plus GST, licence fees and interest. Quantum is not in dispute. The issue is solely the liability, if any, of State. For determination is the narrow question, namely whether the business carried on by RAL was interrupted or interfered with as a consequence of damage through volcanic eruption to any building or other property or any part thereof used by RAL at the premises for the purposes of the business. Put in another way, did volcanic ash falling upon the snow contaminate it, as a result of the eruptions in 1995 and 1996, constitute damage to a building or other property or any part thereof used by RAL at the premises for the purposes of its business, so as to fall within the cover provided by the consequential loss insurance policy. State agrees that: (1) snow was damaged by ash created by volcanic eruptions; (2) snow is used by RAL for the purposes of its business. State says however that snow is not ``property'' for the purposes of the consequential loss policy. In order to succeed RAL must establish that its claim comes within the essential terms of the policy, namely whether snow was:

(a) ``any building or other property''. State says that snow is not ``property'' for the purposes of the consequential loss policy; (b) ``used by the insured''. State accepts this; (c) ``at the premises''. State submits that snow is part of ``the premises'' and thus cannot be other property used at the premises; (d) ``for the purpose of their business''. State accepts this; (e) ``be destroyed or damaged''. The defendant accepts this; (f) ``by earthquake, geothermal activity, or volcanic eruption''. State accepts this; (g) ``and the business carried on by the plaintiff was in consequence of such damage interrupted or interfered with.'' Approach to interpretation of the policy wording The principles of interpreting terms of an insurance contract are well known. They do not need exhaustive analysis. The same rule of construction applying to all contracts applies equally to insurance contracts: ``that it is to be construed according to its sense and meaning as collected in the first place from the terms used in it, which terms are themselves to be understood in their plain, ordinary and popular sense unless they have generally in respect to the subject- matter, as by the known usage of trade or the like, acquired a peculiar sense distinct from the popular sense of the same words, or unless the context evidently points out that they must in the particular instance, and in order to effectuate the immediate intention of the parties to that contract, be understood in some special and peculiar sense.'' Robertson & Anor v French (1803) 4 East 130, 135-136; 102 ER 779, 781-782 per Lord Ellenborough CJ.

The issue is always the intention of the parties, objectively ascertained and gathered from the wording of the policy with words being construed, in the first instance in the ordinary meaning, but in the context of the document as a whole. ``The intention of the parties is to be discovered from the words used in the document. Where ordinary words have been used they must be taken to have been used according to the ordinary meaning of these words. If their meaning is clear and unambiguous, effect must be given to them because that is what the parties are taken to have agreed to by the contract. Various rules may be invoked to assist interpretation in the event that there is an ambiguity. But it is not the function of the Court, when construing a document, to search for an ambiguity. Nor should rules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of the words, is not there. So the starting point is to examine the words used in order to see whether they are clear and unambiguous. It is of course legitimate to look at the document as a whole and to examine the context in which these words have been used, as the context may affect the meaning of the words. But unless the context shows that the ordinary meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail.'' Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] ANZ ConvR 326 at 327; 1 NZLR 391 (PC) at 394395. The operative clauses in the Business Loss Policy are to some extent linked to the material damage cover, at the outset, because if there is loss or damage to property used by the insured for the purposes of its business, which is itself the subject of cover under the material damage policy, then consequential loss cover exists. The material damage cover under that policy of course relates to the value of the item insured and it is on that basis that premiums are fixed. The consequential loss policy however is not related to the value of any particular item of property but rather to the loss that might arise to the

business if there be damage to such property in circumstances giving rise to liability. But the consequential loss policy provides that State is not liable unless the property, damaged or destroyed, is also the subject of the material damage cover for its own value except if damage or destruction arises out of earthquake, geothermal activity, volcanic eruption, boiler and/or economizer explosion. It clearly envisages that cover for such loss exists where there is damage or destruction through volcanic eruption to property which is not itself insured for a stated value, or level of cover under material damage policy. There would not be such cover for loss if property, not subject to the material damage cover, is damaged by the other risks. The words envisage or contemplate some item of or part of property used by the plaintiff in its business, but not necessarily the subject of its own material loss cover so as to provide for replacement or reinstatement. State submits that the terms of the policy were intended to cover property not owned by the insured but, for example, leased by it from others and used by it in carrying out its business. The consequential loss policy extends cover, in its ``Dependencies Memorandum'' (clause 5) to cover property not on the premises, such being the skifield area. The description of property in that clause is wide and unqualified. Whilst items of property are described in the material damage policy, such definitions of property do not automatically apply to the interpretation of that word in the consequential loss policy because it is abundantly clear that the latter envisages cover for ``property'' that is outside the material damage policy. The material damage policy relates to property belonging to or held by the insured or for which the insured holds in Trust or on commission and is responsible for it, and cover is fixed relating to its assessed value. But the value of an item of property may have no bearing at all on consequential loss arising to the insured's business if such property be damaged and not available to be used in the business. What is being insured against in the relevant part of the consequential loss policy is the peril of volcanic eruption interrupting or interfering with the business of the insured through such peril destroying or damaging ``any building or other property or any part thereof'' used for the

purposes of the business. There may, for example, be no damage to a valuable asset, yet nevertheless damage to some other item of property of lesser intrinsic value which is crucial to the business and which leads to consequential loss in the profitability or viability of the business. The relevant factor is not the value of the item that is being insured against, but rather the worth to the business of the item of property. State concedes that there was damage to snow. That is beyond doubt. It concedes that snow was used by the insured in its business. That, too, is obvious. However State contend that, in terms of the consequential loss policy: (1) Snow was not ``property''. (2) It formed part of the ``premises'' rather than being used at the premises. (3) Snow does not come within the definition of ``any building or other property or any part thereof'' being not property for which the insured was responsible and, it submits, the application of the ejusdem generis rule would prevent the inclusion of snow in such definition. As to the application of the ejusdem generis rule. This well known rule of construction can be called in aid to assist in the interpretation of a contract of insurance. It simply means that where there is an enumeration of words followed by a more general term, and the preceding words relate to a category or series of categories, the general words following them shall not extend beyond the categories defined by the preceding words. It has often been said that the general word must follow upon a genus or things of the same nature in order for the rule to apply. But in the end the Courts have to construe words used to give effect to the intention of the parties and to use the ejusdem generis rule only as an aid to that end. As was said in Tillmanns & Co v S S Knutsford Limited [1908] 2 KB 385 per Farwell LJ at p 402-403: ``But in all cases it is a question of construction. Now there is no

room for the application of the ejusdem generis doctrine unless there is a genus or class or category — perhaps category is the better word,... Unless you can find a category there is no room for the application for the ejusdem generis doctrine... It is first of all necessary to find that the document in question in any case contains a category properly so called at all; when that is once determined in the affirmative, it becomes necessary to ascertain the items which fall within that category.'' And at p 405: ``The rule may be taken as stated by Lord Tenterden CJ in Sandiman v Breach (1827) 7 B.&C. 96, at p 100: `Where general words follow particular ones, the rule is to construe them as applicable to persons ejusdem generis.''' There was some suggestion as long ago as 1920 that the risk existed of the rule developing into a ``juristic fetish'' (Magnhild (SS) v McIntyre Brothers & Co [1920] 3 KB 321 at 326 per McCardle J), and it has to be kept in mind that the rule is an aid of construction only, the object being to find the intention of the parties: ``the instrument, the nature of the transaction, and the language used must all have due regard given to them, and although it is a common place to observe it, I think it important to bear in mind, first of all, that this is a clause of a kind very familiar in ordinary contracts of carriage...'' Thorman v Dowgate Steamship Company [1910] 1 KB 410, 416 per Hamilton J. The authoritative discussion on the rule is in Chandris v IsbrandtsenMoller Co Inc [1951] 1 KB 240 at 244: ``A rule of construction cannot be more than a guide to enable the Court to arrive at the true meaning of the parties. The ejusdem generis rule means that there is implied into the language which the parties have used words of restriction which are not there. It cannot be right to approach a document with the presumption that there should be such an implication. To apply the rule

automatically in that way would be to make it the master and not the servant of the purpose for which it was designed — namely, to ascertain the meaning of the parties from the words they have used. The first approach will often plainly show that the words are used far more widely than the parties could have intended; as, for example, `all other perils' in the policy which formed the subject of the well-known decision of Thames and Mersey Marine Insurance Co Ltd v Hamilton, Fraser and Co (1887) 12 App. Cas. 484. The so-called rule is, in short, really only a recognition of the fact that parties with their minds concerned with the particular objects about which they are contracting are apt to use words, phrases or clauses, which taken literally, are wider than they intend. Under the description of ejusdem generis the principle is applied to words only. But it is not different [p 245] from the principle which restricts the meaning of clauses if literally they are inconsistent with the main object of the contract...'' It has been said that a single species cannot constitute a genus so that where only one category is specifically referred to the rule would not be applied: R v Special Commissioners of Income Tax; Ex parte Shaftesbury Homes [1923] 1 KB 393, 400, National Insurance Co of New Zealand Limited v Rutter (1985) 3 ANZ Insurance Cases ¶ 60639. Nevertheless general words may be limited with respect to the subject matter in relation to which they are used. Lightfoot v Hugh and G K Neill Ltd [1929] NZLR 848. In Stag Line Limited v Foscolo Mango & Co Limited [1932] AC 328 a Bill of Lading gave ship owners ``liberty... to call at any ports in any order, for bunkering or other purposes,... all as part of the contract voyage.'' The House of Lords expressed the view that to say that two or more words were essential before you could define a class, did not assist the interpretation of ``bunkering or other purposes'' in that case and that, per Lord Russell of Killowen, at p 345: ``While I appreciate the difficulty of applying what is called the ejusdem generis rule where only one species is available out of which to construct the genus, nevertheless it seems clear that

some limitation must be placed upon the words `other purposes'. If they are to be read as free from any limitation, then it was unnecessary to specify the bunkering purpose. Some restriction must, therefore exist; and for myself I am in agreement with the view that [ the ship's] call at St Ives, not being a call for the purpose of the contract venture, was not a call for `other purposes' within the meaning of the liberty.'' In that case the calling at a port occurred for the purpose of disembarking two engineers, and such was clearly not for a bunkering purpose. The House of Lords held the words must be limited by reference to the nature and purpose of ``the contract voyage''. The words ``or other purposes'' had to be limited by reference to the nature and purpose of the contract voyage, which was not within the purpose of the landing of the engineers. Whilst this case was relied upon by counsel for State as an example where only one species was available out of which to construct the genus, it is significant that it was by reference to the subsequent words ``all as part of the contract voyage'' which enabled the limitation to be placed upon the words ``other purposes''. Counsel for State acknowledged that whilst it did not rely on the ejusdem generis rule in any strict sense it was, as he correctly submitted, but an aid to construction. It was submitted that the word ``building'' had a necessary limiting effect on the general words ``or other property'' which follow. I think one must have regard to the further words provided in the policy, which also serve to qualify the description of the word ``property or any part thereof''. These are the words ``used by Insured at the Premises'' and ``for the purposes of the Business''. The entire phrase has to be viewed in order to determine its true intent and meaning. The word ``Building'' is complete in itself. The policy envisages cover for consequential loss from property not only insured under the Material Damage Policy (that is owned by or in which Ruapehu Alpine Lifts have beneficial interest) but other property not so insured, but nevertheless having cover for damage through volcanic eruption, which is being used for the purposes of the business of Ruapehu Alpine Lifts. ``Building'' in my view has the clear meaning of a structure but chattels, stock in trade, and other items of

property, whether owned or not by the Ruapehu Alpine Lifts and if not covered by the material damage policy, were still being used by the insured at its premises for the purpose of the business. To limit the definition of property to that class of item falling within the genus of building, structure, or erection is not in my view justified. In many of the insurance cases the limitation of words through application of the ejusdem generis principle relates to risks specified in a policy which if the general words are literally applied would extend those risks far beyond those intended by the parties. In this case however the general words ``other property'' relate to the identity of the object being used, and required to be destroyed or damaged. The cover relates to the loss of use of that article or item of property so as to affect profits or business income, rather than the value of the item. The clause is a standard form of business interruption wording, it seems well known in the insurance industry. See Riley on Business Interruption Insurance 7th ed, p 15: ``The meaning of `any building or other property' is not confined to fixed assets but includes plant, machinery and stock and such need not be actually owned by the insured; it can be rented buildings, hired plant or machinery, or stock held on credit — any property `used' by the insured for the purposes of the business.'' I have come to the clear view that the use of the words ``or other property'' is not limited or restricted by the use of the word ``building'' and that — provided there is ``property'' its only qualification is that it be used at the premises for the purposes of the insured business and that, of course, it be damaged by volcanic eruption. Is snow ``property'' used by Ruapehu Alpine Lifts at the premises for the purposes of its business? State concedes that snow is used for the purposes of RAL's business — indeed it is fundamental to its core operation, although it is a fact that some aspects of the business continue to operate (for sightseeing purposes for example) at a time when the snow has melted. But, within the meaning of this policy, the issue is whether snow is property? In its ordinary sense ``property'' may include both personalty and

realty. Indeed in its wider sense it can include debts, chases in action, goodwill, rights, interests and claims of every kind. It includes the right to possession, use, or disposal of anything. Of course, within the meaning of this insurance provision ``property'' has to be damaged or destroyed by volcanic eruption and it must follow that there is some limitation on the meaning of property for the purposes of this provision because it has to be a tangible thing capable of being damaged or destroyed in this way. It was submitted on behalf of RAL that property encompasses both real and personal property, which is correct, and that snow either forms a part of the land so as to be part of the realty and therefore ``property'', or alternatively it is a movable substance above the land but lying on it and is ``personalty'', so as to be property. Counsel for RAL relies upon the general proposition that ``land'' encompasses all that is on, beneath and above it; see Newcomen v Coulson (1877) 5 Ch D 133; and that there is property in water, Greenwood Forest Products v United Fire Insurance Company (1982) 133 DLR (3d) 486. For its part, State submitted that, in the context of this insurance policy, land could not constitute ``property''. It contended that as the snow was part of the ``land'' it was similarly excluded. Its submission was that soil or land did not fall within the context of the policy. Counsel referred to Dillingham Corporation Canada Limited v Commonwealth Insurance Company [1978] 1 LR 951, a decision of the Court of Appeal of British Columbia. In that case the policy provided cover for ``all risks of physical loss of or damage to property in course of construction, installation, erection, demolition, reconstruction or repair... whilst at the location of the said construction...'' There, the plaintiff was constructing wharf facilities when a concrete crib accidentally sank to the harbour floor becoming embedded in and obstructing the berth. The plaintiff was required to remove portions of the crib and repair the harbour floor and incurred substantial expense which was claimed under the policy. The Court of Appeal of British Columbia held that the ocean floor was not ``property'' insured against within the meaning of the policy and the damage to the ocean floor was not recoverable. Counsel for State, in an allied argument,

submitted that snow and the land in respect of which RAL holds the licence actually comprise ``the premises'' and such cannot fall within the category or definition of ``property used'' at the premises. Counsel referred to the concept of the slope of the mountain which obviously is used by RAL for customers in order to obtain the necessary momentum for skiing. It was submitted that if the slope was in some way damaged or destroyed then this would not be covered pursuant to the policy. Slope or incline are features of the landscape or topography and are not concepts that can be described as ``property'' any more than can ``gravity'' be so described yet this also is ``used'' by skiers, in conjunction with the slope. Yet it would not necessarily follow that land would likewise be excluded. Nor, for that matter, would standing timber in the form of naturally growing trees if such were used for the purposes of the insured's business. For example, if stands of pine trees happen to be used for the provision of ski trails, or shelter of such trails, and they were damaged or destroyed by volcanic eruption. They might well be said to be property used for the purposes of the business, namely the provision of facilities and ski trails for customers. That such standing timber is excluded from cover under the material loss policy is understandable given that its replacement value would be impossible to assess. It may be that that is one of the very reasons why cover under the consequential loss policy specifically records that cover exists if there be damage through volcanic eruption to property used, but not insured under the material damage policy. Counsel's researches, and mine, could not unearth any case dealing with the issue of snow being ``property'' or otherwise. I was referred to a number of Canadian and American cases relating to ice. They may give some assistance, but are not determinative. There are authorities which make it clear that ice is capable of being property. It is obvious that ice may be both realty and personalty. When it is attached to the soil or upon the natural water it may be considered as part of the realty. The Washington Ice Company v Shortall 101 Ill. 46; 40 AM Rep. 196 (1881): ``The ice may be regarded as attached to the soil; and, like any other accession, may be considered as a part of the realty, and

any stranger who enters upon the same and appropriates the ice to his own use, will be liable to the owner in trespass''. Further in Marsh v McHider 88 Iowa 390; 45 Am St. Rep. 240 (1893): ``Whether the ice which forms in a running stream is to be regarded technically as part of the land over which it is formed or to which it is attached is a question we do not find it necessary to determine. It is water congealed, and, although more readily secured and controlled for many purposes than water, it is in most respects subject to the rules which govern the rights of the riparian proprietor to the water. Ice may be attached to his land, but it was not produced by the land, drew nothing from it, and will give nothing to it. It is transient by nature, and will soon disappear, unless prevented by the labor of man. It is a product of the changing seasons, which the occupier of the soil may use as he might have used the water from which it was formed. If he own the land under it, he may use the ice as he might have used the water... Such use appertains to the land, and belongs to him who has the right to possess and use it.'' The Supreme Court of Canada have emphasised the fact that ice can be both realty in some situations and personalty in others. In The Lake Simcoe Ice and Cold Storage Company v McDonald (1900) 31 SCR 130, King J in delivering the decision of the Supreme Court said at p 133: ``Water turned to ice is, for the time being, changed in its nature by losing its fluidity, but the water underneath the frozen surface remains unaffected in its legal as in its physical character. By analogy the solid ice becomes the property of the person owning the soil below it, and anyone cutting or removing it without leave or a superior right is a trespasser.'' And further (at p 133-134): ``Supposing no claim on behalf of the Crown, ice cut in water, the bed of which is in the Crown, would become the property of him who had gathered it, and reduced it into possession as an article of personal property... the material fact is that the ice when cut is

floating property as much as logs floating in the same water.'' Beyond doubt, ice can be an item of personalty being able to be cut, stored, transported and sold. No doubt it can also be used as an object, such as a weapon. It can be created by the action of man, through the refrigeration process, and by the action of nature through the freezing of water when naturally occurring at a lake, river or stream, or in its stored capacity. What then of snow? Snow is a product of nature and falls upon the land for the benefit, enjoyment (or sometimes annoyance) of the land owner or occupier. That benefit or detriment is transitory, subsisting only until such time as the snow remains. Snow can be produced through the efforts of the occupier and this in fact occurs in the case of RAL. The evidence establishes that apart from using the snow which naturally falls upon the licensed area, RAL manufactures and creates substantial quantities of snow through a snow making process. This involves pumping water through a snow gun which, upon spraying the water into the atmosphere, leaves particles which are converted to snow from the time of leaving the water gun to landing on the ground. This right to create snow vested in RAL relates to the entire licence area and approximately 45-50,000 cubic metres of snow were produced in 1997 by snow machines over a working period of 323 hours. I do not consider that the fact that snow is a product of nature produced through a type of precipitation excludes it from falling into the category of being ``property''. It has some similarities to ice, being a transitory product of nature which is described in Gregory v Rosenkrans 72 Wis. 220 (1888), a decision of the Supreme Court of Wisconsin: ``The annual ice crop from year to year on a pond, which may or may not form every year, in which, if not removed, would perish or melt away, is the most ephemeral of any natural production of land. It may be likened to grass or cranberries or other uncultivated fruits, which grow naturally from the soil, or to the annual crops raised by agriculture.''

(At p 224). If the product of nature should arise from precipitation from above, this is not a factor which can, in my opinion, provide any real distinction. Provided that the product is tangible, capable of being used in a real sense, capable of being moved, transported, shaped and ``harvested'' then it is capable of being ``property''. It is clearly established that RAL engage in extensive shaping and grooming of the snow which falls on their licence area, and which they also create, through the use of substantial expensive pieces of machinery known as snow groomers. The commodity of snow is groomed to provide a suitable surface for those using it. It is shaped so as to provide contours or features, as well as safety walls or barriers. It is capable of being transported away from the skifield, as sometimes happens. It would clearly be property that is capable of being wilfully damaged in terms of the crime of wilful damage under s 298 of the Crimes Act 1961, through, for example, the criminal application of paint in order to deface it and prevent or hinder its use. It is a commodity or product capable of causing harm in a physical and forceful way through avalanche. It may escape from the licence area and cause damage to others. Such an occurrence may give rise to liability of the occupier, whether in negligence or nuisance, even if it is a thing naturally on the land; Leakey v National Trust [1980] 1 QB 485; French v Auckland City Corporation [1974] 1 NZLR 340. Whether liability under the principle of Rylands v Fletcher would arise is, fortunately, something upon which I need not dwell. But nevertheless the damage is caused by a tangible, and moving commodity, product or substance. It is ``property'' whilst that commodity is located at and situated upon the licence area, the licensor is entitled to the use of its natural advantages which nature may have deposited there, although it has been supplemented by artificially created snow. As Herdman J noted in Smale v Takapuna Borough Council [1932] NZLR 35(SC); natural products which fall upon land may be used, owned or possessed by the owner of the land and quotes the passage from Coulson and Forbes on Law of Waters (4th ed. 58) at p 39: ``Sand, shells, shingle, and seaweed, being natural products, of the shore... belong to the owner of the shore... who may deal with

them as he pleases and license others so to do...'' Counsel for State submitted that the word ``premises'' in the policy limited or restricted the definition of ``snow''. It was submitted that the premises comprised the license area including the snow covering such area, and that if snow was in fact the premises, or part of them, it could not be ``property'' used at the premises. It was its submission that land and snow together comprise ``the premises'' and that the snow was used by RAL as it used the mountain itself, being the use of the mountain slope with snow lying on it. I do not accept that submission. The premises exist with or without snow, and are used (not of course to the same extent) whether snow is present or not. The snow, whether naturally or artificially created, forms an appendage to the premises, and by its very essence is used in the business. It is a distinct commodity at certain times applied through the forces of nature as well as through its artificial creation as an adjunct to the land and topography over which RAL holds its license. Analogies are not always helpful yet the creation of salt by nature's processes may be an apt illustration. Salt suspended in the water of a ``sea lake'' is transformed by the process of nature, through sun, heat and evaporation, so as to become a distinct product to the water. The company that produces the salt may harvest, use, transport and move it. It can be destroyed or diluted by rain. Yet in its created state it is property, to be used by its owner. Being created by or from sea water by the forces of nature does not make it part of the premises on which it resides or rests, nor is it deprived of the quality of being ``property''. The analogy illustrates the flaw in the argument that a naturally created product, attached to the land in the sense that it lies upon it, cannot be ``property'' but instead is ``the premises''. There can be a distinction between occupying and using. Premises may be occupied and also used, but something may be used without occupation: ``As occupation is a kind of user, it is difficult to envisage an occupation of land or buildings which is not also a user. The reverse does not apply. Not every use is an occupation, and obviously many things capable of being used are incapable of being occupied.''

Land Reclamation Co Ltd v Basildon D.C. [1978] 2 All ER 1162, at 1166-1167. The ``premises'' comprise the total licence area that RAL occupies within the National Park. It uses those premises in the sense that it utilises them for the purposes of the business, primarily but not exclusively, for use as a skifield. In my view whilst snow is obviously capable of being used, and is acknowledged to be used, it is incapable of being occupied. It is not the snow which comprises the premises, the subject of the occupation, but the total licence area which, it so happens, has a snow covering from time to time arising through natural and artificial means. The crucial focus must always be to determine the meaning of ``these words, in this document, in this situation'': Allied Mutual Insurance Ltd v Kearneys Services Ltd & Anor (1994) 8 ANZ Insurance Cases ¶61229, McGechan J at 75,514. The cover is for loss due to interruption of RAL business known to be predominantly a skifield operation, situated on a mountain known to be an active volcano with the specific provision that cover exists for loss of business due to damage by volcanic eruption to property or part thereof used for the purposes of the business. I do not see any ambiguity or uncertainty in the clear words in such a policy as this. Even if such existed, I would construe the policy contra proferentem against the insurer. The wording is that provided by it and seems to be a standard clause frequently used by underwriters. The business loss cover was important to RAL and State would — or should — have been aware that clarity was essential. It knew — or should have known — that loss to the business through damage by volcanic eruption, was within contemplation. It knew that RAL ``used'' snow in its business — it acknowledges that. If such were not to be ``property'' used in the business, for the purposes of this cover, it could have said so. Conclusion For the foregoing reasons I find that there was: (1) Interruption to the business of RAL; (2) In consequence of damage, by volcanic eruption, to snow;

(3) Which snow was property used by RAL for the purposes of its business; (4) At the premises of RAL, being its licence area within Tonganro National Park within the terms of its Consequential Loss Policy with State, for which loss State is liable. There will be judgment for the plaintiff against the defendant as follows: (a) In the sum of $4,668,993 plus GST together with any licence fees properly payable by the plaintiff. (b) Interest of $343,725 up to 31 July 1997, and thereafter calculated monthly on the sum payable under (a) at the rate of 1% per annum above the National Bank 30 day bank bill buy rate applying as at the first day of the month in question. (c) Costs and reasonable disbursements which, failing agreement between the parties I will fix upon receipt of counsel's memoranda.

Cant, in the matter of Novaline Pty Ltd (in Liq) (2011) 29 ACLC ¶11-050 Court citation: [2011] FCA 898 Federal Court of Australia. Judgment handed down 14 July 2011 Corporations — Winding up by the court — Powers of liquidator — Company wound up after dispute between directors — Alleged breach of first director’s duties — Application by liquidator to assign company causes of action to second director — Whether liquidator had power to assign statutory causes of action for director’s breaches — Whether subject matter of assignment adequately identified in deed — Corporations Act 2001, s 180, 181, 182, 183, 184, 477(2)(c), 477(2B).

Novaline Pty Ltd (the Company) was wound up in October 2007 as a result of a dispute between its two directors, Adams and Cosoleto. In August 2009, the liquidator wrote to Cosoleto and Adams indicating that, in his opinion, there were causes of action available to the Company against Adams and Novaline Engineering (New South Wales) Pty Ltd (Novaline Engineering), a company set up by Adams in mid 2007. The claims related to: • alleged breaches of Adams’ statutory duties as a director of the Company under s 180 to 184 of the Corporations Act 2001, and • Adams’ conduct in disposing of the Company’s money and certain other matters addressed in his public examination. The liquidator came to the opinion, based on a proposal by Cosoleto, that the causes of action belonging to the Company against Adams and Novaline Engineering should be assigned to Cosoleto given this assignment would involve no expense to the Company, it would enable the pursuit of good arguable claims against Adams and Novaline Engineering and any proceeds would be split equally between Adams and Cosoleto. The liquidator was also of the opinion that Adams was likely to oppose this course of action. The liquidator sought an order that he and the Company may enter into a deed of assignment, in which the Company’s interest in the “claims” was assigned to Cosoleto, with this term defined broadly to include the above causes of action. Under s 477(2B) of the Corporations Act, such an assignment required the approval of the Court as the proposed assignment was to continue for more than three months. Adams opposed the application, arguing that: • as a matter of discretion, the Court should not approve an assignment where the subject matter was not clear, given the liquidator had not adequately identified: – the causes of action intended to be assigned – the allegations on which the causes of action were based

– the advice relied upon to conclude that the causes of action were available, and • the statutory causes of action were not capable of assignment as it was not possible to assign claims for alleged breaches of director’s duties under the Corporation Act: UTSA Pty Ltd (in liquidation) v Ultra Tune Australia Pty Ltd (1997) 1 VR 667. Held: for the liquidator. 1. The descriptions of the claims in the proposed deed of assignment were sufficient to identify the subject matter of the assignment. There was no obligation to define the precise allegations against Adams, as this was something that would be taken up in any future proceedings. In many cases in this area, assignments were in the most general terms, such as claims arising out of or connected with a particular contract. 2. Certain statutory causes of action remain unassignable because legislation require them to be brought by the company or by the liquidator: UTSA Pty Ltd (in liquidation) v Ultra Tune Australia Pty Ltd (1997) 1 VR 667 distinguished. No such restriction applied in the present case in relation to the right to enforce director’s duties. 3. While a bare right to litigate to recover damages could not usually be assigned, the question was whether a liquidator was able to assign that cause of action pursuant to the specific power in s 477(2)(c). A liquidator was also able, under the specific power to dispose of company property set out in s 477(2)(c), to assign statutory causes of action for a director’s breach of those duties set out in s 180 to 184 of the Corporations Act. 4. There was also an exception to this prohibition on the assignment of a bare right to litigate where the assignee had a genuine commercial interest in the enforcement of the claim of another and was enforcing it for his own benefit. The proceeds of a successful claim would be paid to the Company and form part of its assets for distribution to the contributories in the liquidation, so Cosoleto would be entitled to 50 percent of those assets. As Cosoleto had a genuine commercial interest in the enforcement of the Company’s claim for his

own benefit, there was nothing to prevent the claim being assigned to him. 5. It was appropriate to make an order authorising the liquidator and the Company to enter into the proposed deed of assignment. [Headnote by the CCH CORPORATE LAW EDITORS] M Gronow (instructed by Herbert Geer) for the plaintiff. J Evans and P Moran (instructed by Donaldson Trumble Lawyers) for Cosoleto. S Hibble (instructed by Logie Smith Lanyon) for Adams. Before: North J. North J: The plaintiff, Anthony Robert Cant, as liquidator of Novaline Pty Ltd (the Company), has applied to the Court for an order under s 479(3) of the Corporations Act 2011 (Cth) (the Act) that he and the Company may enter into a deed of assignment of certain causes of action belonging to the Company. The approval of the Court is required under s 477(2A) and (2B) of the Act. 2. The Company was wound up on the just and equitable ground under s 461(1)(k) of the Act by the Supreme Court of Victoria on 5 October 2007. The Company operated in the cleaning products industry. The Company has two directors, Mr Antonio Cosoleto, who operated the business in Victoria, and Mr Donald Adams, who operated the business in New South Wales. The winding up order was made as a result of a dispute between the two directors. Mr Cosoleto said that Mr Adams excluded him from the business, and in May 2007, Mr Adams set up Novaline Engineering (New South Wales) Pty Ltd (Novaline Engineering). 3. In May 2008, the plaintiff conducted examinations of Mr Adams and his wife under s 596 of the Act. As a result of those examinations, and by reference to documents which had been produced to him, the plaintiff suspected that the Company may have claims against Mr Adams and Novaline Engineering. He suspected that Mr Adams had banked funds of the Company into the bank account of Novaline Engineering, that liabilities of the Company were paid from the

Novaline Engineering bank account, that transactions with clients of the Company were conducted by Mr Adams in the name of Novaline Engineering and some Company funds were banked by Mr Adams into his personal account. 4. On 8 May 2009, all creditors were paid 100 cents in the dollar. On 13 August 2009, the plaintiff wrote to the directors and shareholders of the Company, being Mr Cosoleto and Mr Adams, to update them on the progress of the liquidation. He said that he had $50,000 of Company funds on account, and indicated to the parties that he thought that there were causes of action available to the Company against Mr Adams and Novaline Engineering. In response to that letter, Mr Adams proposed that he be paid $20,000, together with the release from any action against him. Mr Cosoleto, on the other hand, proposed that the $50,000, the remaining assets of the Company, be split equally between Mr Adams and Mr Cosoleto, and that he take an assignment of the causes of action belonging to the Company against Mr Adams and Novaline Engineering. THE APPLICATION 5. The plaintiff considered that the causes of action belonging to the Company against Mr Adams and Novaline Engineering should be assigned to Mr Cosoleto. As Mr Adams was likely to oppose that course, it was desirable for the plaintiff to seek directions from the Court. In any event, the proposed assignment is to continue for more than three months, so Court approval is necessary under s 477(2B) of the Act. Consequently, the plaintiff filed an application on 20 May 2011 seeking an order that the plaintiff and the Company may enter into a deed of assignment in the terms of a draft deed of assignment in exhibit ARC-10 to the plaintiff’s affidavit sworn 19 May 2011. 6. The proposed deed of assignment provides that the Company assign to Mr Cosoleto the Company’s interest in the claims. The claims are defined in the deed of assignment as follows: Claims means any claim, allegation, debt, dues, costs, demands, damages, losses, expenses, causes of action and liabilities of any nature however arising and whether present or future, fixed or unascertained actual or contingent, whether at law, in equity,

under statute or otherwise belonging to the Company and arising from any of the matters addressed Public Examination including but not limited to claims: (a) against Mr Adams for breaches of his statutory and common law directors duties; (b) against Mr Adams for banking moneys due and payable to the Company into his own personal account; (c) against Novaline Engineering for the banking of moneys due and payable to the Company which were banked into the account of Novaline Engineering; (d) against Novaline Engineering for the issuing of invoices for work undertaken by the Company; and (e) against Mrs Adams and third parties related to, arising from or in connection with the matters set out above. 7. The deed of assignment further provides that Mr Cosoleto will pay the proceeds of the claims net of any legal expenses to the Company. The net proceeds would then be distributed by the plaintiff equally to Mr Cosoleto and Mr Adams as the only shareholders of the Company. The deed of assignment also provides that any legal proceedings are to be commenced within 12 months, and that Mr Cosoleto is to keep the plaintiff informed of the progress of the legal proceedings. He is only able to settle such proceedings on the express written recommendation of legal advisers, and he must provide to the plaintiff and the Company copies of the advice and the terms of settlement. 8. The plaintiff favours the entry into the deed of assignment because: 1. it would enable the pursuit of good arguable claims against Mr Adams and Novaline Engineering; 2. it involves no expense to the Company; and 3. any proceeds would be split equally between Mr Adams and Mr Cosoleto.

9. Mr Cosoleto was represented at the hearing and supported the application. Mr Adams was represented at the hearing and opposed the application. Mr Hibble, who appeared for Mr Adams, opposed the application on two grounds, namely, that as a matter of discretion the Court should not approve an assignment where the subject matter was not clear and, second, that the statutory causes of action are not capable of assignment. THE SUBJECT MATTER OF THE ASSIGNMENT 10. First, in relation to the need to identify the subject matter of the assignment, Mr Hibble argued that in order to clarify the subject matter, the plaintiff needed to identify the causes of action intended to be assigned, the allegations on which the causes of action are based, and the advice relied upon to conclude that the causes of action are available. It is insufficient, he contended, to set out the conduct which might give rise to the causes of action. Without this information, Mr Hibble suggested the Court could not be sure of what is to be assigned. 11. Applications for Court approval of assignments of causes of action are often made after proceedings have been issued. Proceedings are confined by pleadings which specify the causes of actions relied upon in the litigation. In those cases, the causes of action are defined by reference to extant proceedings: Ex Parte McGrath; Re Pan Pharmaceuticals Pty Ltd (in liq) (2008) 16 ACLC 386; [2008] FCA 563, Bank of Melbourne Ltd v HPM Pty Ltd (in liq) (1997) 26 ACSR 110, UTSA Pty Ltd (in liquidation) v Ultra Tune Australia Pty Ltd (1997) 1 VR 667 (Ultra Tune). 12. In the present case, the deed of assignment defines the claims in several ways. Some claims are defined by reference to causes of action, such as breach of statutory duty. Some claims are defined by reference to the conduct of potential parties, such as banking money of the Company into a personal account. And some claims are defined as arising from matters addressed in the public examination of Mr and Mrs Adams. The question is whether these descriptions are sufficient to identify the subject matter of the agreement between Mr Cosoleto and the plaintiff.

13. No doubt Mr Adams would like to know the precise allegations made against him. But that is a matter for later proceedings, if they eventuate. The technique of identifying the source of claims by reference to the matters addressed in the public examination is clumsy, and not particularly desirable in the interests of clarity. However, it cannot be said that the deed fails in that regard to identify the subject matter of the assignment. After all, in many cases in this area, assignments are in the most general terms, such as all claims arising out of or connected with a particular contract. Less criticism can be made of the description of the claims by reference to conduct. And no criticism can be made of the description of the causes of action. Consequently, the first ground of opposition raised by Mr Hibble should not be accepted. THE POWER TO ASSIGN STATUTORY CAUSES OF ACTION 14. In relation to the power of the liquidator to assign statutory causes of action, Mr Hibble argued that it was not possible for the plaintiff to assign claims against Mr Adams for breaches of his statutory duties as a director (ss 180-184 of the Act). He relied on Ultra Tune, in which Hansen J said at 698: If, as seemed to be agreed, and I think is correct, certain of the claims (those under ss 588FB, 588FC and 588FF) lie in the liquidators and are non-assignable, the proposed assignment can not operate as an assignment by UTSA or its liquidators of these claims. 15. Section 588FB concerns uncommercial transactions. Section 588FC concerns insolvent transactions. Section 588FE provides that such transactions may be voidable if a company is being wound up. Section 588FF(1) commences as follows: Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: 16. Thus, applications under s 588FF must be brought by the liquidator. This is the reason Hansen J regarded those causes of

action as unassignable. The right to enforce director’s duties is not confined in that way. Indeed, in Ultra Tune, Hansen J approved the assignment of the statutory claims against directors, the manager and financial controller, and the secretary, under ss 232(2), (4), (5) and (6) of the Corporations Law, the predecessor of ss 180-184 of the present Act. 17. The Ultra Tune judgment was upheld on appeal. Hayne JA, with whom Brooking and Phillips JJA agreed (UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 14 ACLC 1,610 at 1615) addressed the scope of the liquidators power in s 477(2)(c) as follows: I turn then to consider s. 477(2)(c) of the Corporations Law. That section empowers a liquidator to – “sell or otherwise dispose of, in any manner, all or any part of the property of the company” “Property” is defined in the Law as meaning: “any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action;” Thus, taken literally, the statute provides that a liquidator has power to sell or otherwise dispose of, in any manner, any thing in action of the company. The appellant contends that those words are not to be read literally but are to be read as not permitting a liquidator to sell the company’s cause of action to anyone who does not already have an interest in the outcome of it because a sale to such a person will lead to maintenance or, if there is to be some sharing of the proceeds of the litigation, champerty. … In my view there is no warrant for reading down the general words of the law. The reference to sale or disposal “in any manner” makes plain that it is the intention of the legislature that the powers of the liquidator are to be ample. …

I do not accept that s 477 is to be read, as counsel for the appellant contended, as doing no more than identifying the circumstances in which a liquidator can exercise powers which otherwise would rest in the company. Such a construction wholly ignores that the liquidator is to wind up the affairs of the company and distribute its property. … I therefore agree with the learned primary judge, substantially for the reasons that he gives, that the proposed sale of the company’s rights of action to Titan was within the power of the liquidator. 18. The scope of the Court’s consideration in Ultra Tune, on appeal, was addressed by the New South Wales Court of Appeal in Owners of Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168 at [70] - [72] (CGS) as follows: 70 UTSA v Ultra Tune did not turn on whether s 477(2)(c) of the Corporations Act empowers a liquidator to sell or dispose of an otherwise non-assignable chose in action. It does not appear to have been suggested in that case that the company’s cause of action was not assignable, provided that the proposed assignee had a sufficient interest in the proceeding. Much less was UTSA v Ultra Tune concerned with an attempt by a liquidator to sell or dispose of a chose in action that was non-assignable by virtue of an express agreement between the company and the obligor. 71. The question in UTSA v Ultra Tune was whether the public policy reflected in the doctrines of champerty and maintenance restricted the class of persons to whom the liquidator could assign the company’s cause of action. Hayne JA applied principles well settled in the law of bankruptcy to hold that the object of the legislation would be frustrated if the public policy underlying the doctrines of champerty and maintenance prevented a liquidator discharging his or her statutory duty of realising the company’s assets to

advantage: see, for example, Seear v Lawson (1880) 15 Ch D 426, at 430; per Bacon V-C; Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238; UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667 at 682-683, per Hansen J; Campbells Cash v Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; 229 CLR 386, at [75], per Gummow, Hayne and Crennan JJ. 72. It is true that historically the common law’s distaste for trafficking in causes of action largely explains the nonassignability of legal choses in action: Holdsworth, A History of English Law, vol 7, at 532-535: Campbells Cash & Carry, at [75]. But as the joint judgment in Campbells Cash & Carry explained, the doctrine did not rest on solid foundations and has long been regarded as outmoded, if not obsolete: at [76][82]. It is therefore not surprising that UTSA held that the doctrine of champerty did not preclude assignment by a liquidator of a chose in action to a person who does not already have an interest in the litigation. That holding does not affect the question of construction of s 477(2)(c) that arises in the present case. In that case, the Court held that s 477(2)(c) did not empower a liquidator to assign contractual rights which were expressly stated in the contract to be non-assignable. 19. It is established that a statutory right to damages, under s 82 of the Trade Practices Act 1974 (Cth), cannot be assigned. This is because the section does not allow for an award of damages not suffered by any party to the proceeding: Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) ALR 720; [2006] FCA 1352 at [51], Tosich v Tasman Investment Management Ltd (2008) 250 ALR 274; [2008] FCA 377 at [37] (Tosich), Mijac Investments Pty Ltd v Graham (No 2) (2009) 72 ACSR 684; [2009] FCA 773 at [31]. 20. One remedy for a breach of director’s duties under ss 180 to 184 is found in s 1317H of the Act, which provides:

A court may order a person to compensate a corporation … for damage suffered by the corporation … if: (a) the person has contravened a corporation/scheme civil penalty provision in relation to the corporation or scheme; and (b) the damage resulted from the contravention. The order must specify the amount of the compensation. 21. The reasoning applied in the s 82 cases applies equally to section 1317H. Whilst the bare right to litigate under section 1317H is thus not assignable under the general law, the question is whether a liquidator is able to assign that cause of action pursuant to the specific power in s 477(2)(c). Hansen J in Ultra Tune thought so. His judgment was upheld on appeal, although as pointed out in CGS, without direct reference to the precise issue. The judgment of Hayne JA, however, did rely on the width of the statutory power. The statutory causes of action, which Hansen J found fell outside the power of the liquidator to assign, were causes of action which the statute required the company to bring. It is therefore to be accepted that the statutory causes of action under ss 180 to 184 are capable of being assigned by a liquidator under s 477(2)(c). 22. Furthermore, there is an exception to the prohibition on the assignment of a bare right to litigate where the assignee has a genuine commercial interest in the enforcement of the claim of another and is enforcing it for his own benefit: Trendtex Trading Corporation v Credit Suisse [1982] AC 679 per Lord Wilberforce at 694D and Lord Roskill at 703F; Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386; [2006] HCA 41 at [79]-[82]; TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444; [2007] FCA 151 at 80-81, Tosich (2008) FCA 377 at [31][33]. 23. In the present case, Mr Cosoleto has a genuine commercial interest in the enforcement of the Company’s claim for his own benefit. The proceeds of the successful claim would be paid to the Company and form part of its assets for distribution to the contributories in the

liquidation. As a 50 percent contributory, he would be entitled to 50 percent of those assets. The assets would have been derived from wrongs done to the Company of which he is a director and 50 percent shareholder. DISCRETIONARY FACTORS 24. Finally, the Court must consider the discretionary factors relevant to this application. The Court will not approve an assignment which would lead to frivolous or oppressive litigation. However, an application for Court approval of an assignment of a cause of action is not the occasion for a preliminary trial of the action. It is only necessary for the Court at this stage to be satisfied that the cause of action has a reasonable prospect of success. 25. In an affidavit sworn on 19 May 2011, the plaintiff explained that he inspected the books of the Company and also conducted the public examinations of Mr and Mrs Adams. As a result of that investigation, he came to the view that the Company may have certain claims against Mr Adams and Novaline Engineering. Those were the claims referred to earlier in these reasons. The transcript of the public examination of Mr and Mrs Adams provides support for the plaintiff’s suspicions. There is sufficient basis for the claims against Mr Adams and Novaline Engineering for the Court to approve the assignment. Further, the Company is protected by provisions in the deed of assignment which ensure that the cost of the proceedings will be borne by Mr Cosoleto. The deed also provides for supervision by the plaintiff of the progress of the case. Although this will be at the cost of the Company it is an appropriate burden for the Company to bear in the circumstances because it ensures a degree of transparency in the conduct of the litigation. Finally, the deed requires Mr Cosoleto to institute proceedings within 12 months. If he fails to do so the claims will be reassigned to the Company. CONCLUSION 26. Consequently, there will be an order that the plaintiff and the Company may enter into the assignment in the terms of the draft deed of assignment being exhibit ARC-10 to the affidavit of the plaintiff sworn on 19 May 2011.

MG Corrosion Consultants Pty Ltd v Gilmour (2012) 30 ACLC ¶12-016 Court citation: [2012] FCA 383 Federal Court of Australia Judgment handed down 16 April 2012 Corporations — Administration of a company’s affairs — Protection of company’s property during administration — Stay of proceedings — Company seeking compensation for defendant’s breaches of duties as director — Defendant causing company to be placed into voluntary administration — Defendant seeking stay of proceedings — Meaning of “property” and “thing in action” — Whether company’s claim a proceeding “in relation to any of its property” — Freezing orders — Whether company entitled to interlocutory order freezing assets of defendant — Whether risk of defendant disposing of assets before prospective judgment — Corporations Act 2001, s 440D, 1317H. Vinciguerra, a shareholder in MG Corrosion Consultants Pty Ltd (MG), was given leave by the Court to institute a derivative action on behalf of MG against Magil Nominees Pty Ltd and its sole director and shareholder, Gilmour (defendants). MG claimed that management fees which it paid to Magil were excessive, and did not reflect a proper contribution towards shared expenses incurred by Magil. Director’s fees paid by MG to Gilmour were also alleged to be excessive. As well as seeking equitable compensation or an account of profits for breaches of fiduciary duties, MG sought compensation pursuant to s 1317H of the Corporations Act 2001 for breaches of duties owed by Gilmour under s 181, 182 and 183 of the Corporations Act. MG filed an interlocutory application for freezing orders against the defendants, which was heard on 22 March 2012. MG argued that there was a real risk, based on the sudden and unexplained disposal of certain assets by the defendants, that further assets would be

disposed of and that any prospective judgment entered against them would not be satisfied. Two days after the hearing of the interlocutory application, Gilmour caused MG to be placed into voluntary administration. The defendants then raised the operation of s 440D of the Corporations Act to argue for a stay of proceedings. Section 440D provides that, during the administration of a company, a court proceeding “against the company or in relation to any of its property” can only be carried out if either the administrator consents or the Court grants leave. The primary issue for determination was whether MG’s claim was “a proceeding … in relation to any of its property” such that the provisions of s 440D were engaged. As the definition of “property” in s 9 of the Corporations Act included “a thing in action”, the question turned on whether MG’s entitlement to claim compensation from the defendants constituted a thing in action. Held: s 440D(1) did not apply; freezing orders granted. 1. Section 440D(1) did not apply to either the derivative proceeding or the interlocutory application for freezing orders. 2. In the general law, the distinction between rights of action that were property and capable of being assigned and those that were not turned on whether there was a “sufficient interest” in the right to litigate: Poulton v The Commonwealth (1952) 89 CLR 540. On that basis, it was difficult to see how the bare causes of action relied upon by MG could be characterised as property or a thing in action. 3. Moreover, an action for compensation under s 1317H of the Corporations Act for statutory breaches of duty was not assignable, as only a corporation or registered scheme suffering damage could be compensated under that provision. Consequently, MG’s right to claim compensation under the Corporations Act should not be considered a thing in action. 4. Even if the derivative proceeding could be characterised as a thing in action, the expression “proceeding in a court … in relation to any of its property” in s 440D(1) did not encompass an action by the

company where it sought to act on a thing in action which belonged to it. Section 440D(1) was intended to operate where the company or its property was the target of a proceeding. Where the company was the applicant, however, the administrator did not need the benefit of a provision such as s 440D(1) to decide whether to proceed, nor would Court approval be required in such circumstances. 5. In determining whether to grant a freezing order the Court had to consider, first, whether there was a good arguable case and, secondly, whether there was a danger that a prospective judgment would be unsatisfied because assets had been disposed of or diminished in value: Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014. 6. The available evidence supported the granting of a freezing order. The defendants had failed to explain recent transfers of assets to entities in which Gilmour appeared to retain some interest. The timing of Gilmour’s decision to place MG into voluntary administration also raised questions that had not been explained, other than the suggestion that an administrator could provide an independent view on the disputed claims of the parties. There was a real concern that the defendants could further dissipate their assets such that a prospective judgment would be unsatisfied. 7. The granting of a freezing order was conditional upon Vinciguerra’s undertaking to pay to any affected party such compensation as the Court may consider to be just in the circumstances. [Headnote by the CCH CORPORATE LAW EDITORS] CS Williams (instructed by Solomon Brothers) for the plaintiff. KA Dundo (instructed by Q Legal) for the defendants. Before: Barker J. Barker J: STAY OF PROCEEDINGS UNDER S 440D CORPORATIONS ACT 2001 (CTH) 1. On 22 March 2012, the Court heard the interlocutory application of the plaintiff filed 8 March 2012 for (1) freezing orders against the

defendants and certain third party companies in relation to this proceeding and (2) discovery. The Court reserved its decision on that application on 22 March 2012. 2. On 26 March 2012, by letter to the Court, the solicitors for the respondents, advised that the plaintiff had been placed in external administration that day and provided a copy of the relevant ASIC form 505: External administration: Appointment of external administrator. The solicitors for the defendants raised as an issue the effect of the appointment of the external administrator in light of s 440D of the Corporations Act 2001 (Cth) (Corporations Act). 3. The Court immediately relisted the interlocutory application for freezing orders and received submissions from the parties as to what effect, if any, the appointment of the external administrator had in those circumstances, both on the primary proceeding and the interlocutory application. 4. Section 440D(1) relevantly provides as follows: 440D Stay of proceedings (1) During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except: (a) with the administrator’s written consent; or (b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes. 5. Having regard to the terms of s 440D(1), neither the primary proceeding nor the interlocutory application for freezing orders is a proceeding in the Court “against the company”: they are both proceedings against the respondents. The primary proceeding is what is commonly called a derivative action. In this case the second crossrespondent, Mr Vinciguerra, has been given leave to institute the proceeding in the name of the plaintiff company against the defendants. The interlocutory application for freezing orders is in relation to a prospective judgment in that proceeding.

6. The term “proceeding” does not appear to be defined relevantly in the Corporations Act but it is defined in s 4 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) to mean “a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal”. In my view, in the present circumstances, the FCA Act definition of “proceeding” should be adopted for the purposes of the Corporations Act, not on the basis that the FCA Act definition applies as a matter of incorporation, but rather on the basis that the broad definition given in the FCA Act accords with the ordinary meaning of the word and there is nothing in the context of the Corporations Act to suggest it has a different or narrower meaning of the word for the purposes of s 440D. 7. The primary question to be determined then is whether either the primary proceeding or the interlocutory proceeding is “a proceeding… in relation to any of its [the company’s] property”. If it is, then it cannot be “proceeded with” except with the administrator’s written consent, which has not been forthcoming, or with “the leave of the Court” and in accordance with such terms, if any, as the Court imposes. Self evidently, the interlocutory application for freezing orders is not against the plaintiff and not in relation to the plaintiff’s property. The substantive question is whether the primary proceeding is affected by s 440D. If it is, a further question arises whether the Court should grant leave. 8. I should immediately note that the words “in relation to” are very broad in scope. In Travelex Ltd v Commissioner of Taxation of the Commonwealth of Australia [2010] HCA 33; (2010) 241 CLR 510 (Travelex) at [25], French CJ and Hayne J, for example, observed that it may readily be accept that “in relation to” is a phrase that can be used in a variety of contexts, in which the degree of connection that must be shown between the two subject matters joined by the expression may differ. In this context, I consider the degree of connection between the subject matters “proceeding in a court” and “any of its property” should be substantial or real, although it may be indirect, as suggested by Hill J in HP Mercantile Pty Ltd v Federal Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 533 at

[35]; approved in Travelex by their Honours at [25]. 9. It is necessary, however, first to understand what “property” means for the purposes of s 440D of the Corporations Act, in order to exercise judgment as to whether or not either the primary proceeding may be said to be “in relation to” any of the company’s “property”. The term “property” is defined by s 9 of the Corporations Act to mean “any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action”. 10. The primary proceeding taken in the name of the company is for orders requiring the defendants to pay compensation under s 1317H of the Corporations Act for breaches of duties owed by Mr Gilmour to the plaintiff under s 181, s 182 and s 183 of the Corporations Act; alternatively equitable compensation or an account of profits for breaches of fiduciary duties. The breaches of duties relate to alleged excessive management fees earned and director’s fees paid. On the face of it, this proceeding is not in relation to any legal or equitable estate or interest (present or future, vested or contingent) in real or personal property of any description. The fact that the plaintiff may be seeking, in effect, to recover money it says it should never have been required to pay does not alter this view. There is a question, however, whether the entitlement of the plaintiff company to bring or maintain such an action constitutes “a thing in action”. 11. The expression “a thing in action” is not itself defined in the Corporations Act, although it has a long lineage in corporations’ legislation, both in Australia and the United Kingdom. Another expression well known to the law, which would appear to be the very same expression, is “chose in action”. In Krishell Pty Ltd v Nilant [2006] WASCA 223; (2006) 60 ACSR 410 (Krishell) at [73], McLure JA (with whom Wheeler JA agreed) considered that the expression “things in action” means “choses in action”. Buss JA, at [100] took the same view. 12. In Krishell, McLure JA noted that a chose in action has been considered a personal right of property that can only be claimed or enforced by action as distinct from taking physical possession: Loxton

v Moir (1914) 18 CLR 360 at 379. Thus, choses in action include shares, debts, judgment debts, negotiable instruments and rights enforceable by action (or causes of action). Her Honour referred to Starke JG, Assignments of choses in action in Australia (Butterworths, 1972) at p 3, where the learned author stated that an essential criterion of a chose in action is that the right be proprietary in character; a purely personal right is not a chose in action because it is not property. Her Honour also observed that assignability is not an essential characteristic of a right of property but a proprietary right must be capable in its nature of assumption by third parties and referred to R v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; (1982) 158 CLR 327 at 342-3. 13. At [75], McLure JA also recognised that some bare rights to litigate, including a bare right to litigate a cause of action in tort, are not capable of being assigned under the general law: Poulton v The Commonwealth (1952) 89 CLR 540 at 602 (Poulton v The Commonwealth). Her Honour considered it would seem to follow that such bare rights to litigate are not property and thus are not choses in action. Her Honour noted, however, that Meagher R, Heydon D and Leeming M in Meagher, Gummow and Lehane’s Equity Doctrines & Remedies (4th Ed, Butterworths, Sydney, 2002) suggest at [6-480] that all bare rights to litigate are choses in action regardless of whether or not they are property. Her Honour suggested that a partial reconciliation of the position might be that bare rights that are incapable of being assigned in isolation are in fact property because they are capable of being assigned when annexed or ancillary to other property. Her Honour accepted that other bare rights to litigate (such as a right of action arising under a contract) are capable of being assigned, and so are considered property and choses in action. At [78], McLure JA also noted that in Equity Doctrines & Remedies at [6480] it is said that a sufficient interest in the right to litigate is at the root of the distinction between rights of action that are property and capable of being assigned and those that are not. 14. Justice Buss, at [100], by reference to what is stated in Halsbury’s Laws of England, 4th ed, 2003 Reissue, vol 6 at [1], appeared to accept that a thing in action, in the literal sense, means a thing

recoverable by action, as contrasted with a chose in possession, which is a thing of which a person may have not only ownership but also actual physical possession; and that the expression is now used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession. 15. Perhaps more cautiously in Ninelen Pty Ltd v Interim Advance Corporation Pty Ltd [2011] WASC 107 at [22], Le Miere J, relying on what was said by Williams, Webb and Kitto JJ in a joint judgment in Poulton v The Commonwealth at 602, considered that a bare right to litigate was not capable of assignment, unless one applied the view advanced in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (Trendtex) at 703 where the House of Lords held that while a bare right of action cannot be assigned, an assignment is permitted if the assignment is of a property right or interest and the cause of action is ancillary to that interest, or if the assignee had a genuine commercial interest in taking the assignment and enforcing it for its own benefit. 16. These dicta about what a thing, or chose in action is today reflect a range of authorities and texts that have expressed a level of puzzlement with rules that appear to include some actions for recovery within the category of things or choses in action, while denying other actions that property status. For example, why should a personal action for personal injury, defamation or false imprisonment not be assignable as a chose in action, but an action in contract for recovery of a debt be assignable as a chose in action? 17. There is debate in Australia as to whether or not the dicta in Trendtex, referred to above, applies in Australia: see Rickard Constructions & Anor v Richard Hails Moretti Pty Ltd [2004] NSWSC 1041 (Rickard Constructions)at [42]-[61]; TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) [2007] FCA 151; (2007) 158 FCR 444 at [79]-[81]. But even if it does, a bare cause of action (whether in contract or tort) would need to meet the sufficient interest test mentioned. In Rickard Constructions, McDougall J accepted what Lindgren J said of this test in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 at 540, that a genuine commercial interest refers to a commercial interest which exists already or by reason of other matters and which receives

ancillary support from the assignment. On that basis, it is difficult to see how the causes of action relied upon in this proceeding by the plaintiff against the respondents would ever cease to be anything but bare causes of action capable of assignment, and so not property or a thing in action. 18. There is, however, another or related reason why the proceeding should not be considered a thing in action and that is because it is one for compensation under s 1317H of the Corporations Act in respect of losses referred by the alleged breach of the Corporations Act by Mr Gilmour (and the complicity of the second defendant, Magil Nominees Pty Ltd (Magil Nominees) therein) and such an action is not assignable under the Corporations Act. Only a “corporation or registered scheme” that suffers damage can be compensated under this provision. Just as similar statutory compensation provisions, for example, s 82 of the former Trade Practices Act 1974 (Cth), have been held not to be assignable (see, for example, Park v Allied Mortgage Corporation Ltd [1993] FCA 286; (1993) ATPR 46-105) so too should the right of the plaintiff to claim compensation under s 1317H be considered incapable of assignment. As a result, it should be considered a cause of action not constituting a thing in action. The dependant or related equitable claims should, in my view, be regarded similarly. 19. But even if the primary proceeding could be considered a thing in action belonging to the plaintiff I struggle to see how the proceeding can properly be characterised as one “in relation to” the thing in action. In my view, the relevant words include only a proceeding which relates to some property of the company, for example an application for an injunction or specific performance. A proceeding brought by a company related to its own property should not be considered to fall within the expression. If it were otherwise, s 440D(1) would apply to a proceeding by or against the company. This would have an effect unintended by Parliament. 20. In Uvanna Pty Limited v Tsang (1997) 72 FCR 502, Wilcox J had to deal with a submission that an appeal by the company against a damages award made against it, was affected by s 440D(1). His Honour rejected the submission. He said that the appeal was not a

“proceeding against the company”; rather it was a proceeding instituted by the company for its own benefit in the hope of ridding itself of judgments entered against it. His Honour then added: Nor do I think it is a proceeding ‘in relation to any of its property’. It might perhaps be said, in a loose sense, that an appeal involving the question whether certain people are entitled to recover damages against a company affects the company’s property; but I do not think that is a correct understanding of the application of subs (1). I think the relevant words were intended to refer to litigation over a property owned by the company — an item of property in relation to which it can prove title. As Mr Basten [counsel for the company] pointed out, this is consistent with the way in which the phrase ‘property of the company’ is used in the two immediately preceding sections. It is not difficult to think of cases to which s 440D(1) might apply, if interpreted in this way: for example, injunctive proceedings and actions for specific performance. I do not think the words are apt to include a mere claim for damages, where the award of damages does not effect a charge against particular property. 21. I agree with the observations of Wilcox J. It seems to me that when one takes into account the various provisions falling within Div 6 of Pt 5.3A of the Corporations Act, the expression “proceeding in a court…in relation to any of its property” is simply not intended to encompass an action by the company where it seeks to act on, in Court proceedings, a thing in action that it has. Rather, it is important to read the expression “in relation to any of its property” in the context of the complete expression, “a proceeding in a court against the company or in relation to any of its property”. There may be some circumstances where there is a proceeding against the company, but not in relation to its property and there may be proceedings against the company in relation to its property, but not directly against the company. The point of s 440D(1) is to ensure that where the company is the target of a proceeding or in some relevant way its property is the target of a proceeding, then that proceeding may not be begun or proceeded with, except with the administrator’s written consent or with the leave of the Court. This ensures that, in the first instance, the

administrator has the opportunity to view the continuance of such proceedings and the Court has a final say as to whether or not the proceeding may proceed. Where, however, the company is an applicant or plaintiff in a proceeding then different considerations apply. In such circumstances the administrator does not need the benefit of a provision such as s 440D(1) to decide whether or not to proceed with the proceeding. The approval of the Court in those circumstances would not be required. 22. As the plaintiff points out, s 437A(1) of the Corporations Act confers power on an administrator of a company to have control of the company’s business, property and affairs. Section 437A(1) is complemented by s 437C to s 437E which provide for the powers of a company’s officers to be suspended during administration. Given these provisions if s 440D(1) applied to all proceedings brought by a company which entered administration, it would operate so as to require an administrator to give himself or herself consent in writing or to obtain the Court’s leave before causing the company to begin or proceed with the proceedings — a nonsensical outcome. 23. In my view, s 440D(1) does not apply in the circumstances of this case to require the consent of the administrator or the leave of the Court to the maintenance of the derivative proceeding commenced in the name of the plaintiff, nor to the instant application brought by the plaintiff for freezing orders and discovery in that proceeding. In these circumstances, the further question whether the Court should grant leave to continue the proceeding does not arise. APPLICATION FOR FREEZING ORDERS 24. Orders sought: By the interlocutory application filed 8 March 2012, the plaintiff seeks freezing orders against the first defendant (Mr Gilmour), the second defendant (Magil Nominees) and certain third party corporations. 25. As against Mr Gilmour, the plaintiff seeks in substance a freezing order that, save to the extent required for the payment of ordinary living expenses, the following assets be frozen: (1) Real estate known as Lot 114, 11 Alfred Street, Belmont,

Western Australia. (2) Real estate known as Lot 341, 4629 Great Eastern Highway, Bakers Hill, Western Australia. (3) Real estate known as Lot 4115 in the Shire of Northam, Western Australia. (4) Shares held by him in any company. (5) Any beneficial interest held by him in any property held subject to any trust. (6) Any motor vehicle or water craft. (7) Any bank accounts. 26. As against Magil Nominees, the plaintiff seeks in substance a freezing order that, save to the extent required for the payment of ordinary business expenses, there be a freezing order over all of its assets. 27. The plaintiff also seeks an order that Magil Nominees be restrained from effecting any change to the terms of the Gilmour Family Trust, including any change to the position of trustee or appointor. 28. As against three third parties, CE (Aust) Pty Ltd, ACN 153 631 166 Pty Ltd and ACN 153 631 175 Pty Ltd the plaintiff seeks freezing orders that, save to the extent each is required to do so for the payment of ordinary business expenses, there be freezing orders in respect of all of their assets. 29. The freezing orders are sought until judgment or further order. 30. Facts: The main proceeding is a hard fought derivative proceeding in which the second cross-respondent, Alberto Cesario Vinciguerra, in the name of the plaintiff sues the first defendant, Mr Gilmour and the second defendant, Magil Nominees. Background to this proceeding may be found in the decision of Gilmour J granting leave to the

commencement of the derivative proceeding: MG Corrosion Consultants Pty Ltd v Gilmour [2010] FCA 1390. Magil Nominees was at all times a company of which Mr Gilmour was the sole director and shareholder. Management fees were paid by the plaintiff to Magil Nominees. The plaintiff alleges the fees exceeded what would have been reasonable in the circumstances for the plaintiff’s contribution towards shared expenses incurred by Magil Nominees. Magil Nominees says the fees were reasonable and reflected a proper apportionment of expenses that it incurred for the benefit of both itself and the plaintiff. Amongst expenses challenged as having been incurred in an excessive amount are not only management fees but also director’s fees paid by the plaintiff to Mr Gilmour. For example, for the years ended 30 June 2006 and 30 June 2007, the plaintiff paid Mr Gilmour director’s fees in the amounts of $118,913 and $129,633 respectively. As noted above, the plaintiff seeks to recover those “lost fees” as compensation for breach of directors’ duties primarily pursuant to s 1317H of the Corporations Act. 31. Court’s power to make a freezing order: Under s 23 of the FCA Act the Court has the power to “make orders of such kinds, including interlocutory orders…as the Court thinks appropriate”. In Jackson v Sterling Industries Limited (1987) 162 CLR 612 (Jackson v Sterling), the High Court recognised that this power includes the power to make orders to prevent the abuse or frustration of the Court’s process, such as a Mareva order or injunction or freezing order. 32. In Jackson v Sterling the Court emphasised that orders to that end should be framed so as to come within the limits set by the purpose which such an order can properly be intended to serve: see Deane J at 625. This was confirmed in Cardile v LED Builders Pty Limited (1999) 198 CLR 380 (Cardile) at 400-401, per Gaudron, McHugh, Gummow and Callinan JJ. 33. In the joint judgment in Cardile, at [51], their Honours confirmed that a Mareva type order is a drastic remedy which should not be granted lightly. Their Honours noted that the purpose of such an order is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to provide a plaintiff with security in advance for a judgment that the plaintiff hopes to obtain and fears

might not be satisfied. Nor is it intended to improve the position of the plaintiff in the event of the defendant’s subsequent insolvency. 34. In the joint judgment, at [52], their Honours also noted that another reason for care in exercising the power to grant a Mareva type order is that there may be difficulties associated with the quantification and recovery of damages pursuant to the undertaking given in relation to the grant of the order, if it should turn out that the order should not have been granted. Their Honours added that a further question to which such an order gives rise is the identification of the events to trigger its dissolution or an entitlement to damages. So far as it is possible, some attention to that question should be given at the time that the order is framed in the first instance. 35. Their Honours also added, at [53], that the discretionary considerations generally should carefully be weighed before such an order is made. Questions will arise such as: has the applicant proceeded diligently and expeditiously? Has a money judgment been recovered in the proceedings? Are proceedings available against the third party? Why, if some proceedings are available, have they not been taken? Why, if proceedings are available against a third party and have not been taken and the Court is still minded to make a Mareva type order, should not the grant of the relief be conditioned upon an undertaking by the applicant to commence, and ensure so far as it is possible the expedition of such proceedings? 36. In relation to an application for a Mareva type order against a third party, their Honours, at [54], noted that the proposition, that the grant of such an order against a third party should be limited to cases in which the third party holds or is about to hold or dissipate or further dissipate property beneficially owned by the defendant in the substantive proceedings, is too narrowly expressed. Nevertheless, it will be a “rare case” in which such relief will be granted if such a situation does not exist. 37. Against that general law background, the Federal Court Rules 2011 (Cth) (Rules) expressly provide in Div 7.4 for the making of “freezing orders”. By R 7.32(1), the Court may make a freezing order for the purpose of preventing the frustration or inhibition of the Court’s

process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied. 38. By R 7.34, the Court may make a freezing order against a person who is not a party in the proceeding in which the substantial relief is sought against the respondent. 39. Rule 7.35 applies, relevantly to the circumstances of this case, where an applicant has a “good arguable case” on an accrued or prospective cause of action that is justiciable in the Court. 40. By R 7.35(4) the Court may make a freezing order against a prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that the prospective judgment will be wholly or partly unsatisfied because any of the following might occur: (a) The prospective judgment debtor or another person absconds; (b) The assets of the prospective judgment debtor or another person are: (i) Removed from Australia or from a place inside or outside Australia; or (ii) Disposed of, dealt with or diminished in value. 41. By R 7.35(5) the Court may make a freezing order against a third party, if the Court is satisfied, having regard to all the circumstances that: (a) There is a danger that a prospective judgment will be wholly or partly unsatisfied because: (i) The third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the prospective judgment debtor; or (ii) The third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the prospective judgment debtor.

42. Finally, R 7.35(6) provides that nothing in R 7.35 “affects the power of the Court to make a freezing order or ancilliary order if the Court considers it is in the interests of justice to do so”. 43. Thus, R 7.35 generally reflects the recognition that the jurisdiction of this Court under s 23 of the FCA Act is broad and may be exercised to make an order in the nature of a freezing order, where it is in the interests of justice to do so. 44. Finally, R 7.36 confirms that the general jurisdiction of the Court to make a freezing order under s 23 is not removed by Div 7.4, as “Nothing in this Division diminishes the inherent, implied or statutory jurisdiction of the Court to make a freezing order or ancilliary order”. 45. The Court has issued Practice Note CM9 concerning freezing orders. By [5], Practice Note CM9 notes, consistently with the general law and the Rules, that a freezing order is “to prevent frustration or abuse of the process of the Court, not to provide security in respect of a judgment or order”. 46. By [6], Practice Note CM6 confirms that a freezing order should be viewed as “an extraordinary interim remedy” because it can restrict the right to deal with assets even before judgment, and is commonly granted without notice. 47. In Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; (2010) 273 ALR 194, Kenny J considered the circumstances in which a freezing order should be made by reference to the general law and Order 25A of the former Federal Court Rules 1979 (Cth), which order has been substantially replicated by the current Rules in Div 7.4. Justice Kenny, at [8]-[13], by reference to authority and in the circumstances of that case, made the following points: • The cases speak of the need for the applicant to establish, first, a prima facie cause of action against the defendant and, secondly, a “danger” or “real risk” that a judgment debt will go unsatisfied because assets are removed from the jurisdiction or disposed of in some way. • Depending on the circumstances, the interests of justice may

support the grant of a freezing order to prevent the dissipation of assets pending the hearing of an action even though the risk of dissipation is less probable than not, so accordingly, what must be established is a sufficient likelihood of risk which in the circumstances of a particular case justifies an asset preservation order. • A freezing order may be granted even though there is no evidence of the respondent’s positive intention to frustrate a judgment. • There must be evidence which establishes or from which it may properly be inferred that there is a danger of removal or dissipation. • The fact that assets within the jurisdiction are moveable, and that a respondent is incorporated outside the jurisdiction is not enough to warrant an inferential finding of danger of dissipation. Rather the facts must be such that a prudent, sensible commercial person can properly infer a danger of default if assets are removed from the jurisdiction. • In summary, the Court must consider whether there is a good arguable case and then consider whether on the evidence before it there is a danger a prospective judgment will be unsatisfied because assets are removed from Australia or disposed of, dealt with or diminished in value. • Finally, the Court must consider the overarching question whether, in all the circumstances, the case is one in which the interests of justice support the freezing order or its maintenance or continuance. Amongst other things the Court must consider the likely consequences to the applicant if the assets are removed and the hardship that such an order inflicts on a defendant or third parties. 48. Good arguable case: There is no real dispute between the parties, in circumstances where Mr Vinciguerra was granted leave by this Court to commence the derivative action in the name of the plaintiff

against the respondents, that there exists a good arguable case, in the sense that there are serious questions to be tried. I need not rehearse the analysis here. It is adequately dealt within the decision of Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763, and in the unsuccessful appeal against that decision in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31. I find there is a good arguable case maintained by the plaintiff. 49. Disposal of assets: The principal question for consideration in this case is whether on the evidence before the Court there is a danger a prospective judgment against the defendants will be unsatisfied because assets held or controlled by Mr Gilmour will be disposed of, dealt with or diminished in value; and whether the interests of justice support the making of the freezing order. 50. The evidence drawn from the affidavit of Katie Genevieve Shea filed 8 March 2012 and Adam Forrest Roberts filed 22 March 2012 formally read on the application, discloses as follows. On 15 September 2011 a Deed of Charge was executed by the plaintiff company, MG Corrosion Consultants Pty Ltd ACN 084 715 177 as Chargor and Sola-Kleen Pty Ltd ACN 009 059 607 in its own capacity and as trustee for the Gilmour Family Trust and the first defendant, Malcolm Stuart Gilmour, as Chargee. By cl 2 of the Deed of Charge the Chargor as beneficial owner charges the Charged Property to the Chargee to secure the satisfaction of the Obligations and in the Collateral Liabilities and the payment to the Chargee of the Secured Money, as those various terms are defined in cl 1 of the Deed of Charge. By cl 1.1, the Charged Property means all of the Chargor’s assets. The Obligations referred to are defined by cl 1.1 to mean all the liabilities and obligations of each Relevant Person to the Chargee under or by reason of any Transactional Document or “any other transaction, matter or event”. The Collateral Liabilities are defined by cl 1.1 to mean all liabilities and obligations of any Relevant Person to the Chargee or to any Related Body Corporate of the Chargee that have arisen before the date of this Charge or which arise during this currency of this Charge which do not form part of the Obligations and whether they are primary or secondary, whether liquidated or not, and whether contingent or presently accrued due. Secured Money is

defined by cl 1.1 to mean all money the payment or repayment of which from time to time forms part of the Obligations or the Collateral Liabilities. Relevant Person means each Chargor, Customer and Guarantor severally. 51. On 11 October 2011, a Notification of discharge or release of property from a charge, Form 312 was lodged on behalf of the plaintiff company as chargor with the Australian Securities and Investments Commission (ASIC). The charge details include ASIC charge number 2237424 and the date of discharge or release is shown as 30 September 2011. The form indicates that the property released was that described in annexure B to that form. Annexure B indicated that the property released was the goodwill of the Chargor in and attaching to the Chargor’s business of chemical supply and water treatment services and a number of items of plant and equipment were set out, together with all stock-in-trade chemicals owned by the Chargor in relation to the Chargor’s business as at 30 September 2011, a 2003 Falcon XR6 ute, intellectual property mentioned and “the business name M.G. Corrosion Consultants being Western Australian registration number BN11924664”. The Chargor’s business records and the right to occupy the premises at 24 Bassendean Road, Bayswater, Western Australia were also expressly mentioned as part of the property released from the charge. 52. The form of notification of discharge or release of property from a charge was signed by Mr Gilmour in his own capacity and as sole director of “Sola-Kleen Pty Ltd ACN 009 059 607” (this being the former name of Magil Nominees). Annexure B was dated 7 October 2011. 53. A search of the register kept under the Business Names Act 1962 (WA) records that the second defendant, now known as Magil Nominees Pty Ltd, carried on business under the business name “Sola-Kleen” from 6 March 1997 to 5 December 2011. However, as of 5 December 2011, another company, Sola-Kleen Pty Ltd ACN 153 974 737 (the new Sola-Kleen) has carried on business under that name. 54. ASIC company records show that half of the shares in the new

Sola-Kleen are held by Wise Earth Pty Ltd, a company in which all the shares are owned by its sole director, Garry Baverstock. The other half of the shares are held by CE (Aust) Pty Ltd, a company in which the sole shareholder and sole director is Mr Gilmour. 55. Copies of certificates of title from Landgate records show that Mr Gilmour was formerly the owner of land at 24 Bassendean Road, Bayswater, the premises occupied by the plaintiff company at material times and mentioned as charged properly released in annexure B to the form of notification of discharge or release of property from the charge. On 10 January 2012, however, Mr Gilmour transferred title in 24 Bassendean Road, Bayswater to Wise Earth Syndicate Pty Ltd (not to be confused with the aforementioned Wise Earth Pty Ltd). 56. ASIC records show that Wise Earth Syndicate Pty Ltd was registered in Western Australia on 5 February 2003, that the sole director of the company is Garry Frederick Baverstock and that the only two ordinary shares that are issued in the company are both beneficially held by Mr Baverstock. 57. Thus, Mr Baverstock is interested in both the Wise Earth companies. 58. A search of the register kept under the Business Names Act 1962 further records that from 4 August 2011 to 30 September 2011, Mr Gilmour carried on business under the name “MGCC Corrosion Consultants” (not to be confused with the name of the plaintiff). However, as of 30 September 2011, C & H Synergy (Australia) Pty Ltd (C & H Synergy) has carried on business under that name. C & H Synergy is a company in which the sole director and shareholder is Chong Leong Choe. 59. The plaintiff says that the nature of the business the plaintiff has carried on at material times was described by Mr Gilmour in the earlier proceedings mentioned above, as “The supply of chemicals for water treatment in and cooling towers and heat exchanges and descaling treatments for the mining and processing industries”. The plaintiff says C & H Synergy has rendered invoices for water treatment services in the nature of those that have been performed by the plaintiff in the past. Those invoices request payment to be made to “MGCC

Corrosion Consultants, 24 Bassendean Road, Bayswater”. 60. On 25 January 2012, Solomon Brothers, solicitors for the plaintiff in this proceeding, sent a letter to Q Legal, the solicitors for the respondents, seeking an explanation as to why C & H Synergy was issuing these invoices. They did not receive any response. 61. On 17 February 2012, Solomon Brothers sent a further letter to Q Legal seeking an explanation for the apparent dissipation of assets by Mr Gilmour and Magil Nominees. 62. On 29 February 2012, Solomon Brothers received a letter from Q Legal denying that grounds for a freezing order existed and stating that all transactions were at arm’s length and for market value, although failing to provide any details or information in support of that statement. 63. Records of Landgate disclose that Mr Gilmour is currently the registered proprietor of land: (1) being Lot 114, 11 Alfred Street, Belmont, which is the subject of certificate of title volume 1364 folio 732; (2) being Lot 341, 4629 Great Eastern Highway, Bakers Hill, which is the subject of certificate of title volume 1788 folio 686; and (3) having no street address but within the local government area of the Shire of Northam, which is the subject of certificate of title volume 2224 folio 726. 64. Entries on the last two certificates of title suggest the first property, Lot 114, 11 Alfred Street, Belmont, is Mr Gilmour’s residential abode. 65. While the application for freezing orders seeks freezing orders against ACN 153 631 166 Pty Ltd and ACN 153 631 175 Pty Ltd, little if any information is provided concerning those companies. Mr Gilmour however, as noted below, states in his affidavit read on the application that they have no assets and are merely “shelf companies”. 66. Plaintiff’s submissions: From the dealings concerning the business

of “Sola-Kleen”, the plaintiff says the obvious inference is that Magil Nominees has disposed of the assets pertaining to the business that is carried on under the name “Sola-Kleen” to the “new Sola-Kleen”, being Sola-Kleen Pty Ltd ACN 153 974 737. 67. The plaintiff says that this is also confirmed by the fact that the 24 Bassendean Road, Bayswater property has been transferred by Mr Gilmour to Wise Earth Pty Ltd, the two ordinary shares in which are beneficially held by Mr Baverstock. 68. The plaintiff also relies on the evidence that Mr Gilmour no longer carries on business under the business name “MGCC Corrosion Consultants” but that a company named C & H Synergy does and has been issuing invoices on a letterhead using that business name. 69. The plaintiff says the obvious inference is that Mr Gilmour has disposed of assets pertaining to the business that is now carried on under the name “MGCC Corrosion Consultants”, to C & H Synergy. Further, that the business C & H Synergy is now providing services previously provided by the plaintiff company. 70. The plaintiff says this leads to an inference that the business that Mr Gilmour carried on, is a business that was previously carried on by the plaintiff company, which raises serious issues about his conduct in personally carrying on, and disposing of, the “MGCC Corrosion Consultants” business to C & H Synergy. 71. The plaintiff says that the defendants have quite suddenly and in the teeth of the current proceedings disposed of multiple assets. Those assets were disposed to multiple parties on different dates and the multiplicity of the dispositions cannot be explained by multiple assets being sold to one buyer as part of a single transaction. Numerous new entities have been incorporated, through which Mr Gilmour has retained an indirect interest in, at least, the Sola-Kleen business. The plaintiff says the timing coincides with Mr Gilmour causing the plaintiff company to grant a charge on 15 September 2011, over its assets in favour of the defendants, as well as foreshadowing the discovery application which was resolved by the Court in MG Corrosion Consultants Pty Ltd v Gilmour [2011] FCA 1514.

72. The plaintiff says the defendants have provided no explanation for their sudden disposition of assets and their solicitors have responded to letters from the plaintiff’s solicitors with only a bald statement that the transactions have been at “arm’s length”. 73. The plaintiff says that it does not know the precise circumstances of each disposition of assets, the consideration paid for each asset, whether that consideration reflects market value and whether the defendants received or retained any consideration provided. However, all of these things are known by the defendants who have elected to provide no disclosure. The plaintiff says that in these circumstances the evidence should be weighed according to the proof which it was in the power of one side to have produced and in the power of the other to have contradicted, a principle stated in Blatch v Archer (1774) 98 ER 969 and applied in Vetter v Lake Macquarie City Council [2001] HCA 12; (2001) 202 CLR 439 at [36]. The plaintiff says that in the absence of evidence, it should be inferred that the respondents have not received or retained market value for the assets they have disposed of. 74. The plaintiff says that in circumstances where assets have been disposed of suddenly in the teeth of ongoing proceedings and they have refused to provide an explanation, let alone any evidence as to the circumstances of the dispositions and any considerations received, there are grounds for a genuine and well-founded belief that there is a risk the defendants will dispose of further assets, such that any judgment entered against them will not be satisfied. 75. The plaintiff also submits that the apprehension that further assets will be dissipated that underlies the need for a freezing order, is heightened by the first defendant’s conduct in placing the plaintiff into voluntary administration only two business days after the freezing order application was argued and then contending that the application cannot now be determined. No explanation for the timing of the administration has been proffered — there is no suggestion of matters developing so as to require immediate administration. The plaintiff submits the Court should be reluctant to allow the first defendant to frustrate its processes in this manner.

76. Defendant’s position: As noted above, Mr Gilmour put on an affidavit on behalf of the defendants which was formally read in the proceeding. He confirms he is the registered proprietor of the three properties mentioned above, all of which are in Western Australia and have mortgages registered against them. He states that he believes his net equity in the three properties is sufficient to meet any judgment in favour of the plaintiff, should they be successful, although he provides no details of values or the securities. 77. Mr Gilmour confirms the advice that his solicitors gave the plaintiff’s solicitors that the transactions inquired about were brought about by “arm’s length transactions”. However, he does not elaborate on the transactions in any way. 78. Mr Gilmour also says that he does not intend to abscond from Western Australia and intends to continue to defend the proceeding as he has done since 2006 when Mr Vinciguerra commenced the derivative proceedings against the defendants. 79. Mr Gilmour says that the two companies, ACN 153 631 166 Pty Ltd and ACN 153 631 175 Pty Ltd are shelf companies which do not trade and have no assets or liabilities. 80. Mr Gilmour expresses concern about the extent to which the plaintiff is able to claim an arguable case. He also questions the strength of any undertaking offered by Mr Vinciguerra in anticipation of freezing orders being made. 81. The defendants submit that: • There is no evidence that Mr Gilmour is moving assets outside the jurisdiction. • There is a lack of solid evidence of any risk that the defendants’ assets will be dissipated. 82. In relation to dissipation of assets, the defendants’ evidence adduced by the plaintiff shows only that: (1) Mr Gilmour has sold 24 Bassendean Road, Bayswater.

(2) The business name “Sola-Kleen” is no longer being used by Magil Nominees but by another company, one half of which is owned by CE (Aust) Pty Ltd of which Mr Gilmour is the sole director. (3) The business name “MGCC Corrosion Consultants” is no longer being used by the plaintiff company. 83. The defendants say that Mr Gilmour sold only one of four real properties that he owns in Western Australia. The other properties are not involved in the business of the plaintiff or the second defendant and are therefore fundamentally different in character to 24 Bassendean Road, Bayswater which has been sold. 84. The defendants say no inference can be drawn from the sale of the 24 Bassendean Road, Bayswater property to demonstrate a risk that Mr Gilmour will dispose of, deal with or diminish in value his other assets. 85. The defendants say Mr Gilmour has equity in the other three properties sufficient to meet any judgment entered against him and so the freezing order is unnecessary. 86. The defendants submit it is not every disposal of assets by a party to litigation that will amount to disposal, dealing or diminution in value sufficient for the grant of a freezing order. 87. The defendants also raise questions about the terms of the proposed freezing order and the value of the undertaking of Mr Vinciguerra. 88. Consideration: The evidence adduced by the plaintiff, and confirmed by the defendants, is that the ownership of assets pertaining to the business names “Sola-Kleen” and “MGCC Corrosion Consultants” have been affected by recent dealings caused by Mr Gilmour. 89. Whereas Magil Nominees used to carry on business under the name “Sola-Kleen” and was fully controlled by Mr Gilmour, as of 5 December 2011 the new Sola-Kleen Pty Ltd has been carrying on business under that name. Half the shares in the new Sola-Kleen are

owned by Wise Earth Pty Ltd, Mr Baverstock’s company, and the other half are owned by CE (Aust) Pty Ltd, Mr Gilmour’s company. Mr Gilmour therefore appears to continue to have an interest in “SolaKleen”. 90. However, the property at 24 Bassendean Road, Bayswater, at which the plaintiff’s business apparently was carried on in the past, has been sold by Mr Gilmour to another company material to Mr Baverstock. No details of this sale are in evidence. 91. Until 30 September 2011, Mr Gilmour carried on business under the name “MGCC Corrosion Consultants”, but since then C & H Synergy has carried on business under that name and has issued some invoices for the type of work that the plaintiff conducted in the past. Those invoices requested payment be made to “MGCC Corrosion Consultants, 24 Bassendean Road, Bayswater”. 92. Just how the plaintiff company, the new Sola-Kleen Pty Ltd, Mr Baverstock, Wise Earth Pty Ltd, Wise Earth Consultants Pty Ltd, CE (Aust) Pty Ltd and C & H Synergy and Mr Gilmour all fit together, or if they do, in whole or in part, is not clear from or explained by the evidence. 93. The defendants provide no explanation at all for these recent dealings, save that Mr Gilmour says in his affidavit that they have been carried out at arm’s length. Then, very soon after the freezing order application is argued in Court and the decision is reserved, the first defendant causes the plaintiff to be placed in voluntary administration and, by his solicitors, advises the Court of this action and raises s 440D as an issue. The question is whether the dealings identified by the plaintiff and the voluntary administration action should lead the Court to infer that there is a danger or real risk that the defendants are disposing of assets or will dissipate assets such that the plaintiff will be frustrated in satisfying any judgment that it may ultimately obtain against the defendants in this proceeding. 94. The fact that Mr Gilmour has not disposed of any assets outside the jurisdiction is irrelevant to the matters that need finally to be considered. The fact that he is personally within the jurisdiction and says that he has no plans to abscond are also, in the circumstances of

this case, largely irrelevant. Mr Gilmour’s statement that the real properties he continues to hold have sufficient equity to satisfy any judgment debt that may be obtained, is also of marginal relevance as it constitutes a mere assertion lacking any evidentiary support. 95. Mr Gilmour’s assertion that the dealings that the plaintiff draws attention to have been conducted at arm’s length is also troubling and he steadfastly refrains from providing any detail or information about the actual business arrangement. It would appear, for example, that goodwill in the business names have been transferred to other parties, yet no explanation for the transactions are offered. Mr Gilmour has moved to cause the plaintiff to appoint a voluntary administrator, for the reason, as explained by counsel for the defendants from the bar table in Court, that the administrator will be in a position to provide an independent view as to whether the accounting advice that underpins the derivative action of Mr Vinciguerra is to be preferred to that of the late Mr Ruthven that the defendants apparently relied on at material times. This of course is the very issue in the proceeding. 96. The question raised is whether, given the state of the evidence and the reluctance of Mr Gilmour to provide any detail or information about the transactions recently concluded and now the appointment of the administrator, the Court can reasonably infer there is a danger or real risk Mr Gilmour will abuse the Court’s process by disposing of his assets, such that justice requires the making of the freezing orders requested by the plaintiff. 97. I recognise that to grant a freezing order is a serious thing to do and should not be done lightly; and there needs to be reasonably solid evidence to support the making of the orders. In all the circumstances, I am satisfied that there is. While the business dealings concluded between Mr Gilmour and Mr Baverstock and the entities associated with them are in respect of the operation of the business in relation to which Mr Gilmour apparently retains some interest, nothing is known about the terms of the dealings that have resulted in the completion of these transactions and, most recently, without any useful explanation save for an explanation from counsel from the bar table that the administrator can in effect play the role of a referee between duelling accountants, Mr Gilmour has placed the plaintiff into voluntary

administration. In the result, I have considerable misgivings about the actions of the defendants I have just identified. I have a real concern that the defendants may dissipate their assets further such that a prospective judgment will be unsatisfied. 98. For these reasons, the freezing orders sought should be made. I am satisfied that the undertaking given by Mr Vinciguerra is sufficient in the circumstances. 99. I should add that as this order is interlocutory in nature, and made until judgment, it remains open to the defendants to apply to the Court to discharge or modify the orders made should appropriate circumstances arise. DISCOVERY 100. By the interlocutory application filed 8 March 2012, the plaintiff also seeks an order that Mr Gilmour produce for inspection copies of his personal tax returns for the years ended 30 June 2001 to 30 June 2007 or file and serve an affidavit in effect specifying what has become of those documents. 101. The material before the Court ultimately disclosed that the defendant apparently could not discover the hard copy personal tax return documents required for inspection and had instructed his accountant to obtain duplicate copies of those documents from the Australian Taxation Office but that the documents had not yet come to hand. 102. Following submissions it was accepted by counsel for the defendant that steps should be taken forthwith to have either the solicitors for Mr Gilmour or his accountants communicate with the Australian Taxation Office concerning this issue, pointing out that the relevant documents were required urgently to satisfy an order of the Federal Court of Australia, and were not required simply to satisfy a private need of the taxpayer. On this basis it appears to the Court that there is no need for any order to be made. 103. As a result the interlocutory application to the extent that it requires discovery orders should be dismissed. ORDERS

104. There will be orders as follows: 1. The Court orders that until judgment or further order and on the undertaking of Mr Alberto Vinciguerra filed 8 March 2012 that he will pay to any party restrained or affected by the restraints imposed by this application such compensation as the Court may in its discretion consider in the circumstances to be just, such compensation to be assessed by the Court in accordance with such directions as the Court may make and to be paid in such manner as the Court may direct: (g) The first defendant, save to the extent required for the payment of ordinary living expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering: (i) Lot 114 on Diagram 45574, being the land contained in Certificate of Title Volume 1364 Folio 732; (ii) Lot 341 on Diagram 72693, being the land contained in Certificate of Title Volume 1788 Folio 686; (iii) Lot 4115 on Plan 108062, being the land contained in Certificate of Title Volume 2224 Folio 726; (iv) shares held by the first defendant in any company; (v) any beneficial interest that the first defendant has in any property held subject to any trust the beneficiary of which is, or one of the beneficiaries of which is, the first defendant; (vi) any motor vehicle or watercraft; and (vii) any bank accounts held in the name of the first defendant. (h) The second defendant, save to the extent required for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or

otherwise encumbering any or all of its assets. (i) The second defendant be further restrained from effecting any change to the terms of the Gilmour Family Trust, including, without limitation, any change to the position of trustee or appointor. (j) CE (Aust) Pty Ltd, save to the extent that is required to do so for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value or, or otherwise encumbering any or all of its assets. (k) ACN 153 631 166 Pty Ltd, save to the extent that it is required to do so for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering any or all of its assets. (l) ACN 153 631 175 Pty Ltd, save to the extent that it is required to do so for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering any or all of its assets. 2. To the extent that the interlocutory application filed 8 March 2012 seeks discovery, the application be dismissed. 3. The defendants shall pay the plaintiff’s costs of this application to be taxed if not agreed, provided however that there be no order as to costs so far as the discovery application is concerned.

TORRENS REGISTER … Effect of writ of execution lodged hours before completion Black v Garnock (2007) ANZ ConvR 433; [2007] HCA 31 High Court of Australia 1 August 2007

In this High Court of Australia decision, the majority upheld the interest of the appellant judgment creditors — under a writ of execution recorded in the Torrens register (see s 105 of the Real Property Act 1900 (NSW)) about two hours before settlement — against the unregistered interest of the respondent purchasers. The contract for sale had been entered into prior to the recording of the writ but not completed until after recording of the writ. The transfer was subsequently lodged after the recording of the writ. Section 105 provides that once a writ is recorded on the title, the Sheriff has a protected period (six months) to sell the land the subject of the writ. The purchasers, having paid for the land, had applied to the NSW Supreme Court for an order for their transfer to be registered by the Registrar General. Did the regime under s 105 of the Act override the “equitable” interest of the purchasers in these circumstances? The judgment creditors were owed substantial monies by the judgment debtor/vendor, who was the owner of rural land located at Bombala. They had obtained a judgment against the vendor and had commenced bankruptcy proceedings. They had agreed with the vendor that the land could be sold and that part of the net proceeds would be available to pay to the creditor. The vendor then entered into a contract for the sale of the land for $1,000,000.00 but, after the discharge of all registered mortgages and payment for a surrender of lease, the amount available to the creditor as net proceeds was approximately $100,000.00. This amount would not satisfy the debt due to the vendor. At about 9.00am on the settlement day the purchasers’ solicitor had obtained a title search with respect to the property and that search had revealed no unexpected encumbrance. However, about half an hour after that search was made, the solicitor for the judgment creditors notified the purchasers’ solicitors that the judgment creditors had an unsatisfied judgment against the judgment debtor and that a bankruptcy notice had been issued. In addition, the purchasers’ solicitor was advised that the judgment creditor had obtained a charging order in respect of the deposit. At about 11.53am on that day

(approximately two hours before completion) a writ of execution (issued out of the District Court of NSW on the prior day) was recorded on the register in respect of the land. The purchaser’s solicitor proceeded to complete the purchase but the Registrar General refused to register the transfer as the writ had been lodged prior to the attempted registration of the transfer. While s 105(1) provides that a writ does not create any interest in the land under the Act, s 105A(2) provides that the Registrar General shall not, during the protected period, register a dealing unless the writ is referred to in the dealing as if it were a prior encumbrance (unless the dealing arose on the operation of the writ). The purchaser’s solicitor placed a caveat on the title to the property and proceedings were then commenced in the Supreme Court. The Supreme Court dismissed the purchaser’s claim for the registration of their transfer. The Court of Appeal reversed that decision and issued an injunction restraining the judgment creditors (and the Sheriff) from executing the writ for 60 days, allowing the registration of the transfer. The matter then went on appeal to the High Court. The question was: • whether the judgment creditors were now entitled to have the Sheriff effect a sale in accordance with the relevant statutory procedures, and • whether the provisions of s 105 prevented the purchasers (prior to the sale by the Sheriff) from taking action to protect their equitable interest. EDITORIAL COMMENT The High Court was divided 3–2 in its judgment. The majority (Callinan J and a joint judgment by Gummow J and Hayne J) set aside the decision of the Court of Appeal and dismissed the injunction granted to the purchasers. Gleeson CJ and Crennan J were in the minority. The majority considered that the Act had a clear regime in these circumstances. Section 105 prohibited the Registrar General from registering any transfer or other dealing during the protected period

unless that dealing was subject to, in accordance with, or gave effect to the writ. No injunction should be granted to stop the Sheriff acting in accordance with s 105 of the Act. The right of the Sheriff to sell the property was subject to whatever rights were registered on the title to the property. While the court did not come to a final view as to the interests of the purchasers (as to whether they had an equitable interest pursuant to the contract for sale or whether they simply had a right to specific performance of the contract for sale), the court confirmed that the purchasers certainly had had the right to lodge a caveat on the title before the writ was recorded. In the event that a caveat had been lodged prior to the writ, then any sale by the Sheriff in execution of the writ would be subject to prior equities including the purchasers’ rights, notice of which would have been given by the caveat. A purchaser from the Sheriff in execution of the writ could not have obtained registration of the transfer as s 74A of the Act would have prohibited registration due to the existence of the prior caveat (para 44). The majority considered that the registration of the transfer from the judgment debtor to the purchaser was not permitted due to the general prohibition of s 105A(2). They considered that the Real Property Act had in its provisions sufficient protection for a prior purchaser to stop any subsequent purchaser (purchasing pursuant to the execution of the writ) from obtaining registration as owner of the land (para 49). The Act did not override prior equities, including the equity of a purchaser who had entered into a contract to complete the purchase of the property but where the title had not as yet been registered in the name of the purchaser. Callinan J noted the demise of the former conveyancing practices of lodging a caveat immediately upon a contract being entered into, and then settling at the offices of the Registrar General so as to ensure that no dealing was lodged on the title to the property between a final search, completion and subsequent lodgment of transfer documents. Callinan J upheld the legal position of the judgment creditors and considered that the provisions of the Act gave a purchaser protection in that the transfer pursuant to a Sheriff’s sale “shall be subject to all equitable mortgages and liens notified by any caveat lodged with the

Registrar General prior to the date of the registration of the writ of execution and to all other encumbrances, liens and interests notified by memorandum entered on the register” (para 88). He emphasised the ability of the purchasers to have lodged a caveat immediately after the exchange of contracts. Crennan J took the view that s 105A of the Act gave a purchaser from the Sheriff, upon payment of valuable consideration, protection “over holders of other interests (including a prior purchaser for valuable consideration whose interest is unregistered)” (para 126) — ie the protection attaches on the sale by the Sheriff. Thus, a purchaser from the Sheriff under the 1976 provisions acquired indefeasibility on registration of the transfer and also had priority over prior unregistered purchasers upon registration of the transfer to the Sheriff’s purchaser. Because of this view, she considered that the injunction should continue to protect the purchaser in this case, who had paid the judgment debtor for the land. Gleeson CJ considered that s 105(3) did not absolutely exclude consideration of prior unregistered equitable interests. The purchaser had a caveatable interest and was entitled to raise its interests in court against the judgment creditors prior to any sale by the Sheriff: “There is no statutory provision forbidding intervention of the kind undertaken by the Court of Appeal to protect the interest of those who had purchased from the registered proprietor” (para 5). The minority considered that if s 105A(2) operated to preclude the purchasers from setting up their prior unregistered interests against the judgment creditors during the protected period, one unintended outcome if this sale was allowed to proceed by the Sheriff was that, as the prior purchaser had effectively discharged the existing mortgages on the title, the payment of the proceeds of sale would have gone to the judgment creditor to fully satisfy its debt. The minority took the view this was not the intended result of the legislature and thus supported the retention of the injunction to stop the Sheriff from proceeding with a sale (para 124, 125). Gleeson CJ also noted that if the purchasers had lodged a caveat before the writ was recorded then that would have protected their position against the threat of sale and it was difficult to see why the injunction granted by the Court of Appeal

was inconsistent with the legislative scheme (para 8). With Crennan J, he was also concerned as to the effect of allowing a purchaser from the Sheriff to override the interests of the prior purchaser (para 9). As can be seen from these judgments, this is a complex decision and, in some respects, not a satisfactory decision. However, the High Court did come to a common mind that the interests of the purchasers should be protected — it was a question as to how this protection would be afforded. The minority took the view that the purchasers were entitled to an injunction to stop the Sheriff proceeding with the sale of the property pursuant to the writ, while the majority accepted that the Sheriff could still sell the property pursuant to the provisions of the writ in accordance with s 105 of the Act. The matter will need to be further reflected upon by courts and the legislature. However, in the meantime practitioners are again warned as to the effect of writs of execution. On the basis of the majority view, this decision will preclude a purchaser from registering a transfer if the writ is registered prior to the lodgment of that purchaser’s transfer. In this case the purchasers’ solicitor was not on notice that a writ was being lodged but was on notice of a judgment against the vendor. The purchasers’ solicitor in these circumstances should have reasonably considered their client’s position and lodged a caveat to protect that position. Where a purchaser’s solicitor is aware of a writ being registered on the title to the property then clearly the writ either needs to be withdrawn on completion or care must be taken to ascertain whether the writ has been lodged for more than six months. If so, the protected period is lost. Before: Gleeson CJ, Gummow, Hayne, Callinan and Crennan JJ Gleeson CJ: 1. I have had the advantage of reading in draft form the reasons for judgment of Crennan J. I agree that the appeal should be dismissed with costs, for the reasons given by her Honour. I would add the following brief comments. 2. The judgment creditors had, and have, no interest in the subject land. Section 105(1) of the Real Property Act 1900 (NSW) (“the Act”)

makes that clear. Nobody suggests otherwise. Furthermore, there having been no sale of the land by the Sheriff pursuant to the writ for levy of the property, there is no transferee to whom the provisions of s 105B(2) of the Act apply. At the time of the proceedings in the Court of Appeal, the only people with any interest in the land were the registered proprietor (the relevant judgment debtor) and the purchasers to whom she sold the land. It is, therefore, strictly inaccurate to speak of the dispute as one of “priorities”; of the principal contending parties to the litigation, only the purchasers have an interest in the land. 3. That the purchasers have an interest in the land appears to be accepted. It is acknowledged, indeed asserted, that, prior to the recording of the writ for levy of the property, they could have lodged a caveat. The fact that they could have lodged a caveat is relied upon argumentatively to deflect criticism of the statutory construction for which the appellants (the judgment creditors) contend. Basten JA, who dissented in the Court of Appeal, qualified his conclusion about the effect of the legislation by reference to the possibility of a caveat. He said: “The apparent effect [of the 1976 amendments to the Act] is twofold. First, they preclude the purchaser for valuable consideration from the registered proprietor having his or her interest immediately recorded in the register, unless the application were lodged prior to the application to record the writ, or the transfer had the Sheriff’s consent. Secondly, the Sheriff’s purchaser will be entitled to have the transfer to him or her registered, pursuant to s 105A(1)(a) during the protected period. The purchasers from the registered owner will thus be preempted, unless they caveated their interest before the recording of the writ.” 4. To lodge a caveat, the purchasers from the registered proprietor required a caveatable interest. What might that interest have been, if not the interest described by Crennan J? Thus, by hypothesis, the purchasers (from the registered proprietor) have a caveatable interest in the land, the judgment creditors have no interest in the land, and there is no purchaser from the Sheriff. It may be accepted that the

purpose of the 1976 amendments was to protect purchasers from the Sheriff; but in the events that occurred, there are no such persons requiring protection. 5. There is no statutory provision forbidding intervention, of the kind undertaken by the Court of Appeal, to protect the interest of those who had purchased from the registered proprietor; and it is accepted that by lodging a caveat the purchasers could have obtained such protection. The complaint is not that the orders of the Court of Appeal contradicted any provision of the Act, but that they intercepted impermissibly a statutory process which had as its ultimate object the making of a sale by the Sheriff and the bringing into existence of a transferee who would in due course enjoy the protection of s 105B(2). That appears to me to overstate the purpose and the legal effect of the statutory scheme. This is demonstrated by the consideration mentioned above, that is, the acknowledged consequences of lodging a caveat. The appellants’ argument proves too much. 6. As appears from the speech of Minister Crabtree, the purpose of the 1976 amendments was to bring about the result that “a purchaser at a sale in execution takes the estate or interest then appearing upon the register” (New South Wales, Legislative Assembly, Parliamentary Debates (Hansard), 30 September 1976 at 1293). The purpose was not to turn unsecured creditors into secured creditors, or to defeat the interests of people who, to the knowledge of the judgment creditors and the Sheriff, had contracted to buy the land. It was not to require the Sheriff to sell land which the Sheriff knew had already been sold to a bona fide purchaser for full value, conduct that would ordinarily be regarded as improper. Injunctive relief of the kind given by the Court of Appeal did not negate the protection intended to be conferred on a purchaser from the Sheriff; there was no such purchaser. 7. In J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 552, Barwick CJ said of a caveat: “Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing

for registration. The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator’s estate or interest though if noted on the certificate of title, it may operate to give such notice.” 8. It being accepted that, if the purchasers had lodged a caveat before the writ for levy of the property was recorded, then by that form of statutory injunction they would have protected their position against a threat of sale to a third party by the Sheriff, it is difficult to see why the injunction granted by the Court of Appeal was inconsistent with the legislative scheme, or subversive of the legislative purpose. It protected the interest of the purchasers, and it did not interfere with the legal rights of anyone else. 9. There is a further matter, also related to legislative purpose. It is referred to at the end of the reasons of Crennan J. The land was sold by the registered proprietor to the purchasers for $1 million. It was heavily encumbered. Basten JA recorded that, on settlement, “[t]he funds distributed to those persons having secured interests [in the land] … amounted to a figure in excess of $900,000”. The judgment debtor (the registered proprietor) had very little “equity” in the land, using that term in its colloquial or commercial sense. If the appellants succeed in their arguments, then the practical result appears to be that, at the expense of the purchasers from their debtor, they will have obtained blood from a stone. This incongruous result seems unlikely to reflect any legislative intent. The response that is offered is to say that, although the result seems unjust, it could have been avoided by the timely lodging of a caveat by the purchasers. Yet, if that is so, it shows that the legislative scheme is not as far-reaching as the appellants contend. Gummow and Hayne JJ: 10. The decision in this appeal turns upon the proper construction of provisions of the Real Property Act 1900 (NSW) (“the RP Act”) concerning the recording of writs of execution in respect of land under the RP Act. The task of construction must be undertaken recognising and applying the fundamental proposition that: “The Torrens system of registered title of which the Act is a form

is not a system of registration of title but a system of title by registration.” (Breskvar v Wall (1971) 126 CLR 376 at 385 per Barwick CJ. See, further, Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 80 ALJR 519 at 526 [35]; 224 ALR 79 at 88.) 11. The essential facts of the case may be stated shortly. The appellants (“the judgment creditors”) obtained a judgment in the District Court of New South Wales for a money sum against the sixthnamed respondent (“the judgment debtor”). The judgment debtor was the registered proprietor of some farming land comprised in three folios of the Register maintained under the RP Act. Some months after the judgment creditors obtained judgment against the judgment debtor, but before the issue of any writ of execution, the judgment debtor agreed to sell the land to the first to fourth-named respondents (“the purchasers”). The contract of sale was completed at about 2.00 pm on 24 August 2005. The purchasers paid the balance of the purchase price to or at the direction of the vendor of the land, the judgment debtor. The judgment debtor, as vendor, gave the purchasers memorandums of transfer, procured certain mortgagees to provide discharges of their mortgages, and procured the holder of a registered lease to provide an instrument of surrender. It is not suggested that any of these documents (the transfers, the discharges of mortgages or the surrender) was not in registrable form. 12. At about 9.00 am on settlement day, the purchasers’ solicitors obtained a title search with respect to the land. That search revealed no unexpected encumbrance. About half an hour after that search was made, the solicitor for the judgment creditors notified the purchasers’ solicitors that the judgment creditors had an unsatisfied judgment against the judgment debtor, that a bankruptcy notice had been issued against the judgment debtor, and that the judgment creditors had obtained a charging order in respect of the deposit that had been paid under the contract of sale. 13. At about 11.53 am on that day (about two hours before the settlement of the sale of the land by the judgment debtor to the purchasers) a writ of execution, issued out of the District Court of New South Wales on the previous day at the instance of the judgment

creditors, was recorded in respect of the land in the Register maintained by the Registrar-General. It was not suggested in this Court, or in the courts below, that the judgment creditors acted unconscientiously in seeking the issue of the writ, or in having it recorded in the Register. 14. On 8 September 2005, the purchasers’ solicitors were told that the transfers they had lodged in respect of the land could not be registered because a writ was recorded against the title to the land. Three weeks later the purchasers commenced proceedings in the Supreme Court of New South Wales and on 7 October 2005 Campbell J granted an interlocutory injunction restraining the judgment creditors and the Sheriff of New South Wales from executing the writ (Garnock v Black [2005] NSWSC 1052). Although the order that was taken out does not record any undertaking as to damages, it was common ground in the appeal to this Court that the purchasers gave an undertaking, in the usual form, as the price for obtaining the injunction. On 2 December 2005, Lloyd AJ dismissed (Garnock v Black (No 2) [2005] NSWSC 1218) the proceedings instituted by the purchasers, and discharged the interlocutory injunction that had been granted by Campbell J. 15. The purchasers appealed to the Court of Appeal of New South Wales and on 21 December 2005, an interlocutory injunction was granted (Garnock v Black [2005] NSWCA 475) pending the determination of the appeal, or further order, restraining the judgment creditors and the Sheriff of New South Wales from executing the writ. The purchasers gave the usual undertaking as to damages. 16. By majority (Beazley and Ipp JJA; Basten JA dissenting) (Garnock v Black (2006) NSW ConvR ¶56-158), the purchasers’ appeal to the Court of Appeal was allowed. The Court of Appeal made a declaration that the purchasers “as holders of equitable interests in the land the subject of this appeal, are entitled to priority over any rights to the land that might be held” by the judgment creditors, and the judgment creditors and the Sheriff were restrained, for 60 days from the date of delivery of the Court of Appeal’s reasons, from executing the writ of execution. It is against those orders that the judgment creditors appeal. Neither the judgment debtor nor the Sheriff played an active

part in the appeal in this Court. 17. While it will be necessary to examine the reasons given by the Court of Appeal for reaching the orders against which the judgment creditors appeal, it is essential to begin with the relevant statutory provisions. The writ of execution 18. The writ in issue in this case was a writ for the levy of property within the meaning of Pt 8 of the Civil Procedure Act 2005 (NSW) (“the CPA”) and was, therefore, a “writ” as that term was defined in s 3(1)(a) of the RP Act. The writ was “sufficient authority for the Sheriff … to enter into possession of, and to sell, land of or to which the judgment debtor is seized or entitled, or which the judgment debtor may, at law or in equity, assign or dispose of” (Civil Procedure Act 2005 (NSW), s 106(2)). The proceeds of enforcement of a writ for the levy of property were to be applied (Uniform Civil Procedure Rules 2005 (NSW), r 39.15), firstly, to the Sheriff to cover the Sheriff’s fees and expenses in executing the writ, secondly, to the judgment creditor to satisfy the judgment debt and thirdly, to the judgment debtor as to any amount remaining. 19. Subdivision 2 of Pt 8 of the CPA provided (s 112) for the effect of a judgment and a writ of execution on land and (s 113) for sale or mortgage by a judgment debtor of land the subject of a writ for the levy of property. The first of those provisions (s 112) must be considered; the second (s 113) need not. Section 112 provided: “(1) A writ of execution against land binds the land, as from the time the writ is delivered to the Sheriff, in the same way as a writ of execution against goods binds the property in the goods. (2) Despite subsection (1), a writ of execution does not affect the title to land acquired by a person in good faith and for valuable consideration unless, when the person acquires title, he or she has notice that such a writ has been delivered to the Sheriff and remains unexecuted.

(3) A judgment in any action at law does not of itself bind or affect any land.” These provisions derived from s 13 of the Judgment Creditors’ Remedies Act 1901 (NSW). Section 13 of that earlier Act had provided, by sub-s (1), that no judgment recovered or to be recovered in any action at law shall bind or affect or be deemed to have bound or affected any land in New South Wales. Sub-section (2) of s 13 had provided, in effect, that a writ of execution, when delivered to the Sheriff, shall affect and be deemed to have bound such land, from the time of delivery, in a like manner as a writ of fieri facias binds chattels. By fixing upon the time of delivery of the writ as the time at which the writ “bound” the land, the Judgment Creditors’ Remedies Act abolished the rule, derived ultimately from the Statute of Westminster II in 1285, by which land was “affected” from the date of entry of judgment (Sykes, “The Effect of Judgments on Land in Australia”, (1953) 27 Australian Law Journal 226 at 228–229). But neither under the old rule, nor under the Judgment Creditors’ Remedies Act, did the judgment creditor obtain some proprietary interest in the land. Rather, the judgment creditor could take in execution what interest the judgment debtor had in the land at the time the writ was delivered to the Sheriff, and those who dealt with the debtor after that time would have their interests postponed to that of the judgment creditor, if the judgment creditor procured execution of the writ. 20. As Sykes recorded in his 1953 article, “The Effect of Judgments on Land in Australia” ((1953) 27 Australian Law Journal 226 at 229– 230), s 189 of the Conveyancing Act 1919 (NSW) may have appeared to contradict s 13 of the Judgment Creditors’ Remedies Act, by providing that no judgment shall operate as a “charge” on land unless and until the writ for the purpose of enforcing it was registered in the Register maintained under the Conveyancing Act. It is, however, not necessary to examine the resolution of that apparent contradiction. For present purposes, it suffices to recognise that under the Judgment Creditors’ Remedies Act the judgment creditor obtained no interest in the land by delivering a writ of execution to the Sheriff. And likewise, when s 112 of the CPA provided that a writ of execution against land “binds” the land as from the time the writ is delivered to the Sheriff, the

mere fact of delivery of the writ creates no interest in the land. If the land affected by a writ is not land under the RP Act, questions of priority of interests in the land, if the writ is executed, will be determined having regard to the fact that the standing of an execution creditor (as against third parties) is made retrospective to the date the writ is delivered to the Sheriff. But where, as here, the land in question is land under the RP Act and the writ was recorded in the Register, it is the RP Act which regulated the consequences of recording the writ and selling the land in execution. Recording of a writ under the RP Act 21. Subject to some exceptions which are not now material, s 105(2) of the RP Act (references are to the RP Act as it stood at the time of the recording of the writ) permitted the Registrar-General to “record a writ in the Register pursuant to an application in the approved form”. Section 105(1) provided that “[a] writ, whether or not it is recorded in the Register, does not create any interest in land under the provisions of this Act”. 22. Section 105A provided for the effect of recording a writ. The central provision of that section was sub-s (2) which provided that: “Where a writ is recorded under section 105 and a dealing (other than a dealing to which, by the operation of subsection (1), this subsection does not apply) that affects the land to which the recording relates is lodged for registration within the protected period, the Registrar-General shall not, during the protected period, register the dealing unless the writ is referred to in the dealing as if it were a prior encumbrance.” The “protected period” was defined in s 105A(9) as the period beginning when the writ is recorded in the Register and ending at the expiration of six months after the writ is recorded in the Register, or on the expiration of the writ, whichever first occurs. 23. Section 105A(2) enjoins the Registrar-General not to register a dealing which is lodged for registration within that six month period. The order of events upon which the sub-section fixes is the recording of the writ and the subsequent lodgment of a dealing. There is no

further temporal criterion, being the date of any dealing which, if registered, would give title by that registration. In particular, there is no requirement that the dealing post-date the recording of the writ. 24. No warrant appears from the text or the purpose of the legislation to exclude from the prohibition upon registration imposed by the Registrar-General dealings which are lodged in the protected period but relate to a transaction, such as the settlement of the purchase in this case, occurring in the protected period, not before it commenced. However, that is how the majority in the Court of Appeal appeared to have construed s 105A(2). Later in these reasons attention is given to the difficulties said to arise unless the legislation be read in that fashion and it is seen that those difficulties are exaggerated. 25. Several kinds of dealing were excepted from the application of the general prohibition imposed by s 105A(2) prohibiting the RegistrarGeneral, during the protected period, from registering a dealing unless the writ was referred to in the dealing as if it were a prior encumbrance. Among the excepted dealings were “a dealing which, upon registration, will record the determination of a registered lease” (s 105A(1)(e)) and “a dealing by a mortgagee or chargee in exercise of the mortgagee’s or chargee’s powers under a mortgage or charge that was recorded in the Register before the writ was so recorded” (s 105A(1)(f)). The discharges of mortgage and the surrender of lease provided to the purchasers on settlement of the contract of sale they had made with the judgment debtor in this matter could, therefore, be registered despite the recording of the writ. 26. It is not necessary to notice the detail of other exceptions to the general prohibition of s 105A(2) but it is desirable to say a little more about the significance of the “protected period”. First, where a writ recorded under s 105 was not, within the protected period, executed by sale, a dealing with the land lodged for registration before the writ was executed could be registered notwithstanding the recording of the writ (s 105A(6)). Secondly, upon registration of a transfer or other dealing that for valuable consideration disposed of the whole estate or interest in land affected by a recording of a writ (not being a transfer pursuant to a sale under the writ) the writ lapsed in relation to that land unless the transfer or other dealing referred to the writ as if it were a

prior encumbrance (s 105C(1)). It follows that when the protected period had ended and the Registrar-General was no longer prohibited by s 105A(2) from registering a transfer of the land, the writ would lapse upon registration of a transfer that, for valuable consideration, disposed of the whole estate or interest in the land. 27. These provisions (of s 105A(6) and s 105C) revealed that the policy of the legislature was generally similar to the policy of other much earlier (and different) legislation concerning writs of execution and Torrens title land considered by the Privy Council in Registrar of Titles v Paterson (1876) 2 App Cas 110. Of that earlier legislation in Victoria, the Privy Council said ((1876) 2 App Cas 110 at 118): “The policy of the Legislature in framing this section was obviously to prevent titles from being affected by the operation beyond a limited time of unexecuted writs of execution as charges on the land; and to reconcile the rights of a judgment creditor with those of a purchaser for value, whether with or without notice. Both objects are effected by compelling the creditor to proceed within a limited time to enforce an execution by actual sale of the land affected thereby.” 28. Section 105B made provisions about the registration of a transfer pursuant to a sale under a writ. Sub-section (1) of s 105B provided that a transfer pursuant to a sale under a writ is registered when it is recorded in the Register despite the relevant certificate or copy certificate not having been produced. Sub-section (2) of that section set out the consequences of registration of such a transfer. It provided that: “(2) Upon the registration of a transfer referred to in subsection (1), the transferee holds the land transferred free from all estates and interests except such as: (a) are recorded in the relevant folio of the Register or on the relevant registered dealing, (b) are preserved by section 42, and (c) are, in the case of land comprised in a qualified folio of

the Register, subsisting interests within the meaning of section 28A.” (Part 4A (ss 28A–28R) establishes a system for the creation of qualified folios upon certain applications to bring the land under the provisions of the RP Act and for the entry on qualified folios of “subsisting interests”.) 29. Central to the proper understanding of s 105B(2) is the recognition that registration of a transfer pursuant to a sale under a writ leaves the transferee holding the land transferred “free from all estates and interests except” those specified in s 105B(2). Consonant with the fundamental premise of the Torrens system of land title, the transferee pursuant to a sale under a writ obtains a particular kind of title by registration. In particular, that transferee obtains a title that is not limited to whatever interest the judgment debtor would have been understood to have had in the land if account were to be taken of rights and interests not recorded in the Register and not preserved by the RP Act, particularly s 42. 30. The essential purpose of the application which the purchasers made to the Supreme Court was to prevent s 105B(2) taking effect according to its terms. The purchasers claimed an estate or interest not recorded in the Register and not preserved by the RP Act (whether by s 42 or otherwise) and sought to prevent execution of the writ lest a transferee pursuant to the sale by the Sheriff obtain by operation of the RP Act, and s 105B(2) in particular, a title freed from the interest they claimed. The purchasers’ claim to that relief was founded only in the proposition that was reflected in the declaration made by the Court of Appeal: that “as holders of equitable interests in the land … [they] are entitled to priority over any rights to the land that might be held” by the judgment creditors. The reasons of the Court of Appeal 31. The hinge about which the reasons of the majority turned was the proposition ((2006) NSW ConvR ¶56-158 at 59,867 [33] per Ipp JA, Beazley JA agreeing) that: “prior to the registration of the writ and the payment of the

balance of the purchase price, the purchasers had an equitable interest in the land.” This, without more, was held to be sufficient basis for the purchasers to take action to protect their equitable interest by restraining the judgment creditors from proceeding with a sale by the Sheriff ((2006) NSW ConvR ¶56-158 at 59,867 [33]). 32. To speak of the purchasers having an “equitable interest” in the land has the difficulties and limitations identified in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315. As five members of the Court pointed out in Tanwar (2003) 217 CLR 315 at 333 [53]: “the ‘interest’ of the purchaser is commensurate with the availability of specific performance.” Upon completion of the contract now under consideration the judgment debtor, as vendor, was bound to tender transfers in registrable form. In the events that happened, the transfers tendered could not be registered because of the intervening recording of the writ. To focus upon the rights and duties of the vendor and the purchasers, without regard to this intervening event, entails circularity of reasoning of the kind referred to in Tanwar. 33. Furthermore, to speak of the purchasers’ rights as having “priority” over the writ or the rights of the judgment creditors imposes upon the debate an assumption, contrary to the explicit terms of the Act, that there is some competition between the holders of different interests in land. Section 105 of the RP Act makes plain that a writ, whether or not recorded in the Register, does not create any interest in land. Hence counsel placed no reliance upon s 43A of the RP Act (Section 43A(1) and (2) provided: “(1) For the purpose only of protection against notice, the estate or interest in land under the provisions of this Act, taken by a person under a dealing registrable, or which when appropriately signed by or on behalf of that person would be registrable under this Act shall, before registration of that dealing, be deemed to be a legal estate. (2) No person contracting or dealing in respect of an estate or interest in land under the provisions of this Act shall be affected

by notice of any instrument, fact, or thing merely by omission to search in a register not kept under this Act.”) . As interpreted in Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd (1976) 133 CLR 671 at 676, the section confers upon a purchaser who has received a registrable instrument and paid the purchase money the same protection against notice of an earlier unregistered interest as that achieved by a purchaser who acquires the legal estate at common law. In the present case, there is no competition between unregistered interests and the unregistered interest of the purchasers cannot defeat the statutory consequence of the earlier recording of the writ. 34. The premises for the reasoning of the majority in the Court of Appeal were, therefore, flawed in fundamental respects. There was no competition between interests in the land. To identify the purchasers as having (as against the judgment debtor, the vendor) an interest in the land does not identify, with sufficient particularity, the nature or extent of the rights constituting that interest. In any event, to speak of the purchasers having an “interest” in the land either assumes the answer to the very question that must be decided (what is the consequence of recording the writ) or focuses upon the position as between vendor and purchasers to the exclusion of any consideration of the consequences of recording the writ. 35. In considering the consequences that are to be attached to the recording of the writ, it is important to understand the mischief to which the relevant provisions of the RP Act were directed. It is therefore relevant to examine, as the Court of Appeal did, the history of provisions governing the effect of judgments and execution of judgments on land under the RP Act. But it is important to examine that history bearing at the forefront of consideration that it was not until 1971, by this Court’s decision in Breskvar v Wall (1971) 126 CLR 376, that the long-running controversy about indefeasibility of title, stemming at least from Clements v Ellis (1934) 51 CLR 217, was finally resolved. 36. Thus when it is observed that, in 1976, new provisions concerning writs of execution were made by the Real Property (Amendment) Act

1976 (NSW), it is necessary to recognise that by then, it was clearly established that the title obtained by registration under the RP Act was not historical or derivative, but was a title which registration itself created in the proprietor. The competing view, expressed by Dixon J in Clements v Ellis (1934) 51 CLR 217 at 237, had been rejected. 37. When introducing the 1976 amending legislation the Minister for Lands said in his Second Reading Speech (New South Wales, Legislative Assembly, Parliamentary Debates (Hansard), 30 September 1976 at 1293): “Since the commencement of the Real Property Act on 1st January, 1863, it has generally been acknowledged that the machinery provided by that Act for giving effect to sales in execution has not worked effectively. The breakdown is largely due to a judicial decision in Coleman v. De Lissa ((1885) 6 LR (NSW) Eq 104.) in 1885 that, irrespective of the provisions of the Real Property Act, a transferee taking under a sale by the sheriff or other court official selling pursuant to a writ of execution acquired only the beneficial interest of the execution debtor, burdened by any unregistered interests which might exist. The result of this judicial ruling has proved disastrous. Upon such a sale, because potential purchasers are buying an asset whose value cannot be ascertained, the maximum bid is usually a couple of dollars, not sufficient to cover the advertisement and conduct of the sale. As a result the judgment creditor usually gets nothing of the amount owing to him; the judgment debtor loses ownership of the land without any reduction of the judgment debt; a purchaser from the sheriff or from the district court bailiff may get a windfall or more probably, if unregistered interests affect the land, gets nothing. The obvious solution is to provide, legislatively, that a purchaser at a sale in execution takes the estate or interest then appearing upon the register. The provisions of the bill are designed to implement this principle.” The reference to a purchaser at a Sheriff’s sale taking “the estate or interest then appearing upon the register” is critical to understanding what the 1976 amending legislation was intended to achieve. It was by focusing attention on, and attaching legal consequences to, the

registered estate or interest of a judgment debtor that the price to be paid at a sale in execution would more closely approximate the market value of the land. The judgment creditor may, then, recover what was owing and the judgment debtor would satisfy or at least reduce the judgment debt. The purchaser would obtain a title that could not be defeated. Two hypothetical cases 38. Much of the oral argument of the appeal proceeded by examining what would have happened if orders restraining the Sheriff executing the writ had not been made in this case, and what would have happened if, before the writ was recorded on the Register, the purchasers had lodged caveats. It is convenient to address those questions now. 39. If execution of the writ had not been restrained, and the Sheriff had sold the land, a purchaser at the Sheriff’s sale would have found, on searching the title, that the land was encumbered by mortgages and was subject to a registered lease. Yet, at the settlement of the purchasers’ contract with the judgment debtor, the mortgagees had been paid what was owing, and the lessee had been paid a substantial sum to surrender the lease. What would a purchaser at a subsequent Sheriff’s sale have been buying? What would that purchaser have paid? Would the purchase price reflect the value of vacant land, tenanted land, mortgaged or unmortgaged land? Could the mortgagees and the lessee retain what they had received from the purchasers at the judgment debtor’s direction? 40. In the end, the answers to these questions are not relevant to the construction of the applicable provisions of the RP Act. They are questions that arise, and could arise, only because the purchasers settled the contract of sale with the judgment debtor in ignorance of the judgment creditors’ procuring the recording of the writ. If the recording of the writ had been known, it may safely be assumed that settlement of that contract would not have proceeded. The several questions that would arise if, after the settlement of the sale, the Sheriff sold the land in execution of the writ are properly dismissed from consideration as not bearing upon the ordinary operation of the

relevant provisions. 41. In any event, it is not immediately evident why the intervening settlement would have significantly reduced the price a purchaser from the Sheriff would have paid for the land, regardless of whether the discharges of mortgage and surrender of lease provided at the settlement were to be given effect according to their terms. If the surrender of the lease was effective, presumably a new purchaser would not have paid significantly less for the land than the purchasers had agreed to pay to the judgment debtor. (The purchasers from the judgment debtor had paid a substantial additional sum to the lessee to obtain vacant possession.) And if the surrender was not effective, there is again no reason to think that the land subject to lease would realise less than the price payable under the original contract, even if the new purchaser were to allow for some additional sum to be paid to secure vacant possession of the land. And so far as the registered mortgages are concerned, if the mortgagees were owed nothing by the judgment debtor, the mortgages registered on the titles would, it may be assumed, be discharged at little cost to a purchaser at the Sheriff’s sale. 42. The other questions debated in argument are of more direct assistance in resolving the question of construction that must be decided. If, before the writ was recorded on the Register, the purchasers had lodged caveats on the titles to the land, claiming an interest as purchasers of the land, how would relevant provisions of the RP Act have operated? 43. The first point to notice is that the lodging of caveats and entry of particulars of caveats on the Register would not have prevented the Registrar-General from recording the writ with respect to the land (s 74H(5)(f)). The second and more directly relevant point is that, if caveats had been lodged and particulars of the caveats entered on the Register, and if the Sheriff then sought to sell the land in execution of the writ, a purchaser at the Sheriff’s sale would not have been able to obtain registration of a transfer of the land so long as those caveats remained in force. It is necessary to explain the basis for this conclusion.

44. While a caveat lodged under s 74F remained in force, s 74H precluded the Registrar-General, except with the written consent of the caveator, from recording any dealing in the Register, if it appeared that the recording of the dealing was prohibited by the caveat. It would follow from s 74H, considered in isolation from the provisions of the RP Act which dealt with the recording of a writ (s 105A) and the registration of a transfer given pursuant to a sale under the writ (s 105B) that, if the purchasers in the present matter had lodged caveats over the land, before the writ was recorded, a purchaser at any sale by the Sheriff in execution of the writ could not have obtained a transfer that would be registered. Section 74H would have prohibited registration of a transfer tendered by a person who purchased the land at the Sheriff’s sale. 45. The provisions of s 105A and s 105B neither required nor permitted a different outcome. 46. The prohibition in s 105A(2) focused upon a dealing that affects the land to which the recording of the writ related. As noted earlier, s 105A(2) was subject to various exceptions. But a transfer by the judgment debtor to a purchaser who had lodged a caveat and who had agreed to buy the land from the judgment debtor was not excepted from the general prohibition of s 105A(2). A transfer giving effect to a sale under the writ was excepted (s 105A(1)(a)). But the exception made by s 105A(1)(a) for a transfer giving effect to a sale under the writ was an exception to a prohibition: the prohibition directed by s 105A(2) to the Registrar-General against registering, during the protected period, a dealing that affected the land. The temporal duration of that limitation is not immediately significant. What is important is that neither s 105A(1)(a) nor s 105A(2) required the Registrar-General to register a transfer giving effect to a sale under the writ. Both sub-s (1) and sub-s (2) of s 105A (and the other provisions of that section) were consistent with effect being given to the separate and distinct prohibition contained in s 74H. 47. Nor does any aspect of s 105B require some different conclusion. That section was cast in terms that first, fixed when a transfer pursuant to a sale is registered (it is registered when recorded) and second, fixed the consequences of registration (the transferee holds

the land free from all estates and interests except those specified in s 105B(2)). But nothing in s 105B cut down the applicability of a prohibition against registration that would arise if the provisions of s 74H were engaged. 48. It therefore follows that if caveats had been lodged, and if the Sheriff had then sought to sell the land in execution of a writ recorded after the caveats had been lodged, a purchaser at the Sheriff’s sale could not have obtained registration of a transfer so long as the caveats remained in force. 49. When this intersection of the provisions of the RP Act dealing with caveats and those dealing with the recording of writs is observed, much of the difficulty apparently presented by the circumstances of this case is resolved. In particular, the purchasers under the contract of sale made with the judgment debtor had steps available under the RP Act which, if taken, would have prevented a purchaser at a subsequent sale made in execution of the writ obtaining registration as owner of the land. In addition, of course, a search of the Register conducted immediately before settlement would have revealed the recording of the writ. 50. It also follows from this examination of the provisions of the RP Act that the bare fact that the purchasers made their contract of sale with the judgment debtor before the writ was recorded did not constitute any sufficient reason to intercept what otherwise would have been the operation of the RP Act. And, as noted earlier, it was the bare fact of making the contract before the writ was recorded that was treated as determinative by the majority in the Court of Appeal. Neither in the Court of Appeal nor on appeal to this Court did the purchasers seek to make some alternative case. In particular, it was not said that the judgment creditors’ procuring of the recording of the writ was unconscientious and it was not said that the purchasers’ completion of their contract with the judgment debtor put them in any better position than their making of the contract. Nor was anything said to turn on the provisions of s 43 of the RP Act (Section 43(1) provided: “Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner

concerned to inquire or ascertain the circumstances in or the consideration for which such registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or any part thereof, or shall be affected by notice direct or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.”). Conclusion and orders 51. For these reasons the appeal should be allowed with costs. The orders of the Court of Appeal of the Supreme Court of New South Wales made on 1 June 2006 should be set aside. In their place there should be orders: (a) that the appeal to that Court is dismissed with costs; and (b) that there be an inquiry into what damages, if any, the first to third respondents in the Court of Appeal (namely, Stuart Alexander Black, Vaughan Lee Chapman and Andrew Philip Carter) suffered by reason of either the injunction granted by Campbell J by order made on 7 October 2005 or the injunction granted by Basten JA by order made on 21 December 2005 which the appellants in the Court of Appeal (namely, Bryce Lachlan Garnock, Sarah Jane Garnock, Robert Leonard Luff and Lynette Anne Luff) ought to pay. Callinan J: 52. It used to be the practice of careful conveyancers, acting for persons acquiring registrable estates or interests in Torrens title land, to lodge with the officials in charge of the Register, a caveat as soon as the agreement for the relevant dealing was made, in pre-emptive protection of their clients’ prospective legal estates or interests pending completion of their agreements and registration of the instruments perfecting them. It was a further practice of those conveyancers to effect the actual settlement of the agreement by the exchange of all relevant instruments and funds at that office,

simultaneously with a search of the Register, to verify that no other such caveat or record of dealing had been lodged as might obstruct, delay or detract from the registration of their clients’ instruments to perfect their estates or interests. 53. The questions raised in this case would be unlikely to have arisen had those salutary practices not fallen into disuse, whether by reason of electronic recording of dealings or otherwise, although it is difficult to understand why some comparable prudent practice could not equally, and perhaps more easily, have been adopted here to accommodate electronic lodgment, searching and recording. The questions are as to the effect of the registration of a writ of execution, and the rights of purchasers whose transfer of Torrens title land was lodged subsequent to that. ... 78. [The provisions of Pt 7A, Div 3 and 4 of the Real Property Act 1900 (NSW) contain] a complete code for the lodgment, recording, maintenance, removal, renewal and lapsing of caveats. They mesh neatly with the system of registration of titles and dealings generally. In doing so, they also give effect to the purposes of the Act and the means by which it gives priority to instruments according to their time of lodgment. The provisions of the Act to which I referred in Hillpalm Pty Ltd v Heaven’s Door Pty Ltd (2004) 220 CLR 472 at 509–510 [117], s 31B(2) defining the “Register” to include “dealings registered … under this or any other Act”, and s 32(7) which requires the Registrar-General to maintain a record of “action taken in respect of, a computer folio and such other information, if any, relating to the folio as the Registrar-General thinks fit” similarly reflect the policy of the Act, of comprehensive notification to, and on the Register. 79. In J & H Just (Holdings) (1971) 125 CLR 546 Barwick CJ also said this (at 554): “To hold that a failure by a person entitled to an equitable estate or interest in land under the Real Property Act to lodge a caveat against dealings with the land must necessarily involve the loss of priority which the time of the creation of the equitable interest would otherwise give, is not merely in my opinion unwarranted by

general principles or by any statutory provision but would in my opinion be subversive of the well recognized ability of parties to create or to maintain equitable interests in such lands. Sir Owen Dixon’s remarks in Lapin v Abigail (1930) 44 CLR 166 at 205 with which I respectfully agree, point in this direction.” 80. I must respectfully disagree. What is much more likely to be subversive of the whole of the scheme of the Torrens system is that a person interested in, or entitled to deal with, land, who has not acted fraudulently, might suddenly and unexpectedly be saddled with, or postponed to, an equitable estate or interest in land which could have been, but was not made the subject of protection by prompt lodgment of an instrument or the filing of a caveat pending the lodgment. 81. I am not speaking of course about a contest between two holders of competing equitable interests or estates, neither of whom has thought to avail himself of either of the statutory means of protection of his interest that I have just mentioned. Subject to other registered estates or interest, their respective entitlements will fall to be adjusted according to ordinary equitable and proprietary principles. 82. It is critical to keep in mind, in cases concerning land under the Torrens system, that, as Barwick CJ said on another occasion and Gummow and Hayne JJ repeat in this case (Breskvar v Wall (1971) 126 CLR 376 at 385): “The Torrens system of registered title of which the Act is a form is not a system of registration of title but a system of title by registration.” 83. No one doubts that the purchasers here could have lodged a caveat immediately after the exchange of contracts. That they had that right, and that upon doing so an appropriate notation on the Register would have served as a notice to all others of their dealing with the land, is accepted on all sides. It is unnecessary in this case to define precisely the nature of their interest after the contracts were exchanged: whether it was an actual equitable interest in the land, or an interest measurable by their right, conditional or otherwise, to obtain specific performance, or whether it was an interest commensurate with the deposit that they paid, does not matter: on any

view it gave rise to a caveatable interest (see KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288 at 296–297 per Gibbs CJ, Mason, Wilson and Dawson JJ). 84. The fact that the purchasers might have protected themselves by lodging a caveat here may not be decisive of this case, but that the Act enabled them to do so, and also provided for a comprehensive public register of information relating to the folio to which they could have had timely recourse to protect themselves, are factors relevant to the proper construction and reconciliation of the two enactments governing the respective rights and interest of the parties. 85. I do not think it is any answer to say, in relation to the omissions of the purchasers, and to other matters to which I will refer, that, effectively, the interdiction against the registration of their interest by grant of an injunction of the court is to be equated with, and is no different from, a caveat, and that therefore they should be entitled to registration without regard to, and not subject to, a, or the, writ of execution. An injunction does not serve as a general notice to all the sufficiently interested world, as a caveat does. An injunction may not be noted on the Register as a caveat may be. An injunction is not to be elevated to the same level as a caveat. The lodgment of a caveat does not preclude the seeking and granting, in an appropriate case, of an injunction as the provisions which I have set out show: in any event, an injunction, to be effective, needs to be sought and obtained with the same expedition as the lodgment of a caveat. 86. The relevant legislation which is analyzed in the judgment of Gummow and Hayne JJ makes it clear, that although writs of execution do not create proprietary interests in land, they are capable of registration on the title and, for the period of their effective subsistence, confer rights upon the Sheriff to deal with the land by and on the face entirely of the Register. It is therefore of no relevance that the judgment which founds the writ may not in any particular case be for a large sum of money. 87. I pointed out earlier that the majority in the Court of Appeal were influenced in reaching their conclusion by the Queensland case of Austral Lighting [1984] 2 Qd R 507). In that case the Full Court of

Queensland (Connolly J, Campbell CJ and Demack J agreeing) considered s 35 of the Real Property Act 1877 (Qld) which provided that a transfer, in consequence of a sale under a writ of execution, “shall be subject to all equitable mortgages and liens notified by any caveat lodged with the Registrar-General prior to the date of the registration of the writ of execution and to all other encumbrances liens and interests notified by memorandum entered on the register”. 88. It seems to me that there Connolly J failed, in the same way as the majority in the Court of Appeal did here, to give full effect to the words in the section that any transfer pursuant to a Sheriff’s sale “shall be subject to all equitable mortgages and liens notified by any caveat lodged with the Register-General prior to the date of the registration of the writ of execution and to all other encumbrances liens and interests notified by memorandum entered on the register”. All of this is to emphasize the importance of lodgment, and the priority that it confers. It also clearly implies that nothing lodged after the registration of the writ is to affect the title that the sale under the writ will pass, because it is only after lodgment, the step leading to notification, that “other encumbrances liens and interests” can be entered on the Register. 89. To take the view of Connolly J that resort to the Court for protection and priority of an equitable interest should be available regardless that the writ of execution has earlier been recorded on the Register, is to fail to give effect to the clear purposes of the legislation to clarify, provide certainty and avoid litigation ([1984] 2 Qd R 507 at 511), and indeed to the language of the section itself. 90. For these, and the reasons given by Gummow and Hayne JJ, I would allow the appeal and join in the orders proposed by them. Crennan J: 91. This is an appeal from a decision of the New South Wales Court of Appeal (Garnock v Black (2006) NSW ConvR ¶56-158) in which a majority (Beazley and Ipp JJA; Basten JA dissenting) upheld an appeal by the present first to fourth respondents from orders made by a judge in the Equity Division of the Supreme Court (Lloyd AJ) (Garnock v Black (No 2) [2005] NSWSC 1218) refusing to grant them relief against the present appellants.

92. As the purchasers for valuable consideration (the price was $1,000,000.00) of a rural property, Wanaka, the first to fourth respondents (“the purchasers”) were unable to register the transfer after completion under the Real Property Act 1900 (NSW) (“the Act”). This was because a writ for levy of the property (See Pt 8 of the Civil Procedure Act 2005 (NSW).) in respect of a total amount of $243,106.60 had been recorded in the Register on behalf of the appellants (“the judgment creditors”) just over two hours before completion. In those circumstances, the purchasers sought to restrain any sale in execution of the writ together with related relief, until such time as their interest could be registered. 93. The purchasers obtained an interlocutory judgment on 7 October 2005 before Campbell J upon the usual undertaking as to damages (Set out in Uniform Civil Procedure Rules 2005 (NSW), r 25.8). The injunction permitted the sheriff to take certain preliminary steps towards selling under the writ (those permitted under Uniform Civil Procedure Rules 2005 (NSW), r 39.22(1)(a)–(d).), stopping short of fixing a date for sale (Garnock v Black [2005] NSWSC 1052). On 2 December 2005, Lloyd AJ discharged that interlocutory judgment and dismissed the purchasers’ summons (Garnock v Black (No 2) [2005] NSWSC 1218). A further interlocutory injunction was obtained pending an appeal to the Court of Appeal of New South Wales (Garnock v Black [2005] NSWCA 475). On the upholding of the appeal, the Court of Appeal enjoined the judgment creditors from executing the writ for 60 days (Garnock v Black (2006) NSW ConvR ¶56-158), which had the effect that the transfer of land to the purchasers was able to be registered. 94. Before the introduction of ss 105–105D into the Act in 1976 (By the Real Property (Amendment) Act 1976 (NSW), Sched 10; there were other provisions introduced by that Act.) (“the 1976 provisions”), a transferee of land pursuant to a sale by the sheriff in execution of a writ acquired the beneficial interest of the judgment debtor subject to all interests, including unregistered interests, which subsisted at the time of the entry of the writ (Coleman v De Lissa (1885) 6 LR (NSW) Eq 104 at 111; Re Elliot (1886) 7 LR (NSW) 271 at 276 per Martin CJ; Smith v Deane (1889) 10 LR (NSW) Eq 207 at 209 per Owen CJ in

Eq; Johnson v Johnson (1904) 4 SR (NSW) 585 at 588–589; Re Retallack and Real Property Act (1911) 11 SR (NSW) 332 at 333; In re Broughton (1916) 17 SR (NSW) 29 at 32; Bruce v Woods [1951] VLR 49 at 53. See also Sykes and Walker, The Law of Securities, 5th ed (1993) at 513–518). 95. In an article dealing with the legislation as it was and remained until the 1976 provisions, Professor Sykes described the position of purchasers who acquired an interest in land before a writ was recorded (Sykes, “The Effect of Judgments on Land in Australia: Part II”, (1953) 27 Australian Law Journal 306 at 311): “if a transaction conferring a proprietary interest came into existence before date of service or entry of writ it would be of no moment that the registrable instrument embodying it did not come into existence until afterwards. Thus if the debtor has agreed to sell the land before entry of writ it would not affect the priority of the purchaser that the transfer by him was executed only after such date.” 96. Whilst the 1976 provisions are not entirely free of obscurities, s 105B(2) provides that, subject to certain exceptions, a transferee of land pursuant to a sale by the sheriff in execution obtained an indefeasible title free of all estates and interests. However, the question which arose for determination on this appeal in respect of the facts set out immediately below was whether the holders of an unregistered equitable interest in the land, acquired by them prior to the recording of the writ, were entitled (prior to any sale by the sheriff) to the injunctive and declaratory relief granted by the Court of Appeal (Garnock v Black (2006) NSW ConvR ¶56-158). The facts 97. On 15 July 2005 contracts were exchanged between the sixth respondent, Marilyn Smith, and the purchasers for the sale of Wanaka, being some 1,600 acres at South Bukalong, near Bombala, New South Wales. A deposit of $100,000 was paid. The purchasers did not lodge a caveat against dealings with the land, as they were entitled, but not obliged, to do under s 74F(1) of the Act (under s 74F(1) of the Act a caveat may be lodged by “[a]ny person who, by

virtue of any unregistered dealing or by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act”. See also Butt, Land Law, 5th ed (2006) at 736 [2028]). Had the purchasers lodged a caveat that circumstance would not have prohibited the Registrar-General from recording a writ in the Register in respect of the same land (s 74H(5) (f)). (Section 74H(5) provides: “Except in so far as it otherwise specifies, a caveat lodged under section 74F to protect a particular legal or equitable estate or interest in land, or a particular right arising out of a restrictive covenant, does not prohibit the Registrar-General from recording in the Register with respect to the same land: … (f) a writ or the cancellation of the recording of a writ in accordance with section 105D”). 98. Some ten months earlier, on 17 September 2004, the judgment creditors had obtained judgment in the District Court of New South Wales in the sum of approximately $228,000 against the sixth respondent, Marilyn Smith (then the registered proprietor of Wanaka), and her husband, Peter Smith. Between October 2004 and August 2005 the judgment creditors used various processes in order to enforce the judgment debt. During this time, there was correspondence between the judgment creditors and Marilyn and Peter Smith to the effect that the latter would use the interests in Wanaka and their interests in another rural property, Toorallie, to meet the judgment debt. 99. On 26 July 2005, Marilyn and Peter Smith’s legal representatives advised the judgment creditors’ solicitor of the abovementioned exchange of contracts between the purchasers and the sixth respondent and also advised that settlement was to occur on 26 August 2005. That date was brought forward to 24 August 2005. 100. Then on 19 August 2005 Marilyn and Peter Smith’s legal

representatives advised the judgment creditors’ solicitor that, following settlement, “funds will not be available to pay your client in full”. On 23 August 2005 at about 4.53 pm the judgment creditors obtained a writ for levy of the property in the District Court of New South Wales which was enforceable against any property owned by Marilyn and Peter Smith situated in New South Wales. 101. The events which took place the next day, 24 August 2005, and their sequence, are important. At 8.53 am the solicitor for the purchasers conducted a title search for Wanaka, the settlement being set down for 11.00 am. The search revealed prior encumbrances: two mortgages, a lender’s caveat and a leasehold interest. A special condition in the contract provided that the lease registered on the title “must be surrendered on or before completion”. The lease was surrendered on 24 August 2005 on payment of consideration of $109,258.19. 102. That same morning the judgment creditors obtained a charging order against the deposit (“the charging order”). At about 9.30 am the judgment creditors’ solicitor made a telephone call to the purchasers’ solicitor. He advised her that he acted for the judgment creditors in relation to the judgment debt owed to them by Marilyn and Peter Smith, that a bankruptcy notice had been issued against Marilyn Smith, that the sale of Wanaka might be set aside if completed and that the charging order had been obtained. However, he did not notify her of the writ. She then conducted a bankruptcy search for Marilyn Smith at about 9.48 am. No entries were disclosed. She requested, and the judgment creditors’ solicitor provided, a copy of the charging order between about 10.40 am and 11.00 am. 103. At approximately 11.30 am the writ was lodged with the Registrar-General to be recorded in the Register, which occurred at about 11.53 am. At about 12.15 pm the purchasers’ solicitor sent a facsimile to the judgment creditors’ solicitor notifying him that she had received instructions to proceed to settlement which had been delayed in the abovementioned circumstances. The purchase was completed at about 2.00 pm. The proceeds of the balance of the purchase price were paid to discharge various encumbrances.

104. The purchasers’ solicitor obtained the documents received on completion from her Sydney agent on 25 August 2005 and forwarded these to her Sydney registration agents, Lawpoint Galloways, the following day. The writ was delivered to the sheriff on 26 August 2005. On 8 September 2005 Lawpoint Galloways informed the purchasers’ solicitor that they had been unable to register the transfer as the writ was recorded on the Register. On 9 September 2005 the purchasers applied to lodge a caveat, the legal effect of which would have been to obtain “a statutory injunction” (Hall v Richards (1961) 108 CLR 84 at 92 per Kitto J). The recording of the writ precluded this course. 105. On 28 September 2005 the purchasers commenced proceedings in the Supreme Court of New South Wales (Equity Division) to enjoin the judgment creditors and their agents from executing the writ and for ancillary declaratory relief. The ensuing controversy between the purchasers, as holders of an unregistered equitable interest in the land, and the judgment creditors, who had the benefit of a writ for levy of the property recorded on the Register, involved questions of statutory construction. 106. While the parties construed the purposes of the 1976 provisions differently, and contended for different interpretations of s 105A(2), there was no dispute about certain uncontroversial principles, with which one commences a consideration of the submissions on the appeal. It was accepted that the Torrens system is a system of “title by registration” (Breskvar v Wall (1971) 126 CLR 376 at 384 per Barwick CJ) and that indefeasibility of title was “the foundation of the Torrens system of title” (Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 613 per Mason CJ and Dawson J). It was also not in dispute that the purchasers had a “caveatable interest” in Wanaka once they had exchanged contracts and paid the deposit of $100,000 (Woodman and Nettle, The Torrens System in New South Wales, 2nd ed (2003) at [74F.100]; Butt, Land Law, 5th ed (2006) at 736 [2028]) thereby, before completion, acquiring an equitable interest in land commensurate with what a court of equity would order to enforce the contract by way of specific performance (Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 334 [56] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ), injunction or otherwise (Chan v

Cresdon Pty Ltd (1989) 168 CLR 242 at 253 per Mason CJ, Brennan, Deane and McHugh JJ; Stern v McArthur (1988) 165 CLR 489 at 522 per Deane and Dawson JJ; Legione v Hateley (1983) 152 CLR 406 at 446 per Mason and Deane JJ).

The submissions in this Court ... 117. The judgment creditors adopted the reasoning and conclusions of Basten JA in the Court of Appeal and contended that the purchasers were not entitled to protect their unregistered interest in the land by an injunction. The effect of this was to defeat the “interest” of the judgment creditors arising from the recording of the writ. The interest of the judgment creditors was said to be an interest, not in the land, but an interest which enables a statutory process to take place culminating in title (this accords with the description by Kitto J of the interest of a judgment creditor after a seizure of property by the sheriff in Hall v Richards (1961) 108 CLR 84 at 91–92). It was submitted that the 1976 provisions constituted a statutory scheme, the purpose of which was to enable the sheriff to transfer to a purchaser at a sheriff’s sale a title unencumbered by unregistered interests. Section 105A(2) was relied on to support that submission as it precluded the purchasers from recording their interest in “the protected period” described as the period during which their interest was defeasible by the registration of an interest obtained from a sale by the sheriff. The judgment creditors construed s 105B(2) as evincing a legislative intention to alter, not only the interests and right of holders of unregistered equitable interests after the registration of transfer to the sheriff’s purchaser, but also to prevent holders of unregistered equitable interests from asserting their interest against a judgment creditor during the protected period. 118. The purchasers contended that s 105A(2) did not have the significance ascribed to it by the judgment creditors. It was submitted that s 105A(2) did not give the judgment creditors any entitlement to insist upon a sale by the sheriff which would defeat unregistered estates or interests created prior to the recording of a writ. It was asserted that the fact that s 105A(2) deferred registration of the purchaser’s entitlement did not deny the entitlement. It was submitted that nothing in the 1976 provisions conferred some priority or “indefeasibility of title” upon a judgment creditor. Rather, it was submitted that the purpose of s 105B(2) was to confer on a transferee

from the sheriff, indefeasibility of title corresponding with that generally afforded by s 42; and it was this aspect of the statutory scheme which constituted the “reform” envisaged by the Minister. It was contended, more generally, that the statutory scheme evinced in the 1976 provisions simply provided machinery whereby steps towards a sale by the sheriff in execution of a writ could be taken in an orderly manner. Section 112(1) of the Civil Procedure Act 2005 (NSW) (“the CPA”), which provides that a writ of execution “binds” the land from the time the writ is delivered to the sheriff, was relied on as complementing these submissions. Further, it was said that the interpretation of s 105B(2) for which the purchasers contended was reinforced by s 43A of the Act and s 115(1) of the CPA. The question 119. Simply stated, the question on the appeal to this Court was whether the purchasers were entitled to an injunction, before a sale to any other purchaser, to restrain the judgment creditors and the sheriff from execution of the writ which was recorded on the Register, after the purchasers had acquired an interest in the land, but before they had registered that interest. 120. In the reasons which follow considerations of the purpose (Section 33 of the Interpretation Act 1987 (NSW) provides “[i]n the interpretation of a provision of an Act … a construction that would promote the purpose or object underlying the Act … (whether or not that purpose or object is expressly stated in the Act …) shall be preferred to a construction that would not promote that purpose or object) of the 1976 provisions, their context (Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 368 [21] per Brennan CJ, 381 [69] per McHugh, Gummow, Kirby and Hayne JJ.), which includes consideration of the prior state of the law, the mischief which the provisions were intended to remedy (Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 384 [78] per McHugh, Gummow, Kirby and Hayne JJ) and fairness (Dixon CJ pointed out in Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390 at 397 that “fairness” is one of the guides to the meaning of legislative provisions) lead to the conclusion that the result in the Court of Appeal should be upheld. The appeal to this Court should be

dismissed. The interest of the judgment creditors — s 105(1) 121. Section 105(1) of the Act makes it clear that a writ, recorded or not, does not create any proprietary interest in a judgment creditor. The ownership of the land passes from the judgment debtor to any purchaser via the sheriff, who has the power under the CPA to enter into possession of and sell the land (Sections 106(2)(d), 114 and 115 of the CPA). Section 112(1) of the CPA complements s 105(1) by providing that a writ delivered to the sheriff “binds” the land. As explained by Kitto J in Hall v Richards (1961) 108 CLR 84 at 91 a “binding” of property mentioned in a writ occurs both with the delivery of a writ to the sheriff and the actual seizure of the property by the sheriff. “Binding” means that no dealing with the property by the judgment debtor when the writ becomes “binding” can alter the fact that the property referred to in the writ is that which the sheriff is required to seize and sell. Seizure places the property in custodia legis. As Kitto J explained, “[b]y the seizure the creditor acquires the legal right to have the sheriff’s duty performed” (Hall v Richards (1961) 108 CLR 84 at 91). 122. In the case of land where the sheriff enters into possession, the creditor acquires a legal right against the sheriff to have the land sold and to be paid out of the proceeds. That legal right is not an interest in the land, a position recognised expressly in s 105(1). Whilst ss 105 and 105A eschew any reference to a writ “binding” the land, ss 105(2) and 105A(2) are machinery provisions which have the effect that the land is “bound” by the writ and therefore, subject to exceptions in s 105A(1), the judgment debtor cannot deal with the land during the protected period. Land held in trust — s 105(3) 123. In coming to his conclusions in the Court of Appeal, Ipp JA treated s 105(3) as evidencing a legislative intention not to absolutely exclude consideration of prior unregistered equitable interests under the statutory scheme constituted by the 1976 provisions (Garnock v Black (2006) NSW ConvR ¶56-158 at 59,869 [42], 59,871–59,872 [60]–[61]). I agree. Whilst s 105(3) might be construed narrowly as

referring only to matters which appear on the face of the Register, such as a description of a registered proprietor as a trustee, such a provision nevertheless raises the possibility that a beneficiary under a trust, for example, is not precluded by the 1976 provisions from approaching the Court for protection of his or her interest. Protected period — s 105A(2) and (9) 124. As the Minister explained when introducing the 1976 provisions, a protected period during which the writ “bound” the land and during which the sheriff could execute the writ was not new (New South Wales, Legislative Assembly, Parliamentary Debates (Hansard), 30 September 1976 at 1293, and see former s 105(5) of the Act, as repealed by the Real Property (Amendment) Act 1976 (NSW). See also Re Bosquet (1883) 17 SALR 173; National Bank of Australasia v Morrow (1887) 13 VLR 2 at 7–8; Clarke v Roe and Falkner (1899) 1 WALR 123 at 127–128 per Stone J, 128–129 per Hensman J; Austral Lighting [1984] 2 Qd R 507 at 510; Re Sang (1985) Q ConvR ¶54-191; McDonald v McNally [1990] WAR 365 at 367–369). What is being “protected” during the protected period is the potential priority of a purchaser from the sheriff against any dealings in the land by the judgment debtor during the protected period. Here the judgment debtor disposed of the land under a specifically enforceable contract before the writ was recorded and before the protected period commenced to run. The exceptions to the operation of s 105A(2) 125. Numerous exceptions to the operation of s 105A(2) are referred to in s 105A(1). These function as statutory directions to the RegistrarGeneral and govern disparate situations. For example, s 105A(1)(p) excepts from the provisions of s 105A(2) “a dealing the registration or recording of which is ordered or directed under section 122(4), 124 or 138”. Although of no immediate application here, the nature of that exception, and the extent of the exceptions taken as a group, show that whilst the Registrar-General is comprehensively directed in respect of a range of situations, such policy considerations as inform s 105A(2) will be tempered in a number of specific circumstances. That said, it must be recognised that many of the exceptions are obvious

and do not necessarily depend on any action by the judgment debtor. 126. The machinery of s 105A(1) operates such that a judgment creditor’s rights on the recording of a writ do not include a right to have the sheriff transfer land to a purchaser free of all interests, except those shown on the Register as at the date of the recording of the writ. Further, s 105A(1) and (2) considered together achieve the effect that the priority of a purchaser from a sheriff over holders of other interests (including a prior purchaser for valuable consideration whose interest is unregistered) attaches on the sale to a purchaser by the sheriff (as contemplated by the Minister for Lands: New South Wales, Legislative Assembly, Parliamentary Debates (Hansard), 30 September 1976 at 1294). It is at that moment that protection is accorded to the purchaser from the sheriff against a prior purchaser for value whose interest is unregistered. Effect of registration of a transfer from a sheriff — s 105B 127. Section 105B states the requirements for registration of a transfer from the sheriff and the effect of the registration. Whilst not using the epithet “paramount” (to be found in s 42) to describe the interest or estate of a purchaser from a sheriff upon registration, s 105B incorporates s 42 and operates in the same way as s 42 as the source of indefeasibility in favour of a purchaser from the sheriff. 128. The purpose of the detailed machinery of the 1976 provisions is to ensure that at the date of a sale by the sheriff a purchaser from the sheriff takes priority over prior unregistered purchasers for valuable consideration (or other interest holders). A purchaser from a sheriff under the previous regime acquired indefeasibility upon registration (s 42), but had no protection against prior purchasers for valuable consideration in the interim between the sale by the sheriff and registration of the transfer. A purchaser from a sheriff under the 1976 provisions not only acquires indefeasibility on the registration of the transfer (s 105B(2)) but also has priority over prior unregistered purchasers (or other interest holders) from the date of sale as a result of the operation of the machinery provisions (particularly s 105(2) and s 105A(1), (2) and (9)). Thus the effect of Coleman v De Lissa (1885) 6 LR (NSW) Eq 104 is overcome. These provisions work to ensure

that, prior to the registration of a transfer from the sheriff, a purchaser from the sheriff is not vulnerable to a contest between unregistered interests in which the later purchaser from the sheriff may be defeated by a prior purchaser, who has not registered a transfer. 129. The 1976 provisions construed as described do not preclude the holders of prior unregistered interests such as a beneficiary under a trust, a mortgagee holding an unregistered mortgage (with or without a certificate of title) or a purchaser, as here, with unregistered transfer documents, from seeking to raise their interests against a judgment creditor prior to any sale by the sheriff. 130. The detailed operation of the 1976 provisions will, however, preclude the holders of such interests from setting them up against a purchaser between the date of the sale by the sheriff and the registration of the transfer. That is the import of the relationship between ss 105A(2) and 105B(2) which distinguishes the 1976 provisions from the repealed legislation, the position according to Coleman v De Lissa (1885) 6 LR (NSW) Eq 104 and the situation considered in Austral Lighting [1984] 2 Qd R 507 which was only concerned with a provision protecting a purchaser from a sheriff from prior purchasers after the transfer from the sheriff had been registered. The purchasers’ failure to lodge a caveat 131. The conclusions reached render it unnecessary to consider the purchasers’ failure to lodge a caveat when contracts were exchanged or at any time thereafter before the recording of the writ. It was the recording of the writ, not the failure to caveat, which gave rise to the possibility that another interest could be created, not by the registered proprietor, but by the sheriff (cf Butler v Fairclough (1917) 23 CLR 78; Abigail v Lapin (1934) 51 CLR 58; Osmanoski v Rose [1974] VR 523). Consideration of the precise interaction between ss 74F, 74H including 74H(5)(f), 105A(1)(a) and 105B(2) can be undertaken as necessary on another occasion. 132. It also does not matter that the purchaser failed to make a second search of the Register just before completion.

133. A further matter deserves mention. If s 105A(2) operated to preclude the purchasers from setting up their prior unregistered interest against the judgment creditors during the protected period but prior to a sheriff’s sale, one possible result is that at a sheriff’s sale, during that period, the price achieved for the land would be in the order of the price paid by the purchasers, $1,000,000. The prior encumbrances had all been cleared on completion of the sale to the purchasers on the same day as the recording of the writ. Alterations to the interests of holders of prior encumbrances were able to be recorded on the Register under s 105A(1) (Section 105A(1)(e) covers determination of a lease; s 105A(1)(f) covers dealings by a mortgagee or chargee). The result would be that after a sale, payment of the sheriff’s fees and expenses and payment to the judgment creditors, the sheriff would be obliged to pay the balance to the judgment debtor (Uniform Civil Procedure Rules (2005) NSW, r 39.15.). Neither the detail of the 1976 provisions nor established principles concerning the Torrens system suggest that the legislature intended that result. Order 134. I would dismiss the appeal with costs.

Tax Institute CommLaw3 Module 6 — Cases Zurich Australian Insurance Limited v Metals & Minerals Insurance Pte Ltd Nolan v Hamersley Iron Pty Ltd Metals & Minerals Insurance Pte Ltd v Speno Rail Maintenance Australia Pty Ltd (2007) 14 ANZ Insurance Cases ¶61-728; [2007] WASC 62 Supreme Court of Western Australia 16 March 2007 Insurance — Indemnity insurance — Right to contribution arising from double insurance — Effect of “underlying insurance” or “excess” clauses — Effect of s 45 Insurance Contracts Act on underlying insurance clauses — Equitable bar to contribution — Duty of utmost good faith — Whether waiver of right of subrogation — Method of assessing amount of contribution — Maximum potential liability method — Independent actual liability method — Res judicata — Effect of principle where there existed a primary and secondary obligation to indemnify — Acts Interpretation Act 1901 (Cth) — Insurance Contracts Act 1984 (Cth), s 13, 14, 45. Hamersley Iron Pty Ltd (Hamersley) carried on the business of mining, manufacture, transportation and loading of iron ore. Speno Rail Maintenance Australia Pty Ltd (Speno) entered into a contract with Hamersley which provided that Speno would arrange public liability insurance that included Hamersley’s interest as a principal; and that Speno would be solely liable for and indemnify and hold harmless Hamersley against any common law liability for personal injury to Speno’s employees that were engaged in the contract works and that

arose from the performance of the works. Hamersley had entered into a contract of insurance with Metals & Minerals Insurance Pte Ltd (MMI), which provided public liability insurance cover for Hamersley (the Hamersley policy). MMI’s maximum liability under the policy was $200,000. Speno had entered into a contract of insurance with Zurich Australian Insurance Limited (Zurich), which provided the public liability insurance cover that was required under the Hamersley-Speno contract (the Speno policy). Zurich’s maximum liability under the policy was $2 million. Nolan and Oatway were injured while employed by Speno and performing work under the Hamersley-Speno contract. Nolan and Oatway brought proceedings against Hamersley in the District Court. Hamersley admitted negligence and sought indemnity from Speno for its liability. Speno and Zurich were joined as the third and fourth parties respectively to the Nolan proceedings. After the trial and an appeal in the Nolan proceedings, Speno and Zurich were ordered to indemnify Hamersley in respect of the sum paid by it. The Full Court held that Zurich was not entitled to a contribution from Speno because Speno’s liability was not coordinate with that of Zurich. (See Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2001) 11 ANZ Insurance Cases ¶61-485.) Zurich then commenced proceedings against MMI (the Zurich action), claiming a contribution from MMI on a rateable proportion for the indemnified amounts paid by Zurich, calculated either on the maximum potential liability method or the independent actual liability method. The basis of Zurich’s claim was that, as MMI was liable to indemnify Hamersley for its liability to Nolan and Oatway under the Hamersley policy, which was the same liability that Zurich had already indemnified Hamersley for, Hamersley was doubly insured for its liability to Nolan and Oatway, and Zurich was therefore entitled to a contribution. In its defence, MMI relied on a clause in the Hamersley policy which provided that, in the event that Hamersley was indemnified under insurance coverage effected on Hamersley’s behalf by a third party,

the insurance afforded by the Hamersley policy was for excess insurance over the applicable limit of indemnity of the underlying insurance policy. Consequently, MMI denied that Hamersley was doubly insured and that Zurich was entitled to a contribution from it. Further, MMI pleaded that the relief sought by Zurich was not available in equity because, as MMI could subrogate Hamersley’s rights against Speno, Zurich’s claim circumvented the effect of Zurich’s agreement to waive its rights of subrogation against Speno. In reply, Zurich contended that the underlying insurance clause relied on by MMI was rendered void by s 45 of the Insurance Contracts Act 1984 (the IC Act) and could not be relied upon. MMI, exercising a right of subrogation, issued out of the District Court of Western Australia a writ of fieri facias against Speno. Speno sought to have the writ struck out or stay its execution until the hearing of the Zurich action. In the event that Zurich was entitled to a payment from MMI by way of contribution, MMI commenced proceedings in the Supreme Court against Speno (the MMI action), seeking a declaration that it was entitled to exercise its rights of subrogation, in Hamersley’s name, against Speno so as to recover the whole of its liability to Zurich, including costs. MMI also sought a declaration that it was entitled to execute the writ of fieri-facias against Speno. In response, Speno asserted that Hamersley had no remaining liability to Nolan in respect of which it could seek to be indemnified and consequently Hamersley had no remaining right which could be the subject of execution against Speno and no remaining right to claim an indemnity against Speno under the Hamersley judgment. Therefore there was no right against Speno to which MMI could be subrogated and it would have been an abuse of process for MMI to seek execution against Speno in Hamersley’s name. Held: applications granted in Zurich action and MMI action; application to strike out writ of fieri-facias dismissed. The Zurich action Right to contribution

1 The underlying insurance clause in the Hamersley policy was in breach of s 45(1) of the IC Act and was not saved by s 45(2). On that basis, the clause was void and MMI could not rely on it to allege that its liability was not coordinate with that of Zurich. 2 If the meaning of s 45(1) was considered when a claim was made on the policy or the claim was the subject of litigation, there would have been no need to include the words “or may enter into”. That was because, at the time the provision was considered, the “other contract of insurance” would necessarily have been entered into. Section 45(1) applied to “other contracts” entered into both before and after the contract with the “other insurance” provision. 3 The appropriate approach to the interpretation of s 45(1) of the IC Act was to give the words of the section their natural meaning when considering the effect of the underlying insurance clause, in circumstances where an insured had either entered into another contract of insurance covering the same risk or where the insured had the benefit of another contract of insurance taken out by a third party which covered the same risk. In those circumstances the underlying insurance clause had the effect of limiting or excluding the liability of the insurer under the contract because it converted a policy which indemnified the insured for the whole of the loss to a policy which insured the insured for any excess over the applicable limit of indemnity of the underlying insurance policy. Equitable bar to contribution defence 4 Zurich could not subrogate itself to any right that Hamersley may have possessed because it had waived that right, not because Speno was its insured. 5 The doctrines of contribution and subrogation are disparate concepts. An action claiming contribution is an action brought by the insurer in its own right and is not an action under the contract. Further, the right to seek contribution is not a right arising under the contract although it is because the insurer has met its obligations under the contract that it may exercise the right to a contribution. 6 Zurich agreed to Speno’s request to provide indemnity insurance to

Hamersley. However, the only “promise” to Speno was to put the insurance in place; there was no promise to Speno to indemnify Hamersley. Once the insurance policy issued, any obligation that Zurich may have had to Speno was fulfilled. As Speno was not a party to the insurance contract between Zurich and Hamersley, any duty that was owed to Speno, was as a third party who was also an insured of Zurich. 7 When there is an obligation on a party to act in good faith, where potentially the interests of one party may be placed above those of the other party, there was a strong argument in favour of a narrow interpretation of s 13 of the IC Act. It was not possible or necessary to describe the circumstances in which conduct may have been said to be “in relation to” a contract of insurance. However, as Speno was not a party to the contract, the provisions of s 13 did not apply. 8 Although Zurich had waived its right to subrogation with respect to Speno, it did so in the context of the contract of insurance between Zurich and Speno. Further, as Speno was not a party to the policy between Zurich and Hamersley, despite the fact that Speno arranged for the insurance cover and paid for it, no duty to Speno arose in relation to Hamersley’s claim under the policy. Consequently, the relationship between Zurich and Speno was one of insurer and third party, who happened also to be an insured of Zurich under a policy which covered the work in which Hamersley’s negligence arose. In those circumstances Zurich did not owe Speno any duty with respect to these proceedings. 9 On any interpretation of the authorities on the duty of good faith, Zurich was required to act honestly and fairly, which involved considering the interests of Speno but not subjugating its own interests to those of Speno. The duty of good faith did not require Zurich to refrain from seeking contribution from another insurer in any of the circumstances of this matter. Zurich was entitled to contribution from MMI. Amount of contribution 10 The apportionment of liability between insurers with coordinate liability was a matter of discretion. The discretion must have been

exercised reasonably and fairly so as to achieve a just and lawful accommodation of the competing interests of the two insurers. In achieving that aim the court was entitled to take into account all matters which went towards ensuring that the result was equitable. 11 Despite the fact that the authorities generally acknowledged two methods of determining contribution, the maximum potential liability method or the independent actual liability method, the court was entitled to apply some variant of these two methods if there were particular circumstances which made it necessary to depart from the principal methods in order to achieve a just result. 12 Zurich was entitled to contribution from MMI, calculated on the basis of the independent actual liability method, in relation to the judgment in the Nolan action in an amount agreed between the parties. The MMI action and the Nolan action 13 If an action taken by an insurer has the effect of more than fully indemnifying the insured, then the doctrine of subrogation cannot provide the lawful justification for the action. 14 The doctrine of subrogation was adopted for the purpose of ensuring that an insured is never more than fully indemnified. In practical terms, the effect of the doctrine is that any amount obtained from an action brought by an insurer by subrogation is offset against the amount paid by the insurer by way of indemnity. 15 An insurer may by subrogation assert any right which exist in the insured. Where the insured has been indemnified by another insurer, an insurer cannot by subrogation bring an action against the other insurer because the insured’s right to recover from the other insurer was extinguished when the insured was indemnified by the other insurer. 16 Although Hamersley had been indemnified by Zurich, there remained a judgment against Speno to indemnify Zurich based on a finding that Speno was under a primary obligation to indemnify Zurich. Where MMI was required to contribute to the indemnity met by Zurich, there was, in effect, a portion of the judgment sum for which Speno

was also liable and primarily liable, which had not been met by Zurich. Instead it had been met by Hamersley’s insurer, MMI, against whom there was no judgment. Therefore, MMI’s entitlement to recover against Speno depended on the extent to which an insurer was entitled to recover by subrogation against a third party. 17 Where the insured has been fully indemnified, in accordance with the prohibition on an insured being more than fully indemnified, the amount obtained in diminution of the insured’s loss was retained by the insurer to offset the amount paid under the policy. Referring to diminution of the insurer’s loss, whilst that may indeed be the practical effect, has the potential to create a misunderstanding about the true nature of subrogation. That was because it was fundamental to the doctrine of subrogation that it was the right of the insured to reduce its loss which was being exercised by the insurer, not the insurer’s right. 18 As Hamersley was entitled to call on the contractual indemnity from Speno before calling on the indemnity under the insurance policy, Hamersley retained a right to seek from Speno an indemnity for that amount of the judgment sum that had been paid by MMI by way of contribution. [Headnote by the CCH INSURANCE LAW editors] JE Maconachie QC with GC Richards (instructed by Srdarov Richards Burton) for the plaintiff in the Zurich action. RC White QC with ML Williams (instructed by Phillips Fox) for the defendant in the Zurich action. Y Radic (instructed by Separovic & Associates) for the plaintiff in the Nolan action. RC White QC with ML Williams (instructed by Phillips Fox) for the defendant in the Nolan action. N Corboy SC with SF Popperwell (instructed by Pynt & Partners) for the third party in the Nolan action. JE Maconachie QC with GC Richards (instructed by Srdarov Richards Burton) for the fourth party in the Nolan action. RC White QC with ML Williams (instructed by Phillips Fox) for the

plaintiff in the MMI action. N Corboy SC with SF Popperwell (instructed by Pynt & Partners) for the defendant in the MMI action. Before: Johnson J. Johnson J: 1. Of the three matters before the Court, two actions were commenced by Writ of Summons issued out of this Court seeking various forms of relief. The third action is an action for damages for personal injuries which was commenced in the District Court and transferred to this Court for the purpose of determining the defendant’s third party proceedings. The connection between these actions is best explained by setting out the background circumstances and the nature of the various actions. Background 2. Zurich Australian Insurance Limited (“Zurich”) and Metals & Minerals Insurance Pte Ltd (“MMI”) are both insurance companies. Speno Rail Maintenance Australia Pty Ltd (“Speno”) is a company operating as rail grinding contractors. Hamersley Iron Pty Ltd (“Hamersley”) carries on the business of mining, manufacture, transportation and loading of iron ore. 3. Speno entered into a contract with Hamersley to carry out work for Hamersley which was undertaken by, among others, Shaun Nolan and Damien Oatway, both of whom were employees of Speno. The contract entered into by Hamersley and Speno (“the HamersleySpeno Contract”) required, amongst other things, the following: (a) That Speno arrange its public liability insurance to include Hamersley’s interest as a principal; and (b) That Speno be solely liable for and indemnify and hold harmless Hamersley against common law liability for personal injury to Speno’s employees engaged in the contract works and arising from the performance of the works. 4. Speno and Zurich entered into a contract of insurance (“the Speno

Policy”) to provide Hamersley with the public liability insurance required under the Hamersley-Speno Contract. Although the position of one of the parties is that this particular contract of insurance is, in fact, a contract between Zurich, as insurer, and Hamersley, as insured, for simplicity of reference I have described it as the Speno Policy on the basis that Speno arranged the policy with Zurich. The description does not reflect a view on the nature of any party’s involvement in the policy. The maximum liability of Zurich under the Speno Policy was $2 million. 5. Hamersley had entered into a contract of insurance with MMI (“the Hamersley Policy”) which provided public liability insurance cover for Hamersley. Under the policy MMI agreed to indemnify Hamersley against, amongst other things, any liability to pay damages for personal injury occurring in connection with Hamersley’s business. The maximum liability of MMI under the Hamersley Policy was $200,000. 6. Each of these contracts and policies were in force on 24 May 1995 when Nolan and Oatway were injured while employed by Speno and performing work carried out by Speno under the Hamersley-Speno Contract. The accident which caused the injuries to Nolan and Oatway were caused as a result of the negligence of Hamersley. 7. Nolan and Oatway instituted separate proceedings in the District Court against Hamersley alleging negligence and seeking damages for their injuries (respectively “the Nolan action” and “the Oatway action”). Hamersley admitted negligence and sought indemnity from Speno under the Hamersley-Speno Contract for its liability in respect of Nolan and Oatway’s damages claims. Speno claimed against Zurich pursuant to the Speno Policy. Speno and Zurich were joined as the third and fourth parties respectively to the Nolan proceedings. At a later point, Hamersley also claimed directly against Zurich under the Speno Policy. 8. After trial and an appeal in the Nolan action, it was ordered that: (a) Hamersley pay Nolan the sum of $1,110,186.35; and (b) Speno and Zurich indemnify Hamersley in respect of that sum.

9. Of the issues raised on the appeal in the Nolan action, a number related to obligations of indemnity and contribution between Zurich and Speno and between Speno and Hamersley arising from the terms of the Speno Policy and the Hamersley-Speno Contract. Speno appealed against the order that it must indemnify Hamersley on the basis that the clause of the Hamersley-Speno Contract requiring Speno to ensure that all necessary insurances are taken out include Hamersley as co-insured, prevented the indemnity clause of the contract from applying where Hamersley is entitled to the benefit of the insurance arranged by Speno. That argument found no favour with the Full Court and the order that Speno indemnify Hamersley remained in effect: Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291 per Ipp J at 312, per Malcolm CJ at 300 and Wheeler J at 325. 10. Another issue addressed on appeal was Zurich’s liability to indemnify Speno. It was held that Zurich was not so liable because the policies issued to Speno did not indemnify it against that liability. Speno’s argument that Zurich’s denial of liability to indemnify Speno was a breach of Zurich’s duty of good faith was rejected by the Full Court: per Malcolm CJ (at 306), per Ipp J (at 311, 313), per Wheeler J (at 328 – 329). 11. Zurich maintained that it was entitled to a contribution from Speno on the basis that Speno’s liability to indemnify Hamersley under the Hamersley-Speno Contract was a co-ordinate liability to Zurich’s obligation to indemnify Hamersley under the Speno Policy. The decision of the Full Court was that Zurich was not entitled to a contribution from Speno because the liability of Speno was not coordinate with that of Zurich: per Wheeler J (at 327), per Malcolm CJ (at 300) and per Ipp J (at 312). One aspect of the reasoning behind that conclusion was that Zurich’s liability arose from a contract of insurance and Speno’s did not: per Ipp J (at 312). It was held that the use of the word “indemnity” in the Hamersley-Speno Contract did not convert an ordinary contractual provision into an insurance policy or place the contractual provision on the same footing as an insurance policy: per Wheeler J (at 327). 12. As a result of judgments and agreed settlements in the Nolan and

Oatway proceedings and as a result of the indemnity under the Speno Policy, Zurich paid $1,110,186.30 in damages to Nolan, $25,000.00 in damages to Oatway in settlement of his claim, interest and the legal costs of trial and appeal to a total of $1,259.969.07 (“the indemnified amounts”). 13. Zurich then commenced proceedings in this court, action CIV 1679 of 2002 (“the Zurich action”), against MMI claiming a contribution from MMI on a rateable proportion for the indemnified amounts paid by Zurich, calculated either on the maximum potential liability method or the independent actual liability method. The basis of Zurich’s claim is that, as MMI is liable to indemnify Hamersley for its liability to Nolan and Oatway under the Hamersley Policy, which is the same liability that Zurich has already indemnified Hamersley for, Hamersley is doubly insured for its liability to Nolan and Oatway, and Zurich is therefore entitled to a contribution. 14. In its defence, MMI relies on a clause in the Hamersley Policy headed “Special Clause” which provides that, in the event of Hamersley being indemnified under insurance coverage effected on Hamersley’s behalf by a third party such as a contractor, the insurance afforded by the Hamersley Policy is for excess insurance over the applicable limit of indemnity of the underlying insurance policy. Consequently, MMI denies that Hamersley is doubly insured and that Zurich is entitled to a contribution from MMI. Further, MMI pleads that the relief Zurich seeks is not available in equity because, as MMI can subrogate Hamersley’s rights against Speno, Zurich’s claim circumvents the effect of Zurich’s agreement to waive its rights of subrogation against Speno. 15. MMI, exercising a right of subrogation, caused to be issued out of the District Court in action number 1583 of 1996 (“the Nolan action”) a Writ of fieri facias (“fi.fa”) to be executed against Speno. Shortly after, the defendant’s third party proceedings in the Nolan action were referred to this Court. Speno’s response to MMI was to issue a Chamber Summons to strike out the Writ of fi.fa or stay its execution until the hearing of the Zurich action. 16. MMI then commenced proceedings in this court, action CIV 2243

of 2003 (“the MMI Action”), seeking a declaration that it is entitled to recover from Speno in the event that Zurich becomes entitled to a payment from MMI by way of contribution in the Zurich action. Speno’s response to MMI’s claim, inter alia, is to assert that Hamersley has no remaining liability to Nolan in respect of which it can seek to be indemnified and consequently has no remaining right which can be the subject of execution against Speno and no remaining right to claim an indemnity against Speno under the Hamersley judgment. As a result, Speno maintains that there is no right against Speno to which MMI can be subrogated and it would therefore be an abuse of process for MMI to seek execution against Speno in the name of Hamersley. 17. I will deal with each of the individual actions in turn, although some issues requiring determination are common to more than one action. With respect to certain issues, the need to determine them is dependent on findings made in relation to other issues. However, because of the potential for appeals, I propose to determine every issue raised at the hearing. The Zurich action 18. In this action, Zurich seeks a declaration that Hamersley was doubly insured by Zurich and MMI, under the Speno and Hamersley policies respectively, in relation to the liability of Hamersley to Nolan and Oatway. Zurich further seeks payment from MMI by way of contribution calculated on the maximum potential liability method or, alternatively, on the independent actual liability method. 19. MMI’s defence to the Zurich claim is that MMI acknowledged under a clause of the Hamersley Policy with the primary heading “Special Clause” and a secondary heading of “Underlying Insurance” (“the underlying insurance clause”) that it was customary for Hamersley to effect, or for other parties (including contractors) to effect on Hamersley’s behalf, insurance coverage specific to a particular project, agreement or risk that was not specifically effected to be insurance excess to the Hamersley Policy. This underlying insurance clause provides that, in the event of Hamersley being indemnified under insurance coverage effected on its behalf with respect to a particular project, in respect of a claim for which indemnity

is available under the Hamersley Policy, the insurance afforded by the Hamersley Policy is excess insurance over the applicable limit of indemnity of the underlying insurance policy. If that proposition is accepted, then there is no double insurance and no right in Zurich to a contribution from MMI. In reply, Zurich pleads that the underlying insurance clause relied on by MMI is rendered void by s 45 of the Insurance Contracts Act 1984 (Cth) (“the IC Act”) and cannot be relied upon. 20. MMI further pleads that the relief sought by Zurich is not available in equity because of the following matters: 1. Speno’s liability under the judgment in the Nolan action is further to the indemnity clause in the Hamersley-Speno Contract; 2. The Speno Policy includes a clause under which Zurich waives any rights of subrogation it has against Speno and cannot subrogate Hamersley’s rights against Speno under the judgment; 3. MMI is entitled to subrogate to Hamersley’s rights against Speno under the judgment and enforce against Speno an indemnity equalling any contribution MMI is ordered to make to Zurich; 4. Zurich’s claim against MMI therefore purports to circumvent the effect of Zurich’s agreement to waive its rights of subrogation against Speno. 21. MMI maintains that, as a claim for contribution is a claim for equitable relief, as a result of these factors it would be inequitable for Zurich to make such a claim. This defence to Zurich’s claim was referred to at the hearing as the “equitable bar to contribution” defence. In reply to this plea, Zurich denies that the Speno Policy contained a clause by which Zurich waived its rights of subrogation against Speno and further denies that there was any agreement to waive its rights of subrogation against Speno. 22. Finally, in its defence, MMI denies that any contribution to which Zurich may be entitled should be calculated on the maximum potential liability method of apportionment.

1. Right to contribution 23. It is not disputed that when Nolan and Oatway were injured by Hamersley’s negligence on 24 May 1995, Hamersley was insured against that risk by Zurich: see Speno Rail Maintenance Australia Pty Ltd (supra) per Malcolm CJ (at 306), per Ipp J (at 309), per Wheeler J (at 324). It is also the case that, under the Hamersley Policy, MMI agreed to indemnify Hamersley against, among other things, such sums as Hamersley became legally liable to pay arising out of personal injury in connection with Hamersley’s business. The policy related only to personal injury occurring between certain dates but the injury to Nolan occurred within those dates so that particular qualification presented no bar. Therefore, Zurich contends that the respective insurance policies of Zurich and MMI insure the same risk and hence their liabilities are co-ordinate, which is the basis in equity for contribution. MMI submits, as noted above, that, by virtue of the underlying insurance clause in the Hamersley Policy, the Hamersley Policy operates as an excess policy over the limit of indemnity under the Speno Policy and hence the liabilities are not co-ordinate. 24. The decision of the High Court in Albion Insurance Co Ltd v Government Insurance Office of NSW (1969) 121 CLR 342 is referred to by Zurich as authority for the proposition that where there are coordinate liabilities there is a right to contribution. The oft cited statement of principle of the majority in Albion Insurance Co Ltd (supra) is in these terms (per Barwick CJ, McTiernan and Menzies JJ (at 345)): “There is double insurance when an assured is insured against the same risk with two independent insurers. To insure doubly is lawful but the assured cannot recover more than the loss suffered and for which there is indemnity under each of the policies. The insured may claim indemnity from either insurer. However, as both insurers are liable, the doctrine of contribution between insurers has been evolved … The doctrine, however, only applies when each insurer insures against the same risk, although it is not necessary that the insurances should be identical.” 25. In the same case, Kitto J noted that the same point in regard to

accident insurance is made by saying that each policy must insure the same person against the very loss that in the event he has sustained, or the very liability that in the event he has incurred: (at 350). 26. In the present case, it is not the general principle which is in dispute. As the majority observed in Albion Insurance Co Ltd (supra) (at 347): “It seems to us that it is not the principle but the application of the principle which has given rise to the problem that now falls for decision.” 27. MMI correctly observes that, absent an obligation in both MMI and Zurich to indemnify Hamersley in respect of its liability to Nolan and Oatway, there can be no entitlement to contribution: see Speno Rail Maintenance Australia Pty Ltd (supra) (at 325) per Wheeler J. MMI maintains that it has no obligation to indemnify Hamersley against its liability to Nolan and Oatway because of the operation of the underlying insurance clause in the Hamersley Policy which is in these terms: “Underlying Insurance Underwriters acknowledge that it is customary for the Insured to effect, or for other parties (including joint venture partners, contractors and the like) to effect, on behalf of the Insured, insurance coverage specific to a particular project, agreement or risk. In the event of the Insured being indemnified under such other Insurance effected by or on behalf of the Insured (not being an Insurance specifically effected as Insurance excess of this Policy) in respect of a Claim for which Indemnity is available under this Policy, such other Insurance hereinafter referred to as Underlying Insurance, the Insurance afforded by this Policy shall be Excess Insurance over the applicable Limit of Indemnity of the Underlying Insurance, but subject always to the terms and conditions of this Policy. In the event of cancellation of the Underlying Insurance or reduction or exhaustion of the Limits of Indemnity thereunder, this

Policy shall: (i) in the event of reduction pay the excess of the reduced underlying limit (ii) in the event of cancellation or exhaustion continue in force as underlying insurance but subject always to the terms and Conditions of this Policy.” 28. MMI’s position is that the combined effect of Hamersley’s entitlement to an indemnity under the Speno Policy and the underlying insurance clause is that the Hamersley Policy operates as an excess policy over the limit of indemnity under the Speno Policy. Consequently, the respective liabilities of Zurich and MMI are not coordinate but sequential as Hamersley would not have been entitled to indemnity under the Hamersley Policy until the limit of Zurich’s liability of $2 million had been reached. As the indemnified amounts are less than $2 million, Zurich is not entitled to contribution from MMI. 29. The decision of the Court of Appeal of New South Wales in Australian Eagle Insurance Co Ltd v Mutual Acceptance (Insurance) Pty Ltd (1983) 3 NSWLR 59 is referred to in support of MMI’s interpretation of the effect of the underlying insurance clause. In that case, the leading judgment was written by Priestley JA, with whom Hutley AP agreed, as did Mahoney JA who provided additional reasons. The facts were that the owner of a house damaged by fire was insured under a householder’s policy with the respondent (“Mutual”), pursuant to which Mutual paid the owner $47,700 in respect of the fire damage. The owner also had a home insurance policy with the plaintiff (“Eagle”) in respect of the same building. Mutual sought a contribution from Eagle of one half of the amount paid to the owner on the basis that Eagle was a co-insurer with respect to the same risk. The central question before the Court was whether Eagle could properly be so described in circumstances where the Eagle policy, which indemnified the owner to a limit of $25,000, included under the heading “General Exclusions” the following clause: “This policy does not cover:

2. any loss of damage or liability which is insured by or but for the existence of this policy would be insured by any other policy or policies except in respect of any excess beyond the amount which would have been payable under such other policy or policies had this insurance not been effected.” 30. Priestley JA considered and applied the decision of the New Zealand Court of Appeal in State Fire Insurance General Manager v Liverpool and London and Globe Insurance Co Ltd [1952] NZLR 5 (at 29) where Hutchison and Cooke JJ, who wrote a joint judgment, construed the “excess” clause according to its terms, rather than in accordance with what was described as difficult to reconcile principles set out in a number of English cases, most of which dealt with the situation where both policies contained an “excess” clause. Hutchison and Cooke JJ read the clause as showing that the insurer was not indemnifying the person against the same risk as the primary insurer. They held that the policy with the “excess” clause placed no obligation on the insurer to indemnify the insured until the insured’s own insurer had first been called upon for the indemnity provided by its policy and then claimed contribution. At that point, the insured’s own insurer must take the “excess” clause as it finds it. 31. Priestley JA concluded that the Eagle policy, according to its terms, provided indemnity against damage due to fire to a limit of $25,000 until the owner obtained the other insurance policy at which point the “excess” clause operated to exclude any indemnity to the owner except to the extent of any excess as defined by that clause: (at 65). His Honour further considered that similar considerations applied to the Eagle policy as those acted upon by Hutchison and Cooke JJ in State Fire Insurance General Manager (supra) which provided a guide to, and a basis for, reaching a conclusion opposite to that reached in the English cases: (at 71). The decision of the Court was that Mutual was not entitled to contribution as Eagle was not indemnifying the owner against the same risk: (at 71 – 72). 32. Atkin LJ in Re Calf & Sun Insurance Office [1920] 2 KB 366 at 382 protested that one case of construction of an insurance policy should not be treated as an authority in another unless the language and the

circumstances are substantially identical. However, in my view, the terms of the relevant portion of the underlying insurance clause in the Hamersley Policy are sufficiently similarly worded to the “excess” clause in State Fire Insurance General Manager (supra) to entitle this Court to reach the same conclusion as to its effect. In any event, I believe that the natural meaning of the wording of the underlying insurance clause in the Hamersley Policy leads to the same result. 33. In fact, it is common ground between the parties that in order for an entitlement to contribution to arise, their liabilities must be coordinate. Neither party cavils with the fundamental propositions in Albion Insurance Co Ltd (supra) (at 345 – 346; 352) and in the decision of the Full Court in Speno Rail Maintenance Australia Pty Ltd (supra) and also in numerous other decisions on this issue. 34. It is also common ground that if the Hamersley Policy is made into an excess policy by the underlying insurance clause, then the two liabilities will not be co-ordinate, they will be sequential with Zurich being liable for the first $2 million. 35. The dispute arises from the fact that the decision in Australian Eagle Insurance Co Ltd (supra) was made prior to the passing of the IC Act, which includes s 45, which is in these terms: “45 ‘Other insurance’ provisions (1) Where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void. (2) Subsection (1) does not apply in relation to a contract that provides insurance cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first-mentioned contract.”

36. Zurich denies that the Hamersley Policy is a true excess of loss policy. It is said that the clause is too general: it speaks in futuro; it lacks definition; and it fails to avoid the mischief s 45 is designed to prevent. According to Zurich, for the Hamersley Policy to be a true policy of that type, MMI must bring the policy within s 45(2) of the IC Act which Zurich asserts MMI is unable to do. Therefore, Zurich’s position, as pleaded, is that the underlying insurance clause in the Hamersley Policy is void by virtue of the operation of s 45(1) of the IC Act and, as such, cannot be relied upon by MMI. 37. The merit in Zurich’s contentions is dependent on categorising the Hamersley Policy as a true excess of liability policy which in turn depends on whether the underlying insurance clause offends s 45(1) and, if it does, whether it is “saved” by s 45(2). 38. Counsel for Zurich submits that the meaning and purpose of s 45 is plain. I am not convinced that is so. For example, the expression “the insured has entered into some other contract of insurance” immediately raises consideration of the ways in which an insured can come to be covered by another insurance contract and whether it can be said that in all such cases that the insured “entered into” the other contract of insurance. Fortunately, in the event that the Court did not, without more, share Zurich’s view that the meaning of s 45 is clear on its terms, counsel for Zurich invited the Court to consider the history behind this particular enactment, including the position in the insurance industry prior to the enactment which is said to have prompted the inclusion of s 45 in the IC Act. In that regard, the Court was invited to consider the available extrinsic material which is said to address these issues and assist in the ascertainment of the meaning of the section. Section 15AB(2)(e) of the Acts Interpretation Act 1901 (Cth), which is the authority to refer to extrinsic material, provides that extrinsic material includes explanatory memoranda relating to the Bill containing the provision, or any other relevant document, that was provided to the members of either House of Parliament by the Minister. The latter material would include the content of the Australian Law Reform Commission (“ALRC”) Report on Insurance Contracts (No 20, 1982) (“the ALRC Report”), which is expressly referred to in the Explanatory Memorandum relevant to the IC Act. In the

circumstances of this matter, I note that s 15AB requires regard to be had to the desirability of persons being able to rely on the ordinary meaning conveyed by the text of a provision taking into account its context in the Act and the purpose or object underlying the Act: s 15AB(3)(a). That part of the section is consistent with the proposition put on behalf of Zurich that the meaning of s 45 is plain. It also addresses the competing submissions about whether or not it is appropriate to rely, in interpreting s 45, on decisions that define terms found in other provisions which are also found in s 45(1) of the IC Act. 39. Zurich contends that the underlying exclusion clause on which MMI relies to defeat Zurich’s claim for contribution is of the same type as those which caused considerable problems prior to the enactment of s 45. It is said that “other insurance clauses” were a device commonly used by insurers to attempt to avoid liability under the policy whilst retaining the premium: see ALRC Report at [279]. Examples of other such devices were the “no other insurance” clause which excluded cover in the event that the insured obtained other insurance covering the same loss, and “rateable contribution clauses” restricting cover to a rateable proportion in the event of insurance under another policy. Another type of clause mentioned by Zurich was the “notice clause” which excluded cover if the insurer was not given notice of another policy covering the same loss. One of the potentially adverse consequences of clauses of this type is that, in the event of insolvency of the other insurer, the insured is only partially insured or not insured at all. 40. Chapter 11 of the ALRC Report which is headed “Other Insurance and Contribution”, addresses the various problems which may arise where overlapping or co-extensive insurance policies are taken out. The ALRC states that entering into overlapping or co-extensive policies with different insurers is a common occurrence which may occur accidentally or intentionally. It is said that, where overlapping or co-extensive insurance is taken out intentionally, the reason may be to protect against the risk of insolvency of the first insurer or, in some cases, to make a profit out of insurance by ensuring that there is double insurance covering the same loss: at [279]. In circumstances where the doctrine of contribution was developed to prohibit an

insured from obtaining or retaining a double benefit, it seems to me that overcoming the potential for double insurance by way of an “excess” clause is a solution, the adverse effects of which almost wholly outweigh the adverse effects of an insured insuring himself against the same risk twice. I appreciate that in some situations the fact of double insurance may be unknown but I believe my point remains valid and, in any event, there are other less potentially onerous methods of overcoming the risk of there being double recovery. 41. The ALRC concluded that there was no substantial justification for any of the various types of “other insurance” clause (at [289]) and identified the criticisms which can be levelled at such clauses, each of them significant, in my view. The first criticism was that this type of clause converts a policy into an excess policy without appropriate reduction in the premium. Another criticism is that, if the other insurance is insufficient to cover the loss, the insured has to make claims against both insurers. 42. The ALRC also noted the potential for the application of “other insurance” clauses to be further complicated by the existence of similar or contrasting provisions in the second policy: (at [281]). Reference is made in the ALRC Report to the English authorities referred to but not followed by the New South Wales Court of Appeal in Australian Eagle Insurance Co Ltd (supra). The English authorities are described by the ALRC as “difficult to follow and impossible to reconcile”: (at [282]). The ALRC considered the New Zealand authority of State Fire Insurance General Manager (supra), noting that the approach in that case was consistent with principle although inconsistent with the decision in one of the English cases, Austin v Zurich General Accident and Liability Insurance Company Ltd [1945] KB 250. However, the ALRC acknowledged that in State Fire Insurance General Manager (supra) the Court was not faced with the problem of reconciling two indemnity clauses which might, on a particular construction, result in the absurdity that cover was provided under neither. 43. Finally, reference was made in the ALRC Report (at [286]) to the then most recent decision in National Employers Mutual General

Insurance Association Ltd v Haydon [1979] 2 Lloyd’s Rep 235 where a professional indemnity policy contained an extension covering claims made after the policy expired, provided that notice was given during the currency of the policy of the occurrence giving rise to the claim. The policy also contained an “excess” clause. After the policy expired, the insured effected cover with another insurer which provided retroactive cover but excluded liability arising from an occurrence notified under, and therefore covered by, prior insurance. The first insurer paid on the claim but sought contribution from the second insurer. The trial Judge held that both clauses were ineffective and that each insurer was liable to contribute to the loss. On appeal, the decision was reversed: National Employers Mutual General Insurance Association Ltd v Haydon [1980] 2 Lloyd’s Rep 149. The ALRC considered that the problem with the state of the authorities was compounded by the fact that some relevant provisions had yet to be accorded judicial scrutiny: (at [287]). 44. It is not surprising, in view of what the ALRC describes as the “confusion of the authorities”, that the recommendation made was for legislative intervention. The ALRC’s recommendation identified the adverse effect of “other insurance” clauses on the interests of the insured and noted that such clauses have little independent value for insurers that could not be achieved in ways which did not disadvantage the insured. Not surprisingly then, the recommendation made was that ‘other insurance’ clauses should be rendered ineffective. The ALRC expressed its views in the following terms (at [289]): “The Commission is concerned with the effect of ‘other insurance’ clauses on the interests of the insured. Insureds are detrimentally affected by uncertainty over the effects of individual provisions and combinations of different provisions. More important is the fact that some ‘other insurance’ clauses have the effect of limiting the insurer’s liability to its insured. In such a case, the insured’s protection may be compromised or lost. While they affect the interests of insureds in this manner, ‘other insurance’ clauses have little independent value for insurers. To the extent that they are intended as protection against fraud, they are ineffective. At

most, such a clause might operate as a disincentive to claiming the same loss twice under different polices. The same effect could be achieved by a clear warning to the insured that he is entitled to claim, under the policy concerned and under any other insurance, no more than his actual loss. To the extent that ‘other insurance’ clauses are designed to ensure that an insurer becomes aware of the existence of other insurance so that it may claim contribution in the event of a loss, the same aim could be achieved by asking appropriate questions in the proposal and claim forms. A request in the proposal form for details of other insurance would also give the insurer the opportunity of assessing any significant degree of over-insurance and deciding whether to accept the proposal. There is no substantial justification for any of the various types of ‘other insurance’ clause. As they may cause the insured’s reasonable expectation to be defeated, all forms of ‘other insurance’ provisions should be rendered ineffective. If more than one insurance is in effect in respect of the same risk, the insured should be entitled to recover the whole of his loss from any one of the insurers, which should then be entitled to obtain contribution from the others.” 45. The ALRC emphasised that its recommendations would have no effect on layered policies in the field of co-insurance. It also identified two exceptions to the recommendation. The first exception was in relation to the true excess liability policy covering an insured’s liability over and above that covered by another insurance which is specifically identified in the excess policy. The second exception was restrictions on the scope of the cover afforded by a policy in order to exclude liability which is also covered by an insurance made compulsory under statute: (at [290]). 46. Based on the content of the ALRC report, Zurich contends that s 45 seeks to achieve an entirely different purpose than other sections of the Act. It seeks to strike down clauses which historically gave rise to problems such as where a situation of double insurance might be created accidentally. However, it is submitted that s 45 would only achieve that purpose if it covered all situations in which the insured comes to be covered by a policy of insurance, including where a policy

is taken out by another, naming Hamersley as principal. To read s 45 in any other way would be to defeat the purpose of the provision. 47. Further Zurich submits that s 45 is intended to be beneficial to insureds and to achieve justice as between insurers: that is, the purpose of the section is to avoid the ill that allows insurance companies to avoid liability simply because there are two policies in place covering the same loss, irrespective of the circumstances by which that came about. 48. That the ALRC’s recommendations were accepted, at least in relation to the exceptions, is apparent from the Explanatory Memorandum to the Insurance Contracts Bill which referred to the intended effect of the clause in these terms: “148. Where two or more contracts of insurance provide cover in respect of the same loss insurers will be able to claim contribution from one another in respect of the loss (ALRC para 289). It is appropriate that an insurer should be able to exclude liability which is also covered by compulsory insurance eg workers’ compensation or third party insurance. It is also appropriate that he can exclude liability where the policy is a genuine excess policy (ALRC para 290).” 49. I accept that the ALRC considered that all forms of “other insurance” clause which have the effect of limiting or removing the insurer’s liability to the insured should be “rendered ineffective” and made that recommendation. It is similarly clear that the ALRC considered that only those clauses that fall within the two stated exceptions from that recommendation should be exempt from the general prohibition. 50. The evidence of the Explanatory Memorandum indicates that the latter aspect of the ALRC’s recommendation was accepted. It is difficult to envisage a circumstance where, following an ALRC report, the recommended exceptions to a prohibition are adopted but the prohibition itself is not. At the very least, one would expect the Explanatory Memorandum to explain why the recommendation of a complete prohibition on clauses of this type was not adopted.

Consequently, one can reasonably expect s 45(1) to have been intended to have the effect recommended by the ALRC and the provision should be construed with that intention in mind. Of course, it is then necessary to consider whether the way in which the clause was drafted did indeed achieve that aim and whether the clause is capable of being construed as creating a prohibition on all “other insurance” provisions. 51. Counsel for Zurich referred the Court to two cases which are said to assist in the construction of s 45. The first such case is AustressPSC Pty Ltd and Carlingford Australia General Insurance Ltd v Zurich Australian Insurance Ltd, unreported; DCt of Qld; 1 May 1992 per Robin DCJ. Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) is one of the few cases directly dealing with an underlying insurance clause, the effect of s 45 and the consequence of a conflict between such a clause and s 45. For that reason, I propose to consider the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) in some detail. 52. In Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra), the second plaintiff, Carlingford, by an insurance policy described as the CIC policy, agreed to indemnify AW Edwards Pty Ltd and its subsidiaries, one of which was the first plaintiff, Austress. Austress, as contractor, entered an agreement with Remm Pty Ltd to supply and install rock anchors in connection with the construction of the Myer Centre. The defendant, Zurich, issued a policy of insurance in respect of the construction of the Myer Centre (“the Zurich Policy”). Austress, in execution of the sub-contract work, caused damage to a sewer main owned by the Brisbane City Council and Remm undertook certain rectification works in relation to the sewer main and incurred costs. 53. Austress became legally liable to the Council in respect of the damage and, under the sub-contract, Austress became legally obliged to indemnify Remm for the costs of the rectification work. Austress made a claim under the CIC policy for indemnity in respect of its liability to Remm and the Council. Carlingford paid a total of $136,528.31 (the amount of damage less the deductible) to Remm and the Council in settlement of their respective claims. No

contribution was paid by Zurich whose policy showed the insured to include Remm but no other interested party and created liability only for an amount in excess of $100,000. 54. The CIC policy included Claims Provision 3, which provided that Carlingford would not be liable in respect of the occurrence except for any excess beyond the amount payable under another policy of indemnity or insurance “in favour of or effected by or on behalf of the Insured applicable to the occurrence” which was claimed by Carlingford to result in Zurich being liable for the amount in excess of $100,000. Zurich contended that Claims Provision 3 was rendered void by s 45 of the IC Act. 55. In his reasons for decision, Robin DCJ noted (at 5) that the parties seemed to be ad idem that the policy came within the regime of the Act and, therefore, s 45 caught Claims Provision 3 in so far as it sought to limit the Carlingford’s liability by reference to “indemnity or insurance … effected by or on behalf of the Insured”. 56. After referring to the terms of s 45, Robin DCJ noted (at 6) his acceptance of the submission made on behalf of Zurich that s 45(2) must be construed as requiring the reference to “other insurance” to be specific, as opposed to a description in general words capable of extending to the other insurance, if the provision is to survive being struck down by s 45(1). He added (at 6): “It seems to be the underlying notion is that the insured and the insurer have tailored their own bargain to take account of the impact of other contracts.” Robin DCJ concluded that s 45(2) did not apply in the circumstances of the case. 57. As Carlingford disputed that s 45(1) applied to its policy, Robin DCJ then considered the proper construction of that subsection and identified the question for resolution as being whether the provision, which he considered to have the effect of limiting Carlingford’s liability, did so “by reason that the insured has entered into some other contract of insurance”. His Honour refuted (at 6 – 7) the proposition that this expression extended to every situation in which insurance

may exist of which the insured may obtain the benefit, although having nothing to do with (and perhaps having no knowledge of) it being effected. In doing so he rejected the underlying proposition that an insured who benefits from, but is not named in, a policy can be said to have “entered into some other contract of insurance” having regard to various provisions of the IC Act which seek to eliminate any concept of lack of privity between insurer and named insured precluding or limiting the benefit to the insured of a policy entered into. The provisions relied upon were s 48, s 56 and s 76. Robin DCJ referred to s 11(9) of the IC Act which is in the following terms (at 8): “… A reference in this Act to the entering into of a contract of insurance includes a reference to (a) the making of an agreement by the parties to a contract of insurance to renew, extend or vary that contract; or (b) the reinstating of a previous contract of insurance” and concluded that “[a]nything brought in under that ‘inclusive’ definition must … exhibit privity”. Consequently, Robin DCJ formed the view (at 8) that he could not conclude that s 45(1) struck down Carlingford’s clause on the basis that Austress had “entered into” the Zurich policy. As his Honour observed (at 8): “It would have been a simple matter for the draftsman to adopt language referring to other insurance, by whomsoever effected. It is not lightly to be assumed that merely because a policy of insurance may inure to the benefit of a person, it was effected by or ‘entered into’ on behalf of that person: Stretch v State Insurance General Manager (1984) 3 ANZIC 60-577, at 78,467-6B.” 58. With respect to Robin DCJ’s reliance on s 11(9) of the IC Act, I do not share his Honour’s view that the section indicates that the expression “the entering into of a contract of insurance” is necessarily limited in meaning to entering into a contract of insurance by the parties to that contract. In my view, s 11(9) simply broadens the concept of an insurance contract to include agreements to extend or vary the contract in the case of life insurance contracts and to extend

the meaning of any other contract of insurance to making an agreement to renew, extend or vary the contract. The meaning of a contract of insurance is also extended to include the reinstatement of any previous contract of insurance. To include reference to the parties to such contracts is only to state the obvious: that the only persons entitled to renew, vary, agree to renew, extend or reinstate a contract are the parties to that contract. I do not accept the proposition that s 11(9) in any way addresses whether the expression “the insured has entered into some other contract of insurance” may include a contract entered into by another which indemnifies the insured and applies the contract to him as if a separate policy had been issued to him as an insured under the policy. 59. Further, with respect to Robin DCJ, neither do I share the view that Stretch v State Insurance General Manager (1984) 3 ANZ Ins Cas ¶60-577, at 78,467-6B, is authority for the proposition that it cannot be assumed that merely because a person may benefit from an insurance policy, it was effected by or ‘entered into’ on behalf of that person. In that case, the vendors of a property, subject to a contract to sell, insured the property. The purchasers had also insured the property by obtaining a cover note which was expressed to insure both the vendors and the purchaser against fire. The vendors were advised that the purchaser had taken out a cover note but were not advised that they were name as an insured in the cover note. The property was severely damaged by fire at a time when the contract of sale had become unconditional but settlement had not taken place. The vendors’ insurers sought to rely on a condition in the policy which said that if, at the time of any loss, there was any other insurance covering such loss, the insurer would not be liable for more than its rateable proportion. The Court held that a true case of double insurance requires, inter alia, both policies to have been effected by or on behalf of the same insured or with his authority. As the vendors had not authorised the cover note or been made aware that it was named in it, there was no double insurance and there could be no reliance on the “other insurance” clause: per Eichelbaum J at 78,468(L) 60. In my view, the decision in Stretch (supra) is authority only for the

proposition that, where another insurance policy is taken out by a third party to the benefit of or in the name of the insured under the primary policy, authorisation by the insured of the other insurance policy is a pre-requisite for there to be double insurance. I do not believe the decision adds anything to the issue of whether a policy was “entered into” by a person if it was arranged by a third party to the benefit of the person, other than, if it is to be relied upon as the basis of a contribution, the policy arranged by the third party must have been authorised by the person. 61. However, it does not follow from the fact that I take a different view of two of the matters relied upon by Robin DCJ in reaching his conclusion on this issue, that I believe his ultimate decision to be flawed as a result. Other factors were also taken into account, some of which are dealt with later in these reasons. 62. Robin DCJ considered (at 9) that Carlingford’s actions were exactly what the Act envisaged in that Carlingford paid out Austress in full (subject to its “deductible”) so that Austress’ maximum expectations had been fulfilled and then sought contribution from Zurich, as permitted by s 76(3), or an equivalent recovery by a process of subrogation. 63. Robin DCJ expressed his conclusion in the following terms (at 9): “In the end, I have concluded that s 45 operates by reference to the language of the limitation of the insurer’s liability and what its effects may be as a matter of interpretation or logic, rather than by reference to whether the prescribed effect stands to arise in the particular circumstances of an individual claim.” 64. The next question considered by Robin DCJ (at 5 – 6) was whether the presence of the descriptive phrase “Insurance … effected by or on behalf of the Insured” in the Claims Provision suffices to render the provision entirely void so that the insurer gains no protection from the words which would limit its liability where any other “indemnity or insurance in favour of … the Insured” applies. This question is of particular relevance in this case as the “underlying insurance clause” in the Hamersley Policy extends to policies entered into “on behalf of” Hamersley. Robin DCJ’s answer to that question

was this (at 9): “What s 45(1) renders void is ‘the provision’ which has the defined ‘effect’. I cannot detect there any legislative intention that the provision be saved so far as it may have other effects. It follows that the provision is void, so that the insurer may not take advantage of any ‘effect’ among others it may have which is not caught by s 45(1). Somewhat ironically, the way in which the insured might have saved the situation may have been to replace the words ‘or effected by or on behalf of’ by ‘(not being a Policy effected by or on behalf of)’. The provision being void, the second plaintiff was liable to indemnify the first plaintiff in full, subject to its ‘deductible’.” 65. According to Robin DCJ (at 9), the striking down effected by s 45(1) was absolute and complete and was not limited to what is necessary to implement the policy of the Act in the circumstances of a particular claim. 66. Counsel for Zurich concedes that not all aspects of the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) support Zurich’s contentions. Certainly, Zurich’s construction of s 54(1) is at odds with Robin DCJ’s comments (at 8) that it would have been a simple matter to achieve the result that all “underlying insurance” clauses other than those required by law and those which specify the other insurance are prohibited and hence it could not be established that such a result was intended. Zurich maintains its position that s 45 would only achieve its purpose if it covered all situations in which the insured comes to be covered by a policy of insurance, including where a policy is taken out by another, namely Hamersley as principal. 67. However, Zurich does rely on some of the conclusions drawn by Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra). Counsel for Zurich notes that the point being advanced in that case, and also in this case by MMI, is that Hamersley did not enter into the Speno Policy, Speno did. Zurich maintains that, as s 45(2) does not apply, MMI’s “underlying insurance clause” is void because, although it refers to other insurance effected on behalf of the

Insured, it also includes insurance effected by the Insured. One is arguably included in the definition but the other is definitely included in it and hence MMI’s clause is void. 68. Zurich maintains that, when you look at the ALRC Report and consider what is sought to be achieved by prohibiting underlying insurance clauses, nothing could be plainer than that all of these kinds of provisions were to be avoided, including those that created an excess policy where the insured benefited from a policy taken out or entered into by another. I accept that to be the case, particularly because an insured may be unaware of such a policy. Zurich emphasised that the Court is entitled to have regard to what the ALRC says because of s 15AA of the Acts Interpretation Act 1901 (Cth). Section 15AA is headed “Regard to be had to purpose or object of Act” and states: “1. In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.” 69. Applying that principle it is useful to also consider the preamble to the IC Act which is in these terms: “An Act to reform and modernise the law relating to certain contracts of insurance so that a fair balance is struck between the interests of insurers, insureds and other members of the public and so that the provisions included in such contracts, and the practices of insurers in relation to such contracts, operate fairly, and for related purposes.” 70. In East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400, Gleeson CJ, in delivering the leading judgment of the NSW Court of Appeal, and in addressing the application of s 54 of the IC Act, concluded that the language should not be read narrowly: (at 403). Gleeson J relied on the terms of the long title to the IC Act in making the following obiter observation on the construction of s 54 (at 403 – 404):

“In my view, by choosing words of generality and avoiding reference to the particular type of contractual provision that might produce the result that the insurer may refuse to pay a claim, the legislature has evinced an intention to avoid the result that the operation of s 54 depends on matters of form … The Act, in its long title, is described as an act to reform and modernise the law relating to certain contracts of insurance so that a fair balance is struck between the interests of insurers, insureds, and other members of the public and so that the provisions included in such contracts, and the practices of the insurers in relation to such contracts, operate fairly. It would hardly be consistent with the purposes thus described to construe the language of s 54 in such a way as to make its operation depend upon the choice that is made between various available drafting techniques.” 71. In Kelly v New Zealand Insurance Company Ltd (1996) 9 ANZ Insurance Cases ¶61-317 at 76,517, Owen J, with whom Kennedy and Steytler JJ agreed) agreed with the tenor of the dicta of Gleeson CJ in East End Real Estate Pty Ltd (supra). Owen J observed that s 54 was a remedial provision which should be given a liberal interpretation. He accepted that the courts must review an impugned insurance transaction according to substance rather than form. However, Owen J noted that each case must be judged on its own facts: (at 76,517). 72. I consider the reference in East End Real Estate Pty Ltd (supra) to a fair balance between the interests of the insurers, insureds and other members of the public is consistent with a result which may not fully overcome the ills identified by the ALRC but, nevertheless, strikes a fair balance between competing interests. 73. Zurich maintains that the clear purpose of s 45 is to remove these types of provisions by removing the benefit of them other than in the situations envisaged in s 45(2). It is said that, in order for the section to work and not be emasculated, the term “insured” has to be given the construction contended by Zurich, that is, the reference to the “Insured” is a reference to the Insured under the policy. If read in that

way then s 45 operates to achieve the reform that was plainly intended. 74. Underlying Zurich’s interpretation of s 45(1) is a reliance on the definition of “insured” and “insurer” in s 11 which is stated to include “a proposed insured” and “a proposed insurer”, respectively. As s 11 commences with the words “In this Act, unless the contrary intention appears”, Zurich maintains that the definition applies as no contrary intention is evident in the wording of s 45. However, it must be noted that a contrary intention may appear from the fact that the particular definition does not “fit” within the section in that it is inconsistent with the balance of the provision or may change the meaning of the provision to something which was clearly not intended by the legislature. Here, of course, Zurich maintains that the inclusion of the words in the definition operates to achieve that intention. 75. Zurich also emphasises that the IC Act made wide-ranging changes to the law of insurance in a number of areas: s 21 with nondisclosure; s 13 by implying a term into contracts of insurance whereas previously it had operated as a principle of law; s 76 with respect to contribution between insurers; s 48, third party beneficiary right to recover. It is said that a whole range of disparate and different ills were addressed by the IC Act and it is necessary to look at each of the provisions and the purpose of the provisions in order to understand what Parliament meant by using that particular word in a particular context. 76. It is for all these reasons that Zurich maintains that s 45(1) operates to make void any “excess” clause, whether the other contract of insurance was entered into by the insured or whether the insured has the benefit of a contract between a third party and another insurer. On that basis, the underlying insurance clause in the Hamersley Policy is said to be void. Even if the primary proposition is not accepted, Zurich maintains that the Hamersley Policy is void because it is the provision which is void, not that part of it which offends s 45(1). 77. In Zurich’s argument, it is only if MMI can bring itself within s 45(2) that it avoids the consequences. The contract described in s 45(2) is

said by Zurich to be a true “excess of liability” policy, the test for which is whether the contract carrying with it the primary liability is “specified” in the “excess of liability” policy. However, as there is no specificity in the MMI underlying insurance clause’s reference to “such other Insurance effected by or on behalf of the Insured in respect of a Claim for which Indemnity is available under this Policy” Zurich suggests that MMI is not entitled to the advantage of s 45(2). 78. Zurich contends that the Hamersley Policy contains a clear example of what is meant by “specified” in s 45(2). The Court was taken to the Hamersley Policy and to “Insuring Agreement A — Combined Public and Products Liability”, in particular to the “Exclusions” which include the following paragraph: “Notwithstanding this Exclusion (1) this Insuring Agreement (A) shall indemnify the Insured in accordance with the terms, conditions and endorsements of the Overseas Employers’ Liability Insurance issued by American Home Assurance Company Policy Number MG69898 Limit of Indemnity A$5,000,000 (the Underlying Insurance) with which this Policy shall run concurrently; PROVIDED THAT Underwriters shall be liable only for sums in excess of the Limit of Indemnity provided by the Underlying Insurance.” 79. This is an example of the level of specification said by Zurich to be necessary for an underlying insurance clause to fall within s 45(2). I accept that the level of specificity in this paragraph would satisfy s 45(2). However, I do not accept that an underlying insurance clause which did not specify the other insurance to that degree would not come within s 45(2). 80. It is in this context that the second authority on which Zurich primarily relies is to be considered. Zurich referred the Court to the decision in HIH Casualty & General Insurance Ltd v Pluim Constructions Pty Ltd & Anor (2000) 11 ANZ Insurance Cases ¶61477 as part of the answer to that question. In that case, Pluim Constructions Pty Ltd (“Constructions”) carried out building work at the

Mingara Recreation Club. Associated companies of Constructions, including Pluim Commercial Landscapes Pty Ltd (“Landscapes”) were also involved in the project. K, an employee of Landscapes, was injured whilst assisting Constructions to remove debris from the site using Landscape’s bobcat. Constructions was found to have breached its duty of care to K and damages were assessed against it. 81. Constructions filed third party notices against the insurers claiming indemnity and contribution under various insurance policies. The Pluim group were insured with HIH Casualty and General Insurance (“HIH”) against public liability risk. The Club had effected public liability insurance with Commercial Union Assurance Group (“CU”) on behalf of Constructions in respect of personal injury which arose out of the execution of the building works. HIH admitted its obligations under the policy to indemnify Constructions, subject to its right to rely on various provisions of its policy, including Condition 7, which dealt with principal-arranged insurance, and exclusion 4(a). HIH relied on its “other insurance” exclusion in its policy and contended that Constructions liability to K was covered by the CU policy. HIH also submitted that under Condition 7 it could escape liability if CU was liable under its policy. Alternatively, HIH contended that there was double insurance, although no claim for contribution was pleaded between the insurers. CU denied liability to Constructions, relying upon various exclusions including one which dealt with injuries in connection with motor vehicles. At first instance, it was held that Condition 7 of HIH’s policy was rendered void by s 45(2) of the IC Act because the CU policy was not “specified” in the HIH policy. It was also held that the CU policy did not respond to Constructions claim. 82. On appeal, the majority, which included Handley JA and Foster AJA, concluded (at [73] and [80]) that cl 7 in the CU policy did not apply to Constructions claim for indemnity in respect of K’s damages. Consequently, the CU policy did respond to Constructions claim and it had double insurance from CU and HIH. In relation to the balance of the issues before the Court of Appeal, the majority, who indicated that they had had the advantage of reading in draft form the reasons for judgment of Mason P, said this (at [73]): “We agree generally with his Honour except as to the meaning of

the exclusion in cl 6(b) of the [CU Policy].” 83. Mason P found that the CU policy did not respond to Constructions’ claim (at [28]) as a result of which it was unnecessary for him to address HIH’s submission that the cover of the HIH policy was withdrawn because of the operation of Condition 7 of the HIH policy. However, as the issue was fully argued, he decided to make some remarks on the topic: (at [29]). On that basis, Mason P’s conclusions on the validity of HIH’s “underlying insurance clause” were obiter dicta. However, the fact that Handley JA and Foster AJA who took the opposite view in relation CU’s liability, agreed with Mason P’s reasons on this particular issue, provides those reason with greater status than a mere obiter comment. 84. Condition 7 of HIH’s policy was headed “PRINCIPAL-ARRANGED INSURANCE” and was in the following terms (at [30]): “In the event of the named Insured entering into an agreement with any other party (who for the purpose of this clause is called ‘the Principal’ pursuant to which the Principal has agreed to provide a policy of insurance which is intended to indemnify the named Insured for any liability arising out of the performance of the Works then the Company(ies) will (subject to the terms and conditions of this Policy) only indemnify the names Insured for such liability not covered by the policy of insurance provided by the Principal.” 85. Counsel for Zurich describes Condition 7 of the HIH policy as being in a different form but with a similar intent to the policy condition in the MMI contract. I understand that submission to mean that the MMI policy similarly attempted to deal with the situation where companies such as Hamersley require the many and varied subcontractors with which it contracts to arrange public liability insurance to include Hamersley’s interest as a principal and to indemnify Hamersley against any personal injury claim made by the subcontractor’s employees. 86. It was acknowledged by the parties in HIH Casualty & General Insurance Ltd (supra) that the effect of s 45(1) of the IC Act was to render void Condition 7 unless s 45(2) was found to apply: (at [32]).

The primary judge held that the language of Condition 7 was too general and not of sufficient specificity to satisfy s 45(2), a view which Mason P considered to be correct: (at [33]). The issue then became one of determining whether the words “the policy of insurance provided by the Principal” in Condition 7 were sufficient to specify the CU policies for the purposes of s 45(2). 87. Mason P then referred to the ALRC Report and its conclusions and made specific mention of the ALRC’s mention of the mischief involved in “other insurance” clauses which limit an insurer’s liability (at [34]): “Such clauses were said to fall into three main classes (par 281). The first class covers provisions which purport to exclude liability altogether in the event of other insurance. The insured’s sole recourse is to the other insurer. The second comprises provisions which limit the insurer’s liability to a rateable proportion of the loss. In that event the insured must bring two actions. Even then the insured may suffer an overall loss if the other insurance is insufficient or if the claim against the other insurer is defective. The third class covers provisions which limit the liability of the insurer to any amount by which the loss exceeds the amount recovered or recoverable from the insurer. Such a provision converts a policy into an excess policy without appropriate reduction in the premium.” 88. Reference was then made by Mason P to the ALRC’s conclusion that there was no substantial justification for any of the classes of “other insurance” clauses since they all may cause the insured’s reasonable expectations to be defeated: (at [35]). 89. Mason P noted (at [35 – 36]) that the ALRC recommended that all forms of “other insurance” clauses should be rendered ineffective and that the recommendation was later embodied in cl 46 of the Draft Bill amended to the ALRC Report which subsequently became s 45 of the IC Act. 90. Zurich contended that there is no difference in substance between the clause that MMI relies on and the clause relied on in the HIH case. Emphasis was placed by counsel on the use of the terms “futurity,

contingency and lack of specificity”. Despite the fact that the underlying insurance clause in the Hamersley Policy refers to specific contracts, it is said that it does so in the broadest, most general, most contingent and futuristic way. There is no specificity or identification sufficient to avoid the mischief that parliament sought to overcome where two insurers would stand back and require the insured to sue them both. 91. As noted above, MMI’s interpretation of both aspects of s 45 differs markedly from that of Zurich. According to MMI, s 45 only has the effect of limiting or excluding the liability of the insurer “by reason that the insured has entered into some other contract of insurance”. Section 45(1) does not make void other insurance provisions where the insured is entitled to the benefit of a policy “entered into” by another. 92. It is said that this construction: (i) follows from the words expressly used in s 45(1); (ii) is consistent with the distinction between a party to an insurance contract on the one hand and a person entitled to the benefit of that contract, on the other. In support of that proposition, reliance is placed on Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. (iii) Is consistent with the distinctions expressly drawn in s 48 of the IC Act between the person who is a party to an insurance contract and a person to whom the benefit of the contract extended: see CE Heath Casualty & General Insurance Ltd v Grey & Ors (1993) 32 NSWLR 25 at 43 – 46; GIO Australia Ltd v P Ward Civil Engineering Pty Ltd (2000) NSWSC 371 at [11]; s 11(9) and s 56 of the IC Act. (iv) Is consistent with the principal rationale of the ALRC recommendation which led to s 45, viz avoiding the defeat of the insured’s reasonable expectations (at [289]). 93. MMI submits that, as is clear from the wording, s 45 applies to

contracts of a certain kind: that is, contracts of general insurance. Further, it is said to make void provisions of a certain kind: that is, a provision in a contract of general insurance which has the effect of limiting or excluding the liability of the insurer. The term “liability”, in the phrase “the liability of the insurer” in s 45(1), is said to be a key word in the proper understanding of the operation of the section and, counsel submits, the Court will need to determine the meaning of the term in the context of s 45(1). MMI submits that there are two principle views on the meaning of “liability” in this context. The first is that it means a potential or contingent liability, the sort which the insurer takes on when it first issues the insurance contract. The events insured against may or may not come to pass but there is a potential liability. The second meaning that can be given to the word is what counsel refers to as an “actual liability”, the liability which accrues when the event which has been insured against occurs, so that the insurer has then been called on to meet the obligation to indemnify which it assumes on the payment of the premium and the entry into the contract. 94. Counsel for MMI refers to the view expressed by Professor Sutton on the issue (Sutton, “Insurance Law in Australia” (supra) at [12.22]) but for the purpose of refuting the Professor’s opinion. It is said that the author does not cite any authority and the explanation given involves, at least in counsel’s view, a non sequitur. Professor Sutton states: “It is the liability of the insurer which is affected, and thus must refer to the insurer’s potential liability [as to the possible meanings of the word ‘liable’ and its cognate ‘liability’ see Heath Underwriting & Insurance (Aust) Pty Ltd v SGIC (SA) (1983) 34 SASR 1 at 6] under the contract rather than any actual liability already incurred, for the section refers to ‘a provision included in a contract of general insurance’, that is, to a term agreed upon when the contract is entered into, at which stage the insurer’s liability will be only a potential one. In any event, the mischief at which s 45 is aimed is clearly shown in the Report of the Australian Law Reform Commission to be the harm likely to be suffered by an assured by the use of limitation clauses seeking to

restrict the potential liability of the insurer where other insurance has been effected.” 95. MMI’s position is that the meaning of “liability” in s 45(1) is an actual liability, the liability which accrues when the event insured against occurs. It is said that, if read in that way it enables the section to work in a way which is practical. Further, according to counsel for MMI, the clearest indication within s 45(1) that the word “liability” is referring to an actual liability are the words that follow it: “… limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance”. Emphasis is placed on the fact that the section does not say “or may enter into”. The use of the past tense “has entered into” is said to support MMI’s interpretation. The use of the past tense is said to be significant because it indicates that the section is speaking to an event which has already occurred at the time that the effect of the provision has been considered. 96. Counsel maintains that if the word “liability” is read as a potential liability but the following words are still in the past tense, then it reads as if it is being considered the very moment after the contract was first entered into, then the section would only catch those other policies of insurance which had already been entered into as of that moment. But if one reads it as though its referring to an actual liability, then it catches not only the other insurance contracts which have been entered into at the moment of creation of the first but those which have been entered into subsequently up to the moment when the accrued liability comes into existence. 97. Further, MMI’s proposition that “liability” means actual liability is said to be supported by the wording of s 45(2). If the term “liability” as it appears in s 45(1) meant potential liability then one would need to be construing the balance of s 45(1) as referring not only to contracts already entered into, but contracts which may be entered into during the life of the first policy. If that is so, then the contract of insurance referred to in s 45(2) will have to be “specified in the first mentioned contract by reference to class description as opposed to any specific policy”.

98. Counsel for MMI maintains that the interpretation that MMI presses on the Court would actually give s 45 a greater operation than would otherwise be the case because one would have to ignore the words in the past tense. However, counsel notes that it seems unlikely that the section is intended to refer to only those contracts which had been entered into at the moment that the first contract came into existence as that would significantly circumscribe the operation of s 45(1). 99. According to MMI, another indicator that the section is referring to an actual liability are the words “has the effect of limiting or excluding”. The fact that “limits or excludes” is not used is said to suggest that the operation of the section involves looking at the effect of the provision in the circumstances which have accrued or in the circumstances which have occurred. 100. The final indicator put forward by MMI is the use of the words “by reason that”. They are said by counsel for MMI to be words of causation and questions of causation are questions of fact to be dealt with in retrospect so that one can examine the facts. 101. MMI submits that these factors lead to the conclusion that s 45(1) is speaking to actual liabilities and should, therefore, be read as rendering void a provision which has the effect of excluding or limiting the actual liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance. 102. None of the features on which MMI relies persuade me that the term “liability” should be interpreted as meaning an actual rather than a potential liability or indeed that the term must be construed as meaning one or the other. Indeed I do not consider that further defining the term “liability” assists in the proper construction of the provision. If the meaning of s 45(1) is considered as if the validity of the provision were under consideration, that is, when a claim is made on the policy or the claim is the subject of litigation, there would be no need to include the words “or may enter into”. That is because, at the time of consideration of the provision, the “other contract of insurance” will necessarily have been entered into. Similarly, the fact that the past tense is used in s 45(1) will also be consistent with this approach.

Viewed in that way, the section would apply to “other contracts” entered into both before and after the contract with the “other insurance” provision. It may well be that, where contracts are entered into after the contract with the relevant clause was executed, it will be more difficult to establish that the latter contract was intended to be a true “excess” policy. However, it should not follow that the section does not have so wide a scope. 103. In my view, both parties have tended to approach the interpretation of particular words and phrases used in s 45(1) in a manner consistent with a particular outcome and, in doing so, have lost sight of the natural meaning of the words and the fact that, when it comes to legislative drafting, there can be different ways of saying exactly the same thing. I consider that the only phrase included in the section which requires consideration as to its actual meaning is “by reason that the insured has entered into some other contract of insurance”. Whether that expression includes contracts of insurance entered into by a third party in which “the insured” is a beneficiary and a principal is something that requires further consideration. 104. According to MMI, that question must be answered in the negative because Hamersley has not entered into any other contract of insurance. Hamersley did not enter into the Speno Policy as even Zurich accepts by virtue of its plea in par 2 of the Statement of Claim that the policy was entered into by Speno. Hamersley has the benefit of the Speno Policy but, as counsel for MMI submits, and which I have referred to above, s 45(1) does not seek to make void provisions which limit or exclude the liability of an insurer because the insured has the benefit of some other policy. On this issue, MMI is ad idem with Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) (at 8) where he observed that it would have been a simple matter for the draftsman to adopt language referring to other insurance, by whomsoever effected, if it had been the intention to extend the operation of s 45(1) to contracts other than those entered into by the insured. 105. The interpretation upon which MMI relies is said to be consistent, not only with the wording of the section, but also with the decision of the High Court in Trident General Insurance Co Ltd (supra). The facts

of that case can be shortly stated. An insurer under a public liability insurance policy agreed to indemnify a company against all sums that it should become liable to pay in respect of injury to persons at specified building sites. “The insured” was defined to include the company’s contractors. A person who was injured as a result of the negligence of one of the company’s contractors, which was not a contractor when the policy issued, recovered damages against the contractor. The High Court held, by majority, that the contractor, although not a party to the insurance contract, was entitled to enforce the indemnity against its liability to pay the damages: per Mason CJ and Wilson J (at 123 – 124). The basis of the entitlement was that contractors were the intended beneficiaries of the contract. 106. Prior to the decision in Trident General Insurance Co Ltd (supra), the position at common law was that a third party could not sue upon a contract and that a stranger to the consideration could not maintain an action at law upon it: at 115. The Court of Appeal allowed the third party plaintiff to succeed in its claim because it considered that the law should allow an intended beneficiary to sue on a policy when commercial convenience and practice demanded it. Moreover, the Court expressed a belief that the development of the common law should proceed in parallel fashion with statutory reforms, enabling non-party beneficiaries to sue on policies of insurance: (at 113). In so doing, the Court of Appeal declined to follow the position at common law as it stood at that time. 107. On appeal, the High Court took the same approach: see Mason CJ and Wilson J who formed part of the majority together with Toohey and Gaudron JJ). Although the reasoning of those judges in the majority differed slightly, the judgment of Mason CJ and Wilson J reflects the considerations giving rise to the decision to modify the existing position at common law. In dismissing the appeal and allowing the third party to maintain an action against the insurer, the Court acknowledged that there was much substance in the criticisms directed at the traditional common law rule: (at 118 – 119). It also noted the an alternative method of conferring on a third party a right to sue on a policy of insurance was the device whereby the Court recognised the existence of a trust. However, although this approach

produced greater consistency of outcome, there remained cases where the third party was left without a remedy: (at 121). Consideration was also given to the policy considerations justifying the privity and consideration rules which operate together to preclude an action being brought by a third party: (at 121 – 122). Also, attention was given to the terms of the various statutory provisions, including s 48 of the IC Act, which allowed a third party to sue: (at 123). The observation made was that there were a variety of statutory responses to the problem: (at 123). Ultimately, it was held that the principled development of the common law required that it recognised that where an insurance policy is expressed to indemnify the insured and a third party, the third party is entitled to enforce the indemnity: (at 123 – 124). I should add, in order to emphasise the relevance of the decision, that the Court allowed the third party to enforce the indemnity despite the doctrine of privity; the third party did not succeed because it was found to be a party to the insurance contract simply because it stood to benefit from the contract. 108. It is apparent that the decision in Trident General Insurance Co Ltd (supra) was made after the IC Act was passed. Therefore, as counsel for MMI observed, it cannot be said that the IC Act was giving effect to that decision. However, it is correct to say that the common law drew a distinction between the rights of someone entitled to the benefit of a contract on the one hand and the person who was a party to it on the other. 109. Counsel for MMI noted that there is an express recognition of that distinction in s 48 of the IC Act, which also appears in Pt V Div 2 of the IC Act, which contains general provisions relating to insurance contracts. Section 48(1) gives the right to a person who is not a party to a contract of general insurance a right to recover the amount of the person’s loss from the insurer in accordance with the contract, providing the person is “specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends”. Section 48(2) and s 48(3) apply the respective rights and obligations of parties to a contract to the insurer and to the person on whom is conferred the right to recover as if a party. As counsel correctly notes, what s 48 does is to

confer by statute the right which was subsequently recognised at common law by the High Court in Trident General Insurance Co Ltd (supra). 110. Counsel for MMI further submitted that the notion of entry into a contract is an important concept for the purposes of the IC Act and maintained that where s 45(1) referred to “entered into a contract” it was doing so advisedly. Support for this proposition is said to be found in s 21 which highlights the importance of the notion of entry into a contract in the context of the insured’s duty of disclosure of relevant matters. Under s 21, an insured has a duty to disclose all relevant matters to the insurer “before the relevant contract of insurance is entered into”. In that context, “entered into” clearly means entered into by the insured. MMI also relies on s 28, which deals with remedies for non-disclosure and misrepresentation with respect to contracts of general insurance. According to counsel for MMI, this is another example of where entry into a contract is important as a concept in the Act. Section 56 was also cited as another example although counsel for MMI conceded that this section is directed more to the notion of the party to the contract being different from the person entitled to the benefit rather than the notion of entry into the contract. Although s 56 draws the distinction between parties and third parties, for myself, I do not find it of any assistance in determining the meaning of the expression “entered into” in s 45. In s 21 and s 28, the references to entering into the contract are simply used to identify the point at which the required disclosure is to be made. Those sections, in my view, say nothing about whether the expression can be extended to the situation under consideration. 111. MMI also relies on s 11(9) of the IC Act, which is said to address the issue more directly and to identify those who can be said to enter into a contract of insurance for the purposes of the IC Act. The interpretation placed on this section by MMI is that, where the expression “entered into” is used in the IC Act, it means entered into by the insured and not by a third party. As I have noted above, when considering the same proposition made by Robin DCJ in AustressPSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra), I do not accept that s 11(9) sheds any light on the scope of the

expression “entered into” in the context of s 45(1) of the IC Act. 112. MMI also relied on the decision in CE Heath Casualty & General Insurance Ltd (supra) for its submission that s 45(1) does not make void “other insurance” provisions where the insured is entitled to the benefit of a policy “entered into” by another. 113. The case of CE Heath Casualty & General Insurance Ltd (supra) arose from the failure of the Compass group of companies. Arrangements had been made with CE Heath Casualty & General Insurance (“CE Heath”) for insurance cover in respect of loss suffered as the result of “wrongful acts” by, inter alia, directors and possibly former directors of the relevant companies. That insurance was intended to cover the loss suffered in that regard both by Compass and by the directors. It had been alleged against the directors that they were guilty of wrongful acts of the kind in question and the director brought proceedings to establish that they were entitled to the benefit of the insurance cover. CE Heath claimed it was entitled to avoid the policy or policies because, at the time the cover was effected, the defendants had knowledge of facts which, if revealed to CE Heath, would have affected the insurance and neither Compass nor the directors revealed those facts. 114. The principal point on which the case turned was whether or not the directors were themselves party to the contract or whether it was necessary for them to rely on s 48 in order to claim under the policy. The majority decided that the directors were parties to the contract and, as counsel for Zurich correctly observed, all that was said thereafter was obiter dicta. Clarke J said (at 43): “… I agree with the conclusion reached by Mahoney JA that the directors, and not Compass, were parties to the [Directors and Officers] Policy … If I have correctly understood the submissions of the parties that conclusion disposes of the appeal. However, in view of the detailed argument which took place before the Court it is appropriate that I express my conclusions on the question whether, assuming that the directors were not parties to the D/O policy, the non-disclosure by Compass of material facts constituted a partial or complete defence to claims made by the

directors and other relevant officers for indemnity under that policy.” 115. Clarke J addressed that issue by first considering s 48 of the IC Act and observing (at 43) that the evident intent of the section was to overcome what was known as the indemnity principle and its relationship in the insurance context with the contractual doctrine of privity. Clarke J noted (at 43) that the operation of the principle generally precluded recovery by the insured of losses suffered by third parties and the contractual doctrine of privity. In reaching his conclusion on the issue, Clarke J called in aid the Explanatory Memorandum accompanying the Insurance Contracts Bill, the relevant paragraphs of the ALRC Report and the decision of the High Court in Trident General Insurance Co Ltd (supra) at 118 per Mason CJ and Wilson J. 116. That portion of the judgment of Clark J on which MMI rely is this: “The first observation which should be made is that the Act in using the words ‘insurer’ and ‘insured’ is talking about the parties to the contract of insurance or the persons proposing to enter into the contract. There is, in my opinion, a clear dichotomy drawn in the Act between a party and a person who is not a party but who is entitled to benefit under the policy. Accordingly where s 21 speaks of the duty of an insured to disclose the matters set out in s 21(1) it is talking about the party who proposes to enter into a contract of insurance in the context of those provisions in the Act which spell out the consequences of the failure by a person who has entered into the contract to comply with that duty. A similar approach is taken in those sections which deal with misrepresentation.” 117. Clarke J considered it was important to take to take sufficient account of the words actually used in the relevant section and added that (at 47): “… despite its economy of language, the subsection says in plain words that the insurer is to have the same defences to a claim by the named person as it would have in an action by the insured”.

He considered that the approach of the learned trial Judge would lead to the result that the defence of fraudulent non-disclosure, open to an insured and entitling the insurer to avoid the contract, would not be available in an action by the named person. Consequently, the insurer would not have the same defences against a person suing under the right accorded by s 48(1) as it would have against the insured. 118. Clarke J proceeded to deal with the difficult question of the consequence, when a person enters into a contract of insurance and another person has the benefit of it, of a non-disclosure by one or the other. He considered s 21, s 28 and s 48 in the context of the nondisclosure point to which he was referring. 119. On behalf of Zurich, it is said that MMI have seized on the words of Clarke J in CE Heath Casualty & General Insurance Ltd (supra) to support the proposition that “insured” means a party to the contract. However, Zurich maintains that s 48 and the decision in CE Heath Casualty & General Insurance Ltd (supra) is confined to a specific aspect of contracting, the duty to disclose, which is a duty which you would usually place on the person contracting. 120. According to Zurich, MMI misconceives what Clarke J said in that case. Counsel emphasised that Clarke J was not talking generally about every section of the IC Act, the IC Act being an Act which deals with a vast array of quite disparate problems. Clarke J is said to there be giving to the words “insurer” and “insured” in the context of s 21, s 28 and s 48, the meaning to be given to them in that context, having regard to the purpose sought to be achieved by Parliament and having regard to the mischief which is sought to be overcome. According to counsel, when consideration is given to the broad reforms intended to be imposed by the IC Act, it is apparent that disparate mischief is sought to be avoided. 121. Zurich’s counsel suggests that to apply to s 45 the meaning attributed to the term “insured” in other sections, without having regard to the mischief that is sought to be avoided and the purpose that is sought to be achieved by the IC Act, is to read the words in a judge’s reasons as though they were words in an Act of Parliament. Another analogy would be to read the definition determined by Clarke J as the

meaning of the word for all purposes, at least for all purposes within the IC Act, without giving consideration to whether it would be appropriate to do so in all circumstances. Counsel submits that the words are to be read having regard to the purpose for which they are used: Mills v Meeking (1990) 169 CLR 214 (at 235). 122. Counsel for MMI conceded that Clark J was dealing with issues arising from nondisclosure and in the immediately preceding paragraph he says so expressly. However, counsel noted that the language used by Clarke J in the paragraph on which MMI relies is not confined to nondisclosure cases. Clarke J expressed himself in general terms and not in terms specific to s 56. Counsel for MMI accepted Zurich’s proposition that a judgment which interprets a word or phrase for the purposes of a section in an Act cannot be said to be determining the meaning of the word or phrase for the purpose of every section of the Act. MMI refutes the proposition that that is what it is doing. However, MMI submits that when one looks at the way in which Clarke J expressed himself, it can be said that his interpretation was intended to have a wider operation than the section of the Act being considered. The portion of Clarke J’s judgment on which MMI relies is expressed in terms of the meaning of the terms in the Act rather than simply in the section itself. Further, he refers to the terms of s 21 as illustrating the distinction and, indeed, to other sections of the IC Act. 123. Zurich maintains that when Div 2, in which s 45 and s 48 are found, is considered, it is apparent that it deals with such disparate subjects as interim contracts of insurance, instalment contracts of general insurance, arbitration provisions, interim contracts of insurance, other insurance provisions, pre-existing defects or imperfections. In other words, Div 2 contains a vast array of controls and protections. The range of matters dealt with in Div 2 clearly reflects the title of the Division: “General provisions relating of insurance contracts”. Accordingly, it is said that it is necessary to look at each provision having regard to the mischief that each provision was intended to deal with and not assume that words such as “insure”, “insurer”, “insured” and “party entitled to a benefit”, defined in the context of particular provisions, had a set meaning everywhere they

are to be found in the IC Act. 124. Generally speaking, I accept the propositions put on behalf of Zurich. However, I believe that the interpretation in other contexts of the words used in s 45 does assist in identifying the meaning of those terms for the purposes of s 45. Further, irrespective of whether the comments of Clarke J in CE Heath Casualty & General Insurance Ltd (supra) are addressed in relation to a different provision of the IC Act, it remains the fact that his Honour’s comments do relate to an interpretation said to be applicable to the Act as a whole and that is a factor to which appropriate weight should be given. 125. The next authority to which MMI referred is also a non-disclosure case which is an area in which determinations of whether third parties have obligations are necessarily going to arise. In GIO Australia Ltd (supra) the insured, M, who held a motor vehicle policy with GIO allowed his partner, S, to drive his car. The vehicle collided with and caused damage to a vehicle owned by W. S did not have a licence at the time. Under the policy GIO was obliged to indemnify M in relation to certain defined events. The first was for legal liability for loss of or damage to property other than the insured vehicle. The indemnity extended to any person driving the vehicle with M’s consent. Another defined event was loss or damage to M’s vehicle. Following the accident M made a claim for the damage to his vehicle and GIO met the claim. W commenced proceedings against S for the cost of repairing the damage to his vehicle. S did not defend the claim and default judgment was entered against her. S made a claim on the policy relying on the extended cover provided. GIO declined to indemnify her on the basis that she was an unlicensed driver and therefore, came within the exclusion. 126. Simpson J held (at [10]) that S was a person to whom s 48 of the IC Act referred and she would, in appropriate circumstances, be entitled to recover from GIO. However, s 48 does not purport to create an extension of the terms of the contract of insurance, other than to provide standing to claim to a person to whom the policy expressly applies but who is not, in terms, a party to the policy. Under s 48(3), GIO was entitled to rely on any defence the insurer would have against the insured and hence was entitled to rely on the exclusion

relating to unlicensed drivers: (at [10]). 127. Significantly, for MMI’s purposes, Simpson J also held (at [11]) that S was “not ‘a person who has entered into a contract of insurance’ within the meaning of s 6 of the Law Reform (Miscellaneous Provisions) Act 1946”. Simpson J said (at [11]): “She is a person who was entitled, inappropriate circumstances, to the benefit of the contract of insurance entered into by [M], but she is not herself such a person. It does not seem to me that s 48 of Insurance Contracts Act alters that position; as I have already observed, s 48 would give her standing to recover under policy but her right to recover is in accordance with the terms of the policy only.” 128. MMI also relies on the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra). Counsel commented that the fact that the issue has not previously been dealt with in the courts is probably because the correct application of s 45(1) really has not been given close attention. Certainly, in most of the cases there was no dispute between the parties as to the correct application of, at least, s 45(1). As I have noted, in my view, this action is the result of an attempt by both parties to read more into the provision than the natural wording of it allows. 129. In particular, MMI relies on the conclusion of Robin DCJ, expressed as follows (at 8): “It is not lightly to be assumed that merely because a policy of insurance may inure for the benefit of a person it was effected by or “entered into” on behalf of that person”. 130. However MMI submits that this Court should not follow Robin DCJ’s decision that the whole of the relevant clause is void by operation of s 45 because it contained, in addition to other situations not covered by s 45, a reference to insurance effected by the insured. 131. In his reasons Robin DCJ says this (at 9): “In the end, I have concluded that s 45 operates by reference to the language of the limitation of the insurer’s liability and what its effects may be, as a matter of interpretation or logic, rather than

by reference to whether the prescribed effect stand to arise in the particular circumstances of an individual claim.” In my view, what his Honour is there saying is that one must look at the nature of the clause and then look to the precise terms of s 45, irrespective of the outcome in the particular case. 132. Counsel for MMI submits that Robin DCJ has not considered what is logically the first step: the liability that is being reduced or diminished by this provision. MMI’s position is that, until one has identified that liability, one cannot go to the next step and ask whether the provision has the effect of limiting or excluding that liability. As I have indicated, I do not accept that such an analysis advances the proper construction of s 45(1). 133. On the basis that s 45(1) renders void “the provision” which has the defined “effect” Robin DCJ determined (at 9) that the insurer may not take advantage of any “effect” not covered by s 45(1). It is this “all or nothing” approach to which MMI objects. Counsel for MMI submits that not only does Robin DCJ pass over what MMI says is the key word, the meaning to be given to the word “liability”, but he also fails to ask in the circumstances of the other insurance clause being considered in that case, whether or not it as capable of being read distributively, so that s 45(1) might have the effect of rendering the provision void in one of its applications but not in another. 134. According to counsel for Zurich, MMI’s analysis of the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) fails to pay any regard to the underlying purpose and mischief sought to be dealt with by s 45. It is said that, if the submission on behalf of MMI is to be accepted then, based on what ALRC said (at [279]), one of the most common forms of the other insurance provisions arising will escape the effect of s 45. 135. Zurich rejects the distributive approach to construction urged on the Court by MMI on the basis that s 45 was intended to render void all other insurance clauses. It is said that, whether s 45(1) is read distributively or not, the intention of Parliament was to render void all such other insurance clauses and it is s 45(2) that controls, limits and excludes the extremely narrow categories where subs (1) will not

operate to avoid the provision. 136. MMI submits that the underlying insurance clause in the Hamersley Policy can easily be read in a distributive sense: namely, a clause which relates to contracts entered into by the insured and a clause relating to contracts entered into on behalf of the insured. According to MMI, the fact that policy was drafted with more economical expression, including both situations in the one paragraph, should not lead to the anomalous situation that both situations, one of which does not offend the IC Act, should be precluded from having the intended effect. I accept that it would be a very technical result. 137. While I agree that the clause can be read distributively, rendering the provision void in so far as it concerns contracts effected by the insured, but not in so far as it concerns contracts entered into on behalf of the insured, is a result which is difficult to accept in view of the precise wording of s 45(1) and the conclusion of Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra). I do accept that the result is being determined by the technical expression used in the contract rather than the substance of the matter, which is something that the law attempts to avoid. 138. Counsel for MMI recognises that decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) is against MMI on the effect of s 45(1) in the circumstances of MMI’s underlying insurance clause, but emphasises that this Court is not bound by the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra). 139. I have formed the view that the effect of the underlying insurance clause is that the Hamersley Policy operates as an excess policy in two circumstances: firstly, where Hamersley has effected or entered into another insurance policy covering the same area of risk and, secondly, where another insurance policy covering the same area of risk has been effected on behalf of Hamersley. I consider the second circumstance to reflect the situation where a third party organises insurance cover of that type to the benefit of Hamersley. I consider that the expression “on behalf of Hamersley” must have the latter meaning because if it were to mean insurance arranged by an agent

there would be no legal difference between that situation and Hamersley having effected the insurance itself. There is nothing controversial in these conclusions. 140. I consider the appropriate approach to the interpretation of s 45(1) to be to give the words of the section their natural meaning when considering the effect of the underlying insurance clause, in circumstances where an insured has either entered into another contract of insurance covering the same risk or where the insured has the benefit of another contract of insurance taken out by a third party which covers the same risk. In those circumstances the underlying insurance clause, in my view, clearly has the effect of limiting or excluding the liability of the insurer under the contract because it converts a policy which indemnifies the insured for the whole of the loss to a policy which insures the insured for any excess over the applicable limit of indemnity of the underlying insurance policy. 141. However, such a provision is void only where the insured has “entered into” the underlying insurance policy. I accept without reservation that the recommendation of the ALRC was to prohibit an insurer, in all circumstances other than the stated exceptions, from converting an insurance policy into an excess only policy. I also accept that the evidence points toward that being the Parliamentary intention. Further, interpreting s 45 in a way which protects an insured from the effects of underlying insurance clauses, whether the underlying insurance was effected by the insured or on behalf of an insured, is consistent with the purpose of the Act as reflected in the long title and the approach to statutory interpretation to provisions of this type identified in authorities such as East End Real Estate Pty Ltd (supra) and Kelly (1996) (supra). It is also the case that the criticisms that the ALRC levelled at excess clauses are equally applicable to contracts where the insured has the benefit of but is not a party to the contract, as it is to contracts taken out by the insured itself. 142. Nevertheless, in my view, the only way in which to achieve that result is to give to the expression “the insured has entered into” and the words of which it is comprised, a meaning they simply do not have; that is, I believe I can achieve that interpretation only by manipulating the English language to confer a meaning that is

inconsistent with the natural and proper meaning. The Concise Oxford Dictionary definition of “enter into” is to “engage in (conversation, agreement, inquiry etc); to bind oneself by (recognizances, treaty, contract)”. When one considers the words “enter into” in the phrase “the insured has entered into”, it is evident that it involves the insured himself carrying out the activity and, in the relevant context, being the party to the insurance policy. I do not accept that the particular words employed are consistent with the arrangement involved in the Speno Policy, notwithstanding the status of Hamersley under that agreement as an insured. Further, I am not persuaded that it is appropriate to adopt any of the “devices” suggested by either party to achieve the particular result. Therefore, I accept the construction determined by Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) although for different reasons. 143. The final issue with respect to subsection (1) is whether, as MMI submits, the underlying insurance clause can be read in a distributive sense with the result that so much of the clause which does not offend s 45(1) remains valid. For the reasons to which I have already referred, while I accept that the underlying insurance clause does address two different circumstances, it is the case that, as Robin DCJ noted, the clear words of s 45(1) is that it is the provision which is void; the provision being the underlying insurance clause in the Hamersley Policy. As I have already noted, I accept that this is a technical result which arises simply because of economical drafting. However, it remains the case, as I have noted, that the available material indicates that it was the ALRC’s recommendation, which to all intents and purposes appears to have been accepted by the legislature (although it does not appear to have been successfully translated into legislation) that all types of “other insurance” clauses should be prohibited. On that basis, although the result is technical, it is not necessarily inconsistent with the intention behind the implementation of s 54. 144. Essentially, I believe that s 45(1) requires amendment to achieve the purpose which I accept was intended by the legislature acting on the recommendation of the ALRC. 145. With respect to the correct interpretation of s 45(2), MMI’s

position is that the subsection does not prescribe the way in which a contract of insurance is to be specified and nor does it refer to a minimum requirement before a contract can be said to be specified. A contract may be “specified” by name, policy number, parties, or MMI submits, by class or description. Where the second contract is not in existence at the time of creation of the first, the specification will necessarily have to be by description of the class of policy. 146. Counsel for MMI submitted that if the word “liability” in s 45(1) meant potential liability then one would need to be construing the balance of s 45(1) as referring not only to contracts already entered into but contracts which may be entered into during the life of the first policy. If the proposition is that that is somehow caught by s 45(1) then the reference to those later policies necessarily will be by reference to class description as opposed to any specific policy. Where it is contemplated that such a policy will be entered into in the not too distant future and the identity of the insurer, the terms and the policy number are known, it might be possible to provide greater specification in that situation. However, in most cases people, at the time they enter into the contract, are not going to know enough about the later contract to confer on it a more precise description. 147. The question for the Court is whether or not the Zurich policy is specified in the sense required by s 45(2). MMI’s submission is that it is sufficiently specified and, further, that s 45(2) effectively leaves it up to the parties own expression of their bargain to be looked at to see whether or not there has been a specification. I accept MMI’s submission that there is a whole range of ways in which parties in a given contract might choose to specify something. However, if one looks at the purpose of the section and looks at the term “specified” it would, in my view, in some way have to identify a specific contract of insurance or class of contract rather than talking about a contract in the sort of terms that are used in the underlying insurance clause in the Hamersley Policy which is, in my view, particularly general in that it simply refers to “insurance coverage” effected by the Insured or other parties involved in particular, though unspecified, projects. Counsel conceded that the wording was “somewhat” general but nevertheless submitted that there is a sufficient specification. In view

of the history of the provision, one might anticipate that the provision requires greater specificity than a mere class of contract. In effect, however, the description in the underlying insurance clause only identifies a class which is itself particularly broad: that is, a class of contract taken out by the insured or other parties in varying types of relationships with the insured who are involved in a specific but unidentified project and which covers a specific but unidentified project. 148. Counsel for MMI submitted that the question to be asked is: How have the Insurer and the Insured gone about identifying the contract and within the context and confines of that contract does that meet the degree of specificity which is required by s 45(2) of the IC Act? Counsel maintained the submission that you can specify by reference to class and relied on a passage in the judgment of Mason P in HIH Casualty & General Insurance Ltd (supra) which is the only authority of which counsel was aware which addressed the question of whether specification by way of class is sufficient. 149. Mason P turned his attention to the exceptions to the principle embodied in s 45(1) and referred (at [37]) to the ALRC Report and to the recommendation as to exceptions (at [54] of the Summary of Recommendations) and the reasons behind them (at [290] of the ALRC Report). Reference was also made by Mason P to the Explanatory Memorandum explaining cl 45 of the Bill which I have outlined in full earlier in these reasons: (at [38]). Finally, his Honour referred to and quoted from the academic literature which was said by him to reveal a spectrum of opinion as to the meaning and application of the word “specified” in s 45(2). 150. The first reference to the academic literature is to Sutton, “Insurance Law in Australia” 3rd ed Law Book Co, Sydney, 1999 which is said to suggest (at 982) that s 45(2): “… refers to the situation where contract A provides cover in relation to a loss that is not covered by contract B and contact B is specified in contract A. In that case, the section has no application to contract A. What constitutes specification is not defined but it must mean that contract B need not be precisely

named but must be sufficiently described so as to be capable of identification, and the requirement of specification makes it clear that only true excess liability policies are intended to be exempted from the operation of s 45(1).” 151. The second extract from academic literature is from Derrington and Ashton, “The Law of Liability Insurance” Butterworths, Sydney, 1990 at 378 which takes a slightly narrower view of s 45(2) and is as follows (at [40]): “Because of the purpose of s 45, it is most probable that the specification of the policy to which it is to be an excess is so general that it would not meet the requirement of sub-s(2) which would except it from the general avoidance which sub-s(1) visits upon conditions relating to other insurance. [sic] Otherwise, the scope of the section is obviously intended to be far-reaching by its reference to the result, so that it may well be found to apply to all such conditions and provisions except those in an excess policy that is related to a specific and named policy.” 152. The final extract from academic literature is taken from Kelly and Ball, “Insurance Legislation Manual” 3rd ed (1995) at 132 and states (at [41]) that “specified” means that the actual contract must be identified in the excess policy — otherwise the excess policy would not be a “true excess policy”. 153. Having considered the ALRC Report, the Explanatory Memorandum and extracts from academic literature, Mason P considered the only judicial decision on the issue at that time: the decision of Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) that the reference to “other insurance” must be specific, as opposed to a description in general words capable of extending to other insurance: (at 6). Mention is also made by Mason P of Robin DCJ’s view that the underlying notion is that the insured and the insurer have tailored their own bargain to take account of the impact of other contracts: (at 6). 154. Ultimately, Mason P considered that it was unnecessary to seek the definitive meaning of the subsection, although the policy of s 45(1) suggested to him that the exception in s 45(2) should be construed

narrowly, as some of the writers suggest: (at [44]). His Honour concluded that, even on the approach suggested by Professor Sutton, Condition 7 of the HIH policy did not specify a (emphasis added) contract of insurance such as the CU Construction Policy: (at [44], [46]). However, Mason P did refer to the reasoning behind his conclusion when he made the following observations (at [45]): “Here there was no identification of any particular policy with any particular insurer. The type of insurance which the proprietor was obliged to take out was described in the building contract in terms of the broadest generality and with no reference to conditions or exclusions. The HIH policy is not in form or substance a type of layered insurance or excess insurance. The fact that ‘a policy of insurance’ would be ‘principal-arranged’ only emphasises its futurity, contingency and lack of relevant specificity.” However, Mason P did note that it may be that a contract of insurance need not actually have been formed and/or commenced before it is capable of being specified within s 45(2). He added that it is possible that a clearly defined class of insurance such as “X’s standard Construction Policy with an excess of Y” would suffice. His Honour preferred to reserve his position on these possibilities: (at [48]). 155. MMI relied on this paragraph despite the fact that the conclusion drawn was that the relevant clause, although in very similar terms to the underlying insurance clause in the Hamersley Policy, was considered to be insufficiently specified. I accept the proposition that, if you intend the clause to specify a contract which is not yet in existence, precise details cannot be given. However, it seems to me that you can do more that talk in the very general terms of the clause here being considered. It will be necessary to specify the other policy in such a way that it is clearly understood which policy or which group of policies are being referred to and the purpose of the policy is known, so as to make it clear that the policy under consideration was indeed intended to be a true excess of liability contract in those circumstances. 156. Counsel for MMI conceded that the form of class to which the Judge referred in HIH Casualty & General Insurance Ltd (supra) was

more precise than we have here but, nevertheless, the decision can be relied upon as an indication that specification by class is sufficient. I accept that proposition but consider that if the contract cannot be clearly specified then the class of contract should be. 157. Reliance was also placed on the dictionary definition of the words “specific” and “specify”. In the Macquarie Dictionary, the definitions of “specific” are these: (1) having a special application, bearing, or reference; specifying, explicit, or definite; (2) specified, precise or particular; (3) peculiar or proper to something, as qualities, characteristics, effects etc; (4) of a special or particular kind. The meaning MMI confers on the word “specified” is capable, at least as a matter of dictionary definition, of including “kind” as opposed to something more precise. 158. The definitions of “specify” in the Macquarie Dictionary are these: (1) to mention or name specifically; (2) to give a specific character to; (3) to name or state as a condition; and (4) to make a specific mention or statement. According to counsel for MMI, definition (2) is consistent with the submission being put as to the appropriate meaning for the word “specify” in s 45(2). 159. In written submissions, MMI says that s 45(2) does not prescribe the way by which a contract of insurance is to be specified. Three ways in which a contract may be specified are identified: (1) specified by name, policy no, parties;

(2) by class (HIH Casualty & General Insurance Ltd (supra)); and (3) specified by description. 160. Essentially, MMI submits that, when one considers the natural meaning of the term “specify” and if it is accepted that a contract may be specified by class, there is in the underlying insurance clause in the Hamersley Policy a sufficient description to satisfy s 45(2). 161. MMI also emphasises that the reference in the underlying insurance clause is to a policy which is effected by the insured itself or which is effected by a party with whom the insurer has contractual relations and is effected by that party for the benefit of the insured as an identified entity and not just as a member of an unascertained class: not just any principal but this principal. It is also said that the words in parentheses “(not being an insurance specifically effected as insurance excess of this policy)” is another facet or feature which narrows the class. I accept that, in that way, it does remove one type of “other insurance” but it is a very obvious one which, in my view, does not particularly, or sufficiently, narrow the field. MMI further submits that it has to be insurance which will respond to a claim for which indemnity is available under this policy. 162. There is one particular submission made by MMI which is of considerable force. It is that, given the specification is going to be something that varies according to the parties’ expression of their bargain, one might expect it to vary according to the factual matrix in which the parties are negotiating and in which they are bargaining. The example given was that it might be one thing for CE Heath in the HIH Casualty & General Insurance Ltd (supra) case to be issuing a policy to one small builder with a limited range of contracts in any one year. It might be another thing, however, for an insurer to be issuing an insurance policy, as this one is, to the entire CRA group which has vast operations worldwide with numerous subsidiaries, many of which are also engaged in vast operations of an immense kind and engaging, one might surmise quite regularly, in arrangements with subcontractors or service providers in which there might be these other insurance arrangements. The task in such a context of having to

identify by name, number, insurer or in some other more specific way would be unduly onerous, if not impossible, in view of changing contractual arrangements. However, it could be said that in those circumstances it is particularly necessary to specify the policy, at least to some extent, so that it can be ascertained whether the policy with the underlying insurance clause was indeed intended to be an “excess” policy. 163. As a result of these circumstances, MMI maintains that s 45(2) has to be read in a practical way. The factors which are said to vary the degree of precision with which other contracts are specified are said to be these: (i) the number of “primary” insureds named in the policy; (ii) the nature and size of the businesses conducted by those insureds; (iii) the territorial application of the policy; (iv) the extent to which the primary insureds may be expected to enter into arrangements which provide alternative insurance cover; (v) the practical difficulties of identifying by name and policy number a particular policy; to put the proposition a different way, the extent to which it is reasonable to specify a second policy by reference to class. 164. I concede it would indeed be difficult to identify with any greater specificity than as to class in the circumstances which apply to Hamersley. In that regard it is necessary in considering the extent of specification to also consider the acknowledgement in the first paragraph of the underlying insurance clause which says: “Underwriters acknowledge that it is customary for the insured to effect, or for other parties (including joint venture partners, contractors and the like) to effect, on behalf of the Insured, insurance coverage specific to a particular project, agreement or

risk.” 165. Having considered the purpose of s 45(2) and keeping in mind that the requirement that the other insurance policy be specified is designed to ensure that the relevant clause is a true “excess” clause, I have formed the view that the underlying insurance clause in the Hamersley Policy insufficiently specifies the other insurance contract for it to be “saved” by s 45(2). In particular, I share the opinion of Mason P in HIH Casualty & General Insurance Ltd (supra) that broad wording of this type is inadequate. However, I do not accept some of the opinions referred to and considered by Mason P in his judgment that for a policy to be specified it must be identified by name, policy number or insurer. Whilst I accept MMI’s submission that it is possible and indeed, in relation to contracts entered into subsequently, necessary to identify the other policy by class, I mean by that that it is not necessary to identify a particular policy. However, it remains necessary to provide sufficient information concerning the class to be able to identify the policies within that class as providing the primary cover, with the policy with the “excess” clause providing cover for loss over and above the limit of the other policy. 166. As Mason P observed in HIH Casualty & General Insurance Ltd (supra) (at [48]), which is the only authority of which counsel was aware which addressed the question of whether specification by way of class is sufficient (at [48]): “It may be that a contract of insurance need not actually have been formed and/or commenced before it is capable of being specified within s 45(2). And it is possible that a clearly defined class of insurance such as ‘X’s standard Construction Policy with an excess of Y’ would suffice.” 167. Counsel for MMI, in its broad interpretation of the underlying insurance clause, relied on the extensive and varied nature of Hamersley’s interests. In my view, they are the very factors which require some greater level of specificity than the fact that Hamersley enters into arrangements including joint ventures, sub-contracts and other commercial arrangements under which it is “customary” for insurance coverage to be taken out by other parties. That information,

in my view, says absolutely nothing about the nature of the insurance to be provided by MMI under the Hamersley Policy. 168. I am not required to identify the way in which an arrangement of the type entered into between Hamersley and Speno should property be specified in order to fall within s 45(2), but I would not have thought it was particularly difficult to consider the various classes of contracts requiring the other party to obtain insurance to Hamersley’s benefit, to ascertain the identifying criteria in relation to each class of contract. 169. For the reasons which I have outlined, I am satisfied that the underlying insurance clause in the Hamersley Policy is in breach of s 45(1) and is not saved by s 45(2). On that basis, the clause is void and MMI cannot rely on it to allege that its liability is not co-ordinate with that of Zurich. 2. Equitable bar to contribution defence 170. Although raised as a defence to the Zurich action against MMI, the plea that the duty of utmost good faith owed to Speno by Zurich debars Zurich from claiming contribution from MMI was argued by counsel for Speno. Speno was granted leave to intervene in the Zurich action on the basis that if MMI is liable to pay contribution to Zurich it would be entitled to exercise rights of subrogation in Hamersley’s name to recover the amount of that contribution from Speno. MMI adopted the submissions made by Speno on this issue. 171. The duty of good faith is said to arise in this action because, in the Nolan action, both Zurich and Speno were ordered to indemnify Hamersley. Speno’s concern is that, if MMI is ordered to contribute to the award of damages to Nolan, MMI will seek to subrogate itself to any right Hamersley may have against Speno. This is because Hamersley has a right to pursue Speno for an indemnity to which MMI can subrogate itself. Speno submits that the Court does not have to be satisfied that such action will be taken, only that there is a possibility of it occurring. 172. In that way, it is said by Speno, Zurich’s claim for contribution will achieve a result that it could not itself achieve directly against Speno: to compel Speno to pay a sum in respect of the damages award to

Nolan. Speno submits that this will be achieved despite the fact that both Speno and Hamersley were indemnified by Zurich in respect of claims such as that made by Nolan, that Speno was an insured under the Speno Policy and, Zurich agreed to waive its right of subrogation against Speno and Hamersley. Zurich’s conduct in creating a situation which will allow MMI to attempt to recover from Speno, by subrogation, any amount of contribution it is required to pay, is said to be sharp practice and in breach of Zurich’s duty of utmost good faith. 173. The proposition that Speno and Hamersley were indemnified by Zurich in respect of claims such as that made by Nolan cannot pass without comment. It is the case that Zurich indemnified Speno and Hamersley for legal liability for personal injury to persons arising out of the business conducted by Speno. However, as noted above, the policy containing the indemnity contains an employer’s liability exclusion clause. Therefore, whilst Zurich did agree to indemnify Speno for claims of damages for personal injury, it did not agree to indemnify Speno for claims alleging personal injury to one of its employees, which Nolan was. 174. Counsel for Zurich also refutes the proposition that Zurich agreed not to exercise its right of subrogation. The waiver of subrogation clause is said to be for the benefit of Hamersley, not for the benefit of Speno. According to Zurich, the clause does include a waiver of the right of subrogation but only in respect of the specified contracts; that is, where there is a principal insured extension. 175. Speno’s response to that submission is that it confines the clause in a way that the terms of the clause do not. Speno submits that all that the reference to the particular contract does is to identify those particular circumstances in which Zurich has agreed to waive its right of subrogation. It has agreed to waive that right generally although only in respect of the particular contracts which are identified in cl 3. The waiver of subrogation is both in favour of Speno and Hamersley. 176. According to Speno, the effect of the waiver subrogation clause was that Zurich undertook to indemnify Hamersley and Speno in relation to third party claims arising out of Speno’s business and Zurich undertook to bear fully that loss, including that Zurich will waive

any right of subrogation that we might have which would have the effect of ameliorating the loss. Therefore, if discharging the duty requires Zurich to put Speno’s interests about its own then that is the consequence of the policy and the underlying arrangements, the terms of which they were well aware at the time. 177. Having considered the wording of cl 3, in particular the reference to the situation where the insured has contracted to hold the principal harmless, it appears to me that the waiver of subrogation is intended to achieve that purpose. That is, nothing under the policy should result in the principal being liable to pay any amount. I have difficulty in accepting that waiver of the right of subrogation in relation to the principal would prevent the principal from being held harmless. However, subrogation to Speno’s rights might affect Hamersley’s position. On that basis, in the absence of some authority with respect to the proper construction of a term such as this, I believe that the provision operates to waive subrogation with respect to Speno. That means that Zurich, in relation to the Nolan claim is not entitled to subrogate to Hamersley’s rights and recover against Speno. I have no evidence as to all the purposes for which the Endorsement was intended or about the way in which the Endorsement came into being to conclude that the provisions in the Endorsement relate only to the principals under the contracts. 178. Notwithstanding Zurich’s position, Speno submits that Zurich is not entitled to recover any sum from Speno on account of the amount that it has paid to Nolan in discharge of its obligation to indemnify Hamersley, whether directly in its own name by claiming contribution or indirectly, by subrogation through Hamersley. The fact that Zurich, on Speno’s case, has waived its right to subrogation but then claimed against MMI, is described as Zurich giving with one hand and taking away with another. Speno maintains that this prohibition of Zurich’s otherwise lawful actions is not an anomalous outcome as Zurich agreed to indemnify Speno and Hamersley in relation to claims such as that made by Nolan. 179. It is apparent that Speno’s submission is based on a combination of the following factors:

(i) that Zurich agreed under the Speno Policy to indemnify Speno and Hamersley for legal liability for personal injury to persons arising out of the business conducted by Speno; (ii) that the waiver of subrogation clause in Speno’s policy with Zurich applied in circumstances where Speno was obliged under a contract to hold the other party to the contract (“the Principal”) harmless for the Principal’s negligence. (iii) That in the Nolan action Zurich failed in a claim for contribution from Speno. 180. Consequently, on Speno’s submission, Zurich cannot subrogate itself to any right that Hamersley may possess against Speno, as Speno was its insured. As I have indicated, in my opinion, Zurich can not subrogate itself to any right that Hamersley may possess because it has waived that right, not because Speno was its insured. 181. Zurich’s response to this aspect of the defence to its claim is that it treats the doctrine of subrogation and the equitable right to contribution interchangeably. Zurich emphasises that it is apparent from the statement of claim that the Court is being asked to consider two quite separate and distinct legal remedies. The first is the remedy of contribution which Zurich seeks and the second is MMI’s subrogation to the rights of Hamersley in claiming against Speno. As counsel for Zurich notes, although I do not believe it is a matter for dispute, the two concepts could not be more different. 182. Zurich maintains that it discharged by performance its obligations under the contract of insurance by indemnifying Hamersley. As a result, there inured for Zurich’s benefit a right of contribution from a co-insurer. Zurich maintains that in pursuing the right to contribution from a co-insurer it is not acting towards the other party to the contract in respect of any matter arising under or in relation to the contract. Zurich submits it is simply taking advantage of the principle identified in Albion Insurance Co Ltd (supra) which confers on an insurer in Zurich’s position, a right to contribution from an insurer under a coordinate liability to make good the same loss. Therefore, Zurich is relying on a right given to it by the general law as a result of the

performance by Zurich of its legal obligations under the contract. This, Zurich submits, it is entitled to do without regard to the impact that it might have on Speno. 183. Zurich’s counsel asserts that Speno’s submission overlooks the following very basic facts: (1) That when Speno contracted with Hamersley, for its own commercial purposes, it agreed to indemnify Hamersley and was in the Nolan action judged to be liable to indemnify Hamersley. In that regard, if Speno suffers a disadvantage it is one of its own making. (2) That Speno declined to insure against contractual liability. It sought and obtained from Zurich insurance against legal liability arising from personal injury and not from any contractual obligations it might seek to undertake. Therefore, the two legal obligations are separate and distinct. 184. Zurich notes that it was as a consequence of the policies arranged by Speno, that Hamersley came to be insured as a principal for loss arising from personal injury, property damage and certain other liabilities in connection with its business or products but the policy as it applied to Speno did not include liability for personal injury to Speno’’s employees. Consequently, the policies Speno obtained from Zurich responded in favour of Hamersley and not in favour of Speno in the particular circumstances of the Nolan action. Zurich maintains that it is of no consequence that out of the same facts arises Speno’s contractual obligation to indemnify Hamersley. 185. According to Zurich, Speno’s assertion that the duty of utmost good faith owed to it by Zurich precludes Zurich from exercising its right to contribution is said by Zurich to proceed on the basis of three fundamental misconceptions. The first is that Speno is, in this action, the insured to whom a duty of good faith is owed. The second misconception under which Speno is said to labour is that Zurich’s obligation was to indemnify Speno in respect to the claims of Nolan and Oatway. The third misconception is that the duty of good faith is an amorphous duty owed to an insured which extends beyond the

confines of the contract. 186. It can be seen that this defence, as argued by Speno, and the response to it by Zurich raise a number of issues requiring resolution. A number of those issues, if resolved in Zurich’s favour, would bring an end to this defence. However, in the event that I may be wrong in relation to one or more of such issues, and because of the strong likelihood of an appeal, I propose to determine each issue. (1) The relevant provisions of the Speno Policy and the HamersleySpeno Contract 187. Before addressing the propositions on which Speno relies in its allegation that Zurich’s claim is in breach of a duty of good faith owed to Speno, I will set out the relevant provisions of Zurich’s Combined General Liability Insurance Policy (“CGL policy”) as it applies to both Speno and Hamersley and also to the relevant provisions of the Hamersley-Speno Contract. 188. The clauses of the Hamersley-Speno Contract relevant to Speno’s argument are cl 37 and cl 38. Under cl 37, Speno was obliged to indemnify and keep indemnified Hamersley against all claims and liabilities arising at common law and caused by the performance of the works. Clause 38 required Speno to effect and maintain throughout the term of the contract various insurances including public liability and property damage insurance covering, relevantly, all claims and liabilities in respect of any injury to or death of any person however caused. The insurances were also required to include a cross-liability clause whereby the insurer waives all express or implied rights of subrogation they may have against Hamersley. 189. Under the CGL policy, subject to the payment of or agreement to pay the premium set out in the Schedule, Zurich agreed with the Insured to provide insurance subject to the exclusions, provisions, definitions, conditions and limits of liability set out in the policy or its endorsements. The Schedule attaching to and forming part of the CGL policy in the name of Speno identifies the insured as Speno, the class of business as “Combined General Liability” and the interest insured as “[l]egal liability for personal injury to persons or loss of or damage to property of others arising out of the products and business of the

Insured”. As noted above, the limit of liability for public liability is $2 million for any one occurrence. 190. As to the coverage of the policy, Zurich undertook to pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay for compensation in respect of personal injury, property damage and advertising liability as a result of an occurrence happening in connection with the Insured’s business or products. The exclusions included personal injury to any person arising out of or in the course of the employment of such person in the service of the Insured. The standard conditions of the policy include the following: “7. SUBROGATION The Insured and any other person indemnified by this Policy shall, at any time at the request and expense of the Company, permit all reasonable steps required to enforce any rights to which the company would be entitled on payment of or making good any loss under this Policy. If the company recovers an amount greater than the Company’s outlays in respect of the Insured’s claim any excess amount will be paid to the Insured.” 191. The CGL policy also contains a cross-liability clause which states that for the purpose of the policy each of the parties comprising the Insured shall be considered as a separate legal entity and the word “Insured” shall apply to each party as if a separate policy had been issued to each of the said parties but nothing herein contained shall operate to increase Zurich’s limits of liability set out in the Schedule. It is the effect of this clause which is central to the resolution of the competing views on whether Zurich’s conduct breaches a duty of good faith owed to Speno. 192. One of the exclusions to the CGL policy is liability for personal injury to any person arising out of or in the course of the employment of such person in the service of the insured. 193. The Endorsements to the CGL policy attach to and form part of the policy. Clause 3 relates to the insured’s contractual liability and states: “It is hereby declared and agreed with effect from 31 December

1994 where the Insured is required by a Principal by warranty or agreement under a written Contract to hold the Principal harmless for their negligent acts and omissions in respect of that specific Contract, the Company agrees to waive their right of subrogation but only in respect to those specific Contracts noted below, in the Schedule or endorsed hereon and always limited to the said Contract’s terms, conditions, limitations and exclusions of indemnity and the terms, conditions, limitations and exclusions of the Policy, whichever are the narrower.” 194. Among the contracts that are noted on the policy and subject to the Endorsement is the rail grinding contract with Hamersley. 195. This is the “waiver of subrogation clause” on which Speno relies. I do not believe the construction of this clause is in dispute other than as to the identity of the insured for relevant purposes. 2. The distinction between contribution and subrogation 196. As I have noted above, Zurich maintains that the right to claim contribution is a right conferred by law that is independent of the insurance contract and hence in pursuing a claim to contribution any unintended effect on an insured under the contract does not arise under or in relation to the contract. The need to consider the nature of the right to contribution also arises out of Zurich’s allegation that Speno’s proposition elides the two rights. 197. The law in relation to contribution has been dealt with at some length earlier in these reasons. The principles of subrogation are considered in detail in the next part of these reasons. However, I believe it would assist to re-state the basic propositions and consider these two fundamental principles of insurance law in this particular context. 198. The High Court in Albion Insurance Co Ltd (supra) addressed the nature and operation of the doctrine of contribution. Kitto J (at 349), in addressing these issues, also referred to the origins of the doctrine, noting that it began as a rule of marine insurance and was extended to other kinds of indemnity insurance by later decisions of House of Lords. According to “MacGillivray’s Insurance Law”, 4th ed, 1953 at

[1651], Lord Mansfield in Newby v Reed (1763) 96 ER 237 and Godin v London Assurance Co (1758) 97 ER 419 brought together two principles. The first, a principle applicable at law no less than in equity, was that persons who are under co-ordinate liabilities to make good the one loss must share the burden pro rata. The second was that since a policy of marine insurance is a contract of indemnity only, an insured may not be more than fully indemnified for the loss. The right to contribution was also considered to be a general principle of justice accepted by both law and equity, although one which operated more effectually in a court of equity (at 350 – 351). Kitto J also observed (at 352) that the right of contribution arises from the fact that each contract is a contract of indemnity and covers the identical loss that the identical insured has sustained. 199. The Court was also referred to the case of Sydney Turf Club v Crowley [1971] 1 NSWLR 724 in which the Sydney Turf Club (“STC”) had an employers’ indemnity policy with the Australian Jockey Club (“AJC”) which had an insurance fund and was a licensed insurer under the Workers’ Compensation Act 1926 (NSW). Under that Act, a stable hand engaged in riding work on STC premises was deemed to be a worker. The AJC undertook to indemnify STC in respect of liability both under and independently of the Act for injury to any worker. The STC also had a public liability policy with GIO whereby GIO undertook to indemnify the STC against liability to pay damages for negligence at common law causing bodily injury to third parties, but excluding claims in respect of bodily injury to any person arising out of or in the course of the employment of such person in the service of the insured, the STC. 200. S was injured when riding a pony and leading a racehorse for training and exercise purposes at an STC racetrack. STC made the racetrack available for the purposes of training and exercising racehorses. S claimed damages from the STC and the STC claimed indemnity from both insurers. The AJC denied liability. GIO, though not admitting liability, accepted service of the writ issued against the STC and undertook the defence of the action without prejudice to its right of indemnity by AJC. S recovered a verdict against the STC for breach of its duty as invitor to him as invitee and GIO indemnified the

STC in respect of this verdict. An action was brought by GIO suing in the name of the STC against Crowley, representing the AJC to recover the amount paid by GIO to the STC. There was an issue at trial and on appeal as to which of the insurers were actually at risk depending on whether or not S was a worker and was injured in the course of his employment. Ultimately, it was determined that the claim by S was covered by both policies. 201. The Court of Appeal held that the action at law by GIO against the AJC must fail as the proper claim was one in equity for contribution. Jacobs JA (at 730) addressed this issue by first considering some of the principles relating to indemnity insurance, in particular the principle that an insured can recover no more than the amount required to indemnify him. Also, reference was made to the principle that if the insured has recovered the whole of the loss from one insurer then it is a defence at law to another insurer to allege that fact. Jacobs JA noted (at 730) that contribution in equity between insurers was an entirely separate problem which was of no concern to the Court because of the way in which the claim had been brought. Reference was made by Jacobs JA to “an apparent exception” to these principles being applied at first instance in Austin v Zurich General Accident and Liability Insurance Company Ltd (supra) at 730. However, on appeal it was made clear by the majority that the case was not one of subrogation at all but rather one of contribution. Mason JA also concluded (at 734) that the action was misconceived because the insured has recovered his loss. 202. In reaching that decision, Mason JA set out in clear terms the precise nature and effect of the doctrine of subrogation (at 734 – 735): “Where an insurer is subrogated to the rights of the insured against a third party, the insured does not acquire an independent cause of action in his own right. He succeeds to the insured’s cause of action against the third party, in this case a right of action on the policy issued by the Jockey Club. That right of action remains in all respects unaltered; it is brought in the name of the insured and it is subject to all the defences which would be available if the action had been brought by the insured for his own benefit. Thus payment in full by the Government Insurance Office

on account of the risk is a defence to the action by the appellant against the Jockey Club and it is no answer to that defence that the action is brought for the benefit of the insurer. In truth there was no relevant right in the appellant to which the Government Insurance Office could become subrogated. Once the insured was paid in full by that insurer, the insured had no cause of action which he could enforce against the Jockey Club on its policy either for his own benefit or for the benefit of the other insurer. The Government Insurance Office could, in an action in its name, recover a pro rata contribution from the Jockey Club as an insurer against the same risk under the doctrine of contribution (Albion Insurance Co Ltd v Government Insurance Office of NSW), but that is not the present proceeding. The present action has its origin in a failure to distinguish between the doctrine of subrogation and that of contribution.” 203. It is apparent from these references that the doctrines of contribution and subrogation are disparate concepts. In particular, it is apparent that an action claiming contribution is an action brought by the insurer in its own right and is not an action under the contract. Further, and significantly, the right to seek contribution is not a right arising under the contract although it is because the insurer has met its obligations under the contract that it may exercise the right to a contribution. 204. Speno rejects the proposition that it is eliding the distinction between subrogation and contribution. Counsel for Speno maintains that its submission involves considering the effect of Zurich exercising its right to contribution. Speno submits that, in the totality of the circumstances including the relationship created by the insurance policy, the consequence of exercising a right to contribution is to expose Speno to a risk of a detriment. It is that which is said to constitute the breach of good faith. 205. In view of the nature of the right to contribution, acceptance of Speno’s proposition depends on establishing that the insurer’s duty of good faith to the insured extends to actions taken by the insurer, independent of the insurance contract, which indirectly adversely

affect the interests of the insured. Whilst that statement of the underlying features of the defence identifies the difficulties facing Speno in establishing the defence, it is the case that Speno’s position would be strengthened by a finding that it is the insured under the contract under which Zurich has indemnified Hamersley. Further, it remains to be seen whether the scope of the duty of utmost good faith extends so far. (3) The cross-liability clause 206. It is apparent from the statements as to the source of the duty that, in order to resolve this issue, it is necessary to properly identify the exact nature of the relationship between Zurich and Speno and Zurich and Hamersley as evidenced by the terms of the CGL policy, the Schedule, in particular the cross-liability clause, and the Endorsement which includes the Hamersley-Speno Contract. 207. The significance is that, according to the terms of s 13 of the IC Act, on Speno’s construction Zurich, Speno and Hamersley would each owe a duty to the others. Consequently, the effect of Zurich’s action in seeking contribution would have to be considered in the context of Zurich owing a duty of good faith under the contract of insurance. On Zurich’s construction, Zurich would owe a duty to Speno under one contract and Zurich would owe a duty to Hamersley under another. As Zurich’s indemnity arose under the contract with Hamersley, no duty was owed to Speno. Consequently, the duty which is said to have been breached would be a duty owed to a third party, if a duty is owed in such circumstances. In my opinion it would be difficult to establish that the right to claim contribution could be undermined by reason of a duty owed to a third party. 208. Therefore, the proper construction of the cross-liability clause is essential to Speno’s proposition that Zurich owed to Speno a duty to indemnify Hamersley. Speno’s position is that the Schedule to the CGL policy in the name of Speno identifies the interest insured as: “Legal liability for personal injury to persons or loss of or damage to property of others arising out of the products and business of the Insured”.

Therefore, under the policy, Zurich promised Speno that Zurich would indemnify it for legal liability for personal injury to persons arising out of the business conducted by Speno. The policy was then extended by a certificate of currency and insurance (although this document was not put before the Court, it was not in dispute) to cover Hamersley so that the promise contained in the policy by Zurich was a promise to indemnify Speno and Hamersley for legal liability for personal injury arising out of the business of Speno which, consequent upon the execution of the Hamersley-Speno Contract, included the performance by Speno of that contract. 209. Speno accepts that the effect of the policy was not to indemnify it in respect of any contractual liability that it might have to Hamersley arising out of the Hamersley-Speno Contract. However, Speno argues that, having promised Speno that it would indemnify Hamersley for a claim such as that made by Nolan, that being a promise that it made to Speno as its insured, it cannot now take steps which would have the effect (accepting for this argument that there is a right in MMI to make a claim against Speno) of Speno having to make a payment to MMI. That is, according to counsel for Speno, Zurich cannot institute steps which would have the effect of requiring Speno to make a payment in respect of the very liability for which Zurich promised Speno it would indemnify Hamersley. 210. Even putting to one side the proposition that the circumstances by which Hamersley came to be insured involved a promise by Zurich to Speno to indemnify Hamersley, it is unclear to me how Zurich’s conduct has the effect, in practical terms, of removing or avoiding the indemnity to Hamersley. In my view, that would be the only way that it could be said that Zurich’s actions are a breach of good faith owed to Speno. As noted above, the right to contribution does not destroy or diminish the indemnity which was provided. It is a separate legal and equitable right. 211. Speno maintains that it is the liability of Hamersley to Nolan which is the liability that enlivens the right to contribution which is now being sought by Zurich, and it is that liability that one focuses on in relation to the question of unconscionability or good faith. Zurich is now asking the Court to make an order which, it is said, would expose

Speno to a risk of having to make a payment in respect of that very liability which Zurich promised Speno. It is the exposure to the risk which is said to be sufficient to enliven the duty of good faith on which Speno relies. Authority for that proposition can be found in the decision of Stephen J in Distillers Company Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 (at 31). 212. Speno’s counsel also submits that, to focus simply on the contractual indemnity as between Speno and Hamersley and make the obvious point that the insurance policy did not respond to that indemnity, as Zurich suggests, is to focus on one small element of the relationship and to ignore the arrangements effected by the insurance policy. Speno also maintains that it is not relevant to say that Zurich has discharged its obligations to Speno by indemnifying Hamersley. The obligation of good faith continues because the claim arises in relation to the contract of insurance between Speno and Zurich. I accept that the duty continues. However, where the claim has proceeded to trial and the appropriate orders made, any duty with respect to the Nolan action must come to an end when Zurich did what it contracted to do, and ordered to do, which was to indemnify Hamersley. 213. Zurich’s submission is that its policy should be construed as if each insured had had issued to it a separate policy of insurance. Hence, Zurich’s promise to indemnify Speno is an aspect of a separate and distinct contract to Zurich’s promise to indemnity Hamersley and one which did not respond to the particular claim. As to Speno’s submission that there was a conflict between Speno and Zurich because of Zurich’s exercise of its legal right to contribution exposed Speno to a payment, Zurich’s response was that there may well be, but not because of anything to do with the insurance policy in relation to which the claim for contribution is being made because Speno was not a party to the insurance policy; it was only a third party. 214. However, Speno maintains that Zurich indemnified Hamersley under a policy of insurance made with Speno where Speno was the contracting party and Hamersley a third party insured. In support of this construction Speno relies on the fact that, in the Nolan action,

Zurich failed in its claim for contribution from Speno. I have difficulty in seeing how the decision in Speno Rail Maintenance Australia Pty Ltd (supra) provides any support for Speno’s construction of the Speno Policy. 215. In Speno Rail Maintenance Australia Pty Ltd (supra), Zurich claimed, inter alia, that any liability it might have to indemnify Hamersley was a co-ordinate liability with Speno’s liability to indemnify Hamersley pursuant to cl 37 of the Hamersley-Speno Contract. Therefore, Speno would be liable to contribute any amount Zurich had to pay to Hamersley. The Court made a number of findings including that, whilst Zurich was liable to indemnify Hamersley under the general liability policy, it was not liable to indemnify Speno. Speno was liable to indemnify Hamersley under the Hamersley-Speno Contract, notwithstanding that it had effected the required insurance, but Zurich was not entitled to contribution from Speno in relation to its liability to Hamersley. The basis of the finding that Zurich was not entitled to a contribution from Speno was that their respective liabilities were not co-ordinate, being intrinsically different in character. Zurich’s liability arose from a contract of insurance, a contract of a peculiar character, whereas Speno’s arose out of a works and services contract: see Wheeler J (at 325 – 326); Ipp J (at 312 – 313). 216. On the appeal, Speno had argued that Zurich was not entitled to contribution under an insurance policy where Speno was also an insured under that policy. Speno’s proposition was that it would be inconsistent with equity and the insurer’s duty of good faith for the insurer to recover contribution from its own insured when the insured has paid the policy premium. The reaction of Wheeler J (at 325) to that proposition was that it was not clear to her why it would not be open for Zurich to recover from Speno by way of contribution, merely because Speno was an insured under the general liability policy. Her Honour explained (at 325 – 326): “Speno was not insured under the policy in respect of this occurrence, since the employer’s liability exclusion applied in respect of this occurrence, since the employer’s liability exclusion applied in respect of it, so that the policy did not respond so far as Speno was concerned. The relevant ‘insured’ was Hamersley,

which was the insured claiming pursuant to the policy … Speno may have paid the policy premium in respect of Hamersley’s insurance pursuant to that policy, but it was for Hamersley’s benefit, not its own. Rather, Zurich would in this context be seeking to recover contribution from Speno as a third party liable to indemnify Hamersley under the separate contract, being the works and services contract. It appears to me that questions of equity and good faith cannot arise in this context merely because as a matter of fact the premium has been supplied by Speno.” 217. It seems to me, that if Wheeler J considered that exercising a right of contribution against Speno did not give rise to questions of equity and good faith, it is difficult to see how those issues might arise when seeking a right of contribution against another insurer. The adverse result to Speno in either situation is the same. Only in the former situation it is a certainty rather than a mere possibility. 218. I have indicated above that Speno submitted that Zurich was under an obligation to indemnify Speno in respect to the claims of Nolan and Oatway, however, the obligation of Zurich to indemnify Speno does not extend to personal injury to Speno employees and both Nolan and Oatway were Speno employees. In making that distinction, Zurich’s counsel also relies on the decision in Speno Rail Maintenance Australia Pty Ltd (supra) where Wheeler J concludes (at [160]), as is apparent from the above extract from her Honour’s judgment, that Speno was not insured under the general liability policy in respect of the occurrence in which Nolan was injured because the employer’s liability exclusion applied. Of course, the employer’s liability exclusion applied to both Speno and Hamersley, however, Nolan and Oatway were not Hamersley’s employees; they were employees of Speno. 219. Wheeler J was not called upon to determine the question of whether the legal effect of the agreement between Zurich and Speno was that there existed a contract of insurance between Zurich and Speno in which both Speno and Hamersley had the benefit or whether there were two policies, one between Zurich and Speno and one between Zurich and Hamersley. However, there are aspects of her reasons which I consider to support the latter construction rather than

the former (at [160]). For example, Hamersley is described as “the relevant ‘insured’ which was the insured claiming pursuant to the policy” and the fact that Speno paid the policy premium in respect of Hamersley’s insurance under that policy was said to be for Hamersley’s benefit, not for Speno’s. Therefore, according to Wheeler J, the fact that Speno paid the premium did not make it a party to the insurance agreement between Zurich and Hamersley nor did it give Speno rights vis-à-vis that agreement. 220. Zurich maintains that the construction for which it contends is apparent from the terms of refers to cl 14 of Zurich’s CGL policy, the “Cross-Liability” clause, which states that, for the purpose of the policy, each of the parties comprising the insured shall be considered as a separate legal entity and the word “Insured” shall apply to each party as if a separate policy had been issued to each of the said parties. Consequently, in this action the Court is dealing with a policy between Zurich and Hamersley. The fact that Speno paid the premium and that Speno was also named as an insured under the CGL policy is said to be of no relevance. The fact that the legitimate pursuit of rights arising from that policy has an adverse impact on a person or entity insured by Zurich under another policy is said by Zurich to be simply an unintended consequence of the exercise of those rights. 221. Support for Zurich’s construction of the cross-liability clause can also be found in the judgment in Speno Rail Maintenance Australia Pty Ltd (supra). In considering a submission by Speno limiting the meaning of the clause, Wheeler J considered (at 321 – 123) the meaning and effect of the cross-liability clause. In rejecting the proposition (at 322) that the only purpose of the cross-liability clause was to limit the effect of a particular clause in the policy, Wheeler J concluded: “Rather than the cross liability clause being intended to limit the effect of the joint insured clause, it is my view that, if anything, the intention of the policy is the other way around; that is, notwithstanding that each of the insured is to be considered as a separate legal entity and as having a separate policy, misrepresentation or non-disclosure by one will affect the insurance of the other.”

222. Wheeler J also rejected (at [144]) the proposition that to substitute the word “Hamersley” as the insured at all points would be vastly to expand the risk of the policy, she considered that this submission could not stand with the condition attached to the insurance of Hamersley as principal in paragraph (c), the effect of which was to ensure that Hamersley was insured as principal only in respect of liability arising out of the performance by Speno of the contract. Despite conceding (at [146]) that some of the clauses are inapplicable to Hamersley and others distinguish between Speno as an insured and Hamersley as a Principal, Wheeler J considered (at [147]) that probably the majority of the clauses in the contract were capable of applying to Hamersley and Speno in respect of separate policies deemed to be issued to them pursuant to the cross-liability clause. Her Honour’s conclusion (at [148]) was that the effect of the cross-liability clause would appear to require that the reference to the “Insured” in the employer’s liability exclusion be read as a reference to Hamersley where the claim is made by Hamersley in respect of its interest. 223. Counsel for MMI submitted that, when considering Zurich’s submission on the effect of the cross-liability clause (cl 14), the Court should have regard to the six opening words: “For the purpose of this policy”. MMI maintained that, on this basis, the cross-liability clause should not be construed as deeming each insured as having a separate contract. However, I do not accept that the use of what are common introductory words detracts from the conclusion drawn by Wheeler J in Speno Rail Maintenance Australia Pty Ltd (supra). Despite several inconsistencies which arose from the construction, she still formed the view that the effect of the cross-liability clause was to deem Hamersley and Speno to be issued with separate policies. 224. I consider the effect of the cross-liability clause to be as Zurich submits. I have formed that view by giving the words in the policy their natural meaning. I have considered the propositions that were put to Wheeler J in Speno Rail Maintenance Australia Pty Ltd (supra) and take a similar view that, although a number of provisions are not consistent with that construction, they are not sufficient or sufficiently significant to overcome what I consider to be the obvious construction

of the cross-liability clause. Further, I consider this construction is supported by the fact that most clauses are capable of applying both to Speno and Hamersley in respect of separate policies. I do not accept that simply because the insurance cover, the purpose of which was to indemnify Hamersley, was arranged by Speno and paid for by Speno, it is anything other than a policy between Zurich and Hamersley. Those factors were simply requirements of Speno under the Speno-Hamersley contract: the price Speno was prepared to pay to obtain the contract. As I have indicated, I believe this construction is supported by the decision in Speno Rail Maintenance Australia Pty Ltd (supra). Most importantly, I am unable to accept Speno’s underlying premise that the circumstances by which Speno complied with its contractual obligation to effect insurance can be described as a promise made by Zurich to Speno for Zurich to indemnify Hamersley. Certainly Zurich agreed to Speno’s request to provide indemnity insurance to Hamersley. However, in my opinion the only “promise” to Speno was to put the insurance in place; there was no promise to Speno to indemnify Hamersley. Once the insurance policy issued any obligation which Zurich’s may have had to Speno was fulfilled. 225. For these reasons, as Speno was not a party to the insurance contract between Zurich and Hamersley, I have concluded that if any duty is owed to Speno, it is as a third party who is also an insured of Zurich. (4) The Duty of Utmost Good Faith 226. The Speno Policy is subject to the provisions of the IC Act. Section 13 and s 14 address the duty of utmost good faith in relation to contracts of insurance and are in these terms: “13. The duty of the utmost good faith A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. 14. Parties not to rely on provisions except in the utmost good faith

(1) If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. (2) Sub-section (1) does not limit the operation of section 13. (3) In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise.” 227. Speno relies on the words “in relation to” in its submission that it is owed by Zurich a duty of utmost good faith with respect to Hamersley’s claim under the Speno Policy as a result of Nolan’s claim in negligence for damages. This proposition is expressed by Speno in terms of Zurich’s claim for contribution only arising because Zurich indemnified Hamersley under a policy of insurance made with Speno (Speno being the contracting party and Hamersley a third party insured). In this regard, s 14(1) of the IC Act provides that, if reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. The first observation which can be made is that the action taken by Zurich was not in reliance on a provision of the contract. 228. Speno also seeks to rely on the decisions of CE Heath Casualty & General Insurance Company (supra) at 36 – 40 per Mahoney J and Wyllie v The National Mutual Life Association of Australasia Ltd (1997) 217 ALR 324. 229. Wyllie (supra) involved a group life assurance policy taken out by the trustees of an employee superannuation fund. The trust deed empowered the trustee to effect policies of insurance or assurance to insure any risk and liabilities of the fund and to provide for all or any part of the benefit which may become payable from the fund. A retired employee made a total disablement claim after suffering a stroke. The plaintiff, the employee, initiated proceedings against the Fund when

the insurer declined the claim. The basis of the claim was that the Fund breached its duty to act in good faith in declining the claim. The plaintiff relied upon an implied term of the policy that the insurer would act fairly and reasonably in determining the disablement claim. In the alternative, the plaintiff contended that the insurer had a duty to act fairly and reasonably in determining the question: (at 336). The defendant insurer did not admit the implied term or the existence of the duty. However, in its written submissions the insurer submitted that its only obligation was to act fairly and in good faith in the discharge of the obligation to determine the claim but was not subject to the rules of procedural fairness that might apply in a court: (at 337). 230. The factual circumstances also raised the issue of the plaintiff’s status; whether he was entitled to sue the insurer directly or derivatively as the beneficiary of the benefit of the promise under the conversion option offered by the policy. As the contract was one of life insurance rather than general insurance, s 48 of the IC Act did not apply: (at 338). Further, as the plaintiff was not a party to the contract of insurance, s 13 was not available to the plaintiff in support of his claim of a breach of the duty of good faith. 231. Hunter J concluded (at 339) that the insurer was under a duty to the plaintiff to act with utmost good faith in the assessment of his claim. It was also held that the insurer was under an implied obligation to the plaintiff, in forming an opinion as to the plaintiff’s disability, to act fairly, in good faith and reasonably, having due regard for the interests of the plaintiff. Having reached that conclusion, Hunter J set out the reasoning behind it: (at 339 – 341). Relying on the decisions in Trident General Insurance Co Ltd (supra), Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas ¶61-113 and, in particular, the statements of Mahoney JA in CE Heath Casualty & General Insurance Company (supra) at 37 – 38, which are summarised below, Hunter J concluded that the duty was owed to the plaintiff whether his status was that of a party entitled to sue the insurer directly or indirectly as the beneficiary of the benefit of the promise under an option offered by the policy: (at 339 – 340). 232. Hunter J also observed (at 340) that where s 13 of the IC Act imports a duty into a contract of insurance upon parties to the contract

to act with the utmost good faith towards each other “in respect of any matter arising under or in relation” to the contract, it is extremely difficult to see how such a duty is not extended as an “incident of the relationship” in respect of a third party in the position of the plaintiff: (at 340). However, Hunter J noted that the practical consequences of that conclusion were slight in view of the fact that he accepted the plaintiff’s argument that the insurer’s obligation to assess the claim in good faith was an implied term of the agreement: (at 340). The decision of McLelland J in Edwards (supra) at 77,536 was cited extensively in support of this conclusion. 233. I should note that I do not consider this comment of Hunter J in Wyllie (supra) to provide support for the proposition that a duty of good faith is owed to third parties generally or, in particular to a third party in the position of Speno. The third party in Wyllie (supra) was a person entitled to sue the insurer directly as the beneficiary under the policy. 234. In Edwards (supra), McLelland J relied on the decision in Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra) in deciding that, in the exercise of powers affecting the interests both of itself and the claimant, the insurer is under a duty of good faith and fair dealing which requires it to have due regard for the interests of the claimant, a duty considered to be analogous to the duty of a mortgagee in exercising a power of sale of mortgaged property. Further, McLelland J held (at 341) that in the field of insurance it was well established that where under a contract of insurance an element of the insurer’s liability is expressed in terms of the satisfaction or opinion of the insurer, the insurer is obliged to act reasonably in considering and determining the matter. 235. Ultimately, Hunter J held (at 343) that the insurer failed to act reasonably, fairly or in good faith in the assessment of the plaintiff’s claim. 236. In CE Heath Casualty & General Insurance Company (supra), Mahoney JA considered the application to third parties of the principle of good faith in the context of a failure to disclose (at 36 – 40). In that case, the Court of Appeal determined the issue of whether a person

covered by a contract but not a party to it was under an obligation of pre-contract disclosure. Mahoney J acknowledged the existence of the principle of utmost good faith and referred to the historical basis for the principle: (at 36 – 37). His Honour noted that the principle of utmost good faith has long been applied to all classes of insurance, noting that it dates back, at least, to the decision in Carter v Boehm (1766) 97 ER 1162 where Lord Mansfield made the following statement (at 1164): “… Insurance is a contract of speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only: the under-writer trusts to his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge, to mislead the under-writer into a belief that the circumstance does not exist … The keeping back such circumstance is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention; yet the under-writer is deceived, and the policy is void; because the risque run is really different from the risque understood and intended to be run, at the time of the agreement … [this is an old fashioned spelling of the word risk and should not be “risque”]. Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.” 237. It can be seen that in this early enunciation of the principle, the context was the provision of misleading information or a failure to properly inform. The obligation of disclosure was on the insured and arose from the nature of the contract of insurance including the relationship between insurer and insured, and the obligation to act in good faith which arises from that relationship. However, in CE Heath Casualty & General Insurance Company (supra), the principle was not limited to the insurer and the insured. 238. Mahoney J held (at 37) that the principle of utmost good faith is

not limited to those who under the general law are actual parties to the contract of insurance. It extends also to others “who are necessarily involved in the insurance”. However, it is clear that Mahoney J was not there determining that the principle applies to all persons “necessarily involved in the insurance”. His Honour identified two classes of cases in which the duty would apply to a third party. The first was in what Mahoney J described as “trust cases” and the second was with respect to “benefit cases”. Mahoney J considered (at 37) that it would be surprising if a third party was not the subject of a duty of good faith where the insurer contracts for insurance of the insured and the insured holds the benefit of the contract of insurance on trust for the third party. His Honour also decided (at 37 – 38) that the same principle extended to “benefit cases” where contracts were commonly entered into for estate planning purposes and with a view to conferring benefits upon third persons, revocable at the wish of the proponent party to the policy. 239. However, Mahoney J considered (at 38) that the view that the operation of the principle of good faith is not limited to those who, at law, are parties to the contract of insurance flows from the nature of the principle itself. He described it as a broad principle applicable to the making of insurance contracts and the performance of them. In reaching that conclusion, Mahoney J relied on the decision in Khoury v Government Insurance Office of New South Wales (1984) 165 CLR 622 where it was established (at 637) that the principle was not based on the doctrine of implication of terms but was “an incident of the relationship” of insurance. Although Mahoney J did emphasise (at 38) that there were limits to what the principle requires. 240. Each of the cases to which Mahoney J referred in this context dealt with the duty of good faith with respect to disclosure. However, in deciding that the duty of good faith operates not merely in relation to the making of a contract of insurance but also to aspects of the performance of it, reliance was placed on the decision in Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra) which did not involve disclosure but the exercise of a right under the contract of insurance. 241. In Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra), a

public risks insurance policy issued to a distributor of drugs provided a limit on the total liability of the insurer for all compensation payable arising out of any one occurrence or number of claimants in respect of any one occurrence attributable to one source or cause. The policy further provided that the insured: “… should not without the consent in writing of the insurer make any admission, offer, promise or payment in connection with any accident or claim, and the insurer if it so desires shall be entitled to take over and conduct in the name of the insured the defence or settlement of any claim”. 242. A number of actions for damages for negligence in relation to a certain drug were pending against the insured. Following the institution of these actions the insured sought declarations against the insurer that it had failed to admit any liability to indemnify under the policy. The insurer had not elected to take over or conduct the defence or settlement of the action and did not concede the insured’s legal liability nor that the conditions entitling the insured to indemnity had been fulfilled. Further, it refused to consent to the insured making any admission, offer, promise or payment. The insurer asserted that only if and when the insured became legally liable by way of damages to any particular claimant would it consider whether indemnity would be given. 243. One aspect of the appeal dealt with the interpretation of the contractual term prohibiting admissions or settlement by the insured without the consent of the insurer. This part of the case is relevant to this action in so far as the insured contended that the withholding of consent by the insurer must be subject to an implied term that it may not be withheld unreasonably. In addressing this issue, Stephen J (at 23) referred to “some features peculiar to insurance against risks of third party liability”. His Honour considered (at 23) that insurance policies which combine an upper limit on indemnity with a prohibition on settlement of claims by the insured without the insurer’s concurrence are very likely to give rise to conflicts of interest as between insurer and insured whenever a claim is made against the insured in excess of the upper limit of indemnity. I will not refer to those conflicts because they are obvious and not of the precise nature

as that which is said to arise in this action. 244. Stephen J held (at 26) that the insurer was not acting in breach of the relevant provision by failing to admit liability to indemnify. However, his Honour considered that whether or not there was a breach of the provision was only part of the story because he regarded the power of the insurer as being “hedged around with safeguards for the legitimate interests of the insured”: at 29. He said (at 26 – 27): “… the consent … is not one which the insurer may arbitrarily withhold. Its power of restraining settlement by the insured must be exercised in good faith having regard to the interests of the insured as well as to its own interests and in the exercise of its power to withhold consent the insurer must not have regard to considerations extraneous to the policy of indemnity.” 245. Support for this view was said by Stephen J to be found in Groom v Crocker [1939] 1 KB 194 where Sir Wilfred Green MR expressed the view (at 198) that the insurer had a duty to each person it insured which was a duty unrelated to its duty to indemnify and concluded (at 203) that insurers must act in what they bona fide consider to be the common interest of themselves and their assured and may not allow their judgment to be influenced by the hope of some ulterior advantage. In Groom (supra) (at 223), Scott LJ reached the same conclusion that certain entitlements under the policy could not be exercised arbitrarily. The insurer was bound to exercise a real discretion after due consideration of the circumstances including the effect on the insured. 246. As to the balance of the Court in Distillers Company BioChemicals (Australia) Pty Ltd (supra), Menzies J considered (at 10) that whether in the circumstances the refusal of the insurer to give its consent in writing to the insured lacked bona fides or was unreasonable were important questions of law which depended on findings of fact which had not been made and which required full consideration after argument. For those reasons Menzies J declined to decide the issue. However, it is apparent that his Honour considered that the exercise of the right by the insurer should be

reasonable and made in good faith. Gibbs J (at 14) reached a different interpretation of the relevant clause, finding that the prohibition on the insured only applied where the insurer elected to take over and conduct the defence of the claims. However, in reaching that decision, Gibbs J referred (at 12) to the principle that “the insurer could not refuse his consent arbitrarily and in complete disregard of the interests of the insured”. To that extent only, Gibbs J was in agreement with Stephen J. 247. A consideration of Groom (supra) indicates that the Court in that case, as in Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra), was considering the constraints, if any, on the insurer in exercising a right conferred under the policy. In Groom (supra), the insurer’s conduct arose in the context of a legal action arising from an accident involving the respondent’s vehicle where the driver of the other vehicle was solely to blame and in which the respondent’s brother had been injured. The respondent was insured against third party risks with F Society, the insurer. It was condition of the policy that F Society, if it so desired, was entitled to have absolute conduct and control of any proceedings brought against the insured. The owner of the other vehicle was insured by M company. That company and the F Society agreed that their total liability in the brother’s action and another entirely unrelated action should be borne in equal shares. As part of that the agreement, the appellants, F Society’s solicitors, on the instructions of F Society and unknown to the respondent, entered a defence in which the respondent admitted negligence. Both F Society and the appellants knew that the respondent has not been guilty of negligence. 248. The Court held that F Society were not entitled under the policy to require the respondent to admit negligence and that the appellants in admitting negligence by the respondent acted in breach of their contractual duty to him as his solicitors. The appellants argued that making an admission, without the consent of the respondent for whom they acted, of allegations they did not believe to be true and which would damage the client’s reputation, in order to enable F Society to obtain for themselves a pecuniary advantage, was not a breach of duty because of the policy provision referred to above. The Court took

an entirely and unanimously different view. 249. Sir Wilfrid Green MR described the key issue as whether the admission of negligence was one which in the circumstances the insurers were entitled under the policy to require the assured to make. He was firmly of the view that it did not. Sir Wilfrid Green MR described the effect of the relevant provision in these terms (at 203): “The effect of the provisions in question is, I think, to give to the insurers the right to decide upon the proper tactics to pursue in the conduct of the action, provided that they do so in what they bona fide consider to be the common interest of themselves and their assured.” Acting out of a desire to obtain for themselves some advantage outside the litigation in question and with which the assured had no concern, was not considered to meet this obligation: (at 203). 250. Scott LJ similarly considered that the validity of the defence raised by the appellants that they acted on the instructions of F Society depended on “the true measure of the society’s rights under the policy to give instructions”: (at 222). Scott LJ held that the scope of the right under the relevant condition was subject to certain implied boundaries and limitations and was not one that the Society was entitled to exercise arbitrarily. He said (at 223): “They were bound to exercise a real discretion upon each question after due consideration of the circumstances of the particular case; not, of course, consulting the wishes of the assured as if he were an uninsured person, but taking their decisions with their minds on the facts of the particular allegations made against him, whilst not forgetting their own rights arising from the bargain expressed in the policy — namely, that in return for his indemnity their assured allowed them freedom to deal with the pecuniary risk to which they were exposed as economically for themselves as they could without bringing into the account extraneous considerations wholly foreign to the subject matter of the insurance between him and them.” 251. Scott LJ had no difficulty in concluding that the respondent would

have legal ground for complaint on the established facts: he considered those facts did not leave room for doubt that F Society’s conduct was wholly outside the field of discretion entrusted to it under the relevant policy provision: (at 223 – 224). 252. McKinnon LJ stated that he agreed with the balance of the Court: (at 226). However, his own conclusions were at all times expressed in the context of the solicitor-client relationship rather than the obligations of the insurer with respect to the insured. He considered that the condition in the policy conferring on F Society absolute conduct and control of all or any proceedings against the assured was subject to an implied term that the solicitor who is selected by the society must act reasonably in the interests both of the assured and the society: (at 226). McKinnon LJ described in the following terms the obligation on the solicitor in the context of acting as solicitor for the assured but being appointed by the society to protect its interests (at 227 – 228): “If in regard to any question of tactics in conducting the litigation the solicitor has reason to discern a conflict, or possible conflict, of interest between the society and the assured, it is the duty of the solicitor to inform the assured of the matter. If the assured then insists on a course that the society disapproves, it can refuse to conduct or control the proceedings any longer, and leave the assured to do so at his own risk …” 253. That portion of the judgment in Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra) on which Speno specifically relies is in the judgment of Stephen J (at 31) where he recognised an implied obligation on the insurer to act in good faith towards the insured and to have regard to more than the insurer’s own interests when exercising its rights and powers under the contract. 254. While in the Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra) case it is clear that the interests of the insured are to be given consideration by the insurer when exercising a right under the contract, expressed by Stephen J as a “duty of good faith and fair dealing”, the facts of that case are not on all fours with this action, in particular, as I have found that Speno was not a party to the insurance

contract. 255. Zurich describes Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra) as “replete with references” by Stephen J to discretions and powers under the policy. It is said that Stephen J does not turn his attention to rights of property that inure to the insurer as a result of discharge of performance. Further, counsel for Zurich disputes that Groom (supra) is a good faith case and refers to the decision of Chesterman J in Re Zurich Australian Insurance Ltd (1999) 10 ANZ Ins Cas ¶61-429 to support the conclusion that Groom (supra) in fact dealt with contractual obligations case. I accept that was certainly the approach taken in McKinnon J. Chesterman J (at [61]) deals with the decision in Groom (supra) and makes the following point (at [65]): “The court held that the solicitor was liable for breach of duty in contract only and that the solicitor had broken his contract of retainer to act with reasonable care. What is important for present purposes is that the policy on which the solicitor relied to justify his admission of negligence was construed not to entitle the insurer, and therefore the solicitor, to act in disregard of Mr Groom’s interest.” 256. On behalf of Speno it is submitted that the obligation to have due regard to the interests of the insured will ordinarily operate where the insurer is dealing with third parties; for example, by way of compromising or defending claims or bringing suits against them. It is in those situations, it is said, that the interests of the insured and the insurer are likely to conflict in such a away that an insurer, acting solely out of self-interest, may harm the interests of its insured. Support for that proposition is said to be found in Re Zurich Australian Insurance Ltd (supra) a decision of a single Judge of the Supreme Court of Queensland, Chesterman J, (at [82] – [86]). 257. In Re Zurich Australian Insurance Ltd (supra), the plaintiff sued a hospital for alleged negligence causing personal injury while she was an in patient. The hospital had public liability insurance with GRE Insurance Ltd (“GRE”) which was later replaced as insurer by Zurich Australia Insurance Ltd (“Zurich”) and succeeded to all its right and

obligations contained in the policy. Condition 3 of the policy basically provided that Zurich would pay the hospital all sums which the hospital was required to pay to compensate for bodily injury occurring during the period of insurance to a limit of $200,000. Upon paying the limit of indemnity Zurich was under no further liability in connection with the claim except for costs, charges and expenses recoverable from the hospital or incurred by Zurich, or the hospital with Zurich’s written consent, prior to the date of such payment. 258. In accordance with the policy, Zurich conducted the hospital’s defence of the proceedings but when it became apparent that the hospital would be liable for substantial legal costs as well as damages in excess of $200,000 if the claim were successful, Zurich purported to exercise its rights under Condition 3 and walk away from the liability by giving the hospital a cheque for $250,000; $200,000 being the amount of the maximum liability and $50,000 being Zurich’s estimate of the plaintiff’s costs against the hospital up to the date the cheque was tendered. The hospital refused the cheque on the basis that it did not accept that Zurich could walk away from the defence of the proceedings or leave the hospital unprotected against any costs order. 259. The hospital also argued that it was a breach of the insurer’s duty to act with the utmost good faith to its insured for Zurich to rely on Condition 3 so as to decline indemnity for the hospital’s costs of defending the claim or any costs that the hospital might be ordered to pay the plaintiff. As the policy was entered into in 1972, it was prior to the enactment of the IC Act in 1984. 260. Chesterman J held that Zurich was never under an obligation to pay for the hospital’s defence. It was a matter of Zurich’s discretion as to whether it did so. Condition 3 allowed Zurich to bring the defence to an end, once started. However, Zurich was obliged to indemnify the hospital against any costs awarded to the plaintiff: (at [122]). 261. In addressing the issue of whether Zurich acted in breach of the duty of good faith to the insured, Chesterman J first considered the content and scope of the duty, observing that its nature outside the IC Act was obscure: (at [35] – [36]). Reference was first made to the ALRC Report (at [328]) which describes the duty of utmost good faith

as a common law requirement that insurer and insured act in the utmost good faith towards each other; in my view, a singularly unhelpful definition. The ALRC does recognise, as I have noted above and as does Chesterman J (at [37]), that the principle is usually recognised in connection with the duty of disclosure. The decision of Stephen J in Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra) is relied upon as authority for the view that, in principle, the duty should apply equally to other aspects of the insurance relationship. The ALRC does acknowledge that there was no reported decision (at that time) applying the duty to the payment of claims. 262. Chesterman J noted (at [37]) that, in the context of disclosure, the duty is to disclose material facts. The duty is not to act in good faith. It is because the relationship between the insurer and the insured is one “of the utmost good faith” that the duty to disclose arises but the duty is described in more specific terms than to act in good faith. Chesterman J acknowledged (at [38]) that a similar phenomenon could be seen in relation to other incidents of the contract of insurance, giving the example of the requirement of good faith from both insurer and insured as providing the rationale for construing policies of insurance in favour of the insured where ambiguity arises. Other examples are given from which Chesterman J concluded (at [40]) that, in each instance, the relationship, that of good faith, was not itself expressed in terms of an obligation but is the basis for implying a more specific duty. 263. Close scrutiny was given by Chesterman J to the obiter remarks of Stephan J in Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra), expressing the view (at [46]) that Stephen J was the only member of the Court to consider the question of good faith. Chesterman J’s analysis of the authorities and materials which Stephen J referred to and considered, in particular those from the United States, led him to the view (at [59]) that: “… the American experience is an uncertain, and for that reason, unhelpful guide to the content or ambit of the duty of good faith in contracts of insurance”. 264. A consideration of Groom (supra) (at [61] – [68]) drew the

comment that: “… the matter was dealt with not on the basis of some supervening or overriding duty of good faith but by implying limitations on the manner in which the power given to the insurer by the relevant condition in the policy could be exercised”. It is apparent from the above analysis of the judgments in Groom (supra) that that is so. 265. Chesterman J (at [69]) referred to an extract from “Insurance Law in Australia” 2nd ed, by Professor Sutton in which the author attempts to define the term “good faith” and to the two decisions of this court, Kelly v New Zealand Insurance Company Ltd (1993) 7 ANZ Ins Cas ¶61-197 and on appeal (Kelly (1996) (supra)) in which the Full Court quoted the relevant passage of Professor Sutton’s work in finding that there had been no breach by an insurer of the duty to act in good faith in that there had been no dishonest, capricious or unreasonable conduct by the respondent. His Honour then observed (at [72]): “I have difficulty comprehending what useful role the obligation can play in relation to powers or discretions conferred on one of the parties to a contract if the essence of the obligation is to act honestly. A dishonest exercise of a power is no exercise of the power at all. Dishonesty encompasses use of the power for a collateral or ulterior purpose or motive. The law of contract does not require a separate doctrine of good faith to provide a remedy in such a case.” 266. The overall conclusions drawn by Chesterman J after the various analyses to which I have referred are contained in the following, somewhat lengthy, extract from his reasons (at [82] – [86]): “I have concluded, as a result of my review of the cases and articles, that there is not, as the hospital submits, a separately existing independent general duty to act in good faith which would circumscribe Zurich’s exercise of the choice given it by Condition 3. Consistent with what I understand to be the principles of the law of insurance and the nature of the relationship between an insurer and an insured, that it requires good faith from each to the

other, there is an implied limitation in any term of a policy which confers rights or powers on the insurer that they be exercised with due regard for the interests of the insured where those interests conflict with the insurer’s.

This approach is supported by Groom and, I think, by Stephen J in Distillers. His Honour expressly approved Groom and, though referring to a ‘duty of good faith and fair dealing’, his Honour also referred to ‘the implied obligation imposed upon the insurer to have regard to more than its own interests when exercising its right and powers under the contract …’. The approach is also consistent with the obligations to disclose material facts, minimise loss and produce clear policy wordings. In each instance it is the nature of the relationship which impels the imposition of the duty. The central problem remains. What is ‘due regard’ for the interests of the insured? … One can say with confidence that due regard will depend upon the nature of the right being exercised and the circumstances in which it comes to be exercised but that is not to say very much. To my mind an important factor is that the parties have agreed by formal written contract to confer on one of them, the insurer, a discretion, the exercise of which will or may occur in circumstances where their interests are opposed. In other words … the contract indicates a mutual intention that the insured be placed, to a certain extent, in the insurer’s hands in relation to the exercise of the power. Importantly the implied limitation that an insurer will exercise rights with due regard for the interests of the insured has little application with respect to a condition which operates only as between the insurer and the insured. Condition 3 expressly confers upon the insurer the right to act in a way which can only be inimical to the insured’s interests. An implied term can scarcely overcome this express agreement by the insured that the insurer may act to its detriment. The situation is different, as the cases illustrate, where an insurer is empowered by the policy to deal with third parties either by way of compromising or defending claims or bringing suits against them. The interests of insurer and insured, which may be different, are affected by the outcome of the action or defence. One can readily see how the insurer should be mindful of its insured’s position when defending, suing or compromising. But

the capacity of the insurer to injure the interests of the insured pursuant to a term that only operates between insurer and insured and which expressly authorises the conduct is of a wholly different category.” Ultimately, Chesterman J concluded that the duty had no application to the exercise of the powers contained in Condition 3 and hence, in exercising the right given by Condition 3, Zurich was not acting without due regard for the insured’s interests: (at [88]). 267. However, Chesterman J considered (at [73]) that s 13 of the IC Act brought a change to the law. A different view was reached by the Full Court of the Supreme Court of WA in Kelly (1996) (supra) to which Chesterman J referred in his reasons, as I have noted above. In Kelly (1996) (supra), the issue arose in the context of a claim under a home and contents policy where the respondent, the insurer, refused to indemnify the appellant, the insured, for the loss of various antiques through theft. It was not in issue that the appellant was insured with the respondent. The respondent’s position was that the appellant was limited in its entitlement to a fixed amount by reason of the terms and conditions of Item 5 of that part of the policy that dealt with contents. Under Item 5 recovery was limited to a maximum of $5,000 for claims arising out of any one event. However, if the insured wished to extend the cover (at no extra cost) he needed to provide the insurer with a list specifying each item valued over $1,000. The appellant had not provided such a list; however, the respondent had accepted the premium for an increased level of insurance than for the previous year. 268. Owen J, who wrote the leading judgment, and with whom Kennedy and Steytler JJ agreed, referred to the duty to act in utmost good faith in these terms (at 76,512): “The duty of parties to an insurance contract to act towards one another with utmost good faith has long been a fundamental principle of Insurance Law. It is also recognised in s 13 of the Act: see Sutton: ‘Insurance Law in Australia’ (2nd ed). In this case it was not in dispute that the parties were bound by a duty to act in good faith. The issue was whether, in the circumstances, the

respondent had discharged that duty by accepting a higher premium for an increased level of cover without at the same time notifying the appellant of the ramifications of item 5.” 269. Owen J’s reference in this extract from his judgment to the way in which good faith relates to the contract of insurance is substantially in accordance with the views expressed by Chesterman J in Re Zurich Australian Insurance Ltd (supra). 270. Owen J further observed (at 76,518-9) that, at common law, contracts of insurance are described as contracts uberrimae fidei or contracts of good faith, the precise definition of which was said to depend on the legal context in which it is used but include notions of fairness, reasonableness, honesty, community standards of decency and fair dealing. The references cited in support of that interpretation, Sutton, “Insurance Law in Australia” 2nd ed and the New Zealand decision of Vermulen v SIMU Mutual Insurance Association (1987) 4 ANZ Ins Cas ¶60-812 were considered by Chesterman J in Re Zurich Australian Insurance Ltd (supra) (at [69] – [71]) and led him to make the following observation (at [71]): “I do not find these formulations of any assistance in determining with any degree of clarity or specificity what is the nature and extent of the duty to act in good faith imposed upon an insurer (and an insured) after the contract has been made. A multiplicity of synonyms and rhetorical appeals to ‘honesty’, ‘fairness’, ‘decency’ or lack of caprice merely cause confusion.” 271. Further, contrary to Chesterman J’s view (at [73]) that s 13 of the IC Act brought a change to the law, Owen J observed (at 76,519) that by s 13 of the IC Act the common law duty of good faith was now an implied term in every contract of insurance. However, after setting out the terms of s 13 and the effect of s 12, and with reference to the issue under consideration, Owen J stated (at 76,519) that the duty of good faith does not require that the parties make further disclosure after the contract has been entered into. As I have already noted, the authorities do support the view that a duty of disclosure arises where the relationship between the insurer and the insured is one of the utmost good faith. Insofar as the statement made by Owen J is

confined within that context, there is no conflict between the views of Chesterman J and the WA Full Court. I believe it is also of significance that the existence of the duty in the general terms identified was not in dispute between the parties (at 76,512). 272. Ultimately, Owen J concluded (at 76,520) that there was no dishonest, capricious or unreasonable conduct by the respondent but added that it was not necessary for a party to point to conduct of any particular degree of seriousness in order to establish a breach of the duty. However, in the case under consideration Owen J was of the view that there was nothing that could be sheeted home to the respondent that could be said to offend “the essential element of honesty” that he considered to be at the heart of the good faith principle. The appeal was dismissed. 273. It is clear that Owen J considered that the element of honesty was the gravamen of the duty. As I have noted above, this was the very element that caused Chesterman J to observe (at [72]) that “[t]he law of contract does not require a separate doctrine of good faith to provide a remedy” in the case of a dishonest exercise of a power. I believe that there is a tenable argument that the existence of an overriding duty of good faith in relation to contracts of insurance has become a useful way of addressing and remedying any conduct that has an adverse impact on the insured. 274. The Court of Appeal of this State again considered the issue of the duty of good faith in the context of insurance contracts and also in the particular context of the conduct of an action in Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd (2005) 30 WAR 290. The appeal was from a discretionary interlocutory decision of the trial Judge to allow an amendment to an insurer’s defence in a third party action. The facts are somewhat complex but can best be summarised as follows. 275. F sued W and others for personal injuries arising out of a collision between two vessels during sea trials. W claimed indemnity under an insurance policy with L. L denied liability for the claim on the basis of an exclusion clause in respect of claims by employees or other person in, on or about the insured vessel. L settled a claim by W under the

same insurance policy for damage to the vessels involved in the collision. After F commenced proceedings against W, W commenced third party proceedings against L seeking indemnity under the insurance policy. After the matter had been listed for hearing but before the trial commenced, F sought to amend the statement of claim to allege a breach of statutory duty against W for having the vessels fitted with certain radio equipment required by law. W consented to the amendment. L applied to amend its defence to allege that W’s policy did not respond to the claim as W had not satisfied a warranty in the policy that it would comply with all statutory obligations. L was granted leave to amend by the trial Judge. While the hearing of the third party proceedings were pending, W sought and obtained leave to appeal against the decision allowing the amendment. W argued that L was not entitled to rely upon the breach of warranty defence for a number of reasons not relevant to this action but one of which was by reason of L’s duty of utmost good faith. 276. The duty of utmost good faith on which the appellant relied was the statutory duty in s 23 of the Marine Insurance Act 1909 (Cth) (“the MI Act”). Although the consequences of a breach of the duty are different as between the MI Act and the IC Act, the statement of the duty is the same. However, the consequence of a breach under the MI Act is that the contract may be avoided. Such an extreme consequence may well colour the interpretation and application of the duty. 277. Steytler P, who wrote the leading judgment, first noted that the duty was mutual, before questioning whether the duty extended into the litigation of the claim: (at [66]). Steytler P noted that it had been held that, as regards both the common law duty and the statutory duty, that the duty extends at least up to and including the making of the claim. After noting that there is a view that the courts have shown no anxiety to apply the doctrine beyond the stage where a claim is made, Steytler P observed (at [66]) that the suggested limitation may be doubtful in liability insurance where the need for good faith may continue in dealings with the insured’s claim for indemnity. A number of the cases referred to in this part of the judgment would support that view. If one accepts that a duty of the type alleged exists, then, in my

view, there are strong arguments in favour of its continuation while determining the claim. However, once there is litigation between the insurer and the insured, the way in which the duty is applied may need to alter. 278. In describing the nature and content of the duty, Steytler P relied on the decision in Kelly (1996) (supra) and on the authorities cited in that case, including the decision in Vermulen (supra) (at 74,983) to the effect that the duty has as an essential (but not necessarily sufficient) element the notion of honesty. The decision of Stephen J in Distillers Company Bio-Chemicals (Australia) Pty Ltd (supra) was also cited. Curiously, the decision of Chesterman J in Re Zurich Australian Insurance Ltd (supra) was cited in support of the existence and nature of the duty despite the fact that Chesterman J made it clear in his analysis that he doubted the interpretation subsequently given to Stephen J’s judgment as supporting the view that there is in relation to contracts of insurance a separately existing independent general duty to act in good faith: (at [83]). Further, it was the reference in Vermulen (supra) to the essential obligation of honesty with which Chesterman J had the greatest difficulty: (at [70], [72]). 279. Steytler P also referred (at [66]) to Derrington and Ashton, “The Law of Liability Insurance” 2nd ed, 2005 and the authors’ view that good faith has generally come to mean fair dealing in which the one party puts the interest of the other at least at the same level of protection as his or her own. As with Sutton and others, Derrington and Ashton appear to have accepted the existence of the duty and its nature without conducting the critical analysis undertaken in Re Zurich Australian Insurance Ltd (supra) which might call into question, at least the way in which the duty is expressed. It would seem that it is this uncritical acceptance of expressions used in judgments, where the concept of a duty of good faith is considered in differing contexts, which has led to the adoption of a duty of good faith in the IC Act as an overarching obligation in all aspects of the dealings between an insurer and its insured. 280. Difficulties necessarily arise where the insurer is attempting to enforce a right in a contract voluntarily entered into by the insured, where to do so will have an adverse impact on the insured. Steytler P

in Wiltrading (WA) Pty Ltd (supra) noted that nothing in the duty can prevent an insurer from acting reasonably in its own interests or to its own advantage in a respect or respects contemplated by the policy itself: (at [67]). Problems often also arise in relation to litigation following a claim for indemnity. As the context of the duty in Wiltrading (WA) Pty Ltd (supra) was a contract of marine insurance, Steytler P, considered (at [69] – [74]) a number of English authorities in that area which also involved a statutory duty of good faith. 281. One such case was Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (The “Star Sea”) [2003] 1 AC 469. In The “Star Sea”, the defendants argued for a requirement of fair dealing and disclosure by the insured to the insurer even after litigation between them had commenced. Lord Clyde (at 481) found the “idea of a requirement for full disclosure superseding the procedural controls for discovery in litigation” to be “curious and unattractive, and one which would require to be soundly based in authority or principle”. His Lordship decided that a “flexible construction” of the concept of utmost good faith should be adopted as the “substance of the obligation which is entailed can vary according to the context in which the matter comes to be judged”: Wiltrading (WA) Pty Ltd (supra) (at [70]). 282. Lord Hobhouse (at 494) also considered that the content of the obligation to observe good faith varies and has a different application in different situations. He went on to consider (at [503] – [505]) whether the obligation of good faith and disclosure continues to apply unqualified once the parties are engaged in hostile litigation before the courts and concluded that once the parties are in litigation it is the procedural rules which govern the extent of the disclosure which should be given in the litigation, not s 17 as such, though s 17 may influence the Court in the exercise of its discretion: Wiltrading (WA) Pty Ltd (supra) (at [71]). Lord Scott also concluded (at 511) that the content of the duty of utmost good faith was not the same after the contract as before. His Lordship also expressed the view that the duty owed by an insured in relation to a claim was limited to a duty of honesty: (at 515); Wiltrading (WA) Pty Ltd (supra) (at [72]). 283. The dicta of the House of Lords in The “Star Sea” was endorsed by the Court of Appeal in Agapitos v Agnew [2003] QB 556 where

Mance LJ said (at 578) that the policy considerations which led Lord Hobhouse to restrict the statutory duty to the pre-litigation period militated strongly in favour of a similar restriction of the duration of the common law duty. 284. In Wiltrading (WA) Pty Ltd (supra), Steytler P concluded (at [77]) that the issue of whether the insurer was precluded by his duty to act in good faith from amending its defence did not require determination in the course of urgent interlocutory proceedings. Prior to reaching that conclusion, he expressed the view (at [75]) that there was a very powerful argument that the duty of good faith is superseded or exhausted by the rules of litigation once litigation has commenced. Steytler P also observed that the content of the obligation might vary, or have a different application in different situations and might be thought to depend on the individual circumstances of the case, including the issues of knowledge and conduct and also upon the proper application of the rules of litigation. 285. In this case Speno, is entitled to seek to rely on the terms of s 13 and any principle requiring the insurer to act in good faith in relevant circumstances that can be gleaned from the authorities to which I have referred. I have already adverted to Speno’s claim that s 13 implied into a contract of insurance an obligation on each party to act in good faith, specifically, “in relation to” the contract. In my opinion, the term “in relation to” must be confined in a practical way. Unfortunately, the expression can be as wide or as narrow as the circumstances require. However, I believe that when it comes to placing an obligation on a party to act in good faith, where potentially the interests of one party may be placed above those of the other party, there is a strong argument in favour of a narrow interpretation. It is not possible or necessary to describe the circumstances in which conduct may be said to be “in relation to” a contract of insurance. However, I am not persuaded that the right to seek contribution, the obligation to indemnify being fulfilled, is “in relation to” the contract. In any event, as I have concluded that Speno was not a party to the contract, the provisions of s 13 do not apply. 286. Notwithstanding that the concept of utmost good faith has come to be applied almost as a matter of course in all types of insurance

contracts, I believe Chesterman J’s analysis in Re Zurich Australian Insurance Ltd (supra) shows that the nature and scope of the duty has in many cases been misconstrued. Further, the practice of repeating short statements of the duty and its content from texts or from other judgments, has contributed to that result. Indeed, these short statements of the duty have been utilised with such frequency in determining the rights of the parties to insurance contracts that the existence of the duty and its application to all aspects of the insurance contract has become so well established that its existence as an implied condition of contracts of insurance has been enshrined in legislation. 287. The content of the duty has been variously described. It is said to include honesty, fairness, decency and lack of caprice. It has also been said to require fair dealing. The duty has also be held to contain an “essential element of honesty”. Lord Scott in Manifest Shipping Co Ltd (supra) considered the duty to be limited to a duty of honesty. However, Steytler P in Wiltrading (WA) Pty Ltd (supra) considered honesty to be an essential element but not necessarily sufficient. Lord Clyde in Manifest Shipping Co Ltd (supra) considered that a flexible construction of the concept of utmost good faith was required. 288. It is also apparent from a number of the authorities to which I have referred that the content of the duty may vary according to the stage of the claim, in particular with respect to rights in relation to the conduct of any proceeding relating to the claim: see CE Heath Casualty & General Insurance Ltd (supra) (at 90). Steytler P in Wiltrading (WA) Pty Ltd (supra) considered that the duty of good faith was superseded or exhausted by the rules of litigation once litigation commenced. Taking that statement to its logical conclusion might well lead to a conclusion that a subsequent right of contribution was similarly outside the application of such a duty. 289. On any consideration of the authorities it would seem that honesty has become the defining aspect of the duty although perhaps not the only aspect. To my mind a duty to act honestly and fairly is as much as a duty of this nature should require, although I question whether this adds anything of substance to general contractual principles.

290. Zurich relied on the decision in Re Zurich Australian Insurance Ltd (supra) and the general treatment of the concept of good faith which I have outlined in detail above. In particular, Zurich adopts the views of Scott LJ in Groom (supra) (at 223), which are outlined above and referred to in Re Zurich Australian Insurance Ltd (supra), and which Zurich submits recognise that when a discretion or a power is given to an insurer, it is one that has to be exercised with due regard to the rights of both of the parties to the insurance contract and cannot be exercised arbitrarily by the insurer in its own interests, paying no regard to the consequences to the insured. However, as Zurich emphasises, the insurer is not required to subordinate its rights entirely to that of the insured. 291. In addition, counsel for Zurich refers to Chesterman J’s approach to the question of the application of the duty where the relevant clause confers a power on the insurer to involve itself in the conduct of the defence. Chesterman J stated (at 74,842): “The hospital, when it made the contract, agreed that Zurich should have that power [on paying either all sums which the insured was required to pay in compensation or the maximum amount of indemnity Zurich was under no further liability under the policy in connection with the claim except for costs], which, whenever it was exercised, would leave the hospital having to pay for its own defence. The exercise of the discretion will always disadvantage the insured and benefit the insurer financially. The interests of the insurer and insured will always be opposed if the power is exercised. The condition gives the insurer the right to act in its own self-interest.” Chesterman J added (at [120]): “Where the estoppel is said to arise from an insurer’s conduct of litigation on behalf of an insured there will be material disadvantages if the insured loses a real chance of doing better fro the litigation than the result achieved by the insurer. A mere possibility that the insured might have done better is insufficient. See Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Insurances Cases ¶61-235 at p 75, 654 per

Handley JA.” 292. Zurich also relies on the views expressed by Chesterman J (at [88]) where his Honour rejected the view that the hospital was prejudiced by Zurich’s decision to discontinue funding its defence and noted that there was no suggestion that the hospital could not defend the action with as much skill and chance of success as Zurich might have done. In relation to the application of a duty of good faith, his Honour observed: “It will have to pay itself but this, as I say, is what the clause expressly contemplates. In exercising the right given by Condition 3, Zurich, in my opinion, is not acting without due regard for the insured’s interests. I do not believe the duty has any application to the exercise of powers such as those contained in condition 3.” 293. Counsel for Zurich interprets the decision in Re Zurich Australian Insurance Ltd (supra) as saying that it is necessary to look at the policy of insurance and look also at the underlying arrangements which give rise to the policy of insurance. In this case, it is said, Speno agreed to indemnify Hamersley. It did not ask or attempt to secure from Zurich a contractual obligation on Zurich’s part to indemnify it in respect of that liability. Therefore, having regard to the bargain between Speno and Hamersley on the one hand, and Speno and Zurich (and by principles of extension, Hamersley) on the other, the liability under the contractual indemnity is to Speno’s account. Zurich firmly rejects the proposition that it will be in breach of any duty of good faith if Speno suffers because Zurich exercises a right given to it by law arising out of, but relevantly unconnected with, Zurich’s insurance obligation. Zurich’s maintains that any adverse consequence which may affect Speno arises from the contract it made with Hamersley. 294. Zurich also maintains that Speno misconceives the nature of the duty of good faith as an amorphous duty owed to an insured which extends beyond the confines of the contract. Counsel for Zurich submits that the argument based on the duty of good faith fails to understand that the duty of good faith informs the contract between the insurer and the insured and places limitations on the conduct of

both parties in relation to that contract. 295. Speno maintains, in accordance with the views of Chesterman J in Re Zurich Australian Insurance Ltd (supra) that the obligation to have due regard to the interests of the insured will ordinarily operate where the insurer is dealing with third parties; for example, by way of comprising or defending claims or bringing suits against them. According to Speno, it is in those very situations that the interests of the insured and the insured, as Speno maintains it is, are likely to conflict in such a way that an insurer, acting solely out of self-interest, may harm the interests of the insured: Re Zurich Australian Insurance Ltd (supra) (at [82] – [86]). 296. Speno submits that Zurich’s pursuit of its interest in claiming contribution can only harm those of Speno. Consequently, the only way in which Zurich can act with utmost good faith towards Speno is by not pursuing its claim. Some notional deference to the duty is said not be enough. 297. Putting to one side for the moment other impediments to Speno’s claim of breach of duty, in my opinion it is this fact, this “ all or nothing” result, which raises doubts as to whether the duty extends to these circumstances. In essence, the duty as contended for by Speno requires Zurich to place Speno’s interests above its own. That would make the duty of good faith a very onerous duty indeed, particularly where the “price” of such a duty is an insurance premium. 298. I concede that there are statements in the authorities which support particular aspects of the competing submissions. However, I am unable to conclude that any duty of good faith could or should prevent Zurich from seeking contribution from an insurer with coordinate liability as is the case with MMI. As I have indicated, although I accept that Zurich had waived its right to subrogation with respect to Speno, it did so in the context of the contract of insurance between Zurich and Speno. Further, as Speno was not, in my view, a party to the policy between Zurich and Hamersley, despite the fact that Speno arranged for the insurance cover and paid for it, no duty to Speno arose in relation to a claim by Hamersley under the policy. Consequently, the relationship between Zurich and Speno was one of

insurer and third party, who happens also to be an insured of Zurich under a policy which covers the work in which Hamersley’s negligence arose. In those circumstances I do not accept that Zurich owed Speno any duty at all with respect to these proceedings. 299. Even if I am in error in relation to any of the underlying findings, I do not believe the duty of good faith would preclude an insurer from seeking contribution from another insurer, a separate and distinct legal and equitable right, simply because, as a result of a commercial contract to provide services, its insured undertook an obligation to indemnify a co-insured but chose not to insure against that obligation being called upon. Even in circumstances where in relation to that other contract, the insured has obtained a waiver of subrogation, it is the case that the effect of which the insured complains is the result of the exercise of subrogation by another insurer. 300. Further, on any interpretation of the authorities on the duty of good faith, it requires Zurich to act honestly and fairly which involves considering the interests of Speno but not subjugating its own interests to those of Speno. I am not persuaded that the duty of good faith requires Zurich to refrain from seeking contribution from another insurer in any of the circumstances of this matter. 301. For these reasons I believe that none of the defences raised have been made out and Zurich is entitled to contribution from MMI. 3. Amount of Contribution 302. Having found that Zurich is entitled to a contribution from MMI, it is necessary to determine the amount of MMI’s contribution. The method of contribution, however, is also the subject of dispute. The methods of determining contribution which have been used by the courts are the maximum potential liability method and the independent actual liability method. However, the Court is not bound to use either method as the approach to take in a particular case is a matter of discretion: see Government Insurance Office of New South Wales v Crowley [1975] 2 NSWLR 78 per Helsham J at (84 – 85) where it is clear that the method is discretionary although there is no precise statement to that effect.

303. As to the nature of the primary methods of calculation, in Drayton v Martin (1996) 67 FCR 1 (at 37 – 38) it was said that under the maximum potential liability method, the contribution of the insurer having the lesser liability is limited to the proportion that its maximum liability bears to the aggregate of maximum liabilities under both policies: (at 37). Under the independent actual liability method, the contributions are assessed according to the proportions that the independent liability of each insurer, if it were the only insurer, bears to the total of such independent liabilities: (at 38). 304. Zurich’s contention is that principles of natural justice and equity (in the sense of reason, justice and law) inform the right to contribution and, in order to do equity, to achieve a reasoned, just and lawful accommodation of the interests between Zurich and MMI, the Court should apply a principled approach to contribution that will visit upon MMI the larger proposition of the burden of the relevant judgments. 305. In support of the proposition that principles of natural justice equity are applied in determining the amount of contribution between co-insurers, Zurich refers to the decision of GRE Insurance Ltd v QBE Insurance Ltd [1985] VR 83. In that case, the owner of a building sold it under a terms contract requiring the purchaser to insure the building in the name of the vendor and purchaser. QBE Insurance Ltd (“QBE”) issued at the request of the purchaser, a cover note in the names of the vendor and purchaser subject to the terms of its fire policy. On the following day, unknown to the purchaser, the vendor took out a cover note with GRE Insurance Ltd (“GRE”) in the names of the vendor and purchaser, subject to its standard fire policy. Each policy required the insured to give notice to the insurer of any other insurance. A failure to give such notice would result in all benefit under the policy being forfeited. Each policy also contained a contribution clause which provided that if there be other insurance the insurer should not be liable to pay any more than its rateable proportion. In QBE’s policy this was Condition 10. The vendor did not notify GRE that the property was also insured by QBE. When a fire damaged the property, GRE claimed that its policy was forfeited. QBE paid the insured the amount of the loss. QBE then sued GRE for contribution but later amended its claim to add the vendor and the purchaser as plaintiffs and to add a

claim based on subrogation. The judge at first instance found for QBE on the claim for contribution. 306. On appeal, the issue of the failure to give notice was determined, by majority (Anderson J dissenting) on a basis not relevant to this action, with the result that the GRE cover was not forfeited. The remaining issues were the effect of the contribution clause in each policy, particularly in circumstances where QBE had paid the whole amount of the loss despite being obliged only to pay a rateable proportion, as well as the appropriate method of calculating the amount of contribution. 307. As a result of the finding that the GRE cover was not forfeited, Murray J started from the position that there was in existence a double insurance. His Honour construed Condition 10 as having the effect, as between insurer and insured, of limiting the insurer’s liability to a rateable proportion of the loss. Consequently, if the insured had sued either the appellant or the respondent under their respective cover notes, the insured could have obtained judgment only for the amount held to be the rateable proportion of the insurer payable under its cover note: (at 94). In circumstances where QBE had voluntarily paid the entire amount, Murray J considered that two questions arose: (at 95). First, when an insured has been paid the full amount of his loss, the question is whether there is any right left in him he can enforce, not against a party who causes the loss, but against another insurer despite the ordinary principle that in no circumstances is an insured entitled to more than one indemnity. In effect, the issue to be resolved was whether there was any right left in the insured which the respondent could enforce by way of subrogation. The court held that no right remained. The second question for resolution was whether an insurer who voluntarily pays more than it is liable to pay under its policy can recover contribution from a co-insurer. 308. As to the issue of the voluntary payment of the full amount and its impact on the claim for contribution, Murray J held (at 96) that the Court ought not to hold that the presence of the rateable proportion clause in the respondent’s policy prevents it from paying the claim in full and pursuing its equitable right of contribution. His Honour considered that in the present case such a conclusion would be

inequitable in the extreme. GRE did not succeed on its denial of liability and if it could now succeed on the basis that QBE was not entitled to contribution simply because it paid out the whole loss it would be profiting by its own wrong in wrongly denying primary liability: (at 96). 309. On the issue of the correct method to be adopted in calculating the rateable proportion which the appellant and the respondent should contribute, Murray J agreed with the reasons and the conclusion of McGarvie J: (at 97). McGarvie J decided (at 104) that the independent actual liability method of determining contribution was the appropriate one on the basis that it seemed only just that the amount which has been paid should be borne in proportion to the burden of liability which that payment lifted from the respective insurers. However, his Honour did note that, in some cases, there may be other considerations which lead a court to allocate the burden in some other way. However, it is McGarvie J’s reasoning on which Zurich relies in citing this case as authority. 310. His Honour expressed the view that in a technical sense QBE had waived reliance on Condition 10, which it was entitled to do because it was a condition solely for its benefit. However, although it waived the condition by choice, once it did, the payment it made was a payment under the contract of insurance: (at 102). In relation to the obligation to contribute, McGarvie J stated (at 103): “I regard the considerations of reason, justice and equity which underlie the right to contribution, as requiring GRE to contribute in respect of payments made by QBE beyond its rateable proportion. GRE had agreed to indemnify the insured to the extent of its rateable proportion. The insured could have chosen to sue GRE for that amount. QBE did nothing to impose any liability on GRE towards the insured. The payment by QBE above its rateable proportion freed GRE from liability to the insured for its rateable proportion. In making payment honestly and reasonably, in circumstances in which it would have been liable if GRE, as it claimed, was not liable, QBE has freed GRE of the liability which in fact it had.”

311. However, McGarvie J did note (at 103) that a right depending on justice and equity will not be awarded where it would bring about injustice. In particular circumstances it would be open to a court to deny or limit the right, if justice required that. 312. In relation to contribution, McGarvie J first decided (at 103) how the rateable proportions of the insurers were to be ascertained and what were their respective amounts. His Honour observed, quoting from Bell, “Contribution in Fire Insurance”, 1935 (at 175) that the expression “rateable proportion” means the amount that, in the absence of a rateable proportion clause, a court would require the insurer in question to bear, upon a working out of rights of contribution. However, McGarvie J considered (at 103) that it would be “wholly circular” to seek to work out the amount of the rateable proportion, starting from the amount of the rateable proportion. He noted (at 103): “The words ‘rateable proportion’ have come over the years to have in this context the meaning I give them. In deciding on contribution a court is entitled, on looking at the relevant considerations ‘to apportion the loss in a way that does justice amongst those liable to meet it: Government Insurance Office of New South Wales v Crowley …’.” 313. Zurich also referred the Court to the decision of Helsham J in Government Insurance Office of New South Wales v Crowley (supra). The relevant facts of the case were that by a public liability policy GIO indemnified the Sydney Turf Club (“STC”) against liability, inter alia, for bodily injury caused by negligence in the course of carrying out its business. The cover included costs and expenses incurred in connection with litigation. At the relevant time the cover stood at $2 million for any one accident. 314. Under an employers’ indemnity policy the Australian Jockey Club (“AJC”) obtained common law cover to a maximum of $40,000 for any one claim. The policy provided that, in the event that the Turf Club was liable to pay compensation at common law up to an amount of $40,000 then the Insurer shall indemnify the Turf Club against all sums for which it was liable.

315. The GIO defended an action by a stable hand against the STC for damages for negligence causing personal injury and paid the amount of judgment of $41,225 and taxed costs amounting to $2,543.36. The GIO sought a declaration that it was entitled to contribution from Crowley, representing the AJC, in the proportion of one half. The AJC cross-claimed on the basis that the contribution should be calculated according to the proportion which the cover of each insurer bore to the total aggregated cover. 316. Before determining the appropriate amount of contribution Helsham J made the following statement of principle (at 82 – 83): “The basis of contribution between indemnity insurers goes back a long way. Its origins are adverted to in Albion Insurance Co Ltd v Government Insurance Office (NSW) and in particular in the judgment of Kitto J in that case. But in essence the law is based upon the fundamental proposition that all persons liable to satisfy the same debt must contribute towards its payment in a way that is equitable when it has been discharged by one of them ‘on a principle of law that must exist in all countries that where several persons are debtors, all shall be equal’: per Lord Redesdale in Stirling v Forrester [(1821) 4 ER 712 at 719], ie, based on reason, justice and fairness. This seems to me to entitle a court when faced with a problem of contribution to take into consideration all matters which go towards ensuring that there is a just result. So, for example, in cases of contribution among sureties, the insolvency of one can be a circumstance entitling the court to adjust the contribution only among the remainder, at least where the matter is being dealt with in Equity.” 317. It is the case that in Albion Insurance Co Ltd (supra), in addition to referring to the origins of the requirement for contribution between indemnity insurers, Kitto J (at 351) considered the principle to be founded in doctrines of equity in the sense of reason, justice and law. However, Kitto J also considered the way in which the principle was to be applied. He said (at 352): “What attracts the right of contribution between insurers, then, is not any similarity between the relevant insurance contracts as

regards their general nature or purpose or the extent of the rights and obligations they create, but simply the fact that each contract is a contract of indemnity and covers the identical loss that the identical insured has sustained; for that is the situation in which ‘the insured is to receive but one satisfaction’ … and accordingly all the insurances are ‘regarded as truly one insurance’: Sickness and Accident Assurance Association Ltd v General Accident Assurance Corporation Ltd [(1892) 29 Sc Lr 836 at 837].” Kitto J further observed (at 349 – 350) that “a principle applicable at law no less than in equity is that persons who are under co-ordinate liabilities to make good the one loss … must share the burden pro rata”. Applying these principles, the insurers in Albion Insurance Co Ltd (supra) were obliged to each contribute half of the total amount of damages. 318. In Government Insurance Office of New South Wales v Crowley (supra), the defendant maintained that the apportionment of the loss should be fixed by reference to the aggregate cover with each insurer contributing pro rata according to his proportion of the aggregate. However, Helsham J made the following statement in answer to that proposition (at 84): “This may do justice and equity in a case where the amount of the cover bears some direct relationship to the amount of the loss, such as where each policy relates solely to the loss in question. But in many cases that will not be so, and the present case is one. Neither insurance policy in the present case related solely to the loss suffered; each indemnified against a wide range of events, with each amount of cover fixed no doubt by reference to what was being indemnified against, and both covering almost fortuitously as it were, and indeed contrary to the assertions of both insurers, the particular loss that occurred. In no way would the respective amounts of the insurance cover present any basis for adjusting in any fair manner what proportion each should bear of the loss.” 319. In relation to the statements to which the Court had been referred in cases such as Albion Insurance Co Ltd (supra) and Commercial &

General Insurance Co Ltd v Government Insurance Office (NSW) (1973) 129 CLR 374 (at 376), Helsham J said (at 84) that he did not believe that these statements were intended to indicate that aggregating the insurance and making a pro rata apportionment was the approach to be adopted in all cases. His Honour took the view that the statements were only intended to refer to the general principle that where there is double insurance each insurer will ordinarily have to bear some proportion of the loss. Helsham J considered that, in order to work justice and equity, there were only two methods to be considered: one of requiring an equal contribution and the other the one that had been applied in American Surety Co of New York v Wrightson (1910) 103 LT 663. Neither policy was specific in the sense that it related solely to the loss in question, however, one policy, unlimited so far as the total extent of the cover was concerned, placed a limit on the actual liability for the event which occurred. The other policy, although limited as to total amount, placed no limit up to that amount on the actual liability of the insurer. Ultimately, the apportionment was based upon the actual liability for the loss, that is, the limit on the actual liability for the event in one case, and the total amount of damages in the other: that is $40,000 as opposed to $43,768. Zurich submitted that the approach taken in Government Insurance Office of New South Wales v Crowley (supra) need not be applied in this case. Section 76 of the IC Act preserves in statutory form the common law principles relating to contribution between insurers but does not identify the appropriate method of determining contribution. Section 76 is in the following terms: “S76: Contribution between insurers (1) When 2 or more insurers are liable under separate contracts of general insurance to the same insured in respect of the same loss, the insured is, subject to subsection (2), entitled immediately to recover from any one or more of those insurers such amount as will, or such amounts as will in the aggregate, indemnify the insured fully in respect of the loss. (2) Nothing in subsection (1) entitles an insured:

(a) to recover from an insurer an amount that exceeds the sum insured under the contract between the insured and that insurer; or (b) to recover an amount that exceeds, or amounts that in the aggregate exceed, the amount of the loss. (3) Nothing in this section prejudices the rights of an insurer or insurers from whom the insured recovers an amount or amounts in accordance with this section to contribution from any other insurer liable in respect of the same loss.” 320. Zurich maintains that the Court is entitled to have regard to what was recommended by the ALRC with respect to the appropriate method of determining contribution, despite the fact that, as can be seen, it was not adopted by Parliament in enacting s 76 of the IC Act. 321. In the ALRC Report the issue of quantum was addressed and a hybrid approach suggested. The ALRC first referred (at 179) to the two main competing methods of apportionment: the first method involving determining the maximum potential liability (the policy limit of cover) of each insurer and the second involving determining the independent actual liability of each insurer in respect of the loss which has in fact occurred. The ALRC then stated (at 179 – 180): “Under an apportionment according to the total of the maximum potential liabilities of the two insurers, the same proportions are used to determine the respective contributions of the insurers throughout the range of possible claims. The result is that the liability of the insurers is scaled evenly, in the same proportion to the total amounts of cover, from the smallest possible loss to a loss which equals or exceeds the total of the sums insured. On the other hand, under an apportionment according to the total of the independent actual liabilities of the two insurers, their independent liability will be equal and each will bear one-half (and not a relatively small and a relatively high proportion respectively) of any loss up to a claim which equals the amount of the policy with the lower limit.”

322. The ALRC then referred to Government Insurance Office of New South Wales v Crowley (supra), to the various criticisms referred to by the Court, and then suggested a compromise on the two standards which, as I have noted, was not adopted by Parliament in enacting the IC Act. However, as counsel for Speno noted, the ALRC report appears to proceed on the assumption that it was, at the time of the report, considered no longer appropriate for liability policies to adopt the maximum potential liability method. In a number of the authorities referred to hereunder the Court expressed concern about applying the maximum potential liability method other than in relation to property insurance. The ALRC in its report explain why that approach was no longer considered appropriate and went on to comment that neither should it be applied in relation to property insurance which the ALRC considered to be the residual area where such an approach might still, on the authorities, be regarded as appropriate. 323. As I have noted, Zurich contends for the maximum potential liability approach on the basis of justice, equity and fairness. The considerations that are said to require the application of that approach are these: (1) Co-ordinate liabilities are shared pro-rata. That is, the rate at which the insurers held themselves as willing and ready to accept from the insured or in respect of the insured on one policy. In the case of Zurich, the amount is $2 million and in MMI’s case it is $200,000. The observations of Kitto J (at 349 – 350) in Albion Insurance Co Ltd (supra), which have been referred to above, and also those of the Court of Appeal in Sydney Turf Club (supra) (at 734) are relied on in support of that proposition. (2) Property and risk insurances are, relevantly, both policies of indemnity; therefore, the principles derived from one area (in this area of discourse) should inform the other. Again, the decision in Albion Insurance Co Ltd (supra) is cited as supporting this proposition. (3) However, I note that in Government Insurance Office of New South Wales v Crowley (supra) Helsham J noted (at 83) that the

practice of apportioning loss by way of contribution according to the proportion that each cover bears to the total aggregated cover follows the rule that is applied as the result of s 80(1) of the Marine Insurance Act 1906 (Imp), which was also adopted as the rule in fire insurance policies. Helsham J considered that the approach would work equitably in the case of most insurances of specific property but he did not regard it as being a rule of law to be applied necessarily in such a case or in any other case. (4) The two insurances are treated as one insurance for the purpose of adjusting rights. The authority for this proposition is Commercial & General Insurance Co Ltd v Government Insurance Office of New South Wales (supra) (at 379). However, the statement was made by the Court to explain why the insurer who satisfies the indemnity is entitled to contribution from the other insurer. (5) The legislature decided against a variant of the independent actual liability method after recommendations to adopt that approach in a carefully considered report. (6) As I have noted above, the ALRC considered the maximum potential liability approach to be inappropriate for both indemnity insurance and property insurance. In my view, the significance of the fact that the legislature determined not to adopt the ALRC’s approach must be considered in light of the fact that it elected not to legislate on the method by which respective contributions are assessed. On that basis, I do not accept that support can be found for the application of the maximum potential liability method on the basis of the legislature’s decision not to adopt a variant of the competing method. (7) Neither policy is specific to the risk that came home but is general in its cover: see Government Insurance Office of New South Wales v Crowley (supra). (8) Neither policy employs sub-limits relevant to particular classes of risk, an approach commonly seen in policies with high limits of

cover. This is said to be an important indication but no authority was cited to support it. (9) MMI’s policy is specific to Hamersley, and therefore capable of adjustment for premium in a more certain and effective way. (10) Zurich’s policy is non specific to Hamersley and incapable of premium adjustment, or calculation, by reference to Hamersley specific criteria. (11) Hamersley’s negligence gave rise to the loss and fairness dictates that the more specific policy should respond proportionately higher, if there is a principled basis for doing so. These last three items are addressed in more detail later in these reasons. 324. Zurich considers that item (5) above is a powerful point in its favour. Helsham J in Government Insurance Office of New South Wales v Crowley (supra) (at 83 – 84) considered that, in the context of the case before him, this factor militated against the method of taking the aggregate of the cover and then fixing the rateable contribution by reference to it. The independent actual liabilities approach was adopted. However, Zurich contends that Government Insurance Office of NSW v Crowley (supra) was a case in which the amount that was in issue was only marginally more than the policy that was lower in value and, on that basis, it can be seen why such an approach would have appeal. It is said by Zurich that when you have a situation, as in this case, where neither policy is specific to the loss but is general in its cover and where there is a substantial difference in the amount of cover, the pro rata approach is indicated. 325. Counsel for Zurich maintains that fairness dictates that, if an insurer receives a premium relevant to the acceptance of a very high cover, then when loss occurs, that should be taken into consideration in determining how much of the loss the insurer should absorb compared to an insurer that has contracted to provide insurance limited to a lesser amount. The following maxim was said to encapsulate the appropriate approach to contribution in such

circumstances: The greater the limit; the greater the premium. The greater the premium; the greater the benefit. The greater the benefit; the greater the burden. 326. Although the approach to contribution of balancing burden against benefit is conceded by Zurich not to be conclusive, it is said to be an indicator of the proper approach. Another indicator, and one which is said to be of greater relevance, is that neither policy includes sub-limits relevant to particular classes or risk, an approach commonly seen in policies with high limits of cover. 327. A further factor which Zurich submits should be considered in determining the method of calculation of contribution is that MMI’s policy is specific to Hamersley, a company the operations of which the insurer was able to, and no doubt did, have regard in determining whether it would accept the risk and in determining the terms of the policy and the premium. Therefore, it is said, MMI could have adjusted the premium in a more certain and effective way than Zurich was able to do because of the circumstances by which Hamersley became an insured under the Speno Policy. The Speno Policy is not specific to Hamersley and not open to premium adjustment by reference to criteria specific to Hamersley. The final factor on which Zurich relies is that it was Hamersley’s negligence which gave rise to the loss. 328. Although neither policy is specific to the risk that materialised, the Hamersley Policy is said to be the more specific of the two policies and MMI’s contribution should be proportionately higher if there exists a principled basis for such a result. That basis is said by Zurich to be the maximum liability. 329. Hamersley was the specific insured under the MMI policy and fairness dictates that the more specific policy should respond proportionately higher if there is a principal basis for doing so, and there is; it is the maximum potential liability approach. 330. Zurich submits that one or more of the factors outlined above may provide the basis for applying some variant of the two principal methods of calculation, providing that the approach is principled and not arbitrary and results in a just, fair and lawful outcome. Reference is made by counsel for Zurich to the fact that it is implicit in the

judgment of Helsham J (at 84 – 85) that his Honour recognises that there is a discretionary element in determining the method, and therefore the amount, of contribution. Counsel also relies on the following extract from Sutton, “Insurance Law in Australia” (supra) (at 1001): “Whatever method of calculation of contribution is advocated, it appears that, in practice, where an instance of double insurance emerges, often quite inadvertently, insurers will share the common liability on an equal basis, unless there is some very good reason why this course should not be adopted. An example of equality not being equity might be the case where one coinsurer has a low maximum figure of liability compared with those of the fellow insurers. The alternative approach is for insurers to enter into contribution agreements which set out precisely what method is to be adopted for calculating the rate of contribution in the case of double insurance.” 331. MMI accepts that the exercise of apportionment between insurers under co-ordinate liabilities should be based on reason, justice and fairness. MMI also accepts that, where dual insurance exists, the coordinate liabilities should be shared in a way which is equitable, usually pro rata: see Government Insurance Office of New South Wales v Crowley (supra) per Helsham J at (82 – 83) and Albion Insurance Co Ltd (supra) at (349 – 350). 332. However, counsel for MMI submits that the application of the maximum potential liability method of apportionment in this action would produce a gross distortion of reason, justice and fairness because Zurich would bear only $12,473.79 (or close to that amount) of the total liability which is described as “not much of a risk for its premium”. It is said that Zurich ought not be able to take advantage of the enormous limit of liability in the MMI policy, a limit from which counsel for Zurich suggests the conclusion may be drawn that it must have been determined by reference to risks other than liability for personal injury to employees within Australia. MMI submits that it is apparent that the Hamersley Policy extends to a vastly greater range of risks than does the Speno Policy. Therefore, it is said, the two policies cannot really be compared because they differ so markedly in

scope. As was the case in Government Insurance Office of New South Wales v Crowley (supra), neither policy in the present action relates solely to the loss suffered. MMI’s position is that, as the indemnified amount is within the limit of each policy, the sensible as well as fair and equitable approach is to share the loss and to share it equally. 333. With respect to Zurich’s argument that the premium for the Hamersley Policy was more readily capable of adjustment in the circumstances relevant to it, MMI responds by asserting that the argument works against Zurich rather than in its favour. It is said that, under the Hamersley Policy, Hamersley was only one of many insured so the risks which Hamersley might incur bore a relatively small influence on the setting of the premium. However, MMI points out that Hamersley was specifically named in the Speno Policy in the Endorsement. Therefore, Zurich knew when it entered into that policy that it was providing insurance for this very risk, not the risk to Nolan but the risk of liability arising in Hamersley to employees of Speno. Zurich knew that it was insuring Hamersley with respect to a confined and relatively limited area of risk. Consequently, it is Zurich rather than MMI that had the capacity to adjust the premium to take account of that specific risk. MMI submits that, if specificity is considered to be a significant, even dominant, factor, then the Speno Policy is more specific to the risk than the Hamersley Policy. 334. Similarly, Zurich’s proposition that, as it was Hamersley’s negligence which caused the loss and as the Hamersley Policy is more specific, it is fair that MMI should carry more of the burden, is said by MMI to in fact work against Zurich. This is because, as noted above, MMI suggests that the proposition more accurately states Zurich’s position under the Speno Policy. 335. With respect to Zurich’s proposition that the maximum potential liability method is appropriate in this case, counsel for MMI notes that the method has been rejected, in the case of liability insurance, both in Australia and in Great Britain and further notes that it is difficult to find a contemporary application of this approach: see Government Insurance Office of New South Wales v Crowley (supra), Drayton v Martin (supra) (at 37 – 38); Commercial Union Assurance Co Ltd v Hayden (1977) QB 804 (at 815 – 816) per Cairns LJ and (at 822) per

Lawton LJ. MMI further submits that, as I have noted above, the approach has also been criticised in the ALRC report (at [294]) on the basis of its apparent lack of legal or other principle. The ALRC expressed the view that it appears unlikely that the maximum potential liability method will be applied in relation to liability insurance. 336. In Drayton v Martin (supra), Sackville J referred to and adopted the principle of contribution stated in Albion Insurance Co Ltd (supra) and the rationale underlying the principle that all persons liable to satisfy the same debt must contribute to its payment equitably: (at 38). His Honour also noted that the Court should take into consideration all matters which go towards ensuring a just result. Sackville J further stated that the cases demonstrate that there is no rule of law that the maximum potential liability method must be applied. His Honour referred to the extract from the judgment of Helsham CJ in Government Insurance Office of New South Wales v Crowley (supra) (at 84) which relates to this issue and is set out above. Sackville J determined (at 38) as the appropriate course in the circumstances, one of which was that neither policy related solely to the loss sustained, that the “amount which has been paid should be borne in proportion to the burden of liability which that payment lifted from the respective insurers”: GRE Insurance Ltd (supra) (at 104). 337. In Commercial Union Assurance Co Ltd (supra), the Court of Appeal considered the appropriate method of apportionment in relation to two policies, both of which included a rateable proportion clause which operated in the event that at the time of any claim arising there was any other insurance covering the same risk. The defendant interpreted the rateable proportion clause on the basis of the proportion which the limit of potential liability provided by the policies bore to each other. The plaintiffs contended that an insurer’s “rateable proportion” should be calculated by reference to the independent liability of each insurer if he had been the only insurer and that on that basis the defendant’s rateable proportion would only be less than one half when the claim exceeded the defendant’s independent liability. 338. Allowing the appeal, the Court held (at 811) that neither construction put before the Court was preferable to the other. The rateable proportion clause was considered to be equally capable of

either construction and to be given the meaning more likely to be intended by reasonable businessmen: (at 815) per Cairns LJ; (at 819) per Stephenson LJ. However, an assumption by the insurers of an equal level of risk up to the lower of the two maximum liability limits was more realistic than an intention to use those limits, inserted to protect the insurer from exceptionally large claims, to adjust liability in respect of claims within the limits of both policies: (at 816) per Cairns LJ. 339. Reference was also made (at 811) to the trial Judge’s conclusion that there appears to be no settled basis for contribution under liability insurance, as opposed to property insurance. Cairns LJ stated (at 814) that he was not persuaded that the same basis should apply to liability insurance as to property insurance. His Honour observed that in property insurance the insurer insures the property for a stated sum, which is normally supposed to represent the value of the property, whereas in liability insurance there is no corresponding “value” to which the limit (if any) of the insurer’s liability is related. A similar view was expressed by Stephenson LJ (at 819) and by Lawton LJ (at 822). 340. Lawton LJ stated (at 822) that, where there are two insurers with differing upper limits for claims, the inference to be drawn is that they were both accepting the same level of risk up to the lower of the limits. In that case, Lawton LJ considered that “a rateable satisfaction” would be an equal division of liability up to the lower limit. The burden of meeting that part of the claim above the lower limit would then fall upon the insurer who had accepted the higher limit. 341. MMI’s submission is that, if contribution is ordered, for the reasons which I have just outlined, the apportionment should be by the independent actual liability method and should take account of the excess of $50,000 applicable to the Hamersley Policy. In the written submissions, MMI identified the amount to be paid under this method if contribution were to be ordered as $579,994.53. However, at the hearing of the appeal, counsel for MMI suggested that, if MMI are liable to contribute, it would prefer to have an opportunity to come back to the Court with some specific figures as an error in the calculation had already been identified.

342. It is apparent from the authorities that the apportionment of liability between insurers with co-ordinate liability is a matter of discretion. However, the discretion must be exercised reasonably and fairly so as to achieve a just and lawful accommodation of the competing interests of the two insurers. In achieving that aim the Court is entitled to take into account all matters which go towards ensuring that the result is equitable. Despite the fact that the authorities generally acknowledge two methods of determining contribution, the maximum potential liability method or the independent actual liability method, I accept that the Court is entitled to apply some variant of these two methods if there are particular circumstances which make it necessary to depart from the principal methods in order to achieve a just result. 343. With respect to the maximum potential liability method, I am satisfied from the material referred to above that this method has been rejected on any number of occasions, both in Australia and Great Britain, with respect to liability insurance, and is not an appropriate method for determining contribution in a case such as this. None of the matters raised by Zurich persuade me to a contrary view. Indeed, I found MMI’s rebuttal of many of them to be far more compelling. In particular, I believe that the factors referred to by MMI in relation to which of the two policies is more specific to Hamersley to outweigh those put forward by Zurich. Further, I accept MMI’s submission that the application of the maximum potential liability method of apportionment in this action would produce a gross distortion of reason, justice and fairness because Zurich would bear so little of the total liability. Finally, none of the matters raised persuade me that I should apply a variant of the independent actual liability method. 344. For these reasons, MMI’s contribution to Zurich is to be calculated on the basis of the independent actual liability method. In accordance with MMI’s request, which I understand was not opposed by Zurich, I propose to allow the parties time to agree upon the figure before I carry out the relevant calculation. 345. Therefore Zurich is entitled to contribution from MMI in relation to the judgment in the Nolan action in an amount to be agreed between the parties provided it is calculated on the basis of the independent

actual liability method. The MMI Action and the Nolan action 346. As the issue for resolution is the same in both actions, it is convenient to address them together. 347. In the event that Zurich is entitled to payment from MMI by way of contribution, MMI seeks in this action a declaration that it is entitled to exercise its rights of subrogation, in Hamersley’s name, against Speno so as to recover the whole of its liability to Zurich, including costs. MMI seeks a further declaration that it is entitled to execute, to the extent necessary, the Writ of fi.fa issued in the Nolan action against Speno. 348. The basis of Speno’s obligation to meet MMI’s liability to Zurich, as pleaded in the statement of claim, is Speno’s obligation under the Hamersley-Speno Contract to arrange its public liability insurance cover to include Hamersley’s interest as a principal and to indemnify Hamersley against all liability arising at common law in respect of personal injury arising out of the contract works to any person employed by Speno. 349. In the statement of claim, the public liability insurance required under the Hamersley-Speno Contract is described as a contract of insurance entered into by Zurich and Speno. In its defence, Speno qualifies that statement by pleading that Hamersley was an insured under the Speno Policy and that the Speno Policy was entered into in fulfilment of the obligation to arrange insurance cover for Hamersley. 350. MMI acknowledges, in the statement of claim, that Zurich has indemnified Hamersley under the Speno Policy for Hamersley’s liability to Nolan and Oatway and has paid the indemnified sums. Speno’s responsive plea is that in the Nolan action both Zurich and Speno were ordered to indemnify Hamersley, describing this as the Hamersley Judgment. Speno further pleads that Hamersley is not entitled to enforce the Hamersley Judgment against Speno, whether on its own account or by the exercise of a right of subrogation by MMI. This is because Nolan has been paid all amounts to which he is entitled under the judgment in his favour and because, under the Hamersley Judgment, Hamersley has been fully indemnified by Zurich

in respect of its liability to Nolan arising from the judgment in the Nolan action. Certain matters considered by Speno to be relevant to this issue are specifically pleaded in the defence and are summarised as follows: (i) Hamersley’s causes of action for an indemnity from Speno and Zurich have merged in the Hamersley Judgment; (ii) Hamersley’s right under the Hamersley Judgment has been satisfied and the obligation of Speno and Zurich to indemnify Hamersley has been discharged; (iii) Hamersley has no remaining liability to Nolan in respect of which it can seek to be indemnified; (iv) Hamersley, for these reasons, has no remaining right under the Hamersley Judgment which can be the subject of execution against Speno; (v) For these reasons, there is no right against Speno to which MMI may be subrogated and it would be an abuse of process to seek execution in the name of Hamersley against Speno. 351. Apart from the admissions made in the pleadings, the Court was also provided with a statement of agreed facts. Essentially, there are no factual disputes between the parties with respect to this issue and, therefore, I do not intend reproducing the agreed facts in these reasons other than in so far as I have already done in recounting matters of background. 352. At the heart of the conflict between the two parties is the issue of whether, in circumstances where Zurich has fully indemnified Hamersley, MMI can bring an action against Speno to recover the amount of its liability by way of contribution to Zurich. The resolution of that issue will also resolve the issue of MMI’s right to enforce the Nolan judgment by execution. As with the Zurich action, the basic principles which underlie the conflict between the parties are not in dispute. It is the application of them which requires resolution.

353. As is apparent from the summary of the pleadings in the MMI Action that, in defending MMI’s claim, Speno relies on the fact that, although in the Nolan action both Zurich and Speno were ordered to indemnify Hamersley, Zurich has paid the judgment sum awarded to Nolan and, therefore, Hamersley’s judgment for an indemnity has been satisfied. As MMI can only be subrogated to whatever rights Hamersley has against Speno, and as there is nothing remaining for which Hamersley is entitled to be indemnified, any attempt to issue a writ of execution against Speno would be an abuse of process. 354. The rights contended for by MMI are twofold. The first is the right to seek recovery by declaration or other means of the whole of MMI’s liability to Zurich, including costs. The second is the right to enforce that part of the judgment in the Nolan action that granted to Hamersley an indemnity from Speno by the issue of the Writ of fi.fa. 355. On Speno’s argument, for MMI to exercise those rights, it must be established that the rights exist in Hamersley notwithstanding that Hamersley has been fully indemnified by Zurich for all amounts owed by Hamersley under the judgment in the Nolan action. MMI’s position is that the right of subrogation entitles an insurer who has indemnified an insured to exercise and enforce every right of the insured by which the loss in respect of which the indemnity was granted may be reduced. The judgment of Brett LJ in Castellain v Preston (1883) 11 QBD 380, which is described as one of the seminal judgments in the area of the law of subrogation, is said to support that proposition. It is the application of the aspect of the doctrine which entitles an insurer to exercise the rights of the insured which is contentious. 356. It is apparent that a resolution of the dispute between the parties involves a consideration of the nature and scope of the doctrine of subrogation and also an understanding of the effect of the judgment in the Nolan action on the rights of Hamersley as against Zurich and Speno. 357. MMI submits that, by subrogation, it is entitled, not only to make a claim which the insured may make, but also to execute a judgment which the insured has obtained and which remains unsatisfied. 358. The facts upon which MMI bases its right to claim against Speno

are that, in the Nolan action, both Speno and Zurich were held liable to indemnify Hamersley in respect of the judgment sum. Zurich was held liable as an insurer to indemnify Hamersley pursuant to the Speno Policy. Speno was held liable to indemnify Hamersley under the Hamersley-Speno Contract. Zurich has indemnified Hamersley in respect of the judgment sum but Speno has not. Counsel for MMI correctly notes that Hamersley could have enforced the judgment against either or both Zurich and Speno. Further, the judgment does not contain a stay of enforcement of indemnity against one in the event of indemnification by the other. Neither does the judgment indicate that one indemnity should be enforced in preference to another, notwithstanding that Speno’s obligation was found to be a primary obligation, and the obligation of Zurich to be a secondary obligation: see Speno Rail Maintenance Australia Pty Ltd (supra) per Wheeler J (at 327). 359. The essence of the Full Court’s reasoning in Speno Rail Maintenance Australia Pty Ltd (supra) and that of the House of Lords in Caledonia North Sea Ltd v Norton (No 2) Ltd (in liq) [2002] 1 Lloyd’s Rep 553 is that the obligation of the contractual indemnifier is a primary liability and the obligation of the insurer is a secondary liability. Therefore, if the insurer pays claims made against the insured in circumstances where the insured is entitled to a contractual indemnity, then there is a primary obligation which remains undischarged. That is because the fulfilment of the secondary obligation is conditional on the failure of the primary obligation. The fact that liability to Hamersley comprises a primary and secondary obligation is the rationale behind MMI’s view that there is no co-ordinate liability and hence a right of subrogation exists. 360. MMI maintains that, in the absence of a stay of enforcement or a statement of priority of enforcement, the only basis upon which Speno could argue that the payment by Zurich discharged its liability under the judgment was if it were a joint judgment. As MMI rightly observes, the Nolan judgment cannot be a joint judgment because Zurich and Speno were not found to be jointly liable; there were separate causes of action which gave rise to their respective liabilities. The latter proposition I accept, the first proposition requires further

consideration. 361. MMI points out that, where Hamersley has been indemnified by Zurich, the existence of the right of subrogation precludes the possibility of Hamersley being unjustly enriched. This would appear to paraphrase the principle in Castellain (supra), considered more fully hereunder, where Brett LJ stated (at 388) that, in order to carry out the fundamental rule of insurance law, preventing an insured from being unjustly enriched, the doctrine of subrogation entitles the insurer to the advantage of every right of the insured. 362. The propositions on which Speno’s defence to the action rests are these: 1. An insurer may only be subrogated to those rights available to the insured. 2. If a cause of action is lost to the insured it is also lost to the insurer. 3. Hamersley’s causes of action for indemnity merged into the judgment and Hamersley’s rights are now found in the judgment rather than in the pre-existing causes of action or the basis upon which the judgment was pronounced. 4. Hamersley’s rights under the judgment have been satisfied. It has been indemnified and the judgment has therefore been discharged. Hamersley, it is said, has no existing rights against Speno and, in particular, no right to issue a writ of execution against Speno. Consequently, there is no right to which MMI can be subrogated because it takes its insured as it finds it. 363. Speno maintains that the point that is established in Castellain (supra) is that the purpose of subrogation is to ensure that the insured is fully indemnified but does not receive more than a full indemnity: that it is not unjustly enriched. There are two ways in which the law does that. The first is by allowing the indemnifier what might truly be called a right of subrogation to the existing rights that the indemnified party may have against third parties which can in any way diminish the

loss which was suffered by the indemnified party. The second way in which the law achieves that result is that if independently the indemnified party has pursued the claim itself and has recovered a benefit by that action, then it is obliged to account for that to the indemnifier. Speno’s point is that it is still incumbent on MMI to establish that Hamersley retains a right which MMI may exercise by subrogation. I accept that to be so. 364. Speno does not dispute that, on the appeal in the Nolan action, the Full Court considered the obligation of the contractual indemnifier, Speno, to be the primary obligation. Counsel for Speno took the Court to that part of the decision of the Full Court in Speno Rail Maintenance Australia Pty Ltd (supra), where Wheeler J (with whom Ipp J agreed) concluded (at 327 [167]) that it is generally appropriate to regard the insurance as a secondary obligation. Counsel also referred the Court to Caledonia North Sea Ltd (supra), in particular the judgment of Lord Mackay (at 565 – 567) where, having noted that the Supreme Court of Western Australia followed the decision of the Inner House in the case before him, Lord Mackay concluded that: “these cases show that general liabilities incurred in tort or delict, or in contract will be primary while the liability of the indemnity insurer of the injured party will be secondary.” 365. Counsel for Speno adds to the principle the qualification “as long as the judgment is not fulfilled”. As I understand it, Speno suggests that the distinction between primary and secondary liabilities dissolves when the insured is indemnified pursuant to either liability. Speno’s submission must be that the qualification is implicit because I could not find in the judgment any reference to such a qualification. Neither is there anything in the judgment to suggest that Lord Mackay was intending to so qualify his statement. Having considered the judgment of Lord Mackay, I have formed the view that if Speno is to rely on such a qualification, authority for it must be found elsewhere. 366. Speno submits that, as Zurich has fulfilled its obligation to indemnify Hamersley, Hamersley’s causes of action for an indemnity from Speno and Zurich have merged in the Hamersley Judgment. It is for that reason that the judgment is said to govern the rights between

the parties; because the cause of action has, in effect, “disappeared”. Consequently, on Speno’s argument, the distinction between primary and secondary obligations ceases to have significance. This is said to be because once the party that has the benefit of the judgment has been indemnified, that brings that party’s interest to an end and also brings to an end that party’s right to execute. As the cause of action is lost to the insured then it is also lost to the insurer who is entitled to do no more than enforce the right of the insured. Any right of subrogation must be a right to be subrogated to Hamersley’s rights under the judgment, not its rights under the contract made between Hamersley and Speno. It is said that the effect is that there is now, on the judgment, a co-ordinate liability. The result is that there are two parties each of which are obliged to indemnify Hamersley and they are, therefore, on equal footing. 367. In support of the proposition that a cause of action merges in the judgment, reliance was placed on various statements of the doctrine of res judicata. In Spencer Bower and Turner, “The Doctrine of Res Judicata”, 2nd ed Butterworths, London, 1969 (at 358 [427]) once the cause of action merges in the judgment, the cause of action is said to “[lose] its individual vitality and disappears as an independent entity”. 368. The authors of Res Judicata, in this early edition of the text to which the Court was referred, express the doctrine on which Speno relies in somewhat quaint terms (at 358). However, it can be summarised (and modernised) to state, relevantly, that any cause of action which results in a judgment where relief is granted to the plaintiff or any other party to the proceedings, is merged in the judgment as soon as pronounced and disappears as a separate entity and cannot be the subject of a further action for the same or similar relief. The action can, of course, be revived following an appeal. 369. The statement of the rule in “Halsbury’s Laws of Australia”, LexisNexis, 2003 at [190 – 45] is to substantially the same effect and provides that where an action has been brought and judgment has been entered in that action, no other proceedings may be maintained on the same cause of action. If the cause of action was held to exist, so that judgment was given upon it, it is said to be merged in the judgment and no longer has an independent existence. Res judicata is

a defence to a claim in a legal proceeding which, if made out, is a complete bar to the claim. The claim may be struck out or the action stayed or dismissed on the ground that it discloses no cause of action or that its maintenance is an abuse of process. There is no discretion in a court to allow the second action to proceed where the cause of action has merged in the judgment in the prior proceedings because the cause of action will have been extinguished by the first judgment. 370. Speno also relied on the decision in Buckland v Palmer [1984] 1 WLR 1109. In that case the plaintiff, the owner of a motor vehicle damaged in a collision with another vehicle, the owner of which, the defendant, believed he was insured, made a claim on her insurance and was advised that as the insurer and the insured of the other vehicle had a “knock for knock” agreement, the plaintiff’s insurer would meet the cost of the claim except for the first 50 pounds. The plaintiff sued the other driver for the 50 pounds and 5 pounds court fees. The defendant paid the amount sought into court, indicating that he wished to make a counterclaim. The plaintiff accepted the money whereupon her action became stayed. The plaintiff’s insurers, on becoming aware that the defendant was not in fact insured at the time, initiated an action in the plaintiff’s name by subrogation, claiming the balance of the costs of repairing the vehicle. The defendant brought an action to strike out the claim as an abuse of process of the Court. 371. Sir John Donaldson MR (at 1114 – 1115) referred to the wider issues including, on the one hand, the public interest in avoiding any possibility of two courts reaching inconsistent decisions and in there being finality in litigation and on the other hand, the public interest in seeing that justice is done. The Master of the Rolls also noted that it is an abuse of process of the Court to bring two actions in respect of the same cause of action. Consequently, he held that if the first action has proceeded to judgment the cause of action is extinguished by merger, with the consequent effect of frustrating any further claim. He ordered that the second claim brought in the name of the plaintiff be struck out: see also Griffiths LJ (at 1116). 372. I consider the decision in Buckland v Palmer (supra) to be in accordance with the principles relating to cause of action estoppel and, as such, a complete answer to any attempt on the part of Zurich

or Hamersley to revisit the matters raised in the action. However, I am not persuaded that these statements of principle have any application in the particular circumstances of this case where two separate and distinct obligations have been found to exist, one of which has been satisfied and the other which has not been satisfied. 373. Reliance is placed on the decision in Ex parte Fewings (1883) 25 Ch D 338 per Cotton LJ (at 348), per Lindley J (at 353) where a creditor brought an action under a contract which entitled him to a stated interest rate, although he did not claim an entitlement to the contractual interest rate. The Court held that the debt was confined, by reason of the cause of action having merged into the judgment, to interest on the judgment sum at the statutory rate rather than the contractual rate, as the judgment put an end to the defendant’s liability to pay under the contract. Cotton LJ said (at 349 – 350): “In my opinion that contention is unfounded, for, so soon as judgment was obtained it put an end to the liability under the covenant to pay the [principal sum] and the debt became due on the judgment, not under the covenant … But that covenant is now at an end; The liability under it for the [principal sum] is gone, it is merged in the judgment, and it cannot be said that, notwithstanding that the covenant to pay the [principal sum] is gone there is a separate covenant to pay interest at 5 per cent.” 374. Speno submits that it follows from the decision in Ex Parte Fewings (supra) the position as between Hamersley, Speno and Zurich is now governed by the judgment, even though the judgment may reflect a substantive change in the position of the parties as a consequence. The principle is said to be best summarised in the judgment of Lindley LJ (at 353) where he said: “Now it may be technical, but it is well settled, that, if there is a debt secured by a covenant, and judgment is recovered on the covenant, the debt on the covenant merges in the judgment debt. In point of law the [principal sum] is no longer payable under the covenant, it is payable under the judgment; the covenant to pay interest is gone, and the judgment bears interest only at [the statutory rate].”

375. In my view, the application of these principles to the facts of this case would result only in the position that if, following the judgment, Zurich paid the amount necessary to indemnify Hamersley, the payment was made under the judgment and not under the policy, and any issue in relation to the payment would be governed by the terms of the judgment rather than the terms of the policy. I am not persuaded that once Zurich’s liability to Hamersley is met, the nature of Speno’s liability changes and there no longer exists a primary liability to Hamersley. At least, I can find no support for that proposition in the texts or the authorities cited and I do not see any reason why it should be so. 376. Counsel for Speno referred to the decision in Sydney Turf Club (supra). However, in my view, that decision does not support Speno’s proposition; it simply indicates the outcome of the action in the event that the underlying proposition of co-ordinate liability resulting from the judgment is accepted by the Court. 377. Speno maintains that it is not only as a consequence of the merger of the cause of action into the judgment that no action can be brought to enforce Speno’s primary liability, it also results from the way in which the judgment is expressed. The form of the order is said to be critical. I cannot accept that to be the case. Often the form of the orders which flow from the reasons for decision result from on the spot drafting which may not be optimum. Other times it reflects the terms of minutes of orders which are produced to the Court in circumstances where the Court and the opposing party have little time to reflect on them. Counsel for MMI expressed the view that the form of words used to express an order should not determine the rights between the parties. Although there are clearly some limitations on that broad statement, in the absence of an authority precisely on point, I am not prepared to accept that Hamersley’s rights, and hence MMI’s rights, depend upon the wording of the judgment rather than the decision underlying the judgment. 378. With respect to Speno’s proposition that the cause of action has merged into the judgment, MMI has no disagreement as a statement of principle. However, MMI submits that the principles of res judicata say nothing at all about the enforcement of an action or the

enforcement of a judgment already obtained. Counsel maintained that it is a doctrine about whether a cause of action may be further pursued; it is not about the satisfaction of the judgment obtained by pursuing that cause of action. MMI notes that Halsbury’s Laws is silent as to the enforcement of judgments already obtained. This is also apparent from a later edition of the text by Spencer, Bowen and Turner, “The Doctrine of Res Judicata”, 3rd ed Butterworths, London, 1996 (at [392]): “Res judicata has a twofold operation. It estops the parties to a decision from afterwards controverting any issue thereby decided and it bars the party who has obtained relief from seeking it again … The rule as to merger may be stated as follows: any person in whose favour an English judicial tribunal of competent jurisdiction has pronounced a final judgment, civil or criminal, is precluded from afterwards recovering before any English tribunal a second judgment against the same party on the same cause of action”. 379. Although counsel did not specifically refer to the balance of the paragraph, it does say that “in cases of former recovery what is not allowed is a second action for the relief previously granted”. Buckland v Johnson (1854) 15 CB 145 (at 153) is cited as authority for this proposition. 380. In Buckland v Johnson (supra), Jervis CJ held (at 383) that a judgment of a court of record changes the nature of that cause of action, and prevents it being the subject matter of another suit, and “the cause of action, being single, cannot afterwards be divided into two”. 381. Counsel for MMI also relies on the following statement of Spencer, Bowen and Turner (1996) (supra) as to recovery (at [398] and [399]): “A former recovery is established by proof that the party against whom the plea is set up, in previous litigation as plaintiff, counterclaimant or the like, obtained a judgment for relief on the same cause of action … ‘Recovery’ means recovery of the relief granted; it does not mean satisfaction. The cause of action is merged in the judgment when pronounced; what happens

afterwards is irrelevant.” 382. MMI submits that Hamersley’s cause of action against Speno merged in the judgment which it obtained against Speno but that judgment against Speno has not been satisfied. The only judgment which has been satisfied is the judgment obtained against Zurich. Satisfaction of the Zurich judgment does not satisfy the Speno judgment. 383. As I have indicated above, I am not persuaded that the principle of res judicata has any application to the judgment against Speno; in particular, I do not accept that the principle creates the situation that Speno no longer has a primary liability to indemnify Hamersley. However, that does not dispose of Speno’s defence to the claim because Speno also alleges that the mere fact of payment of the judgment sum prevents recovery against Speno. Rather than being a separate proposition, this is, in effect, another aspect of Speno’s primary proposition. 384. Any suggestion that MMI is entitled to recover from Speno any part of that amount paid to Hamersley to indemnify it against the Nolan judgment is refuted by Speno relying on the decision in Clissold v Cratchley [1910] 2 KB 244. In Clissold (supra) a solicitor sued out a Writ of fi.fa on an order in favour of his client, unaware that the debt had been paid at the country office of the solicitor, prior to the writ being issued. The Court unanimously held that when the total amount ordered by a judgment has been paid, the judgment is at an end and no longer has any force or effect. Consequently, there being no existing judgment, the writ of execution was void ab initio: per Vaughan Williams LJ (at 249 – 250); per Fletcher Moulton LJ (at 150) and per Farwell LJ (at 250). See also Cubitt v Gamble (1919) 35 TLR 223 (at 224). Speno relies on the decision in Clissold (supra) in submitting that there is in this case no judgment in respect of which the writ can be issued. That is because the judgment has been discharged and the writ is void ab initio. In Clissold (supra) and Cubitt (supra) there was only one plaintiff, one defendant and a single judgment to satisfy. The issue between MMI and Speno arises from the fact that there were two

relevant judgments, only one of which has been satisfied. In those circumstances, I do not believe that these authorities are of relevance other than in relation to the very basic proposition that once a judgment is satisfied no enforcement proceedings can lie. Therefore, the Court would have to accept that the effect of Speno’s cause of action merging into the judgment resulted in there being a single coordinate liability to indemnify Hamersley before Zurich’s payment to Hamersley would provide a bar to this action and before the Writ of fi.fa would be void. As I have indicated, I do not believe that the principles of res judicata extend that far. 385. Speno’s proposition that indemnification by Zurich disentitles Hamersley, and hence MMI by subrogation, from enforcing its contractual indemnity against Speno, is said by MMI to be an inaccurate statement of insurance law. MMI maintains that it is entitled to enforce by subrogation the rights already established by the judgment. MMI relies on the proposition that it is no answer by a third party who is liable for the loss to say to an insured that it has already been indemnified by its insurer. That it is wrong in principle is said to be apparent from the decision in Sydney Turf Club (supra) where Jacobs JA made the following statement in relation to the rights of subrogation and the availability of a defence to a third party who is liable to the insured where insurance has been granted (at 730): “It is necessary to pause now and to consider some of the principles relating to indemnity insurance. A public liability policy and employer’s liability policy are essentially insurances of indemnity. That being so any insured can recover no more than the amount required to indemnify him. If he has recovered the whole of the loss from one insurer then it is a defence at law to another insurer so to allege. … The legal defence that the insured has already been indemnified is only available when the insured seeks to be indemnified in the strict sense twice over.” 386. It is apparent from this statement that, as counsel for MMI contends, the payment by Zurich by way of indemnity of Hamersley would only be available to Speno as a defence if Speno was in the position of an insurer.

387. I am satisfied that none of the matters on which Speno relies prevent MMI from exercising its right of subrogation. However, the next issue requiring resolution is the rights which may be exercised under that principle. This issue requires a consideration of the principle of subrogation. 388. As MMI’s entitlement to bring the action against Speno is said to be based on the right of subrogation, counsel for MMI referred the Court to a number of authorities which explain the nature and scope of the right. Particular reliance was placed on the statement of Brett LJ in Castellain (supra) where the right of subrogation was defined in the widest possible terms (at 388): “In order to apply the doctrine of subrogation, it seems to me that the full and absolute meaning of the word must be used, that is to say, the insurer must be placed in the position of the assured. Now it seems to me that in order to carry out the fundamental rule of insurance law, this doctrine of subrogation must be carried to the extent which I am now about to endeavour to express, namely, that as between the underwriter and the assured the underwriter is entitled to the advantage of every right of the assured, whether such right consists in contract, fulfilled or unfulfilled or in remedy for tort capable of being insisted on or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable, which can be, or has been exercised or has accrued, and whether such right could or could not be enforced by the insurer in the name of the assured by the exercise or acquiring of which right or condition the loss against which the assured is insured, can be, or has been diminished.” The fundamental principle of insurance law to which Brett LJ refers in his definition of subrogation is this (at 386): “The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, in a case of a loss against which the policy has

been made, shall be fully indemnified, but shall never be more than fully indemnified. That is the fundamental principle of insurance …” These passages fully explain Brett LJ’s description of the doctrine of subrogation as a proposition adopted for the purpose of carrying out the fundamental rule. 389. Bowen LJ expresses the principle of subrogation (at 402) in this way: “That a person who wishes to recover for and is paid by the insurers as for a total loss, cannot take with both hands. If he has a means of diminishing the loss, the result of the use of those means belongs to the underwriters … where one person has agreed to indemnify another, he will, on making good the indemnity, be entitled to succeed to all the ways and means by which the person indemnified might have protected himself against or reimbursed himself for the loss.” 390. Therefore, on the authority of Castellain (supra), if an action taken by an insurer has the effect of more than fully indemnifying the insured, then the doctrine of subrogation cannot provide the lawful justification for the action. 391. It is because of this fundamental principle that, despite the width of the definition of subrogation, Brett LJ also concluded (at 389) that: “if upon the happening of the loss there is contract between the assured and a third person, and if that contract is immediately fulfilled by the third person, then there is no right of action of any kind into which the insurer can be subrogated. The right of action is gone; the contract fulfilled.” The same position arising in tort would result in there being no right of action existing into which the insurer could be subrogated. 392. Similarly, as Barwick CJ noted in SGIO v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228 (at 240): “It is settled law that an insurer who has paid the amount of a loss under a policy of indemnity is entitled to the benefit of all the

rights of the insured in the subject matter of the loss and by subrogation may enforce them.” 393. The then Chief Justice of the High Court added a further fundamental principle (at 241): “It is also settled law that an insured may not release, diminish, compromise or divert the benefit of any right to which the insurer is or will be entitled to succeed and enjoy under his right of subrogation.” 394. In Buckland v Palmer (supra), Griffiths LJ stated (at 1116) that an insurer who pays his insured under a comprehensive policy and then seeks under this right of subrogation to recover that sum in the name of his insured can have no greater rights against the tortfeasor than those of his insured: see also Simpson & Co v Thompson (1877) 3 AC 279 (at 284). The corollary of that proposition is that indemnification by an insurer of its insured does not provide a defence to a third party who is liable to the insured in respect of the same loss: see Sydney Turf Club (supra) (at 730). 395. It can be seen from this recitation of authority that the doctrine of subrogation was adopted for the purpose of ensuring that an insured is never more than fully indemnified. It is also evident that if the insurer is exercising the rights of the insured, an insurer may only be subrogated to those rights available to the insured. Conversely, if a cause of action is lost to the insured it is also lost to the insurer. In practical terms, the effect of the doctrine is that any amount obtained from an action brought by an insurer by subrogation is offset against the amount paid by the insurer by way of indemnity. 396. MMI’s position is that the right of subrogation extends to the exercise of rights to reduce the loss for which the insured was indemnified. Support for MMI’s position is said to be found in the judgment of Brett LJ in Castellain (supra) and in AFG Insurance Ltd v Mayor Councillors and Citizens of City of Brighton (1972) 126 CLR 655. 397. In AFG Insurance Ltd (supra) the appellant relied on Brett LJ’s statement of the right of subrogation in Castellain (supra) which is set

out above. Mason J held (at 663 – 664) that the remarks of Brett LJ say no more than that there passes to the insurer such rights of the insured as may be necessary to ensure that he recovers no more than a full indemnity in respect of the loss. Mason J also noted (at 663) that the doctrine of subrogation comes into operation when the insurer meets his liability under the policy by making payment to the insured in respect of his loss. The insurer is then subrogated to the relevant rights of the insured. 398. Reliance was also placed by MMI on the decision in Sydney Turf Club (supra) and, in particular, on the statement of Jacobs JA (at 730), set out above, where it is said that the insured may sue at law any person who is liable to make good to him over the damage which he has suffered and in respect of which he is insured whether that liability arises from tort or from contract. If the insured has already been indemnified by his insurer then the insurer is subrogated to the insured’s right against the party primarily liable in contract or in tort for the amount of the damage. That of course is a reference to the situation where, although the insured has been indemnified, the insured retains a right of action against the person or entity that is responsible for the loss. This point is made plain in the judgment of Mason JA in Sydney Turf Club (supra) where his Honour states (at 734): “Where an insurer is subrogated to the rights of the insured against a third party, the insured does not acquire an independent cause of action in his own right. He succeeds to the insured’s cause of action against the third party, in this case a right of action on the policy issued by the Jockey Club. That right of action remains in all respects unaltered; it is brought in the name of the insured and it is subject to all the defences which would be available if the action had been brought by the insured for his own benefit. Thus payment in full by the Government Insurance Office on account of the risk is a defence to the action by the appellant against the Jockey Club and it is no answer to that defence that the action is brought for the benefit of the insurer. In truth there was no relevant right in the appellant to which the Government Insurance Office could become subrogated. Once

the insured was paid in full by that insurer, the insured had no cause of action which he could enforce against the Jockey Club on its policy either for his own benefit or for the benefit of the other insurer.” Mason JA went on to note that the GIO could, in its own name, recover a pro rata contribution from the Jockey Club as an insurer against the same risk under the doctrine of contribution but that is not the action that was brought by the appellant. 399. It is clear from this statement and the decision in Sydney Turf Club (supra) that, where the insured has been fully indemnified, no right remains to which MMI may be subrogated against another insurer. That, of course, is not a complete answer to MMI’s action because, although Speno is obliged to indemnify Hamersley the obligation arises from a clause in a contract to provide services and not from a contract of insurance. 400. The case of Commercial Finance Corp Ltd v Merchants Casualty Insurance Co [1931] 1 DLR 212 (confirmed on appeal in [1931] 4 DLR 210) is said by MMI to be an illustration of the application of the principles on which MMI relies in circumstances that are somewhat similar. Counsel for MMI referred to the decision of Garrow J at first instance who, having ruled that the negligent third party was liable to the plaintiff company for the loss which it had sustained, in an amount to be determined, considered the actions brought by the insurance companies against the third party: (at 225). He said (at 226): “I’m unable to hold, therefore, that there is any direct right of contribution over, as between the credit company and the insurance companies. I do not know, however, that it is of much importance, because undoubtedly, upon payment of the plaintiff’s claim as now or hereafter ascertained, the insurance companies are entitled to stand in the shoes of the plaintiff as against the retail credit company.” Garrow J further ruled that each of the insurance companies upon payment was to be subrogated to the rights of the plaintiff as against the third party. MMI cited this case as an example of a plaintiff being entitled to recover both against the negligent third party and as against

the insurers. 401. In considering the significance of this decision it is important to identify the relevant facts. Insurance policies from two different companies, covering consecutive periods of liability, provided against loss through wrongful conversion of motor cars on which the assured had advanced money. The assured agreed with a third party that the third party should supply him with information as to the whereabouts and condition of the cars. The third party was negligent in the discharge of its duty, as a result of which the cars or their proceeds were converted and a claim was made by the assured against the insurers. In an action by the insurers against the third party and on an appeal by the third party it was held, contrary to the third party’s submission, that each insurer was entitled to be subrogated to the rights of the assured against the third party (with respect to loss occurring during the relevant periods of risk), even though the happening of the risks against which the insured was to be indemnified gave rise to different causes of action from those on which the assured might establish his claim against the third party. 402. In reaching its decision, the Appellate Division of the Ontario Supreme Court considered the doctrine of subrogation and its application in the circumstances before them. Hodgins JA (with whom Middleton JA and Grant JA agreed) quoted from the decision in National F Insurance Co v McLaren 12 OR 682, where Boyd C provided the following view on subrogation (at 687): “The doctrine of subrogation is a creature of equity not founded on contract, but arising out of the relations of the parties. In cases of insurance where a third party is liable to make good the loss, the right of subrogation depends upon and is regulated by the broad underlying principle of securing full indemnity to the insured, on the one hand, and on the other of holding him accountable as trustee for any advantage he may obtain over and above compensation for his loss.” 403. This statement of the principle is essentially the same as that of Brett LJ in Castellain (supra), only expressed differently. 404. Another case referred to and quoted from by Hodgins JA (at 235)

is Burnand v Rodocanachi Sons & Co 7 AC 333, in particular the judgment of Lord Blackburn. The quotation lays down the doctrine of subrogation as a general rule of law (at 339): “Where there is a contract of indemnity (it matters not whether it is a marine policy, or a policy against fire on land, or any other contract of indemnity) and a loss happens, anything which reduces or diminishes that loss reduces or diminishes the amount which the indemnifier is bound to pay; and if the indemnifier has already paid it, then, if anything which diminishes the loss comes into the hands of the person to whom he has paid it, it becomes an equity that the person who has already paid the full indemnity is entitled to be recouped by having that amount back.” Having considered these statements of principle together with various authorities from the Canadian Court of Appeal, Hodgins JA dismissed the third party’s appeal against the plaintiff and the insurance companies on the question of subrogation. 405. The right of the insurer, by subrogation, to enforce a right by which the loss may be reduced is also evident from the statements of principle in Insurance Commission of Western Australia v Kightly (2005) 30 WAR 380. Steytler P (at [26]) described the principle in these terms: “The doctrine of subrogation is founded upon equitable principles: … It prevents the insured from making a double recovery, once from the insurer and once from the tortfeasor (in a tort case) in circumstances in which the insurer has undertaken to indemnify the insured against actual financial loss. It does that by giving two rights to the insurer. First, it gives to the insurer the right to require the insured to pursue any remedy available against the tortfeasor for the benefit of the insurer. Second, it gives to the insurer the right to recover from the insured any benefit received by the insured in diminution or extinction of the loss against which the insured has been indemnified,” 406. Steytler P also referred (at [48]) to the decision of the High Court in Transport Accident Commission v CMT Construction of Metropolitan Tunnels (1988) 165 CLR 436 (at 442) where the principle

of subrogation was said by Wilson, Dawson, Toohey and Gaudron JJ to rest on the proposition stated in Castellain (supra) that an insured shall be fully indemnified but shall never be more than fully indemnified. In that context, Steytler P referred (at [50]) to the decision of the House of Lords in Napier v Hunter [1993] AC 713 where Lord Templeman said (at 738) that an insurer entitled to subrogation has an enforceable equitable interest in the damages payable by the wrongdoer and hence the insured person is guilty of unconscionable conduct if he does not provide for the insurer to be recouped out of the damages awarded against the wrongdoer. Of course, an insured who has been fully indemnified is also obliged to account for moneys paid to him or her by another insurer but that is not a matter that arises in this case. 407. It can be seen that there is a wealth of authority on the nature and scope of the doctrine of subrogation. Without question, an insurer may by subrogation assert any right which exists in the insured. Where the insured has been indemnified by another insurer, an insurer cannot by subrogation bring an action against the other insurer because the insured’s right to recover from the other insurer was extinguished when the insured was indemnified by the other insurer. 408. However, in this case, although Hamersley has been indemnified by Zurich, there remains a judgment against Speno to indemnify Zurich based on a finding that Speno was under a primary obligation to indemnify Zurich. Where MMI has been required to contribute to the indemnity met by Zurich, there is, in effect, a portion of the judgment sum for which Speno was also liable and primarily liable, which has not been met by Zurich. Instead it has been met by Hamersley’s insurer, MMI, against whom there is no judgment. Therefore, the entitlement of MMI to recover against Speno depends on the extent to which an insurer is entitled to recover by subrogation against a third party. 409. In the headnote to the report of the decision in Commercial Finance Corp Ltd (supra), the decision on appeal includes the following statement (at 213): The true test of the right to subrogation is whether the enforcement of the right would diminish the insurers’ loss. I was unable to find such a broad statement in any of the judgments.

However, of the authorities cited by the Court, there are a number of references to the issue of diminishing the insurer’s loss in Castellain (supra). Brett LJ refers to diminishing the loss in the following terms (at 389 – 390): “I go further and hold that if a right of action in the assured has been satisfied, and the loss has been thereby diminished, then, although there never was nor could be any right of action into which the insurer could be subrogated, it would be contrary to the doctrine of subrogation to say that the loss is not to be diminished as between the assured and the insurer by reason of the satisfaction of that right.” 410. Cotton LJ (at 393) states that, in order to ascertain the amount of loss, everything received by the insured and which diminishes the loss must be taken into account. It is this diminished amount which is the amount to be paid by the insurer under the indemnity: see also at 396. 411. I understand Brett LJ to be emphasising the existence of the rights in the insurer pursuant to the doctrine of subrogation. The fact that the loss has been diminished by satisfaction of a right of action in the assured does not remove or undermine that right, it simply means that in those circumstances the insurer cannot subrogate to the right in the assured because it has been met. Further, the diminution of loss referred to in Castellain (supra) was a reference to receipt by the insured of moneys which represented part of the value of the property, the full value having already been paid to the insured pursuant to the insurance policy. In Commercial Finance Corp Ltd (supra), the rights to which the insurer would subrogate were rights under a judgment and a judgment which had not been satisfied as this one had been. Therefore, the existing right which would then be pursued by way of subrogation was a right to pursue the claim for damages, a right in the insured rather than the insurer. 412. It is apparent that the diminution of the loss referred to in the various authorities is not the insurer’s loss: it is the loss of the insured. However, where the insured has been fully indemnified, in accordance with the prohibition on an insured being more than fully indemnified, the amount obtained in diminution of the insured’s loss is retained by

the insurer to offset the amount paid under the policy. Nevertheless, I consider that referring to diminution of the insurer’s loss, whilst that may indeed be the practical effect, has the potential to create a misunderstanding about the true nature of subrogation. This is because it is fundamental to the doctrine of subrogation that it is the right of the insured to reduce its loss which is being exercised by the insurer, not the insurer’s right. 413. It is clear on these authorities that an insurer is entitled by subrogation to bring an action against a third party for the purpose of reducing or diminishing the insured’s loss which the insurer is bound to pay as a result of its obligation to indemnify the insured. Therefore, the success of MMI’s action depends upon the circumstances in which an insured who is the tortfeasor or who has been in breach of a contract or was the defendant in some other cause of action, may recover from another any part of the damages awarded. In the authorities to which I have referred, the action by subrogation is almost always exercising the right of an insured who is entitled to claim rather than being claimed against. Secondly, as was the position in Commercial Finance Corp Ltd (supra), the cases in which an insurer has been held to be entitled by subrogation to bring an action against a third party are all cases where the third party caused or contributed to, or was in some way responsible, for the loss. 414. In Speno Rail Maintenance Australia Pty Ltd (supra) Wheeler J, in considering the decision of Lord Sutherland in Caledonia North Sea Ltd (supra), addressed (at 327) the situation where an action is brought by subrogation against a third party who was obliged under contract to provide the insured with an indemnity. Wheeler J noted, in the context of considering whether Speno’s obligation was primary or secondary, that Lord Sutherland observed that the fact that a party chooses to insure against the possibility of non-recovery under the indemnity clause cannot affect the contractual obligations. Wheeler J made the following comment (at 327): “It appears to me that that observation is equally applicable to this works and services contract where Hamersley required in effect that certain insurances be taken out or indorsed for the benefit of Hamersley. It seems to me that a rather similar view of the

relationship between indemnity and insurance clauses, in the context of a lease, was taken by the Court of Appeal of Victoria in Buller Ski Lifts Ltd v Mount Buller Alpine Resort Management Board [2000] VSCA 31 [8], per Phillips JA where the court observed that the need for insurance cover recognises ‘the commercial possibility of insolvency or some other obstacle standing in the way of the lessee meeting the call for an indemnity, when made’. This too appears to regard the indemnity provision as primary.” 415. With respect to her Honour, I am not convinced that in Buller Ski Lifts Ltd (supra) (at [16]) Phillips JA did form such a view. However, it is the case that the decisions in Speno Rail Maintenance Australia Pty Ltd (supra) and in Caledonia North Sea Ltd (supra) make it clear that an action may be brought by subrogation against a third party who was obliged under contract to provide the insured with an indemnity. 416. I consider the decision of Lord Cairns LC in Simpson & Co (supra) conclusively and succinctly identifies the proposition which entitles MMI to succeed against Speno (at 284): “Where one person has agreed to indemnify another, he will, on making good the indemnity, be entitled to succeed to all the ways and means by which the person indemnified might have protected himself against or reimbursed himself for the loss.” 417. Therefore, relevant to the facts in this case, as Hamersley was entitled to call on the contractual indemnity from Speno before calling on the indemnity under the insurance policy, Hamersley retains a right to seek from Speno an indemnity for that amount of the judgment sum that has been paid by MMI by way of contribution. 418. Putting to side for one moment recovery of any portion of the judgment sum, counsel for MMI also submits that even if Speno’s argument is valid, it could not have application to payments made other than in respect of the judgment sum. The payments which are said to lie outside Speno’s argument are these: i. $25,000 paid in settlement of the Oatway proceedings; ii. $9,000 paid for legal costs of the Oatway proceedings;

iii. $2,115.08 paid for interest on the damages award to Nolan; iv. $4,292.64 paid for interest on the judgment in favour of Nolan; v. $12,000 paid for the agreed appeal costs of Nolan; vi. $97,375 paid for the agreed trial costs of Nolan. 419. Speno accepted that the reasoning it applied did not apply to the payment made to Oatway. However, Speno maintained that these amounts had also been paid and hence Hamersley had no liability to Oatway either. In view of the findings I have made, any of these amounts which comprise part of the judgment sum to which MMI is required to contribute should properly be met by Speno. As to any remaining amounts, the relief sought is a declaration of a right in MMI to exercise rights of subrogation to recover the whole of its liability to Zurich, including costs. Insofar as any of the above amounts do not form part of MMI’s liability to Zurich, including costs, they fall outside the scope of the relief sought. 420. It is clear from the reasons I have given that I am satisfied of the following propositions: (1) A full indemnity from one insurer precludes the insured from seeking an indemnity from another insurer. (2) The insurer that has paid the indemnity may seek contribution from the insurer that has not. (3) The insurer required to contribute may recover, by subrogation, the amount of the contribution from a third party who is liable in respect of the same loss. (4) A third party is liable in respect of the same loss if the third party has contributed to the loss or has a primary obligation to indemnify the insured against the loss. (5) The insurer required to contribute may, by subrogation, enforce the judgment against the third party required to indemnify the

insured to the extent of the contribution. (6) Where a judgment includes a primary and a secondary obligation to indemnify an insured, payment of the judgment sum by the party with the secondary obligation does not satisfy the secondary obligation unless the judgment so provides. 421. The consequence of these findings is that there will be judgment for the plaintiff in the MMI Action. The chamber summons in the Nolan action will be dismissed.

Tax Institute CommLaw3 Module 4 — ASIC regulatory guides ¶10-104 Regulatory guide 104: licensing: meeting the general obligations History: issued 11 October 2007, updated July 2015. Date of Ruling: October 2007 About this guide This is a guide for Australian financial services (AFS) licensees and licence applicants. This guide describes what we look for when we assess compliance with most of the general obligations under s 912A(1) of the Corporations Act 2001. The general obligations not covered in this guide are covered in separate guides: see Table 1 in Section A.

About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by: • explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act) • explaining how ASIC interprets the law

• describing the principles underlying ASIC’s approach • giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project.

Document history This regulatory guide was issued on 11 October 2007 and is based on legislation and regulations as at 11 October 2007. This guide replaces: • Sections A–D and F–G of Regulatory Guide 164 Licensing: Organisational capacities (RG 164), issued 28 November 2001, updated 8 November 2002 • parts of Regulatory Guide 130 Managed investments: Licensing (RG 130), issued 3 August 1998, updated 4 November 1998, 2 June 1999 and 4 October 1999 Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements.

A Overview

Key points Licensees must comply with the general obligations under s 912A(1) and licence applicants must be able to demonstrate in their licence application that they can comply with them: see RG 104.2–RG 104.6. As a licensee or licence applicant, you are responsible for deciding how to comply with the general obligations: see RG 104.7–RG 104.9. To help you comply, this regulatory guide: • outlines key compliance concepts that apply to all of the general obligations (see Section B); • describes what we look for when we assess compliance with various general obligations (see Sections C to F); and • includes questions to help you design and test your measures for complying with the general obligations (see Appendix 1).

The general obligations RG 104.1 If you are an AFS licensee, you have general obligations under s 912A(1) of the Corporations Act 2001 (Corporations Act) to: (a) do all things necessary to ensure that the financial services covered by your licence are provided efficiently, honestly and fairly (s 912A(1)(a)); (b) have adequate arrangements in place for managing conflicts of interest (s 912A(1)(aa)); (c) comply with the conditions on your licence (s 912A(1)(b));

(d) comply with the financial services laws (s 912A(1)(c)); (e) take reasonable steps to ensure that your representatives comply with the financial services laws (s 912A(1)(ca)); (f) unless you are regulated by APRA, have adequate financial, technological and human resources to provide the financial services covered by your licence and to carry out supervisory arrangements (s 912A(1)(d)); (g) maintain the competence to provide the financial services covered by your licence (s 912A(1)(e)); (h) ensure that your representatives are adequately trained and competent to provide those financial services (s 912A(1)(f)); (i) if you provide financial services to retail clients, have a dispute resolution system (s 912A(1)(g)); and (j) unless you are regulated by APRA, establish and maintain adequate risk management systems (s 912A(1)(h)). When you need to comply with the general obligations RG 104.2 You must comply with the general obligations from the time your AFS licence is granted and on an ongoing basis. If we have reason to believe that you are not complying with your obligations, we may take administrative action, which could include suspending or cancelling your licence, or imposing additional licence conditions: s 915C(1) and 914A(1). Note: For guidance on our administrative powers, see Regulatory Guide 98 Licensing: Administrative action against financial services providers (RG 98). RG 104.3 If we conduct a surveillance visit on your business, we may check your ongoing compliance with the general obligations, including the measures you have for ensuring compliance. RG 104.4 If you breach or are likely to breach your general

obligations, you may need to notify us of that breach: s 912D. Note: For guidance on breach reporting, see Regulatory Guide 78 Breach reporting by AFS licensees (RG 78). Applying for an AFS licence RG 104.5 If you are applying for an AFS licence, you must be able to show that you can comply with the general obligations from the time you are granted a licence, and on an ongoing basis: reg 7.6.03(g). We cannot grant you a licence if we have any reason to believe you will not be able to comply with your general obligations once you have a licence: s 913B(1)(b). Note: If you are applying for an AFS licence, you should read the AFS Licensing Kit (RG 1–RG 3). The AFS Licensing Kit explains the licence application process and the “proof” documents you may need to provide to support your application. RG 104.6 We do not expect your business to be fully operational at the time you apply for an AFS licence. However, when you apply, you must be able to show that you have arrangements in place to ensure compliance once you are granted a licence. What you need to do to comply RG 104.7 The general obligations are principles-based and designed to apply in a flexible way. For this reason, we do not think we can or should give prescriptive guidance on what you need to do to comply with them. The Corporations Act places responsibility on you to decide how to comply. RG 104.8 However, to help you comply, this guide: (a) outlines key compliance concepts that apply to all of the general obligations (see Section B); (b) describes what we look for when we assess compliance with various general obligations (see Sections C to F); and (c) includes questions to help you design and test your measures for complying with the general obligations covered in Sections C

to F (see Appendix 1). RG 104.9 Throughout this guide we often use the phrase “we expect”. In using this phrase, we are describing what we look for when we assess compliance with the general obligations, based on our experience as a regulator of financial services providers and our knowledge of regulatory regimes in other countries. Our expectations are not intended to limit the ways in which you can comply. It is up to you to decide how best to comply with the general obligations. RG 104.10 This guide does not cover all of the general obligations. Some general obligations are covered in separate guides: see Table 1.

Table 1: Where to find our guidance on the general obligations Type of obligation

General obligation

Where to find our guidance

Your broad compliance obligations

Providing your financial services efficiently, honestly and fairly: s 912A(1)(a)

Section C

Complying with the conditions on your licence: s 912A(1)(b)

Section C

Complying with the Section C financial services laws: s 912A(1)(c) Your internal systems

Risk management systems (if you are not regulated by APRA): s 912A(1)(h)

Section D

Arrangements for

RG 181 Licensing:

managing conflicts of interest: s 912A(1)(aa)

Managing conflicts of interest

Dispute resolution RG 165 Licensing: system (if you provide Internal and external services to retail clients): dispute resolution s 912A(1)(g) Your people

Ensuring your representatives comply with the financial services laws: s 912A(1) (ca)

Section E

Ensuring your representatives are adequately trained and competent: s 912A(1)(f)

Section E and, if you provide financial product advice to retail clients, also RG 146 Licensing: Training of financial product advisers

Maintaining the RG 105 Licensing: competence to provide Organisational your financial services: s competence 912A(1)(e) Your resources

Adequate human and technological resources (if you are not regulated by APRA): s 912A(1)(d)

Section F

Adequate financial resources (if you are not regulated by APRA): s 912A(1)(d)

RG 166 Licensing: Financial requirements

Underlying principles RG 104.11 This guide aims to strike a balance between certainty and flexibility for licensees, while furthering the primary goals of the

licensing regime and the general obligations. At the broadest level, these regulatory goals are to promote: (a) consumer confidence in using financial services; and (b) the provision of efficient, honest and fair financial services by all licensees and their representatives. Our regulatory approach What if you are also regulated by APRA? RG 104.12 If you are a body regulated by APRA, you do not have to read Sections D and F of this guide. This is because the general obligations to have adequate resources and risk management systems do not apply to you: s 912A(1)(d) and (h). This is the case even if only a part of your financial services business is an activity that APRA regulates. APRA, not ASIC, imposes any requirements for risk management and resources that apply to you. Note: The term “body regulated by APRA” has the meaning given in s 3(2) of the Australian Prudential Regulation Authority Act 1998. RG 104.13 In administering the other general obligations, we will take into account that you are regulated by APRA and we will aim to minimise regulatory duplication. When you apply for an AFS licence, we will accept copies of relevant documents you have provided to APRA. In some areas, you may not need to provide particular supporting “proof” documents. We regularly communicate with APRA and coordinate regulatory activities where we share an interest. Standards and international principles RG 104.14 In thinking about how to comply with your obligations, you might find it helpful to look at good industry practice as captured in standards. Industry and Australian standards are relevant to most licensees because these have been drafted with the Australian regulatory environment in mind. For licensees with larger or more complex businesses, or licensees that are part of a global business, international principles might also be relevant. RG 104.15 We also use standards in a similar way, i.e. as a guide to

good industry practice. However, we check compliance with the law and licence conditions, not with standards — unless, the law or your licence conditions require you to comply with a particular standard. RG 104.16 We aim to work with industry, consumer groups and Standards Australia to develop standards as a means of setting good practice. We will also approve codes of conduct where we have a regulatory responsibility to do so. Note: Our guidance on approving codes of conduct under s 1101A of the Corporations Act is set out in Regulatory Guide 183 Approval of financial services sector codes of conduct (RG 183). Transitional issues RG 104.17 This guide, RG 104, replaces: (a) Sections A–D and F–G of Regulatory Guide 164 Licensing: Organisational capacities (RG 164); and (b) parts of Regulatory Guide 130 Managed investments: Licensing (RG 130). RG 104.18 While RG 104 comes into effect immediately, we accept that you might not immediately update your internal policies and procedures to refer to RG 104 and the guidance it contains. However, we expect that you will update your references to our guidance the next time you amend your internal policies and procedures. RG 104.19 If, at October 2007, you have already started or lodged an AFS licence application or a variation application, we will not refuse your application simply because it refers to RG 164 or RG 130. However, if you are only beginning to prepare your application, we expect that your application and supporting “proof” documents will take into account the guidance in RG 104, not that in RG 164 or RG 130. B Key compliance concepts

Key points What you need to do depends on the nature, scale and complexity of your business: see RG 104.21–RG 104.22. You must have measures for ensuring you comply with your obligations as a licensee: see RG 104.23–RG 104.32. You can outsource functions, but not your responsibility as a licensee: see RG 104.33–RG 104.36.

RG 104.20 This section outlines key compliance concepts that underpin what we look for when we assess compliance with the general obligations. You need to bear these key concepts in mind when reading Sections C to F. What you need to do depends on the nature, scale and complexity of your business RG 104.21 There are many different kinds of licensees providing a diverse range of financial services. We do not take a “one-size-fits-all” approach to regulation. Rather, we acknowledge that what you need to do to comply with your obligations will vary according to the “nature, scale and complexity” of your business. RG 104.22 “Nature, scale and complexity” includes factors such as: (a) the products and services you offer; (b) the diversity and structure of your operations (including the geographical spread of your operations and the extent to which you outsource any of your functions); (c) the volume and size of the transactions you are responsible for; (d) how many of your clients are retail and how many wholesale; (e) whether you give financial product advice and, if so, whether it is

personal or general advice; (f) whether your main business is the provision of financial services; and (g) the number of people in your organisation. You must have measures for ensuring you comply with your obligations RG 104.23 We use the expression “measures” or “compliance measures” in this guide to refer to your processes, procedures or arrangements for ensuring that, as far as reasonably practicable, you comply with your obligations as a licensee, including the general obligations. RG 104.24 We expect you to: (a) document your measures in some form (see RG 104.26); (b) fully implement them and monitor and report on their use (see RG 104.27–RG 104.30); and (c) regularly review the effectiveness of your measures and ensure they are up-to-date (see RG 104.31–RG 104.32). If you do not do this, we think you will find it more difficult to comply with the general obligations, and to show you are complying with them. RG 104.25 Your measures will be affected by the nature, scale and complexity of your business: see RG 104.21–RG 104.22. Documenting your measures RG 104.26 Documentation helps you demonstrate whether or not you are complying with the general obligations. When you document your measures, we expect this will include details of who is responsible, the time frames involved and associated record-keeping and reporting. Implementing, monitoring and reporting on your measures

RG 104.27 It is not enough just to document your measures. You also need to fully implement them. This means you need to put them into practice and integrate them into the day-to-day conduct of your business. RG 104.28 For measures to work effectively in practice, you need people at all levels of your business, including your senior management, to understand them and be committed to their success. Integrating your measures into the culture of your business helps ensure they are effective on an ongoing basis. RG 104.29 You also need to monitor and report on your compliance, including reporting relevant breaches to us under s 912D. We expect that you will keep records of your monitoring and reporting, including records of reports on compliance and breach notifications. RG 104.30 We understand that, in some instances, your monitoring and reporting will be built into your business processes. We also acknowledge that your compliance measures might reflect your corporate group’s overall approach to compliance. Whatever the case, you need to be able to show us how you are able to monitor your compliance and appropriately address any compliance breaches. Reviewing your measures RG 104.31 Regularly reviewing your measures will help to ensure they remain effective. In some cases, it may be sensible for you to consider external review. Where compliance issues have arisen (such as major breaches or repeated compliance failures), external compliance review is particularly appropriate. RG 104.32 You need to review your measures when there are changes to your obligations, your business or the environment in which you operate. We expect that you will have a process for identifying changes that may impact on the effectiveness of your measures. You can outsource functions, but not your responsibility as a licensee Outsourcing functions that relate to your licence

RG 104.33 We recognise that many licensees outsource functions that relate to their AFS licence, including administrative or operational functions. Outsourcing might be to external parties or other entities within a corporate group. Functions that are commonly outsourced include: (a) IT systems for storing records in relation to the provision of financial services; (b) recruitment and training of representatives; (c) research on financial products in relation to which financial services are provided; (d) the operation of call centres; (e) periodic compliance reviews of representatives; and (f) unit pricing. Note: For guidance on outsourcing of unit pricing functions, see Regulatory Guide 94 Unit pricing: Guide to good practice (joint publication with APRA) (RG 94). You remain responsible for outsourced functions RG 104.34 If you outsource functions that relate to your AFS licence, you remain responsible for complying with your obligations as a licensee: see s 769B. Under the Superannuation (Industry) Supervision Act 1993, superannuation trustees retain ultimate responsibility for the operation of the superannuation fund. Under s601FB(1) of the Corporations Act, responsible entities retain ultimate responsibility for the operation of a managed investment scheme. Third parties providing financial services on your behalf RG 104.35 If a third party provides financial services to clients on your behalf, they will generally need to be your authorised representative or hold their own AFS licence: see s 911B(1). If they are a licensee, they will generally be taken to be the provider of the financial services and will be responsible for complying with the general obligations in

relation to the provision of those services: see s 911B(3). Complying with your obligations RG 104.36 If you outsource functions that relate to your AFS licence, we expect that you: (a) will have measures in place to ensure that due skill and care is taken in choosing suitable service providers; (b) can and will monitor the ongoing performance of service providers; and (c) will appropriately deal with any actions by service providers that breach service level agreements or your obligations as a licensee. Note: In thinking through your obligations when you outsource functions, you might find it helpful to look at: – International Organization of Securities Commissions (IOSCO) Principles on Outsourcing of Financial Services for Market Intermediaries (February 2005), available from www.iosco.org; – Joint Forum Outsourcing in Financial Services (February 2005), available from IOSCO (www.iosco.org), the International Association of Insurance Supervisors (www.iaisweb.org) and the Bank for International Settlements (www.bis.org); and – if you are also regulated by APRA, APRA’s prudential standards and guidance notes on outsourcing (e.g. for ADIs, Prudential Standard APS 231 Outsourcing), available from www.apra.gov.au. C Your broad compliance obligations

Key points You must have measures in place for ensuring you comply with

your licensee obligations on an ongoing basis: see RG 104.38– RG 104.48. We expect your compliance measures to cover all of your obligations as a licensee: see RG 104.53–RG 104.57. We expect your compliance area to be independent enough and have adequate resources to do its job properly: see RG 104.49– RG 104.52.

RG 104.37 You must: (a) do all things necessary to ensure your financial services are provided efficiently, honestly and fairly: s 912A(1)(a); (b) comply with the financial services laws: s 912A(1)(c); and (c) comply with the conditions on your AFS licence: s 912A(1)(b). In this guide, we refer to these obligations as the “broad compliance obligations”: see RG 104.53–RG 104.57. RG 104.38 You must have measures in place for ensuring you comply with your obligations as a licensee, including the broad compliance obligations, on an ongoing basis: see condition 4 of the standard licence conditions in Pro Forma 209 Australian financial services licence conditions [PF 209]. We expect you will document your measures: see RG 104.26. RG 104.39 This section explains what we look for when we assess the adequacy of your compliance measures. When reading this section, you need to bear in mind the key concepts in Section B. For more help in designing and testing your measures, see Appendix 1. Note: For guidance on compliance plans and measures for managed investments, see Regulatory Guide 132 Managed investments: Compliance plans (RG 132). Your compliance measures

RG 104.40 Compliance with your obligations as a licensee is central to the protection of consumers and the promotion of market integrity. Having effective compliance measures is a way for you to ensure you comply with your obligations as a licensee, including identifying and appropriately dealing with instances of non-compliance. Compliance measures also help you demonstrate to us that you can comply and are complying with your obligations. What your compliance measures need to cover RG 104.41 We consider that the broad compliance obligations are both stand-alone obligations and obligations that encompass the other general obligations: see RG 104.53–RG 104.57. For this reason, we expect your measures for ensuring compliance with the broad compliance obligations will cover all of your obligations as a licensee including: (a) the rest of the general obligations (including those covered in Sections D, E and F of this guide); (b) your licence conditions; and (c) any other financial services laws that apply to you. RG 104.42 We also expect that your compliance measures will: (a) take into account the specific compliance risks of your business, especially those that may materially affect consumers or market integrity; and (b) enable you to: (i) communicate to your representatives what they need to do to comply; (ii) monitor compliance with all of your licensee obligations; and (iii) address and report any compliance breaches. Note: In thinking through your compliance obligations, you might find it helpful to look at:

– Australian Standard AS 3806–2006 Compliance Programs, available for purchase from www.saiglobal.com/shop; and – the principles set out in the IOSCO report Compliance Function at Market Intermediaries (March 2006), available from www.iosco.org. Nature, scale and complexity of your business RG 104.43 Your compliance measures might include one or a number of different documents and any of a variety of stand-alone or integrated information technology (IT) systems. As a general rule, the smaller and simpler your business, the smaller and simpler we expect your measures to be. RG 104.44 For example, if you deal in a narrow range of simple products as an incidental part of your main business or you are a very small business, you might meet your compliance obligations by having a checklist focusing on compliance risks that would adversely affect consumers and the provision of efficient, honest and fair financial services. RG 104.45 On the other hand, if your main business is to provide financial services and products, you deal in a broad range of products and you have numerous staff that are spread out geographically, you are more likely to meet your compliance obligations by having compliance measures that involve the use of manuals, programs and dedicated compliance staff. RG 104.46 If you use external providers to provide functions that relate to your AFS licence, we think your compliance measures will need to be different from those you would need if you performed those functions in-house. Compliance measures and risk management systems RG 104.47 From our experience, it is common for some licensees’ compliance measures to be integrated into their risk management systems. Compliance measures can be one of several controls you can use to address or mitigate risks to your business (including the risk of non-compliance with your obligations under the Corporations

Act). The general obligation to maintain adequate risk management systems is explained in Section D. RG 104.48 If you are also regulated by APRA, the general obligation to have adequate risk management systems does not apply to you: see RG 104.12. However, this does not affect the need for you to meet our requirements on compliance measures, even if your compliance measures are integrated into your risk management systems. Responsibility for compliance RG 104.49 We expect that you will allocate to a director or senior manager responsibility for: (a) overseeing your compliance measures; and (b) reporting to the governing body (including having ready access to the governing body). RG 104.50 You need to ensure that the area responsible for compliance: (a) is independent enough to do its job properly; (b) has adequate staff, resources and systems; and (c) has access to relevant records. RG 104.51 It may be appropriate for you to have a separate compliance function (which might be outsourced to a third party). This is likely to be the case for larger, more complex businesses (including a corporate group), but not for licensees whose business is small or whose main business is not the provision of financial services. The role of senior management RG 104.52 The level of senior management involvement in overseeing your compliance measures might extend to: (a) communicating the measures to those responsible for implementing them and other stakeholders;

(b) ensuring that the area responsible for the measures has adequate staff and resources; (c) ensuring staff education and awareness of the measures; (d) implementing clear reporting lines for the manager(s) responsible for the measures; and (e) receiving regular reports on the measures. Our approach to the broad compliance obligations RG 104.53 The broad compliance obligations are both stand-alone obligations and obligations that encompass the other general obligations. This means that: (a) if you fail to comply with one or more of the other general obligations, you are also likely to breach the broad compliance obligations; and (b) even though you may be complying with all of the other general obligations, you may still be in breach of the broad compliance obligations. This is because the broad compliance obligations are also stand-alone obligations. Providing financial services efficiently, honestly and fairly RG 104.54 You need to do all things necessary to ensure your financial services are provided in a way that meets all of the elements of “efficiently, honestly and fairly”. If you fail to comply with the other general obligations, it is unlikely that you will be complying with the “efficiently, honestly and fairly” obligation. RG 104.55 However, the “efficiently, honestly and fairly” obligation is also a stand-alone obligation that operates separately from the other general obligations. For example, if you have contractual obligations to clients and breach them, this might not be a breach of the other general obligations, but it could amount to a failure to provide your financial services efficiently, honestly and fairly. Complying with the financial services laws

RG 104.56 The obligation to comply with the financial services laws encompasses the other general obligations. However, it also includes an obligation to comply with: (a) Chapter 7 or other Chapters of the Corporations Act that may apply to you (e.g. the disclosure requirements); and (b) provisions of the Australian Securities and Investments Commission Act 2001 and other Commonwealth, state and territory legislation dealing with financial services: see s 761A. Complying with your licence conditions RG 104.57 The conditions on your AFS licence reinforce some of the general obligations, so breaching a licence condition will sometimes also be a breach of the general obligation that the condition relates to. Note: The standard licence conditions are set out in [PF 209]. For our guidance on licence conditions, see Section C of Regulatory Guide 167 Licensing: Discretionary powers (RG 167). D Your risk management systems

Key points You must have measures in place to ensure you comply with the obligation to have adequate risk management systems on an ongoing basis. We expect you to have a structured and systematic process for identifying, evaluating and managing risks faced by your business: see RG 104.61–RG 104.66.

RG 104.58 You must have adequate risk management systems: s 912A(1)(h). You must also have measures in place to ensure that you comply with this obligation on an ongoing basis: RG 104.38.

RG 104.59 This section explains what we look for when we assess the adequacy of your risk management systems. When reading this section, you need to bear in mind the key concepts in Section B. For more help in designing and testing your measures, see Appendix 1. RG 104.60 If you are regulated by APRA, you do not need to read this section: see RG 104.12. Risk management systems RG 104.61 The requirement for risk management systems ensures that you explicitly identify the risks you face and have measures in place to keep those risks to an acceptable minimum. RG 104.62 We expect your risk management systems will: (a) be based on a structured and systematic process that takes into account your obligations under the Corporations Act; (b) identify and evaluate risks faced by your business, focusing on risks that adversely affect consumers or market integrity (this includes risks of non-compliance with the financial services laws); (c) establish and maintain controls designed to manage or mitigate those risks; and (d) fully implement and monitor those controls to ensure they are effective. Note: In thinking through your risk management obligations, you might find it helpful to look at: – Australian and New Zealand Standard AS/NZS 4360:2004 Risk Management Systems and the related handbook, HB 436:2004 Risk Management Guidelines — Companion to AS/NZS 4360:2004, available for purchase from www.saiglobal.com/shop; and – Joint Forum High-Level Principles for Business Continuity (August 2006), available from IOSCO (www.iosco.org), IAIS (www.iaisweb.org) and BIS (www.bis.org).

Nature, scale and complexity of your business RG 104.63 Your risk management systems will depend on the nature, scale and complexity of your business and your risk profile. They will be different for each licensee. RG 104.64 Your risk management systems will need to adapt as your business develops and your business risk profile changes over time. RG 104.65 If you use external providers to provide functions that relate to your AFS licence, we think your risk management measures will need to be different from those you would need if you performed those functions in-house. Financial risks RG 104.66 Your risk management systems will normally need to address the risk that your financial resources will not be adequate. We have set out the financial requirements for licensees not regulated by APRA in Regulatory Guide 166 Licensing: Financial requirements (RG 166). E Your people

Key points You must have measures for monitoring and supervising your representatives (i.e. the people who act on your behalf). We expect these measures will allow you to determine whether your representatives are complying with the financial services laws: see RG 104.70–RG 104.75. You must also have measures to ensure that your representatives who provide financial services have, and maintain, the necessary knowledge and skills to competently provide those services: see RG 104.76–RG 104.83.

RG 104.67 You must:

(a) take reasonable steps to ensure that your representatives comply with the financial services laws (s 912A(1)(ca)); and (b) if they provide financial services, ensure they are trained and competent to do so (s 912A(1)(f)). You must also have measures in place to ensure that you comply with these obligations on an ongoing basis: RG 104.38. RG 104.68 This section explains what we look for when we assess compliance with these obligations. When reading this section, you need to bear in mind the key concepts in Section B. For more help in designing and testing your measures, see Appendix 1. RG 104.69 You must also have adequate resources, including people, to provide your financial services and carry out supervision: s 912A(1) (d). This particular obligation is covered in Section F. Monitoring and supervision RG 104.70 To ensure your representatives comply with the financial services laws, we consider that you need to monitor and supervise them. Who do you need to monitor and supervise? RG 104.71 Any person who acts on your behalf is your “representative”: see s 910A. Your representatives include: (a) your employees and directors; (b) your authorised representatives; and (c) any third party service providers you use to provide functions relating to your licence. How closely do you need to supervise them? RG 104.72 The level of monitoring and supervision your representatives need will depend on the nature, scale and complexity of your business (e.g. the function your representatives perform, whether your business operates from one or a number of locations

etc.). RG 104.73 We do not think that you need to scrutinise every activity of your representatives. However, we expect you will have measures that: (a) allow you to determine whether your representatives are complying with the financial services laws (including your licence conditions); and (b) include a robust mechanism for remedying any breaches. Employment screening RG 104.74 We expect your measures for monitoring and supervision will include carrying out appropriate background checks before you appoint new representatives. These checks could include referee reports, searches of ASIC’s Register of Banned and Disqualified Persons, police checks etc. Note: In thinking through your monitoring and supervision obligations, you might find it helpful to look at: – Australian Standard AS 4811–2006 Employment Screening and the related Employment Screening Handbook (HB 323–2007), available for purchase from www.saiglobal.com/shop; and – Reference Checking in the Financial Services Industry Handbook (HB 322–2007), available for free from www.asic.gov.au. Standards Australia developed HB 322–2007 in conjunction with ASIC. Measures for monitoring and supervision RG 104.75 Your measures for monitoring and supervision will normally show how you: (a) keep track of who your representatives are, what role they perform and whether they are appropriately authorised; (b) ensure your representatives (including your authorised representatives) act within the scope of what you have authorised

them to do; (c) ensure your representatives understand your compliance arrangements; (d) monitor your representatives’ compliance; and (e) respond to compliance failures. Training and competence RG 104.76 The obligation to ensure your representatives are trained and competent applies only in relation to your representatives who provide financial services. RG 104.77 We expect you to: (a) identify the knowledge and skills your representatives need to competently provide your financial services; (b) ensure that they have the necessary knowledge and skills; (c) ensure that they undertake continuing training programs to maintain and update their knowledge and skills; and (d) maintain a record of the training they have undertaken (this is required under reg 7.6.04(1)(d)). Training standards for financial product advice to retail clients RG 104.78 We have specified minimum training standards for representatives (and natural person licensees) who provide financial product advice to retail clients. These are set out in Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146). The training standards are knowledge and skills requirements that can generally be met by completing appropriate training courses on the ASIC Training Register or being individually assessed as competent by an authorised assessor listed on the ASIC Training Register. RG 104.79 The RG 146 training standards are minium standards that apply to all representatives (and natural person licensees) who

provide financial product advice to retail clients: see licence conditions 6 and 7 in [PF 209]. However, there are special rules for customer service representatives, para-planners and trainee advisers. Customer service representatives, para-planners and trainee advisers RG 104.80 You remain responsible for all of the financial services provided under your licence, regardless of how, or by whom, those services are provided. If you, or any of your representatives, use customer service representatives, para-planners and/or trainee advisers who do not meet the RG 146 training standards, you must ensure that they are: (a) trained and competent to perform their role and functions; and (b) supervised by representatives who: (i) meet the RG 146 training standards; and (ii) play a material role in the provision of any advice to retail clients. RG 104.81 As a general rule, if you use a disproportionately high number of para-planners who do not meet the RG 146 training standards compared with the number of your representatives who do meet the training standards, we believe there is an increased risk that you will not be satisfying your obligations. Representatives providing other financial services RG 104.82 We have not specified training standards for representatives (and natural person licensees) providing services other than financial advice to retail clients. However, you must still ensure that your representatives providing other services are trained and competent to perform their role and functions. RG 104.83 You may be able to adapt the training standards in RG 146 to help you determine the appropriate knowledge and skills needed by your representatives providing other financial services. F Your resources

Key points You must have measures in place for ensuring you have adequate resources to provide the financial services covered by your licence and to carry out supervisory arrangements: see RG 104.84–RG 104.87. Whether your resources are adequate will depend on the nature, scale and complexity of your business: see RG 104.22. You at least need to have enough resources to enable you to comply with all of your obligations under the law and meet your current and anticipated future operational needs: see RG 104.89–RG 104.96. RG 104.84 You must have adequate financial, technological and human resources to provide the financial services covered by your licence and to carry out supervisory arrangements: s 912A(1)(d). You must also have measures to ensure that you have adequate resources on an ongoing basis: RG 104.38. RG 104.85 This section explains what we look for when we assess the adequacy of your human and technological resources. When reading this section, you need to bear in mind the key concepts in Section B. For more help in designing and testing your measures, see Appendix 1. RG 104.86 The financial resources part of this obligation is covered in Regulatory Guide 166 Licensing: Financial requirements (RG 166). RG 104.87 If you are regulated by APRA, you do not need to read this section: see RG 104.12. Having adequate resources RG 104.88 Having adequate technological and human resources is crucial to your ability to demonstrate that you have the capacity to carry on your financial services business in full compliance with the law and to supervise your representatives. Failure to have enough resources may create an unacceptable risk that you may not comply with all of your obligations as a licensee. Human resources

RG 104.89 Whether your human resources are adequate will depend on the nature, scale and complexity of your business: see RG 104.22. However, you need to have enough people to enable you to: (a) comply with all of your obligations under the law; (b) carry out monitoring and supervision; and (c) meet your current and anticipated future operational needs. RG 104.90 Your measures for ensuring that you have enough people will normally include: (a) recruitment processes and succession planning; (b) systems for inducting and training new staff; (c) performance management systems; and (d) processes for staff retrenchment and redundancy. Reviewing your human resources RG 104.91 You need to regularly review the adequacy of your human resources. RG 104.92 We expect that you will identify key indicators that your human resources are inadequate. These key indicators are likely to include: (a) customer complaints about the quality of customer service or financial product advice; (b) a low ratio of compliance staff to representatives; (c) not enough compliance staff to conduct a periodic (e.g. annual) review of representatives who give personal advice to retail clients; (d) client accounts and interests not being monitored when staff are absent;

(e) a large number of inexperienced staff (e.g. staff who have been in your business less than six months); and (f) a large number of vacant positions. Technological resources RG 104.93 Whether your technological resources are adequate will depend on the nature, scale and complexity of your business: see RG 104.22. However, you need to have enough technological resources to enable you to: (a) comply with all of your obligations under the law; (b) maintain client records and data integrity; (c) protect confidential and other information; and (d) meet your current and anticipated future operational needs. RG 104.94 We know that the financial services industry uses a variety of technological resources, ranging from phones, faxes and personal computers to sophisticated networks and/or customised IT systems. We do not think you need to have sophisticated IT systems if simpler systems enable you to meet the criteria in RG 104.93. Reviewing your IT systems RG 104.95 You need to regularly review the adequacy of your technological resources. RG 104.96 When reviewing your IT systems, you need to consider: (a) your IT system security; (b) the currency of your hardware and software; (c) the quality and relevance of the applications you use; (d) your disaster recovery systems and business resumption capacity;

(e) the number of users; (f) the ongoing viability of software and other service providers; (g) the response times of your IT systems; (h) the down times of your IT systems; (i) your use of legacy IT systems; and (j) complaints (e.g. from staff, clients or service providers) about your IT systems. Appendix 1: Designing and testing your measures RG 104.97 Appendix 1 sets out questions to consider when designing and testing your measures for ensuring you comply with the general obligations covered in Sections C to F of this guide. You need to read this appendix in conjunction with the corresponding section of this guide. RG 104.98 This appendix is not intended as a compliance checklist — it does not cover everything you need to consider, and it may cover some things that do not apply to you. You still need to consider your individual circumstances, including the nature, scale and complexity of your business. RG 104.99 We will continue to review and update this appendix in light of our regulatory experience. Your broad compliance obligations Compliance framework

• Have you documented your compliance measures? • Has your governing body signed off on them? • How do you monitor whether your compliance measures are being followed? Who is responsible? • How do you review your compliance

arrangements to ensure they remain effective and up-to-date (e.g. to deal with new products)? • Do you undertake regular external reviews of your compliance measures and their monitoring? • How do you assess the impact of outsourcing on your compliance measures? Implementing compliance measures

• How do you communicate your compliance measures to your staff? • Are your compliance measures integrated into relevant operational processes? • How do you promote a culture of compliance within your organisation?

Compliance function

• Have you set up a separate compliance function within your organisation? • Do you have a compliance manager? Do they report to the governing body (or its delegate)? • Are compliance staff adequately trained and qualified in compliance responsibilities? • Are the responsibilities of compliance staff clearly defined and understood? • Do compliance staff have access to the information they need to perform their role?

Responding to compliance failures

• How do you ensure that you identify and take action to remedy compliance failures and other compliance issues, including action to prevent their recurrence? • How do you identify and address systemic compliance failures or other trends in compliance issues?

Breach reporting

• Is there a clear, well-understood and documented process for reporting compliance breaches (including to the governing body or its delegate)? • How do you ensure that relevant breaches are reported to ASIC under s 912D? Who is responsible for reporting to ASIC? • What records do you keep of compliance breaches (e.g. a breach register)? • Do you regularly review your compliance measures to take into account past breaches?

Safeguarding client money and assets

• How do you ensure that client money and assets are separated from your money and assets?

Record-keeping • How do you ensure that you keep adequate accounting, business and compliance monitoring records? • How do you ensure that you retain records for the statutory period? Conduct and disclosure obligations

• How do you ensure that you comply with your conduct obligations under the Corporations Act, e.g. requirements about giving personal advice to retail clients? • How do you ensure that you comply with your disclosure obligations, e.g. obligations relating to advertising, Product Disclosure Statements and Financial Services Guides? Your risk management systems

Risk management framework

• Have you documented your risk management systems?

• Do your documented measures show who is responsible for risk management? • Has your governing body signed off on your risk management measures and made a commitment to ongoing risk management? • Have you appointed senior managers to oversee risk management measures? • Are there clear risk management reporting lines? Do your staff understand what they are required to report on, and when? • Do you annually review your risk management measures to ensure they are effective? Does this include external review? • Do you have a business continuity plan? Implementing risk management

• How do you ensure that staff understand and comply with risk management measures? • Are risk management staff adequately trained and qualified in risk management responsibilities?

Identifying risks

• How do you identify risks to your business? • How do you identify risks to consumers and market integrity? • Have you considered all your obligations under the Corporations Act (including the regulations and licence conditions) and identified the risks of non-compliance with them? • How do you ensure you identify new risks as they arise (e.g. because of new products or technology)?

• Do you document the risks you identify? Evaluating risks

• How do you establish the probability of a risk event occurring and the impact of the problem if the risk occurs? • How do you combine the probability and impact factors to determine the overall risk? • How do you prioritise the risks and establish which ones need to be addressed? • Do you document the risks you evaluate and how you arrive at your evaluation?

Addressing risks

• How do you address those risks with appropriate measures and controls? • Do you document your measures and controls for addressing risk and the reasons behind them? Your people

MONITORING AND SUPERVISION Appointing • What background checks (e.g. referee reports) representatives do you do before you appoint representatives? How do you check the person’s identity? • How do you ensure that you comply with your notification obligations under s 916F in relation to your authorised representatives? Monitoring and • Have you established a clear reporting and supervision supervisory structure covering all your framework representatives? How do you ensure that you are receiving accurate information? • Who is responsible for monitoring and supervision? To whom do they report? • Do you have representatives who operate from locations other than your principal place of

business? How do you monitor and supervise them? • How do you ensure your representatives understand your compliance measures? How do you monitor that they are complying with your compliance measures? • How do you identify and address higher risk activities of your representatives, e.g. providing financial product advice to retail clients, handling client money? • Do you have a policy on disciplinary action for compliance failures or other compliance issues? Has it been clearly communicated to your representatives? TRAINING AND COMPETENCE Training • How do you identify which of your responsibilities representatives provide financial services? • How do you identify and keep records of the training they complete: see reg 7.6.04(1)(d)? • How do you identify the knowledge and skills they need? • How do you ensure they have the necessary knowledge and skills to provide financial services? • How do you ensure that your representatives who provide financial product advice to retail clients meet the training standards in RG 146? Continuing training

• How do you ensure that your representatives who provide financial services maintain and update their knowledge and skills? • Have you determined how much ongoing training they need?

• Do you have a regular (e.g. annual) training program for them? Who is responsible for this? • How do you ensure your training program continues to meet the needs of your representatives? Your resources TECHNOLOGICAL RESOURCES Adequacy of resources

• What technological resources (e.g. communications, IT) do you need to carry out your business? • Have you identified key indicators that might show you do not have enough

IT framework

• Do you have an IT strategy to support your current and future operational needs? • Do you have a disaster recovery plan and do you test it regularly? • Do you have in-house IT staff to provide and/or manage the delivery of IT services? If not, how are your IT services managed and delivered? • Do you have outsourcing arrangements with third parties for the development and maintenance of your IT systems? • Do you have contracts with third parties that include service level agreements? If so, how often do you review delivery of service levels under those agreements?

Data back-up and IT security

• Do you have data back-up and recovery plans? • How regularly do you back up your data and how are back-ups stored (e.g. are they stored offsite)?

• Do you have network security controls in place? How do you keep viruses out of your system? • How do you protect confidential and other sensitive information? • Is access to physical IT infrastructure restricted? HUMAN RESOURCES Adequacy of resources

• What human resources do you need for each of your business activities, e.g. compliance, monitoring and supervision, complaints handling? • Have you identified key indicators that might show you do not have enough human resources? How do you monitor these key indicators? • How do you ensure extra staff are available when they are needed (e.g. to supervise staff who have been involved in compliance failures)? • How do you ensure client accounts and interests are monitored while staff are absent?

Human resources framework

• Do you have a recruitment process?

• Do you have systems for inducting and training new staff? • Do you have a performance management process? • Do you have a succession planning process? • Do you have in-house human resources staff to provide and/or manage the delivery of your human resources needs? If not, how are your human resources needs managed and delivered? • Do you have outsourcing arrangements with

third parties for the development and maintenance of your human resources needs? • Do you have contracts with third parties that include service level agreements? If so, how often do you review delivery of service levels under those agreements? Key terms Term

Meaning in this document

AFS licence

Australian financial services licence granted under s 913B of the Corporations Act

APRA

Australian Prudential Regulation Authority

ASIC

Australian Securities and Investments Commission

body regulated by APRA

Has the meaning given in s 3(2) of the Australian Prudential Regulation Authority Act 1998

Corporations Act

Corporations Act 2001, including regulations made for the purposes of this Act

financial services laws

Has the meaning given in s 761 of the Corporations Act

general obligations The obligations of a licensee under s 912A(1) of the Corporations Act governing body

The board of directors, committee of management or other governing body of the licensee (including, in relation to a licensee who is a natural person, that person)

licensee

A person who holds an AFS licence

[PF 209] (for example)

An ASIC pro forma (in this example numbered 209)

reg 7.6.04 (for example)

A regulation of the Corporations Regulations 2001 (in this example numbered 7.6.04)

representative

Has the meaning given in s 910A of the Corporations Act

RG 166 (for example)

An ASIC regulatory guide (in this example numbered 166)

you

Licensee or applicant for an AFS licence

Related information Headnotes general obligations; nature, scale and complexity; compliance measures; outsourcing; efficiently, honestly and fairly; risk management systems; monitoring, supervision and training of representatives; human resources; technological resources Pro formas Pro Forma 209 Australian financial services licence conditions [PF 209] Regulatory guides RG 1–3 AFS Licensing Kit RG 105 Licensing: Organisational competence RG 146 Licensing: Training of financial product advisers RG 165 Licensing: Internal and external dispute resolution RG 166 Licensing: Financial requirements RG 167 Licensing: Discretionary powers RG 181 Licensing: Managing conflicts of interest Legislation Corporations Act Chapter 7, s 9, 601FB, 761A, 769B, 910A, 911B, 912A, 912D, 913B, 914A, 915C, Corporations Regulations 2001 reg 7.6.03, Australian Prudential Regulation Authority Act 1998 s 3(2)

Consultation papers CP 75 Updating [PS 164]: Organisational competence CP 76 Updating [PS 164]: Meeting the general obligations ASIC forms FS01 Australian Financial Services licence application

Tax Institute CommLaw3 Module 5 — ASIC regulatory guides ¶10-107 Regulatory guide 107: fundraising: facilitating electronic offers of securities History: issued in September 1996, updated February 2000, reissued as RG 107 in July 2007, updated March 2014. Date of ruling: March 2014 About this guide This is a guide to facilitate the use of email and the internet to make offers of securities under Ch 6D of the Corporations Act 2001 (Corporations Act). This guide: • explains how we interpret the fundraising provisions in Ch 6D when using electronic disclosure documents and electronic application forms, including the distribution of these documents by email and the internet; • describes the class order relief we have provided for personalised or Australian financial services (AFS) licensee created application forms; and • sets out our ‘good practice guidance’ for using electronic disclosure documents and electronic application forms, including the distribution of these documents by email and the internet. About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance.

Regulatory guides: give guidance to regulated entities by: • explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act) • explaining how ASIC interprets the law • describing the principles underlying ASIC’s approach • giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project.

Document history This regulatory guide was issued in March 2014 and is based on legislation and regulations as at the date of issue. This guide replaces: • Superseded Policy Statement 107, issued 18 September 1996, reissued 10 February 2000, rebadged as a regulatory guide 5 July 2007 • Superseded Policy Statement 150, issued 15 February 2000, reissued 5 July 2000, rebadged as a regulatory guide 5 July 2007 Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements. A Overview

Key points ASIC aims to facilitate and encourage the use of electronic disclosure documents and electronic application forms, including the use of email and the internet, for making offers of securities. In this guide, we: • explain our interpretation of the fundraising provisions in Ch 6D of the Corporations Act 2001 (Corporations Act) when using electronic disclosure documents and electronic application forms, including the distribution of these documents by email and the internet; • describe the class order relief we have provided for personalised or Australian financial services (AFS) licensee created application forms; and • set out our good practice guidance for using electronic disclosure documents and electronic application forms, including the distribution of these documents by email and the internet.

Facilitating the use of email and the internet for offers of securities RG 107.1 While disclosure documents used for offers of securities have historically been paper-based documents, persons offering securities under Ch 6D of the Corporations Act are increasingly using electronic means and electronic media — primarily email and the internet (e.g. web-based platforms) — to distribute and present disclosure documents to investors. Additionally, it is becoming increasingly common for investors to receive and access important information in their daily life — including news, internet banking and securities trading — using electronic devices such as computers, tablets and smartphones. Note: In this document, references to sections (s), parts (Pts) and chapters (Chs) are to the Corporations Act, unless otherwise specified. References to ‘disclosure document’ include any supplementary or replacement disclosure document lodged with ASIC: see s 719(4) and (5) of the Corporations Act.

RG 107.2 We want to facilitate and encourage the continued and future use of electronic disclosure documents and electronic application forms for offers of securities under Ch 6D, including the use of multimedia or web-based platforms, particularly as we anticipate that this is an area that will grow in popularity and that may

experience significant advances in technology. RG 107.3 We recognise that there are many advantages of using email and the internet to distribute disclosure documents and application forms, including the ease and convenience of use for investors. Additionally, web-based disclosure documents with electronic content can be more interactive and promote understanding for investors. RG 107.4 The use of electronic disclosure documents also has advantages for persons offering securities and persons involved in the distribution of disclosure documents by reducing costs (e.g. printing and mailing) and increasing the speed and availability of information. RG 107.5 We are aware that some investors may not have access to the internet, or may still prefer to receive important and extensive information, such as disclosure documents, in paper format. Accordingly, we believe it is desirable for paper disclosure documents to remain accessible and be made available to investors on request to ensure that information is freely available to all sections of the community. RG 107.6 We have historically provided class order relief to permit the use of electronic disclosure documents in relation to the provisions of the old Corporations Law as it stood before the implementation of the Corporate Law Economic Reform Program Act 1999 (CLERP Act). We continued the relief in Class Order [CO 00/044] Electronic disclosure documents, electronic application forms and dealer personalised applications following CLERP, for the avoidance of doubt, to help ensure the continued use of electronic disclosure documents, even though the CLERP amendments were intended to facilitate the use of electronic disclosure documents. We have now revoked [CO 00/044] because we take the view that relief is not required. RG 107.7 We consider that the use of electronic disclosure documents and electronic application forms is permitted under Ch 6D without relief. As explained in the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 (CLERP Bill), changes to the fundraising provisions by the CLERP Act were made to:

… facilitate the issue of a disclosure document in electronic form as well as paper documents. The Bill will remove barriers to electronic commerce by providing a statutory framework for electronic disclosure documents which is designed to promote investor confidence in the integrity of the electronic financial services marketplace. RG 107.8 The market now routinely uses electronic disclosure documents and electronic application forms for offers of securities under Ch 6D, and is comfortable with the ability to distribute these documents by email and the internet. Consequently, we believe that the market no longer requires comfort relief under [CO 00/044]. Our guidance and relief RG 107.9 To facilitate the use and distribution of electronic disclosure documents and electronic application forms, including the use of email and the internet, to make offers of securities, we have: (a) explained our interpretation of the fundraising provisions in Ch 6D applying to electronic disclosure documents and electronic application forms, including the use of email and the internet to distribute these documents (see Section B); (b) provided class order relief for personalised and AFS licensee created application forms in [CO 14/26] Personalised and AFS licensee created application forms for offers of securities — and explained when ASIC relief may still be needed (see Sections B and C); and (c) given ‘good practice guidance’ (see Table 1 for an overview) on using electronic disclosure documents and electronic application forms, including the use of email and the internet to distribute these documents, to assist persons offering securities (offerors), distributors and publishers in complying with their legal obligations, and meeting the objectives underlying the provisions, in Ch 6D (see Section D). RG 107.10 This regulatory guide focuses primarily on the use of email and the internet to distribute and present electronic disclosure

documents and electronic application forms, as we understand that these are currently the most common electronic means and electronic media used for offers of securities. RG 107.11 We recognise that there may be other types of multimedia or web-based platforms that emerge in the future to distribute and present electronic disclosure documents and electronic application forms. This guide is principles based and is intended to apply to current and emerging forms of electronic disclosure documents and electronic application forms.

Table 1: Overview of our good practice guidance Principle 1

Electronic disclosure documents should be easy to access, retrieve and read.

Principle 2

Electronic disclosure documents should be distributed in a way that does not unreasonably expose investors to security risks.

Principle 3

Offerors and distributors that distribute electronic disclosure documents for an entitlement offer to existing investors of a company should take reasonable steps to ensure that investors receive the electronic disclosure document.

Principle 4

Offerors, distributors and publishers should take reasonable measures to ensure that electronic disclosure documents received by investors are complete and have not been altered or tampered with.

Principle 5

Offerors and distributors that distribute electronic disclosure documents and electronic application forms should make available free paper copies of disclosure documents and application forms on request by an investor.

Principle 6

Offerors and distributors of electronic disclosure documents should make updated disclosure documents available in both paper and electronic format.

Principle 7

Investors should be able to keep a copy of the electronic disclosure document so that they can access it in the future.

Principle 8

Offerors, distributors and publishers should retain copies and records of all electronic disclosure documents so that investors are able to prove which version of the disclosure document they relied on.

Principle 9

Electronic disclosure documents should have the same content, presentation and prominence of information as paper versions.

Principle 10

Hypertext links to, from or within the electronic disclosure document should not be used to take investors to material not forming part of the electronic disclosure document, other than jurisdictional confirmations or educational material.

Principle 11

Electronic application forms must be included in, or accompanied by, the electronic disclosure document.

Principle 12

Electronic application forms should contain appropriate warnings to ensure that investors are informed of the importance of reading the disclosure document before applying for securities.

Principle 13

Electronic application forms should contain verification processes and should be secure.

Principle 14

Reasonable measures should be taken to ensure that offers are only made in jurisdictions

where the offer complies with the relevant securities laws. Principle 15

Promotional material should not be published in a way that may cause it to be confused with all or any part of the electronic disclosure document.

ASIC’s role RG 107.12 ASIC administers OFFERlist, a database providing information on current and past disclosure documents. We will continue to include details on OFFERlist of where disclosure documents may be accessed, including through a website. RG 107.13 We will consider applications for relief from offerors where there is some doubt about whether the proposed electronic disclosure document is a copy of the paper disclosure document lodged with ASIC. B Offers of securities using email or the internet under Ch 6D Key points This section sets out our interpretation of the fundraising provisions under Ch 6D and how they apply to: • making offers of securities using and distributing electronic disclosure documents, including by email and the internet; and • using and distributing electronic application forms for offers of securities, including by email, and through online applications and electronic payment processes. Our relief is not required for using electronic disclosure documents if the electronic version has the same content, presentation and prominence of information as the paper version lodged with ASIC. This section sets out some of the circumstances in which we may consider granting individual relief to facilitate the broader use of electronic disclosure documents. This section also provides some guidance on issues that might arise from email or internet distribution of these documents.

Key requirements in Ch 6D

RG 107.14 The fundamental policy of the fundraising provisions in the Corporations Act is to ensure that investors can make informed investment decisions on the basis of a current disclosure document containing or incorporating all material and relevant information about the securities being offered and about the person offering the securities for issue or sale. RG 107.15 The key components of the regulatory regime that are relevant in this context are summarised in Table 2.

Table 2: Key Ch 6D requirements Requirement

Description

Section

Offers of securities The Corporations Act s 706, 707, 708, require a disclosure requires an offer for issue 708AA, 708A, 718 document or sale of securities to be and 727 made using a disclosure document, unless the offer falls into a relevant exception. The disclosure document must be lodged with ASIC. Information required in a disclosure document

The Corporations Act requires that investors (and their advisers) are provided with sufficient information to make an informed investment decision.

s 710, 711, 713 and 715

Application form included in, or accompanied by, disclosure document

The Corporations Act requires that application forms for an offer of securities are only distributed if they are included in, or

s 723 and 727

accompanied by, a disclosure document. This establishes a mechanism so that the investor receives a current disclosure document (which satisfies the information needs of investors and their advisers) before applying for securities. Advertising and securities hawking restrictions

The Corporations Act s 734 and 736 seeks to ensure that investors are encouraged to make investment decisions on the basis of a disclosure document rather than on the basis of promotional material or pressure selling.

Updating requirements

The Corporations Act seeks to ensure that investors receive any necessary updates to information before their investment decision is finalised.

Civil liability provisions

The Corporations Act s 729, 737 and 738 seeks to ensure that investors have access to appropriate remedies if they invest on the basis of defective disclosure.

s 719 and 724

RG 107.16 The requirements in Ch 6D apply to offers of securities made in any form, whether oral or written, and whether the offer is

made on paper, by email or on the internet. Offering securities for issue includes inviting applications for the issue of securities, and offering securities for sale includes inviting offers to purchase the securities. RG 107.17 For a person to make an offer of securities, or distribute an application form for an offer of securities, they must first lodge a disclosure document for the offer with ASIC. RG 107.18 While ASIC is permitted under s 352 to accept electronic lodgement of documents, we do not generally accept electronic lodgement of disclosure documents under Ch 6D. This is because disclosure documents lodged with ASIC must be made accessible on the public register and our systems are not currently able to do this if a document is lodged electronically. In addition, changes would be needed to ensure that documents could be authenticated electronically and readability issues addressed (for paper documents, the Corporations Regulations 2001 contain requirements to promote legibility). RG 107.19 However, we will consider whether we may accept electronic lodgement of disclosure documents in the future. In the interim, we will consider granting individual relief to enable electronic lodgement, where necessary or desirable, to facilitate the use of electronic disclosure documents. When is ASIC relief required for offers of securities using email or the internet? RG 107.20 The underlying purpose of the relevant provisions in Ch 6D is to ensure that persons considering applying for securities under an offer are given the same information as is included in the disclosure document lodged with ASIC. RG 107.21 Our view is that electronic disclosure documents can be used and distributed without the need for ASIC relief, and constitute a ‘copy’ of the lodged disclosure document, provided that the electronic disclosure document: (a) is identical in format and content to the disclosure document lodged with ASIC — for example, where the electronic disclosure

document is merely a scanned copy of the paper disclosure document lodged with ASIC, saved or stored in portable document format (PDF); or (b) contains the same information in the same sequence and with the same prominence, as the lodged disclosure document, with the exception of modifications that are immaterial and reflect necessary adjustments or increased functionality when using different electronic media — for example, modifications to enable the electronic document to be accessed and displayed in html format or on a web-based platform. RG 107.22 Our view in RG 107.21 reflects the legal requirement that, if an offer of securities needs disclosure to investors under Pt 6D.2 of the Corporations Act, a person is prohibited from offering securities or distributing an application form for the offer unless: (a) a disclosure document for the offer is lodged with ASIC; and (b) the offer or form is included in the disclosure document or accompanied by a copy of the disclosure document: see s 727. RG 107.23 Currently, disclosure documents must be lodged with ASIC in paper format unless ASIC agrees in writing to electronic lodgement in relation to a specific disclosure document: see s 352(1). This means it is important to determine whether the electronic disclosure document used to make an offer of securities is, for the purposes of Ch 6D, the disclosure document lodged with ASIC or a ‘copy’ of the paper disclosure document lodged with ASIC. RG 107.24 We had previously resolved this question by granting the relief in [CO 00/044], for the avoidance of doubt, and to the extent that the provisions in Ch 6D (specifically, s 718 and 727) may have required a disclosure document distributed to investors to be a true copy, printed on paper, of a disclosure document lodged with ASIC. However, our view is that electronic disclosure documents can be used and distributed without the need for ASIC relief where the circumstances in RG 107.21 are met.

Use of electronic devices RG 107.25 To facilitate electronic disclosure documents being accessible and readable on different electronic devices (e.g. computers, smartphones and tablets), we recognise that modifications to the presentation and format of these documents may be required. In our view, relief is not required for necessary modifications to the display information in the electronic disclosure document on the investor’s electronic viewing device or in a print-out. Additionally, relief is not required for the use of aids to assist investors in reading the disclosure document — for example, the ability to enlarge text. This is provided that these modifications do not change the information, its prominence or its sequence. Use of hypertext links RG 107.26 Hypertext links and search facilities within an electronic disclosure document can assist readers to navigate through the document easily, and can make information more accessible (including allowing the reader to directly access sections of the document through the table of contents and to access documents incorporated by reference within the electronic disclosure document). We encourage the use of hypertext links and search tools within an electronic disclosure document to assist the reader. RG 107.27 In our view, the use of hypertext links or the inclusion of search facilities will not, in itself, require our relief, because this would not change the content, presentation or prominence of the information contained in the electronic disclosure document from the paper disclosure document lodged with ASIC. Note: Principle 9 of our good practice guidance provides that electronic disclosure documents should contain the same information, in the same sequence and with the same prominence, as the paper disclosure document lodged with ASIC. The discussion in Principle 9 explains the modifications that can be made to the electronic disclosure document for it still to be considered a copy of the lodged paper version. The discussion in Principle 10 explains how we believe hypertext links should be used to, from or within an electronic disclosure document.

Use of video and audio presentations RG 107.28 We also aim to encourage and facilitate the use of nonprint based communication (e.g. video or audio presentations) to

assist investors in understanding information and making informed investment decisions. However, in our view, information communicated in non-print form may not constitute a copy of the paper disclosure document lodged with ASIC. RG 107.29 Therefore, we encourage offerors seeking to use non-print based communication or multimedia platforms to assist in presenting the information in their electronic disclosure documents to make an application to ASIC for individual relief for our consideration. Electronic disclosure documents RG 107.30 An offeror or distributor that wishes to use electronic disclosure documents needs to ensure that these documents are easy to access and are capable of being easily saved and printed by the investor so that the investor can access an electronic version of the document at any time following the offer. Note: The discussion in Principles 1, 7 and 8 of our good practice guidance explains what steps we believe offerors, distributors and publishers should take to ensure the accessibility and retention of electronic disclosure documents.

RG 107.31 While we want to encourage and facilitate the use of electronic disclosure documents, we also believe that investors should have the opportunity to obtain a free paper copy on request — and to be informed of this right — to ensure that disclosure is freely available to all sections of the community in whatever form they choose. Note: Principle 5 of our good practice guidance states that, if an electronic disclosure document is available, free paper copies should also be made available on request.

RG 107.32 We also recognise that there are certain risks that could arise from the use and distribution of electronic disclosure documents, including that electronic disclosure documents are potentially vulnerable to hacking or unauthorised alteration and tampering of information contained within the document. RG 107.33 Offerors, distributors and publishers need to ensure that adequate safeguards and precautions are in place to help reduce the risks of tampering. This will ensure that the electronic disclosure document received by the investor is the same as the paper disclosure document lodged with ASIC, and has not been tampered with or altered in any way (including the form, order, context and

content). Note: The discussion in Principle 4 of our good practice guidance refers to some of the safeguards that should be considered to make an electronic disclosure document safe from unauthorised tampering or amendment (e.g. using a locked PDF file or a tagged image file format (TIFF), and using adequate firewall protection).

Electronic application forms and electronic acceptances RG 107.34 There is no requirement in the Corporations Act for an application form to be lodged with ASIC when lodging a disclosure document. RG 107.35 Under the Corporations Act — specifically, s 723 — securities may only be issued or transferred in response to an application form if the person issuing or transferring the securities has reasonable grounds to believe that: (a) the application form was included in, or accompanied by, the disclosure document when the form was distributed by the person issuing or transferring the securities; or (b) the application form was copied, or directly derived, by the person making the application from a form referred to in RG 107.35(a). RG 107.36 Distributing and accessing disclosure documents and application forms by electronic means may make complying with these legal requirements more difficult to satisfy than distributing these documents in a paper format. RG 107.37 There is a risk arising from the distribution of electronic disclosure documents and electronic application forms that an investor may receive an application form without receiving the disclosure document. Offerors need to take steps to satisfy themselves that they have reasonable grounds to believe that the application form that the investor has received was accompanied by the electronic disclosure document. Note: The discussion in Principles 10 and 11 of our good practice guidance contains some measures that we believe offerors, distributors and publishers should consider when distributing electronic application forms to assist offerors in satisfying this requirement.

RG 107.38 Offerors, and distributors on behalf of offerors, are able to

accept electronic application forms for offers of securities. If online applications are to be received, adequate safeguards and precautions should be in place (including encryption software, protection of confidential information, and adequate firewall protection) to ensure that information transmitted through email or the internet remains secure and safe from hacking. Note: The discussion in Principle 13 of our good practice guidance contains some precautions that we believe offerors and distributors should consider if they are to receive electronic applications for offers of securities.

Electronic payment processes RG 107.39 We consider that the use of electronic payment processes (e.g. BPAY) to apply for securities, without investors being required to submit a completed application form to the issuer, may comply with the legal requirements and meet the underlying policy objectives of s 723(1). RG 107.40 The underlying purpose of s 723(1) is to ensure that a person applying for securities has received, and is making an investment decision based on, a current disclosure document. In our view, an issue or transfer of securities that occurs as a result of an electronic payment (e.g. BPAY) without the investor submitting a completed application form may, in certain circumstances, meet the requirement that the securities are issued or transferred ‘in response to an application form’ and that the form has been directly derived from an application form that was included in, or accompanied by, the disclosure document. RG 107.41 We believe that an electronic payment process that contains a means of verifying or linking an identifiable investor’s electronic payment to an application form distributed with a specific version of the disclosure document (including any supplementary or replacement disclosure document) is likely to satisfy s 723(1). RG 107.42 In our view, this verification can be achieved if an investor makes an electronic payment using information that is contained only in an application form that was received together with a disclosure document (where that information is unique to the investor, the offer and to the specific version of the disclosure document), and if the

issuer or the issuer’s share registry can only issue or transfer the securities on receipt of that information. RG 107.43 An example of an electronic payment process that satisfies the above settings is one that has the following features (which we understand is similar to the current BPAY payment process): (a) the investor receives a disclosure document together with a personalised application form which contains information that must be used by the investor to make an electronic payment, including: (i) information that identifies the issuer (issuer identifier) (e.g. a numerical code such as a biller code); and (ii) information that is unique to the investor and to the disclosure document, which allows the investor and the disclosure document to be identified (investor identifier) (e.g. a customer reference number or barcode number); Note: The information in paragraphs RG 107.43(a)(i) and RG 107.43(a)(ii) can only be derived from the personalised application form that accompanied, or was included in, the disclosure document and not from any other source.

(b) when an investor makes an electronic payment, the issuer or the issuer’s share registry receives notification (e.g. BPAY notification) from the issuer’s financial institution of the payment amount, payment date, the issuer identifier and the investor identifier; and (c) the issuer or the issuer’s share registry uses: (i) the payment amount to calculate the number of securities applied for; (ii) the issuer identifier to identify or confirm the offer and the issuer; and (iii) the investor identifier to identify the investor to which the payment relates. Note: The issuer should also be able to use the information received (or received

by its share registry) to determine which version of the disclosure document the investor received with the application form (which contained the information required to make the payment).

RG 107.44 We recognise that new electronic payment processes with different features may develop over time. If these do not satisfy the legal requirements, but may satisfy the policy objectives of s 723(1), we will consider applications for individual relief. Electronic supplementary and replacement disclosure documents RG 107.45 A paper disclosure document lodged with ASIC may be updated or replaced by a supplementary or replacement disclosure document. The supplementary or replacement disclosure document lodged with ASIC must be in paper format, unless we agree to electronic lodgement in relation to that specific document. RG 107.46 Following lodgement of a supplementary or replacement disclosure document, any new offers to an investor must be made in, or be accompanied by: (a) the original disclosure document together with the supplementary disclosure document; or (b) the replacement disclosure document. RG 107.47 In addition, offerors or persons involved in the distribution of an offer should consider providing the supplementary or replacement document to investors who have already received the original disclosure document if this will assist investors in making an investment decision. RG 107.48 Sometimes a supplementary or replacement disclosure document is lodged because the original disclosure document makes a misleading statement, omits information or does not refer to a new circumstance. If any of these are ‘materially adverse’ from the point of view of an investor, and the issuer does not opt to repay the application money, the Corporations Act requires the supplementary or replacement disclosure document to be provided to all applicants: see s 724(2).

RG 107.49 Consistent with the original disclosure document, electronic distribution of the supplementary or replacement disclosure documents is permissible under Ch 6D. If the original disclosure document was available in electronic format, any supplementary or replacement disclosure document should also be made available in electronic format. Note: The discussion in Principle 6 of our good practice guidance explains what steps we think should be taken by offerors and distributors when distributing supplementary and replacement disclosure documents.

RG 107.50 The use of electronic disclosure documents and electronic application forms may create potential difficulties for offerors and distributors in knowing which version of the disclosure document was accessed in relation to an application (i.e. whether it was based on the original disclosure document or any updated disclosure document). In our view, such difficulties can be overcome if offerors and distributors retain copies and records of all electronic disclosure documents distributed to investors. Note: The discussion in Principle 8 of our good practice guidance explains what steps we think offerors, distributors and publishers should take to ensure that adequate copies and records of electronic disclosure documents are retained.

RG 107.51 To comply with s 723(1) of the Corporations Act, offerors need to take steps to help determine which version of the disclosure document a particular application form accompanied if new offers are made after the lodgement of a supplementary or replacement disclosure document. Advertising and social media RG 107.52 The Corporations Act provides advertising restrictions in relation to an offer of securities. These restrictions are to ensure that investors make a decision about the offer of securities on the basis of the disclosure document and not promotional material. RG 107.53 Where a disclosure document has been lodged with ASIC, any advertisement or publication in relation to an offer must include statements explaining: (a) who the issuer is and what the securities are; (b) that a disclosure document for the offer is available and how this

may be obtained; (c) that offers will be made in, or will be accompanied by, a copy of the disclosure document; (d) that persons should consider the disclosure document in deciding whether to acquire the securities; and (e) that persons wanting to acquire the securities will have to complete an application form that will be contained in, or will accompany, the disclosure document. Note: Restrictions in relation to pre-offer advertising and advertising after the lodgement of a disclosure document with ASIC are contained in s 734(5) and (6), respectively. Regulatory Guide 158 Advertising and publicity for offers of securities (RG 158) contains further guidance on pre-offer advertising.

RG 107.54 In the paper environment, the disclosure document is usually a single bound document, which is readily distinguishable from any accompanying advertising material. The electronic environment potentially creates more ambiguity for investors to determine whether the information they are reading is promotional material or part of the electronic disclosure document. RG 107.55 We think that the advertising provisions should be considered by offerors, distributors and publishers during an offer period in relation to information contained on their own websites, social media platforms and blogs, and that care should be taken to ensure that the provisions of the Corporations Act have not been contravened in relation to such information contained on these platforms. RG 107.56 Advertising restrictions apply to all persons and, as such, third parties discussing an offer of securities on a website, social media page or blog should ensure that they do not inadvertently contravene advertising restrictions for offers requiring a disclosure document. Note: The discussion in Principle 15 of our good practice guidance refers to safeguards that should be taken in relation to promotional material about an offer that is published in electronic format, including promotional material distributed by email or published on the internet. Regulatory Guide 234 Advertising financial products and services (including credit):

Good practice guidance (RG 234) provides further guidance for promoters of financial products and publishers of advertising for these products.

Securities hawking provisions RG 107.57 The securities hawking provisions in the Corporations Act stipulate that a person must not offer securities for issue or sale in the course of, or because of, an unsolicited meeting with another person or telephone call to another person. RG 107.58 The hawking prohibitions do not apply to unsolicited communications such as emails, letters, facsimiles, brochures, and media advertisements (press, radio or television), or making a disclosure document generally available on a website. However, when using these communication methods, the offeror or distributor still needs to ensure that they comply with any other relevant laws, including the consumer protection provisions. RG 107.59 Regardless of whether an offeror or distributor is subject to the hawking prohibitions for a particular transaction, the offeror or distributor needs to ensure that it complies with the prohibitions on: (a) unconscionable conduct (s 12CA–12CC of the Australian Securities and Investments Commission Act 2001 (ASIC Act)) and s 991A of the Corporations Act); (b) misleading or deceptive conduct (s 12DA–12DB of the ASIC Act and s 1041E–1041H of the Corporations Act); and (c) harassment or coercion (s 12DJ of the ASIC Act). Jurisdictional issues Offers of foreign securities RG 107.60 Offers received in Australia, irrespective of where the securities are transferred or issued, are subject to the fundraising provisions of the Corporations Act. Therefore, offers transmitted electronically, including by email, into Australia from outside Australia must comply with Ch 6D. Similarly, an offer placed on an internet site generated by a server situated outside Australia will be subject to the fundraising provisions if it is capable of being received in Australia.

RG 107.61 We have given guidance in Regulatory Guide 141 Offers of securities on the internet (RG 141), which explains our policy of not intending to regulate offers, invitations and advertisements of securities that are accessible in Australia on the internet if: (a) the offer, invitation or advertisement is not targeted at persons in Australia; (b) the offer or invitation contains a meaningful jurisdictional disclaimer; (c) the offer, invitation or advertisement has little or no impact on Australian investors; and (d) there is no misconduct. Offers accessible overseas RG 107.62 An electronic disclosure document on an internet site may be accessible throughout the world. As a result, the person issuing the disclosure document may be subject to foreign laws, as well as Australian law. RG 107.63 One way of reducing the risk of contravening foreign securities laws may be to insert into an electronic disclosure document a jurisdictional clause stating to whom it is intended that the offer will be available. Note: The discussion in Principle 14 of our good practice guidance explains what steps we think offerors and distributors should take to ensure that offers are only made in certain jurisdictions.

C Personalised or AFS licensee created application forms Key points This section discusses our class order relief for the use and distribution of personalised or AFS licensee created application forms. We have given this relief in [CO 14/26].

RG 107.64 Under s 723(1), securities may only be issued or transferred in response to an application form and if the person issuing or transferring them has reasonable grounds to believe that: (a) the application form was included in, or accompanied by, the disclosure document when the form was distributed by the person; or (b) the application form was copied, or directly derived, by the person making the application from a form referred to in RG 107.64(a). RG 107.65 We have continued to grant class order relief to facilitate the distribution of personalised and AFS licensee created application forms, and to remove any doubt about whether the requirements of s 723 are met when such application forms are used. Our relief applies to application forms in both paper and electronic formats. RG 107.66 We have granted class order relief because using personalised or AFS licensee created application forms can: (a) promote efficiency and may therefore lead to costs savings which could flow through to investors and industry; (b) assist in reducing the number of errors made in completing and processing multiple handwritten forms; (c) assist in reducing the time currently taken to complete and process handwritten forms; and (d) facilitate electronic acceptances. Personalised and AFS licensee created application forms RG 107.67 Offerors and AFS licensees occasionally personalise application forms they distribute to investors to assist investors with completing these forms. AFS licensees may also create and distribute their own application forms for offers of securities. A form created by an AFS licensee may differ from the application form distributed by the offeror to issue or transfer the securities.

RG 107.68 Relief is not needed to personalise an application form if the personalised application form has been distributed by the offeror and is included in, or accompanied by, the disclosure document. We consider that this is the case whether or not a blank application form was included in the paper disclosure document lodged with ASIC (as there is no requirement in the Corporations Act for an application form to be lodged with ASIC). RG 107.69 If an AFS licensee creates an application form, or personalises an application form that has been distributed by the offeror, the offeror may not have reasonable grounds to believe that the conditions in s 723(1) are satisfied, because: (a) the personalised application form or AFS licensee-created application form is not the form that was distributed by the offeror; (b) the personalised application form is not a form that has been copied, or directly derived, by the person making the application from a form distributed by the offeror, unless the person making the application has authorised the AFS licensee to copy or derive the application form from the application form distributed by the offeror; and (c) the application form created by the AFS licensee has not been copied, or directly derived, by the investor from an application form included in or accompanied by the disclosure document distributed by the offeror. RG 107.70 [CO 14/26] provides relief so that an offeror may issue or transfer securities in response to an application form that has been: (a) personalised by an AFS licensee for an investor — our relief overcomes any concerns about the personalised application form not being one that has been distributed by the offeror, or not being copied or directly derived from such a form by the investor; or (b) created by an AFS licensee — our relief overcomes any concerns about an application form created by an AFS licensee

not being one that has been distributed by the offeror, or not being copied or directly derived from such a form by the investor. RG 107.71 AFS licensees creating or personalising application forms should ensure that they comply with the licensee obligations under the Corporations Act and any authorisation or conditions on their AFS licence. Note: Regulatory Guide 36 Licensing: Financial product advice and dealing (RG 36) contains guidance on the meaning of ‘provide financial product advice’, and the meaning of ‘deal in a financial product’ and ‘arranging’ in the context of activities involving the distribution of application forms: see, in particular, Table 4 in RG 36. In addition, Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244) contains guidance about how AFS licensees can distribute and present information about a financial product without giving financial product advice, and Regulatory Guide 221 Facilitating online financial services disclosure (RG 221) contains ‘good practice guidance’ on how to deliver online financial services disclosure (e.g. Product Disclosure Statements and Financial Services Guides) to clients under Pts 7.6–7.9 of the Corporations Act.

Requirements of the class order RG 107.72 An offeror may rely on the relief in [CO 14/26] if all of the requirements of the class order are fully complied with: see Table 3. Table 3: Requirements in [CO 14/26] Requirement Description Access

The investor is given access to the disclosure document at the same time and by the same means as access to the application form. Note: The reference to ‘disclosure document’ includes any supplementary or replacement disclosure document lodged with ASIC: see s 719(4) and (5) of the Corporations Act.

Application form

The application form contains: • the following particulars of the offer and the disclosure document: – the identity of the issuer;

– the nature of the securities being offered (e.g. ordinary shares or options); – the price of the securities; – the date of the disclosure document; and – the expiry date of the disclosure document; and • a prominent statement to the effect that: – there is a disclosure document with information about investing in the securities; and – it is advisable to read the disclosure document before applying for the securities. D Good practice guidance Key points In this section, we have set out our good practice guidance for the use and distribution of electronic disclosure documents and electronic application forms. This guidance focuses primarily on the distribution of documents by email and the internet. However, the principles of good practice should be applied to any electronic method of distributing disclosure documents and application forms. We encourage offerors, distributors and publishers to apply our good practice guidance when distributing electronic disclosure documents and electronic application forms.

Principles for good practice guidance RG 107.73 Our 15 principles for good practice guidance seek to ensure that investors receive clear, concise and effective disclosure when disclosure documents and application forms are distributed in electronic format. Our principles aim to address some of the specific risks that may arise or increase when using and distributing electronic disclosure documents and electronic application forms. RG 107.74 Some of this guidance includes our views on the legal requirements in Ch 6D. Our principles aim to assist offerors, distributors and publishers in complying with their legal obligations,

and meeting the objectives underlying the provisions, in Ch 6D. We encourage offerors, distributors and publishers of electronic disclosure documents to apply our good practice guidance when using email and the internet for making offers of securities. RG 107.75 While our guidance is directed to prospectuses and other Ch 6D disclosure documents, we encourage offerors to apply the principles (where applicable) to other ‘prospectus-like’ documents (e.g. offer documents used for entitlement offers). Principle 1: Ensuring ease of access to electronic disclosure documents Principle 1 Electronic disclosure documents should be easy to access, retrieve and read.

RG 107.76 We recognise that electronic disclosure documents may be distributed to investors in a number of different ways. We understand that the main way in which electronic disclosure documents and electronic application forms are currently distributed in the market is by sending an email to an investor containing: (a) a downloadable electronic copy of the disclosure document (i.e. a locked PDF or TIFF file); or (b) a hypertext link to the disclosure document (on a webpage) or to a website containing the disclosure document. RG 107.77 When a disclosure document is made available on a website, we think it should be easy to find and access, particularly as investors may wish to view the document more than once. Investors should also be provided with clear instructions on how to view and download the disclosure document. RG 107.78 When an investor is provided with a hypertext link to the electronic disclosure document or to a website, the link should take the investor:

(a) directly to the disclosure document itself. Hypertext links should take an investor to the first page of the disclosure document and not to a subsidiary page within the disclosure document (e.g. the hypertext link should not take an investor straight to an application form); (b) to a webpage containing the disclosure document (rather than a generic website address); or (c) to a webpage confirming the person’s eligibility to participate in the offering (including but not limited to a jurisdictional disclaimer or confirmation). RG 107.79 This is not intended to be an exhaustive description of the ways in which electronic disclosure documents may be distributed to investors. We acknowledge that there may be other methods of electronic distribution that are currently used in the market, and that technological developments may emerge in the future that create new ways for electronic distribution. We believe that it is up to the offeror to assess and determine the most appropriate method of distribution, taking into account the needs of investors. Principle 2: Managing security risks Principle 2 Electronic disclosure documents should be distributed in a way that does not unreasonably expose investors to security risks.

RG 107.80 When an offeror or distributor distributes an electronic disclosure document by email with a hypertext link to a website containing the electronic disclosure document, the email should state whether the website is secure and that any personal details provided by the investor (e.g. to access the disclosure) will be kept confidential. RG 107.81 An offeror should take reasonable steps to ensure that a website that contains the electronic disclosure document or electronic application form is secure.

RG 107.82 We believe such reasonable steps would include the offeror ensuring that the publisher has a legal or contractual obligation (e.g. under the terms of any agreement between the offeror and publisher) to ensure that: (a) the website containing the electronic disclosure document or electronic application form is, and will remain, secure; and (b) the publisher has adequate software and safeguards to mitigate security risks. RG 107.83 Offerors and distributors should continue efforts to educate investors about internet scams and other security risks (e.g. phishing, fraud and data corruption or tampering), and may wish to direct investors to www.staysmartonline.gov.au. Principle 3: Ensuring receipt of electronic disclosure documents Principle 3 Offerors and distributors that distribute electronic disclosure documents for an entitlement offer to existing investors of a company should take reasonable steps to ensure that investors receive the electronic disclosure document.

RG 107.84 In the case of entitlement offers to existing investors of a company, it is important that offers are made to all eligible investors. It is becoming more common for investors to nominate an email address to receive communications from companies. Offerors and distributors should use that email address when sending electronic disclosure documents to investors. RG 107.85 If an offeror or distributor becomes aware that an existing investor of a company has not received the electronic disclosure document (e.g. the offeror or distributor receives an undeliverable email notice), it should make reasonable attempts to contact the investor by other means to give them the disclosure document (e.g. by sending it to an alternative electronic address, if one has been provided, or by sending a paper copy by mail to the investor).

RG 107.86 We do not expect offerors and distributors to use special software to monitor whether emails containing electronic disclosure documents have been received, read or accessed. In our view, using a standard email ‘bounce-back’ or undeliverable notification function is a reasonable step that offerors and distributors can take to monitor the receipt of electronic disclosure documents. RG 107.87 We recommend that offerors (and their share registries, as relevant) should endeavour to ensure that investors’ contact details are kept up to date, particularly their email addresses if the offeror proposes to distribute entitlement offers to investors by email. Principle 4: Ensuring electronic disclosure documents received are complete and protected from tampering Principle 4 Offerors, distributors and publishers should take reasonable measures to ensure that electronic disclosure documents received by investors are complete and have not been altered or tampered with.

RG 107.88 There are a variety of measures that an offeror, distributor or publisher can take to protect the integrity of an electronic disclosure document from unauthorised alteration or tampering, such as: (a) using firewall software to control the security settings of a webpage containing the electronic disclosure document; or (b) using protection tools — such as permission password encryptions, and locked and read-only functions — to control the security settings of the document. RG 107.89 The use of protection features should not prevent the electronic disclosure document from being downloaded, saved or copied by the investor into a personal electronic file for the investor’s own records. RG 107.90 We recommend that offerors and distributors clearly inform investors that they should contact the issuer if they are concerned that

they have received an incomplete or altered version of the disclosure document, and advise them how to do so. RG 107.91 An offeror, or a distributor on behalf of an offeror, must not accept an application for securities if it has reason to believe that an investor has, or may have, received an electronic disclosure document that is incomplete, or may have been altered or tampered with. Principle 5: Providing free paper disclosure documents on request Principle 5 Offerors and distributors that distribute electronic disclosure documents and electronic application forms should make available free paper copies of disclosure documents and application forms on request by an investor.

RG 107.92 An offeror or distributor should make available, during the life of the electronic disclosure document, paper versions of the disclosure document (including any supplementary or replacement document) and the application form, on request by an investor and free of charge. Such paper versions should be sent to the investor within a reasonable time period, being no more than two to three business days from the request being received. RG 107.93 Any person receiving the electronic disclosure document should be clearly informed that they may obtain a paper version of the disclosure document and advised how they may do so. Principle 6: Ensuring access to updated disclosure documents Principle 6 Offerors and distributors of electronic disclosure documents should make updated disclosure documents available in both paper and electronic format.

RG 107.94 Offerors and distributors that have distributed the original disclosure document in both a paper and electronic format should

ensure that any supplementary or replacement disclosure documents are also made available in both a paper and electronic format. RG 107.95 Care should be taken so that investors do not continue to consider an outdated document in making their investment decision. If a disclosure document is generally accessible from a website, steps to avoid this might include: (a) removing outdated documents from the website; and/or (b) ensuring that the updated disclosure documents are accessible at least as easily as the original disclosure document, and that there are clear directions about which are the current disclosure documents that investors should consider in making an investment decision. RG 107.96 As a matter of good practice, offerors, or distributors on behalf of offerors, should not accept applications if they have reason to believe an investor is making an investment decision based on an outdated disclosure document without the benefit of any supplementary or replacement disclosure document. To do so in circumstances where the offer is made after the supplementary or replacement document has been lodged with ASIC, or where the updated disclosure document contains information that is ‘materially adverse’ from the point of view of the investor, may contravene the Corporations Act. Note: See s 719(4) and (5), 723 and 724.

RG 107.97 If a supplementary or replacement disclosure document is lodged with ASIC, offerors should take steps to help determine which version of the disclosure document an application is based on. This is particularly the case if new offers may be made after a supplementary or replacement document has been lodged with ASIC without any active steps being taken by the offeror — for instance, if the original disclosure document has continued to be accessible from a website. Examples of steps an offeror could take include: (a) assigning a number to each version of an electronic application form that links it to a particular version of the disclosure document that has been made available; or

(b) where an electronic payment process is available that allows investors to apply for securities without submitting a completed application form, providing a personalised application form that contains information that is unique to a specific version of the electronic disclosure document (e.g. an ‘investor identifier’ or ‘issuer identifier’), which must be used by an investor to make an electronic payment. Note: See RG 107.39–RG 107.44 for further discussion about electronic payment processes.

Principle 7: Ensuring access to electronic disclosure documents in the future Principle 7 Investors should be able to keep a copy of the electronic disclosure document so that they can access it in the future.

RG 107.98 The electronic disclosure document should be capable of being easily downloaded, printed and saved so that an investor is able to access at any later time a copy of the disclosure document that they viewed. RG 107.99 If the disclosure document is provided through a hypertext link to a webpage, offerors and distributors should encourage investors to make an electronic copy or, where practical, a printed copy of the disclosure document. RG 107.100 Offerors, distributors and publishers should also ensure that the electronic disclosure document continues to be accessible from the link to the webpage for a period that they consider is reasonable (and at least until the expiry of the disclosure document). RG 107.101 We think that a period of two years would be reasonable for most disclosure documents to continue to be accessible, unless the disclosure document has been superseded or updated sooner. If it is not possible to continue to make the electronic disclosure document available from the specified link or webpage throughout that period, the offeror or distributor should make it easy for clients to request an

electronic or paper copy of the disclosure document free of charge (e.g. by providing a toll-free telephone number, an electronic address or a request button). Principle 8: Retaining copies and records of electronic disclosure documents Principle 8 Offerors, distributors and publishers should retain copies and records of all electronic disclosure documents so that investors are able to prove which version of the disclosure document they relied on.

RG 107.102 Offerors, distributors and publishers should retain a copy of all versions of the electronic disclosure document that they distribute or publish. RG 107.103 As a matter of good practice, these records should be kept for a period of at least seven years (or as required by law). RG 107.104 An offeror or distributor that provides the ability for an investor to apply for securities by using software should also retain a copy of each screen that would be displayed to the investor using the software to apply for securities, in any durable and legible medium. RG 107.105 Offerors, distributors and publishers should also maintain records that are adequate to demonstrate that a particular electronic application form was included in, or accompanied by, the electronic disclosure document. Principle 9: Ensuring that electronic disclosure documents have the same information as paper versions Principle 9 Electronic disclosure documents should have the same content, presentation and prominence of information as paper versions.

RG 107.106 The electronic disclosure document distributed to an investor should contain the same information, in the same sequence and with the same prominence, as the paper disclosure document lodged with ASIC. RG 107.107 Modifications to electronic versions of the disclosure document should only be included where those modifications are immaterial and reflect necessary adjustments or increased functionality when using different electronic media — for example: (a) the inclusion of hypertext links (see further guidance in Principle 10 below); (b) formatting changes required as a result of compatibility issues (i.e. font sizes, page margins and general formatting); (c) the use of additional electronic functions that do not affect the content of the document, such as: (i) a facility for searching defined expressions; (ii) prompts to help investors use and find information in the electronic disclosure document; (iii) ‘pop-ups’ that explain definitions, in place of standard glossaries; and (iv) a zoom facility so that investors may enlarge or reduce the information displayed; and (d) prompts that encourage investors to read the disclosure document before they complete the application form. Such prompts should not contain substantive information that does not appear in the paper disclosure document lodged with ASIC. RG 107.108 We think that the electronic version of a disclosure document should not cause an investor to confuse all or part of the disclosure document with any other document. Principle 10: Ensuring appropriate use of hypertext links to, from

and within electronic disclosure documents Principle 10 Hypertext links to, from or within the electronic disclosure document should not be used to take investors to material not forming part of the electronic disclosure document, other than jurisdictional confirmations or educational material.

Hypertext links to the electronic disclosure document RG 107.109 We think that hypertext links can assist in the efficient distribution and accessing of electronic disclosure documents, either on a webpage or by email. We think that a hypertext link should take an investor directly to the electronic disclosure document itself, to a webpage containing the disclosure document or to a webpage confirming the investor’s eligibility to participate in the offering (including but not limited to a jurisdictional disclaimer or confirmation), and not to a page that contains information about the offeror and/or the offer. RG 107.110 Additionally, the page or email containing the hypertext link should not contain any information about the offeror and/or offer that may contravene the advertising provisions in s 734. Hypertext links to the electronic application form should only be accessible through the electronic disclosure document itself. Hypertext links within the electronic disclosure document or to documents incorporated by reference RG 107.111 We encourage the use of hypertext links in electronic disclosure documents in the following ways: (a) within the electronic disclosure document itself (i.e. between a contents page and each section of the document, between sections of the document, or between defined expressions and the places where the expressions are used); (b) from the electronic disclosure document to documents incorporated by reference — where that information is available

electronically (e.g. on the ASX Market Announcements Platform or on the offeror’s website) — and only if a reasonable person would be unlikely to confuse the linked documents with the electronic disclosure document; and Note: Under s 712, a disclosure document may refer to a document that has been lodged with ASIC instead of setting out information that is contained in that document, provided that the reference (among other things) identifies the document that contains the information and informs a person of their right to obtain a copy of the document. This is commonly referred to as ‘incorporated by reference’. It is not sufficient to link to other documents for them to be incorporated by reference, as these documents must be lodged with ASIC.

(c) from the electronic disclosure document to educational material (e.g. webpages on ASIC’s MoneySmart website) providing information about the risks associated with investing in certain types of securities (e.g. hybrid securities), which may assist an investor in deciding whether or a not particular investment suits their needs. RG 107.112 Hypertext links to documents incorporated by reference should allow the investor to return to the point in the electronic disclosure document at which they entered the link to assist the investor to continue to read the remainder of the disclosure document. RG 107.113 If an investor requests that the incorporated documents are sent to them, the documents should be provided by the same means as the electronic disclosure document, unless the investor has requested paper copies of the incorporated documents. It is not sufficient that the incorporated documents are accessible on the internet unless the offeror gives the investor notice of this and the address of the relevant website. RG 107.114 A hypertext link to an electronic disclosure document should not be provided in a manner that selectively presents only parts of the disclosure document or that reduces the likelihood of an investor reading any part of the disclosure document. RG 107.115 We think that hypertext links should not be used: (a) from the electronic disclosure document directly to promotional material;

(b) from the electronic disclosure document to the electronic application form or electronic payment process (unless the link can only be accessed after the investor has positively confirmed that they have accessed or read the disclosure document); or (c) from a webpage containing the electronic disclosure document to an electronic application form or electronic payment process (unless the link can only be accessed after the disclosure document has been accessed or after the investor has positively confirmed that they have accessed or read the disclosure document). Principle 11: Ensuring electronic application forms are issued in or with an electronic disclosure document Principle 11 Electronic application forms must be included in, or accompanied by, the electronic disclosure document.

RG 107.116 Offerors, distributors and publishers should take reasonable measures to ensure that an investor who is issued with an electronic application form is given access, at the same time and by the same means, to the disclosure document. Note: This guidance reflects the legal requirements in s 721 and 727(1), under which an offer of securities must be made in, or accompanied by, a disclosure document; and s 723(1), under which it is an offence to issue securities unless they are issued in response to an application form and the issuer has reasonable grounds to believe that the form was included in, or accompanied by, the disclosure document (or was copied or directly derived from such a form).

RG 107.117 We consider the following to be examples of reasonable measures that can be taken to satisfy this requirement in the electronic environment: (a) the electronic application form and the electronic disclosure document should be contained in the same electronic document file (e.g. a PDF or TIFF file), with the electronic application form at the end of that file after the electronic disclosure document; or

(b) if providing an electronic application form or electronic payment process to allow investors to apply for securities online, an electronic mechanism or software should be used, through which: (i) investors can gain access to the electronic application form or make an electronic payment only if they have received and accessed the electronic disclosure document; or (ii) offerors, or distributors on behalf of offerors, can verify that the investor received and accessed the electronic disclosure document before accessing and completing the application form, or making an electronic payment. RG 107.118 For example, an offeror or distributor may provide for a ‘certify’ message requiring the investor to confirm that the electronic disclosure document has actually been received and accessed before the application for securities is made. A further example is where investors are provided with a unique personal identification number, which can only be derived from the electronic disclosure document — or from the electronic application form that accompanied, or was included in, the electronic disclosure document — and which is required for an investor to complete the electronic application form or to make an electronic payment for securities. Note: See RG 107.39–RG 107.44 for further discussion about electronic payment processes.

RG 107.119 Offerors might want to take additional steps in their compliance programs. For example, if applications are made through an AFS licensee, an offeror might want to obtain confirmation from the AFS licensee that all investors have received the disclosure document, and to require the AFS licensee to obtain an acknowledgement from the investor that they have received the disclosure document. However, we do not expect offerors to implement mechanisms or software to monitor whether an investor has viewed each page of the electronic disclosure document. RG 107.120 An offeror, or a distributor on behalf of an offeror, must only accept applications for securities if it has reasonable grounds to believe that the electronic application form was included in, or accompanied by, an electronic disclosure document when the

application form was received by the investor. Principle 12: Ensuring appropriate warnings are included in electronic application forms Principle 12 Electronic application forms should contain appropriate warnings to ensure that investors are informed of the importance of reading the disclosure document before applying for securities.

RG 107.121 Offerors and distributors should display a prominent statement, which the investor will see no later than the electronic application form, to the effect that securities will only be issued or transferred on receipt of an electronic application form that was issued together with the electronic disclosure document, or on receipt of an electronic payment that is made with information derived from such a form. RG 107.122 Whether an electronic application form is contained in the same file as the electronic disclosure document (i.e. a PDF or TIFF file), or is an online generated application form, all electronic application forms should display prominent statements to the effect that: (a) there is a disclosure document with information about investing in the securities — including details about the offer and the disclosure document, such as the identity of the issuer, the nature of the securities being offered (e.g. ordinary shares or options), the price of the securities, the date of the disclosure document and the expiry date of the disclosure document; and (b) investors should read the disclosure document before applying for the securities. Note: Application forms should also contain a statement to the effect that, by applying for securities, an investor is agreeing to become a member of the company. This reflects the requirement in s 231(b), which provides that a person is a member of a company if they agree to become a member of the company after its registration and their name is entered on the register of members.

Principle 13: Ensuring electronic application forms are secure Principle 13 Electronic application forms should contain verification processes and should be secure.

RG 107.123 Offerors, and distributors on behalf of offerors, may accept applications for securities that are completed and submitted online, and may accept electronic payment for securities, provided that they have the appropriate systems in place to ensure that such information is securely transmitted and free from possible hacking or fraud. RG 107.124 We consider that electronic application forms should not be able to be transmitted and received electronically unless the offeror or distributor has reasonable systems and controls in place to ensure the security and safety of the information being transmitted. Such systems and controls would include encryption-type software effectively encrypting the confidential information being transmitted, and appropriate firewalls to prevent the hacking of such information once it has been received by the offeror or distributor. RG 107.125 We recommend that offerors and distributors should ensure that electronic application forms are secure to protect them from any unauthorised alteration or tampering and to protect the privacy of the investor’s personal information. Additionally, encryptiontype software should be used to transmit payments and confidential information about the investor. RG 107.126 While we think that it is primarily a matter for the offeror to decide whether an investor must sign an application form — and how to resolve the technical issues for an investor (whether an individual or a corporate entity) signing electronically — we do recommend that offerors, and distributors on behalf of offerors, should take reasonable measures to verify the identity of the investor. RG 107.127 For example, the offeror or distributor may require the investor to:

(a) use personalised log-in details to access the electronic disclosure document, electronic application form and/or details that must be known by the investor in order to make an electronic payment for securities, including: (i) details about how to make an electronic payment; (ii) a unique personal identification number for the investor (e.g. customer reference number); and (iii) an identification code for the issuer (e.g. biller code); (b) provide a verification code, which may be sent by the offeror to the investor’s personal email address, to allow the investor to submit the application form and/or make an electronic payment; or (c) answer a security question (to which they have previously provided the answer) to allow the investor to submit an application form and/or make an electronic payment. RG 107.128 We understand that some offerors might want an investor to sign an application form as evidence that the investor agrees to the terms on which the offeror will issue securities to them. In such instances, an investor should be able to print or download an application form from an electronic disclosure document or website. RG 107.129 Electronic application forms or electronic payment processes should also allow the investor to easily download, print and save a copy of the electronically submitted application form or receipt of payment. While the electronic application form may contain links and information relevant to applying for the securities, these should not distract the investor from reading and understanding the electronic disclosure document or application form. Principle 14: Ensuring offers are only made in specific jurisdictions Principle 14

Reasonable measures should be taken to ensure that offers are only made in jurisdictions where the offer complies with the relevant securities laws.

RG 107.130 Offerors and distributors that distribute electronic disclosure documents should take reasonable measures to ensure that the offer is only received in Australia or other specific jurisdictions where it is intended that the offer will be available, and where they are satisfied that the offer complies with all the relevant securities laws of those jurisdictions. RG 107.131 We think that an electronic disclosure document should contain a prominent statement that the offer or invitation is only available to persons receiving the document in certain specified jurisdictions. RG 107.132 If an electronic disclosure document is made available on the websites of financial intermediaries or regulated markets, these persons should also take measures to avoid targeting residents in countries where the offer of securities to the public is not taking place. RG 107.133 Some additional measures offerors or distributors may wish to take to reduce the risk of contravening foreign securities laws include: (a) the inclusion of a ‘certify’ message on the webpage containing the electronic disclosure document and/or electronic application form, requiring the investor to confirm, before accessing the documents, that they are located in Australia or another specific jurisdiction where the offer is being made; or (b) the use of firewall software to control the security settings of an electronic application form to prevent applications being made by investors located outside Australia or other specific jurisdictions where the offer is being made. Principle 15: Ensuring investors do not confuse promotional material with the electronic disclosure document

Principle 15 Promotional material should not be published in a way that may cause it to be confused with all or any part of the electronic disclosure document.

RG 107.134 Electronic disclosure documents should be presented to investors in a way that encourages investors to make decisions on the basis of the contents of the document and not on the basis of promotional or marketing material. RG 107.135 Offerors, distributors and publishers should not publish promotional material in such a way that a reasonable person would be likely to confuse it with all or any part of the electronic disclosure document. RG 107.136 As a matter of good practice, offerors, distributors and publishers of electronic disclosure documents should take the following reasonable measures: (a) use separate electronic document files for the disclosure document and any promotional and advertising material; (b) in the email containing the electronic disclosure document or a link to the electronic disclosure document, only include a basic description of the offer — for example, the identity of the issuer, the nature of the securities being offered (e.g. ordinary shares or options), the price of the securities and the closing date of the offer; (c) include a clear and prominent statement in any promotional and advertising material to the effect that: (i) the information does not constitute part of the disclosure document; (ii) a disclosure document for the offer is available — and advise on how this may be obtained — and that investors should obtain a copy and read the disclosure document before making an investment decision; and

(iii) securities will only be issued in response to an application form that was either included in, or accompanied by, a disclosure document; and (d) do not provide hypertext links from the electronic disclosure document directly to promotional material. Key terms Term

Meaning in this document

AFS licence

An Australian financial services licence under s 913B of the Corporations Act that authorises a person who carries on a financial services business to provide financial services Note: This is a definition contained in s 761A.

AFS licensee

A person who holds an AFS licence under s 913B of the Corporations Act Note: This is a definition contained in s 761A.

ASIC

Australian Securities and Investments Commission

ASIC Act

Australian Securities and Investments Commission Act 2001

ASX

The exchange market operated by ASX Limited

Ch 6D (for example)

A chapter of the Corporations Act (in this example numbered 6D)

CLERP Act

Corporate Law Economic Reform Program Act 1999

[CO 00/044] (for example)

An ASIC class order (in this example numbered CO 00/44)

Corporations Act

Corporations Act 2001, including regulations made for the purposes of that Act

CP 155 (for example)

An ASIC consultation paper (in this example numbered 155)

disclosure document

A prospectus, a profile statement or an offer information statement for an offer of securities under Ch 6D of the Corporations Act

distributor

Any person sending or disseminating an electronic disclosure document or electronic application form, or a hypertext link to an electronic disclosure document or electronic application form, including but not limited to AFS licensees and excluding offerors and publishers

electronic application form

Any application form for an offer of securities that is distributed and accessed in electronic format, including: • an online or web-based application form, such as one that can be completed and submitted online; and • an application form that is a digital copy of a paper form that is able to be distributed, downloaded or viewed electronically (e.g. by email or on an electronic device)

electronic disclosure

Any disclosure document under Ch 6D of the Corporations Act that is distributed and accessed in electronic format, including: • an online or web-based disclosure document (which may contain electronic content); and • a disclosure document that is a digital copy of a paper document that is able to be distributed, downloaded or viewed electronic electronically (e.g. by email or on an electronic device)

good practice guidance

Good practice guidance, contained in Section D of this guide, for the electronic distribution of disclosure documents and application forms under Ch 6D of the Corporations Act

OFFERlist

A database of all disclosure documents for fundraising offers lodged with ASIC under Ch 6D of the Corporations Act and for some disclosure documents required to be lodged under Pt 7.9

offeror

Any person making an offer of securities under Ch 6D of the Corporations Act, including any person issuing or transferring securities under Ch 6D. Offering securities includes inviting applications for the issue of securities and inviting offers to purchase the securities: s 700(2)

old Corporations Law

The law, set out in s 82 of the Corporations Act 1989, which preceded the Corporations Act. A reference to the old Corporations Law is a reference to the law as it stood before the implementation of the CLERP Act

PDF

Portable document format

phishing

Emails or text messages that attempt to deceive a person into disclosing their personal information, such as usernames, passwords or banking details

Pt 6D.2

A part of the Corporations Act (in this example numbered 6D.2)

publisher

Any person who publishes through electronic means an electronic disclosure document or electronic application form in the course of business. This includes a website host provider, through which an electronic disclosure

document or electronic application form can be accessed RG 107 (for example)

An ASIC regulatory guide (in this example numbered 107)

s 723 (for example) A section of the Corporations Act (in this example numbered 723), unless otherwise specified TIFF

Tagged image file format

Related information Headnotes advertising, AFS licensee, AFS licensee created application form, Australian financial services licensee, disclosure document, electronic application form, electronic disclosure document, electronic distribution, electronic payment process, hypertext link, offer of securities, personalised application form, social media Class orders [CO 00/044] Electronic disclosure documents, electronic application forms and dealer personalised applications (now superseded [SCO 00/44]) [CO 14/26] Personalised and AFS licensee created application forms for offers of securities Regulatory guides RG 36 Licensing: Financial product advice and dealing RG 141 Offers of securities on the internet RG 150 Electronic applications and dealer personalised applications (now superseded SRG 150) RG 158 Advertising and publicity for offers of securities RG 221 Facilitating online financial services disclosure RG 234 Advertising financial products and services (including credit): Good practice guidance

RG 244 Giving information, general advice and scaled advice Legislation ASIC Act, s 12CA–12CC, 12DA–12DB and 12DJ Corporate Law Economic Reform Program Act 1999 (CLERP Act) Corporate Law Economic Reform Program Bill 1998 (CLERP Bill) Corporations Act, Ch 6D, s 52, 706, 707, 708, 708AA, 708A, 710, 711, 713, 715, 718, 719, 723, 724, 727, 729, 734, 736, 737, 738, 991A, 1041E–1041H Consultation papers and reports CP 155 Prospectus disclosure: Improving disclosure for retail investors CP 211 Facilitating electronic offers of securities: Update to RG 107 REP 261 Response to submissions on CP 155 Prospectus disclosure: Improving disclosure for retail investors

¶10-141 Regulatory guide 141: offers of securities on the internet (previously policy statement 141) History: issued as PS 141 in February 1999, updated March 2000, reissued as RG 141 on 5 July 2007. Offering securities for subscription or purchase — Offers of securities on the internet — Offshore and Australian securities issuers — Jurisdictional disclaimers — Enforcement activities — Corporations Law, Pt 7.12. Date of Ruling: 2 March 2000 Related instruments [CO 99/43], [CO 96/1578], [CO 99/790], [CO 00/97] Chapter 7, Part 7.12 — Offering securities for subscription or purchase Reissued 2/3/2000

Previous version: Superseded Policy Statement 141 [SPS 141] (issued 10/2/1999) From 5 July 2007, this document may be referred to as Regulatory Guide 141 (RG 141) or Policy Statement 141 (PS 141). Paragraphs in this document may be referred to by their regulatory guide number (e.g. RG 141.1) or their policy statement number (e.g. PS 141.1).

Editor’s note: On 13 March 2000, amendments made to the Corporations Law by the Corporate Law Economic Reform Program Act 1999 come into effect. Class Order [CO 99/43] currently gives relief to issuers of internet offers of securities (see Part A of this guide). Following the commencement of the CLERP Act amendments, it will be replaced (in substantially the same terms) by Class Order [CO 00/97]. (See RG 141.13B for information about the differences between Class Order [CO 99/43] and Class Order [CO 00/97].) This guide has also been updated to make it consistent with relevant aspects of electronic prospectuses relief given by Class Order [CO 99/790], as foreshadowed in Information Release [IR 99/21]. Class Order [CO 00/97] reflects the changes. What this guide is about RG 141.1. This guide sets out when we intend to regulate offers, invitations and advertisements of securities that: (a) appear on the internet; and (b) can be accessed in Australia. RG 141.2. This guide relates to both offshore and Australian issuers of securities. RG 141.3. This guide also sets out our policy on working with regulators in other jurisdictions on internet issues relating to financial products. RG 141.4. This guide covers: A when we do not intend to regulate offers, invitations and

advertisements of securities that appear on the internet; see RG 141.5–RG 141.20 B the use of jurisdictional disclaimers in electronic prospectuses by issuers that we regulate; see RG 141.21–RG 141.28 C our policy on working with international regulators on the use of the internet to make available offers, invitations and advertisements of securities; and see RG 141.29–RG 141.35 D our enforcement activities. see RG 141.36–RG 141.40 A When we do not intend to regulate offers of securities that appear on the internet Our policy RG 141.5. We do not intend to regulate offers, invitations and advertisements of securities that are accessible in Australia on the internet if: (a) the offer, invitation or advertisement is not targeted at persons in Australia; (b) the offer or invitation contains a meaningful jurisdictional disclaimer; (c) the offer, invitation or advertisement has little or no impact on investors in Australia; and there is no misconduct. RG 141.6. We have issued Class Orders [CO 99/43] and [CO 00/97] which give relief to this effect to issuers of internet offers and advertisements: see RG 141.13–RG 141.17. (Class Order [CO 99/43] applies until the commencement of the Corporate Law Economic

Reform Program Act 1999 (CLERP Act). From that time, Class Order [CO 00/97] applies: see RG 141.13A and RG 141.13B. Applications for relief on a case by case basis for proposals outside the terms of the class orders may be lodged at any Regional Office of ASIC. See Regulatory Guide 51 Applications for relief (RG 51) for guidance on how to make an application. Underlying principles RG 141.7. We want to improve certainty for people who use the internet for commercial transactions in respect of our application of the Corporations Law (Law) to offers, invitations and advertisements of securities that can be accessed in Australia on the internet. RG 141.8. We do not generally seek to regulate offers, invitations and advertisements that have no significant effect on consumers or markets in Australia. If every regulator sought to regulate all offers, invitations and advertisements for financial products that were accessible on the internet in their jurisdiction, the use of the internet for transactions in financial products would be severely hampered. Such a stance would also conflict with the Federal Government’s goals in respect of electronic commerce, that is: “It is important to ensure that regulatory interventions support and do not hinder the operation of the competitive process. The benefits that electronic commerce offers, and its increasing use across a wide range of markets, make it important that regulation does not impede the evolution of new electronic technologies and products.” (Corporate Law Economic Reform Program Proposals for Reform: Paper No. 5, “Electronic Commerce Cutting cybertape — building business” (December 1997) p 6.) Explanations Uncertainty about internet regulation RG 141.9. The internet provides a quick, inexpensive and effective distribution mechanism for offers, invitations and advertisements of securities. However, for those involved in making them available on the internet, there is uncertainty about the application of the laws of the jurisdictions in which the offers, invitations or advertisements can

be accessed. This guide has been developed as part of our commitment to recognising the benefits that electronic commerce can offer and removing unnecessary impediments. One of our aims is to improve certainty for those who use the internet for commercial transactions. Prospectus and advertising requirements of the Law RG 141.10. A prospectus is required when an offer or invitation is made in Australia.1 An offer or invitation is made in Australia if it is received in Australia. This means that the Law may apply to an offer or invitation of securities on an internet site accessible from Australia irrespective of where the offeror is located: see Regulatory Guide 56 Prospectuses at RG 56.28 and Regulatory Guide 107 Electronic prospectuses at RG 107.18–RG 107.19, RG 107.100. RG 141.11. The implications of this are significant. This is because the word “offer” when used in the fundraising provisions of the Law (Pt 7.12) is not limited to a technical or contractual meaning. It also includes the distribution of material that would encourage a member of the public to enter into a course of negotiations calculated to result in the issue or sale of securities: see Attorney-General for New South Wales v Australian Fixed Trusts Limited [1974] 1 NSWLR 110; Australian Softwood Forests Pty Ltd & Ors v Attorney-General for New South Wales (1981) CLC ¶40-734; Regulatory Guide 129 Business introduction or matching services at RG 129.3. RG 141.12. Similarly, the Law places significant restrictions on publishing advertisements in Australia: s 1025, 1026 and 1078. Therefore, the advertising restrictions may also apply to an internet site accessible from Australia. Class Orders [CO 99/43] and [CO 00/97] RG 141.13. Class Order [CO 99/43] requires that offering material and advertisements do not target Australian residents (see RG 141.14) and the offering material contains a meaningful jurisdictional disclaimer: see RG 141.15. If these requirements are met, the offer or advertisement should have little or no impact on investors in Australia: see RG 141.16.

RG 141.13A. On 13 March 2000, amendments made to the Law by the CLERP Act come into effect. Following the commencement of the CLERP Act amendments, Class Order [CO 99/43] will be replaced by Class Order [CO 00/97]. RG 141.13B. Class Order [CO 00/97] is substantially the same as Class Order [CO 99/43]. The key differences are: (a) differences reflecting amendments made to the Law by the CLERP Act; and (b) replacing the concept of “Australian resident” with a concept of persons in Australia and persons applying from Australia. This change recognises that the Law protects persons who receive offering material in Australia and not just Australian residents. It also conforms with the jurisdictional disclaimer requirement of Class Order [CO 99/790] (see RG 141.28). (Class Order [CO 99/790] gives relief to issuers who intend to make offers to persons in Australia.) Not targeted at persons in Australia RG 141.14. In order not to target persons in Australia, we believe the offeror must use the following safeguards: (a) Take a variety of precautions reasonably designed to exclude subscriptions being accepted from persons resident in Australia and to check that the precautions are effective by monitoring the number of applications made (if any) by persons resident in Australia. Examples of precautions are not sending notices to, or not accepting applications from, persons whose telephone numbers, postal or electronic addresses or other particulars indicate that they are applying from resident in Australia. The offeror must actually check that the precautions are effective. It is not acceptable to only use precautions that place the responsibility on the applicant. For example, it is not enough to simply ask an applicant whether they are applying from Australia an Australian resident . This alone would not be sufficient to guard against persons in Australia n residents making

subscriptions. If it is reasonably apparent to the issuer that the procedures that have been implemented are ineffective, we do not consider that they satisfy the reasonableness test. (b) The offering material or advertisement must not be published, distributed or made available in ways or locations which are calculated to draw it to the attention of persons in Australia Australian residents . This includes, for instance, electronic mail to addresses which indicate that the notice will be read in Australia, posting to newsgroups in the aus.* hierarchy and websites maintained in Australia, or with Australian content. (c) The offering material or advertisement must not contain material which is specifically relevant to persons in Australia Australian residents or investors . Factors that would lead to such a conclusion include details of Australian tax treatments or rates, or information presented in Australian dollars. (d) The offer or invitation to which the offering material or advertisement relates must not be made or issued in Australia by any other means, unless Class Order [CO 94/1285] or a replacement for that Class Order applies to the making of the offer or issue . ASIC Class Order [CO 94/1285] provides some limited relief from the advertising provisions of the Law for advertisements in foreign publications that have an incidental circulation in Australia. It is a condition of that relief that the publication is not distributed in Australia by or on behalf of the author whether directly or indirectly at the instigation of, or by arrangement with, the author. The conditions of the relief are stringent in order to prevent abuse. History [The amendments to RG 141.14 reflect [CO 00/97] which takes effect on the commencement of the Corporate Law Economic Reform Program Act 1999 on 13/3/2000. Until that time, RG 141.14 should be read as if the amendments had not been made.]

Meaningful jurisdictional disclaimers

RG 141.15. A meaningful jurisdictional disclaimer is a simple way of making it clear to consumers where an offer is made and, therefore, whether it is subject to local regulatory requirements. The requirements of Class Order [CO 99/43] [CO 00/97] for a meaningful jurisdictional disclaimer are: (a) The offering material must contain a statement that the offer or invitation to which it relates is not available to persons in Australia Australian residents . This may be explicit, or it may be conveyed by a statement that the offer or invitation is available only to persons in residents of certain other countries, naming them. A statement that “the offer is not being made in any jurisdiction in which the offer could or would be illegal” does not satisfy our requirement. This is because it does not clearly state the jurisdictions in which the securities are available. (b) The statement must be prominently displayed with the offering material. A disclaimer could not be said to be effective if a potential investor could overlook it or did not see it until after they had decided to invest. History [The amendments to RG 141.15 reflect [CO 00/97] which takes effect on the commencement of the Corporate Law Economic Reform Program Act 1999 on 13/3/2000. Until that time, RG 141.15 should be read as if the amendments had not been made.]

Little or no impact on investors in Australia RG 141.16. More generally, we are concerned with the effect of an offer, invitation or advertisement of securities in Australia. We will be concerned if an internet offer, invitation or advertisement has a significant effect on consumers or markets in Australia. Whether or not it has a significant effect in any particular case will depend upon the facts of that case. Examples of the types of factors which we would consider in determining whether an internet offer, invitation or advertisement has a significant effect on consumers or markets in Australia include the number of: (a) enquiries that an issuer receives from investors in Australia

about investing in the securities being offered; (b) investors in Australia to whom securities are issued; (c) complaints which we receive from investors in Australia. RG 141.17. If we believe that an internet offer, invitation or advertisement has had a significant effect on consumers or markets in Australia, we will consider taking regulatory action on the basis that the offeror may not have complied with the requirements of Class Order [CO 99/43] or Class Order [CO 00/97], as applicable. We will do this even if the offeror used safeguards or disclaimers. For example, it may be that the safeguards and disclaimers were either so poorly designed as to be ineffective, or were used to provide the appearance of satisfying the requirements of Class Order [CO 99/43] or Class Order [CO 00/97], without real compliance. No misconduct RG 141.18. If those responsible for an internet offer, invitation or advertisement of securities (or involved in its publication)2 appear to have been involved in any misconduct, we will consider the means available to regulate that conduct. We will do this whether the conduct occurred in Australia or overseas. Our options include taking action in respect of all breaches of Australian law and cooperation with foreign regulators and law enforcement agencies. Misconduct may involve significant non-compliance with Australian or overseas laws, such as fraudulent, misleading or deceptive conduct, or failure to abide by other regulatory requirements, such as inadequately disclosing the jurisdictions in which the offer is intended to be made. RG 141.19. In addition, we will continue to monitor Australian issuers conducting fundraising activities overseas. In particular, we will monitor if their conduct affects the level of confidence in the integrity of the Australian securities market. Our enforcement powers relevant to the conduct of Australian issuers are not limited to the prospectus liability provisions. They include, for example, the power to revoke an issuer’s licence (see Regulatory Guide 107 Electronic prospectuses at RG 107.106) or obtain an injunction to restrain an unlicensed person

from dealing in securities. Our approach to internet offers of other financial products RG 141.20. This guide deals with regulation under the Law of internet offers, invitations and advertisements of securities. We are developing our approach to regulating offers of other financial products over the internet for which we have regulatory responsibility under other legislation (such as insurance and savings products). We will consider the principles in this guide when determining our approach. B The use of jurisdictional disclaimers in electronic prospectuses by issuers that we regulate Our policy RG 141.21. Issuers that target persons in Australia when making available offers, invitations or advertisements of securities on the internet must comply with Australian regulatory requirements. We have added a condition to ASIC Class Order [CO 96/1578] (which gives effect to RG 107 that these issuers include a meaningful jurisdictional disclaimer in their electronic prospectuses: see RG 141.28. (Class Order [CO 96/1578] is replaced by ASIC Class Order [CO 99/790] where the paper prospectus was lodged on or after 1 September 1999. Condition 5 of the First Exemption of Class Order [CO 99/790] also requires the inclusion of a meaningful jurisdictional disclaimer.) RG 141.22. We will also require Australian issuers to include meaningful jurisdictional disclaimers in their electronic prospectuses about the jurisdictions in which the securities are available: see RG 141.28. Underlying principles RG 141.23. The Law requires a prospectus when an offer or invitation of securities is made in Australia and places significant restrictions on the publishing of advertisements in Australia: see RG 141.10–RG 141.12. RG 141.24. We want to assist Australian issuers avoid the potential for regulatory action in jurisdictions where their offers are not targeted.

We also want to enhance international coordination of consumer protection. Explanations RG 141.25. Including a jurisdictional disclaimer in an electronic prospectus will not significantly increase the regulatory burden on issuers. However, it will assist Australian issuers to avoid regulatory action in jurisdictions where their offers, invitations and advertisements are not targeted. This is because the use of a meaningful jurisdictional clause is a factor that many regulators consider when deciding whether it is appropriate to take regulatory action. (Actual requirements differ from place to place and many jurisdictions have additional requirements, such as active measures to reject applications from jurisdictions mentioned in the disclaimer). RG 141.26. This requirement will also assist regulators and consumers, both in Australia and overseas. This is because it will be easier to identify offers, invitations and advertisements that are available in their own jurisdiction. RG 141.27. We have modified ASIC Class Order [CO 96/1578] and included condition 5 in the First Exemption of Class Order [CO 99/790] to achieve this policy goal rather than simply requesting issuers to comply with best practice. This class order condition ensures that best practice is followed in all cases without imposing significant additional costs on issuers. RG 141.28. To ensure that costs to issuers are minimised we will only apply this condition to electronic prospectuses provided to ASIC after 1 March 1999, (being after the date on which the amendment to Class Order [CO 96/1578] was issued). Therefore, existing electronic prospectuses will not have to be modified before they expire. An electronic prospectus to which Class Order [CO 96/1578] applies must contain a statement that the offer or invitation to which it relates is available to Australian residents. This may be explicit, or it may be conveyed by a statement that the offer or invitation is available only to residents of certain countries, naming them. The statement must be prominently displayed with the electronic prospectus. (See condition 5 of the First Exemption of Class Order [CO 99/790] if the paper

prospectus is lodged with ASIC on or after 1 September 1999. It replaces the concept of “Australian resident” with a concept of persons receiving electronic prospectuses within Australia). C Our work with international regulators on internet offers of securities Our policy RG 141.29. We will continue working with international regulators to seek a consistent approach on issues relating to the use of the internet to make available offers, invitations and advertisements of securities. In particular, we will continue our active participation in the work of the International Organisation of Securities Commissions (IOSCO). Underlying principles RG 141.30. Cooperation among international regulators to harmonise the requirements of different jurisdictions should lead to greater certainty for Australian issuers that use the internet to distribute offers, invitations or advertisements, reduce their compliance costs and improve consumer protection. RG 141.31. Our approach is to minimise compliance costs as much as reasonably possible. (Accordingly, we have prepared this guide with reference to the work that has been done in other jurisdictions on these issues.) RG 141.32. Our approach is consistent with: (a) the recommendation of the Financial System Inquiry Final Report that protection should be provided for cross-border financial transactions and to avoid the potential for fraud3; and (b) the Corporate Law Economic Reform Program recommendation that we should continue our participation in the work of IOSCO which is addressing enforcement challenges and opportunities arising from the increasing use of the internet.4 Explanations

RG 141.33. We continue to work with other regulators to coordinate regulatory approaches and develop effective enforcement strategies. We cooperate with regulators both bilaterally and through IOSCO. IOSCO is particularly active in the field of electronic commerce including through its internet Task Force of which we are an active member. This guide also forms part of our cooperative international efforts. RG 141.34. We are working within international forums to encourage regulators in other jurisdictions to issue guidelines about how the requirements of their laws affect transactions in, and communications about, financial products on the internet. The provision of this guidance by regulators around the world (including us) will: (a) assist people who are making information about securities available on the internet by making it clear how regulatory requirements apply to such activity; (b) provide greater certainty and less regulatory risk for Australian issuers using the internet to make available offers, invitations and advertisements of securities; and (c) provide greater certainty and less risk for investors in Australia using the internet to find investment opportunities. RG 141.35. The Securities and Exchange Commission in the United States5 and the Financial Services Authority in the United Kingdom6have already published guidance about the regulatory requirements affecting internet transactions and communications in their jurisdictions. Significant work has also been done in international forums on common principles.7 D Our enforcement activities Our policy RG 141.36. We are continuing to be vigilant in monitoring regulatory issues associated with electronic commerce. Underlying principles

RG 141.37. We seek to protect consumers and maintain confidence in the integrity of Australia’s financial markets through our education and enforcement strategies. Explanation RG 141.38. As the opportunities presented by the internet grow, so too do the opportunities for abuse. A key part of any regulatory regime is developing methods to enforce it. We are aware of the enforcement challenges which the internet poses such as promptly identifying and locating non-complying issuers and taking appropriate action. RG 141.39. Like a number of other regulators in Australia and overseas, we have commenced a surveillance and enforcement program to monitor the internet (including message areas such as news groups and bulletin boards). To enhance our effectiveness we are utilising a range of advanced internet software tools that assist in automating our surveillance and enforcement processes. These include advanced search tools, push technology and intelligent agents. RG 141.40. These techniques have already proved successful and have resulted in a number of enforcement actions including enforceable undertakings and litigation to remove information that does not comply with the Law. We have also issued a number of warnings to consumers about the dangers of relying on information on the internet without first obtaining a current prospectus. Related information RG 141.41.   Headnotes Offers, invitations and advertisements of securities on the internet, regulatory approach, targetting persons in Australia, meaningful jurisdictional disclaimers, misconduct, electronic prospectuses and the inclusion of a jurisdictional disclaimer, work with international regulators, enforcement activities. Class orders [CO 94/1285], [CO 96/1578], [CO 99/43], [CO 99/790], [CO 00/97]

Regulatory guides RG 51 Applications for relief RG 56 Prospectuses RG 107 Electronic prospectuses RG 129 Business introduction or matching services Legislation Chapter 1, Part 1.2, Div 7, s 79 Chapter 7, Part 7.11, Div 4, s 1005, 1006 Part 7.12, Div 2, s 1018, 1025, 1026, Div 3A, Div 6, s 1078 Cases Attorney-General for New South Wales v Australian Fixed Trusts Limited [1974] 1 NSWLR 110 Australian Softwood Forests Pty Ltd & Ors v Attorney-General for New South Wales (1981) CLC ¶40-734 Consultation papers and reports Offers, invitations and advertisements of securities on the internet Financial System Inquiry, Final Report (March 1997) Corporate Law Economic Reform Program Proposals for Reform: Paper No 5, “Electronic commerce cutting cybertape — building business” (December 1997) Securities and Exchange Commission, “Statement of the Commission Regarding Use of internet Web Sites to Offer Securities, Solicit Securities Transactions or Advertise Investment Services Offshore”, Release Nos 33-7516, 34-39779, IA-1710, IC-23071, International Series Release No 1125 (March 23, 1998) Financial Services Authority, “Treatment of material on overseas internet World Wide Web sites accessible in the UK but not intended for investors in the UK”, Guidance Release 2/98 (May 1998) Technical Committee, the International Organisation of Securities

Commissions, “Securities Activity on the internet” (September 1998) Media releases [MR 97/317], [MR 98/168], [MR 98/234], [MR 98/271], [MR 98/278], [IR 99/21] Speeches [SPCH 19], [SPCH 20], [SPCH 22.22] Footnotes 1

See s 1018(1) of the Law for offers of securities for subscription (primary offers). Offers of securities for sale (secondary offers) are governed by Part 7.12 Div 3A of the Law and associated regulations. For simplicity, this discussion focuses on primary offers, however, the principles that follow are equally applicable to primary or secondary offers of securities.

2

The concept of being involved in a contravention is quite broad under the Law. Firstly, persons who fall into the eight categories specified in s 1006(2) of the Law will be deemed to be involved in a contravention involving the issue of a defective prospectus for the purposes of s 1005(1). These categories cover the corporation and those closely associated with the corporation (ie directors and promoters) as well as underwriters, experts and advisers. In addition, under s 79 of the Law a person is involved in a contravention if they have: (a) aided, abetted, counselled or procured the contravention; (b) induced, whether by threats or promises or otherwise, the contravention; (c) been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) conspired with others to effect the contravention.

3

Financial System Inquiry Final Report (March 1997), Recommendation 29.

4

Corporate Law Economic Reform Program Proposals for Reform: Paper No 5, “Electronic commerce cutting cybertape — building business” (December 1997), Proposal No 1.

5

Securities and Exchange Commission, “Statement of the Commission Regarding Use of internet Web Sites to Offer Securities, Solicit Securities Transactions or Advertise Investment Services Offshore”, Release Nos 33-7516, 3439779, IA-1710, IC-23071, International Series Release No 1125 (March 23, 1998).

6

Financial Services Authority, “Treatment of material on overseas internet World Wide Web sites accessible in the UK but not intended for investors in the UK”, Guidance Release 2/98 (May 1998).

7

The Technical Committee of the International Organisation of Securities Commissions has published a paper on this topic — “Securities Activity on the internet” (September 1998), which is available through the IOSCO homepage at www.iosco.org.