Concise Australian Commercial Law [5th ed.] 9780455241418

Table of contents :
00_halftitle.pdf......Page 1
01_bookinfo.pdf......Page 3
03_Preface.pdf......Page 5
04_Contents.pdf......Page 7
05_Table of Cases.pdf......Page 9
06_Table of Statutes.pdf......Page 19
07_Abbreviations.pdf......Page 29
08_Glossary.pdf......Page 31
09_Introduction.pdf......Page 37
10_Part_1.pdf......Page 55
11_Chapter_1.pdf......Page 57
12_Part_2.pdf......Page 95
13_Chapter_2.pdf......Page 97
14_Chapter_3.pdf......Page 105
15_Chapter_4.pdf......Page 128
16_Chapter_5.pdf......Page 136
17_Chapter_6.pdf......Page 152
18_Chapter_7.pdf......Page 160
19_Chapter_8.pdf......Page 182
20_Chapter_9.pdf......Page 200
21_Chapter_10.pdf......Page 228
22_Chapter_11.pdf......Page 236
23_Chapter_12.pdf......Page 254
24_Part_3.pdf......Page 272
25_Chapter_13.pdf......Page 274
26_Part_4.pdf......Page 344
27_Chapter_14.pdf......Page 346
28_Part_5.pdf......Page 386
29_Chapter_15.pdf......Page 388
30_Chapter_16.pdf......Page 420
31_Chapter_17.pdf......Page 452
32_Part_6.pdf......Page 482
33_Chapter_18.pdf......Page 484
34_Appendix_1.pdf......Page 500
35_Appendix_2.pdf......Page 554
36_Appendix_3.pdf......Page 574
37_Appendix_4.pdf......Page 582
38_Index.pdf......Page 596

Citation preview

CONCISE AUSTRALIAN COMMERCIAL LAW

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Thomson Reuters (Professional) Australia Limited 19 Harris Street Pyrmont NSW 2009 Tel: (02) 8587 7000 care.ANZ.thomsonreuters.com http://​legal.thomsonreuters.com.au/​ For all customer inquiries please ring 1300 304 195 (for calls within Australia only)

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NORTH AMERICA Thomson Reuters Eagan United States of America

ASIA PACIFIC Thomson Reuters Sydney Australia

LATIN AMERICA Thomson Reuters São Paulo Brazil

EUROPE Thomson Reuters London United Kingdom

13-Dec-18 9:04:32 PM

Concise Australian Commercial Law

CLIVE TURNER LLB (B’ham), PhD (ANU) Honorary Associate Professor of Law University of Queensland

JOHN TRONE BA, LLB, PhD (UQ) Research Fellow Curtin Law School Curtin University

ROGER GAMBLE LLB (Melb), LLM (Mon), Dip Ed (Rus) Senior Lecturer in Law in the Department of Business Law and Taxation Monash Business School, Monash University

FIFTH EDITION

LAWBOOK CO. 2019

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Published in Sydney by Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668 19 Harris Street, Pyrmont, NSW 2009 ISBN: 9780455241418

© 2019  Thomson Reuters (Professional) Australia Limited This publication is copyright. Other than for the purposes of and subject to the conditions prescribed under the Copyright Act, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Inquiries should be addressed to the publishers. All legislative material herein is reproduced by permission but does not purport to be the official or authorised version. It is subject to Commonwealth of Australia copyright. The Copyright Act 1968 permits certain reproduction and publication of Commonwealth legislation. In particular, s 182A of the Act enables a complete copy to be made by or on behalf of a particular person. For reproduction or publication beyond that permitted by the Act, permission should be sought in writing. Requests should be submitted online at www.ag.gov.au/​cca, faxed to (02) 6250 5989 or mailed to Commonwealth Copyright Administration, Attorney-​General’s Department, Robert Garran Offices, National Circuit, Barton ACT 2600. Product Developer: Vickie Ma Edited and typeset by Newgen KnowledgeWorks Printed by Ligare Pty Ltd, Riverwood, NSW This book has been printed on paper certified by the Programme for the Endorsement of Forest Certification (PEFC). PEFC is committed to sustainable forest management through third party forest certification of responsibly managed forests. For more info: http://​www.pefc.org

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PREFACE The fifth edition of Concise Australian Commercial Law, like its predecessors, has two basic objectives: first, to provide students with a general understanding of the legal environment of business and to expose them to the language and perspectives of legal professionals, regulators and others with whom they will increasingly be required to interact; and second, to cover the main commercial law topics in a way that is clear and accessible but in sufficient depth to challenge non-​law students, many of whom will be studying law for the first time and may be doing so with a heavy heart. In the first chapter, we introduce students to the meaning and functions of law and provide a broad overview of the Australian legal system focusing on the sources of law and how laws are made. Thereafter, we examine the most important substantive commercial law topics beginning with the basic building block of commercial life –​the law of contract –​followed by a study of consumer protection laws (the rights and responsibilities of retailers, manufacturers and importers), the law of torts (in particular the law of negligence), agency law and the law in relation to a number of business organisations. In the final chapter, we examine the increasingly important topic of business ethics (with particular reference to business and human rights and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry). Because the law is constantly evolving, there are changes in each of these topics since the previous edition. In a few areas, the changes have been significant: the Parliament has passed important amendments to the Australian Consumer Law and to the Corporations Act, and the Courts have been active in interpreting statutes and developing common law and equitable principles, particularly in respect of the law of contract, negligence, consumer protection and corporations law. To ensure this edition is a more complete teaching and learning package, there are additional diagrams, flowcharts, tables and timelines as well as a revised set of tutorial activities at the end of each chapter, an extended introductory section on approaching the study of commercial law, including advice on how to approach assessment tasks, particularly the hypothetical problem question (several extended answer guides are included), research assignments and multiple-​choice questions. There is an expanded glossary and the relevant legislation is located in the Appendix. Additional resources –​slides, multiple-​choice questions, problem questions –​are available to lecturers. My thanks to Vickie Ma, the product developer at Thomson Reuters, and to the editors at Newgen, particularly Raghavendra Kaup. I would also like to thank Rebecca Neophitou and Eugenio Vergara Marshall, two of my colleagues at the Monash Business School, who have provided me with invaluable advice, generous feedback and wonderful support during the writing of the fifth edition. Continuing thanks to Clive Turner and John Trone for their permission to adapt Australian Commercial Law.

ROGER GAMBLE Monash University, Melbourne January 2019

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TABLE OF CONTENTS Preface .......................................................................................................................................................................v Table of Cases ...........................................................................................................................................................ix Table of Statutes ......................................................................................................................................................xix Table of Abbreviations ..........................................................................................................................................xxix Glossary ................................................................................................................................................................xxxi An Introduction to Studying Law Units .............................................................................................................xxxvii

PART 1: INTRODUCTION ....................................................................................................................................1 Chapter 1: An Introduction to Law and the Australian Legal System ....................................................... 3

PART 2: LAW OF CONTRACT ...........................................................................................................................41 Chapter 2: Introduction to the Law of Contract ........................................................................................ 43 Chapter 3: Offer and Acceptance.................................................................................................................... 51 Chapter 4: Intention to Create Legal Relations............................................................................................73 Chapter 5: Consideration, Promissory Estoppel and Formalities...............................................................81 Chapter 6: Contractual Capacity................................................................................................................... 97 Chapter 7: Genuine Consent..........................................................................................................................105 Chapter 8: Legality of Object......................................................................................................................... 127 Chapter 9: Contents and Interpretation of the Contract......................................................................... 145 Chapter 10: Operation of the Contract........................................................................................................ 173 Chapter 11: Termination and Breach of a Contract.................................................................................... 181 Chapter 12: Remedies..................................................................................................................................... 199 PART 3: CONSUMER PROTECTION................................................................................................................ 217 Chapter 13: Consumer Protection.................................................................................................................219 PART 4: TORTS................................................................................................................................................. 289 Chapter 14: Law of Torts.................................................................................................................................291 PART 5: BUSINESS RELATIONSHIPS............................................................................................................... 331 Chapter 15: Law of Agency.............................................................................................................................333 Chapter 16: Law of Partnerships.................................................................................................................. 365 Chapter 17: Corporations Law...................................................................................................................... 397

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PART 6: BUSINESS ETHICS..............................................................................................................................427 Chapter 18: Business Ethics........................................................................................................................... 429 Appendix 1: Extracts from the Australian Consumer Law (Cth).............................................................................445 Appendix 2: Extracts from the Corporations Act 2001 (Cth)..................................................................................499 Appendix 3: Extracts from the Civil Liability Act 2002 (NSW)..............................................................................519 Appendix 4: Extracts from the Partnership Act [VIC].............................................................................................527 Index.......................................................................................................................................................................541

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Table of Cases A A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308 ........................  8.510 Abdurahman v Field (1987) 8 NSWLR 158 .........  8.590 AGC v McWhirter (1977) 1 BPR 9595 ................  3.150 Agriculturist Cattle Insurance Co, Re (1870) LR 5 Ch App 725 ................................  16.10 Akron Securities v Iliffe (1997) 41 NSWLR 353 .............................................  13.920 Alameddine v Glenworth Valley Horse Riding Pty Ltd [2015] NSWCA 219 ....  9.330, 9.420, 13.1480 Alati v Kruger (1955) 94 CLR 216 .......................  7.390 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41 ...............................................  1.290 Alexander v Rayson [1936] 1 KB 169 ..................  8.320 ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (2012) 245 CLR 338 ................................................  10.150 Aliotta v Broadmeadows Bus Service Pty Ltd [1988] ATPR 40-​873 .....................................  15.680 Alzawy v Coptic Orthodox Church Diocese of Sydney, St Mary and St Merkorious Church (No 2) [2016] NSWSC 1123 .............  14.830 Amber Size Chemical Co v Menzel [1913] 2 Ch 239 ..............................................  8.400 Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17 .....................  9.380 Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 ......  12.320 Andrews v Parker [1973] Qd R 93 .......................  8.210 Annetts v Australian Stations Pty Ltd (2002) 211 CLR 317; [2002] HCA 35 .........  14.190, 14.200 Apand Pty Ltd v The Kettle Chip Co Pty Ltd (1994) 52 FCR 474 .......................................  13.300 Argo Managing Agency Pty Ltd v Al Kammessy [2018] NSWCA 176 .......  14.470, 14.480 Armagas Ltd v Mundogas SA [1986] 1 AC 717 ...........................................  15.710 Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828 ................  8.150 Ashton v Pratt [2015] NSWCA 12 .......................  4.110 ASIC v Cassimatis (No 8) [2016] FCA 1023 ......  17.360 Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 .........................................  9.160

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Astley v Austrust Ltd (1999) 197 CLR 1 .......................................  12.270, 14.840 Attwood v Lamont [1920] 3 KB 571 ....................  8.400 Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 .......................  5.300 Australian Competition and Consumer Commission v AirAsia Berhad Co [2012] FCA 1413 ..........................................  13.730 Australian Competition and Consumer Commission v Apple Inc (No 4) [2018] FCA 953 ............................................  13.460 Australian Competition and Consumer Commission v Apple Pty Ltd [2012] ATPR 42-​404; [2012] FCA 646 .....................  13.800 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 ..........  13.1070, 13.1080 Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd [2015] FCA 1204 ............................  13.1240 Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 .................  7.465, 13.1160 Australian Competition and Consumer Commission v Ford Motor Company of Australia Limited [2018] FCA 703..............................  13.1140 Australian Competition and Consumer Commission v Heinz [2018] FCA 360 ............................................  13.440 Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [2015] FCA 1263 ..........................................  13.450 Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224.............................  13.1250 Australian Competition and Consumer Commission v Jutsen (No 3) (2011) 206 FCR 264; 285 ALR 110 .........................  13.710 Australian Competition and Consumer Commission v LG Electronics Australia Pty Ltd [2018] FCAFC 96 .............................  13.470 Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 ........................................  13.1120 Australian Competition and Consumer Commission v Marksun Australia Pty Ltd [2011] FCA 695 ......................................  13.490

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Australian Competition and Consumer Commission v McCaskey (2000) 104 FCR 8 .........................................  13.750 Australian Competition and Consumer Commission v Meriton Property Services Pty Ltd [2017] FCA 1305 ..............................  13.250 Australian Competition and Consumer Commission v Meriton Property Services Pty Ltd (No 2) [2018] FCA 1125 ....................  18.60 Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292 ...................................  13.1100 Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181 ...........................  13.220 Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 7) (2016) 343 ALR 327 ...............  18.70 Australian Competition and Consumer Commission v Reckitt Benckiser [2016] FCA 424 ............................................  13.220 Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4) [2015] FCA 1408 ..........................................  13.600 Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 7) (2016) 340 ALR 25 .................  18.60 Australian Competition and Consumer Commission v Samton Holdings (2002) 117 FCR 301 ...................................  13.1090 Australian Competition and Consumer Commission v Servcorp Ltd [2018] FCA 1044 ........................................  13.1270 Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [2014] FCA 487 ............................................  13.560 Australian Competition and Consumer Commission v Thermomix in Australia Pty Ltd [2018] FCA 556 ................................  13.410 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 .....................................  13.200 Australian Competition and Consumer Commission v Turi Foods Pty Ltd [2012] FCA 19 ............................................  13.1040 Australian Competition and Consumer Commission v Turi Foods Pty Ltd [2013] FCA 665 ...............................  13.210, 13.420 Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617; (2007) 244 ALR 673 ...........................  18320, 18.40 Australian Development Corporation Pty Ltd v White (2001) 189 ALR 266 ............  10.110

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Australian Mutual Provident Society v Gregory (1908) 5 CLR 615 .........................................  10.200 Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479 .....................................  14.140 Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 .........................  17.420, 17.440 Australian Securities and Investments Commission v Healey [2011] FCA 717; (2011) 196 FCR 291 .....................................  17.340 Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589 ...............................  17.400 Australian Securities and Investments Commission v Plymin, Elliott and Harrison [2003] VSC 123 .............................  17.530 Australian Securities and Investments Commission v Rich (2009) 236 FLR 1 ..........  17.390 Australian Securities and Investments Commission v Vizard [2005] FCA 1037; (2005) FCR 57 ..............................................  17.460 Australian Woollen Mills Pty Ltd v Commonwealth of Australia (1954) 92 CLR 424 ......................  4.210

B Balfour v Balfour [1919] 2 KB 571 ........................  4.60 Baltic Shipping Co v Dillon (1993) 176 CLR 344 .....................................  9.290, 12.250 Bank of America Australia Ltd v Ceda Jon International Pty Ltd (1988) 17 NSWLR 290 ...............................................  8.100 Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 ....................................  4.120, 4.190 Barac (t/​as Exotic Studios) v Farnell (1994) 53 FCR 193 .........................................  8.210 Barton v Armstrong [1976] AC 104 .....................  7.430 Bauen Constructions Pty Ltd v Sky General Services Pty Ltd [2012] NSWSC 1123 .............  3.610 Beaton v McDevitt (1987) 13 NSWLR 162 ............  5.30 Beswick v Beswick [1968] AC 58 ..............  10.40, 10.50 Bettini v Gye (1876) 1 QBD 183 ...............  9.150, 9.180 Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341 ...........................................  8.460 Blyth v Birmingham Waterworks Co (1856) 156 ER 1047 ......................................  14.450 Bojczuk v Gregorcewicz [1961] SASR 128 .............  6.40 Bolton v Mahadeva [1972] 2 All ER 1322 ...........  11.60 Bolton v Stone [1951] AC 850 ...........................  14.530 Boncristiano v Lohmann [1998] 4 VR 82 ...........  12.260 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53 .........................  3.660 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 180 CLR 266 ...............  9.560, 9.570

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Table of Cases

Brakoulias v Karunaharan (Ruling) [2012] VSC 272 ............................................  14.560 Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 .......  17.210 Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246 .....................  1.370, 13.370 Buckland v Massey [1985] 1 Qd R 502 ..................  8.80 Buckley v Tutty (1971) 125 CLR 353 ...................  8.490 Bunge v Tradax [1981] 1 WLR 711 .....................  9.220 Bunnings Group Ltd v Laminex Group Ltd (2006) 153 FCR 479 .............................  13.1330 Burmic Pty Ltd v Goldview Pty Ltd [2003] 2 Qd R 477 ............................................  8.20 Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 .........................  14.550 Buseska v Sergio (1990) 102 FLR 157 ................  15.380 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 .....................................  13.350 Byers v Dorotea Pty Ltd (1986) 69 ALR 715 ..................................................  13.320 Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 ...........................................  3.260

C CAL No 14 Pty Ltd v Motor Accidents Board (2009) 239 CLR 390 ...........................  14.250 Caltex Oil (Aust) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 ...................................  14.280, 14.330 Cam & Bear Pty Ltd v McGoldrick [2016] NSWSC 1894 .....................................  14.660 Cameron v Murdoch (1986) 60 ALJR 280 ...........  16.10 Caparo Industries Plc v Dickman [1990] 2 AC 605 ...........................................  14.420 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 ...... 3.40, 3.50, 3.190, 3.400, 3.440 Carney v Herbert [1985] 1 AC 301 ......................  8.620 Carpet Call v Chan (1987) ATPR (Digest) 46-​025 ...........................................  13.1330 Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 .....................  12.180 Causer v Browne [1952] VLR 1 ...........................  9.300 CDPP v Hill and Kamay [2015] VSC 86 ............  17.560 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 ......................  5.240 Century Insurance Co Ltd v Northern Ireland Road Transport Board [1942] AC 509 ....................  14.860 Chan v Zacharia (1984) 154 CLR 178 ...............  16.300 Claude Neon Ltd v Hardie [1970] Qd R 93 .......  11.450 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 ..........................  9.580, 11.380 Collins v Godefroy (1831) 1 B & Ad 950; 109 ER 1040 ...................................................  5.120

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Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 ..............  7.530, 7.540, 7.550, 13.1060 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 ........................  12.50, 12.60 Con-​Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 .................................  9.590 Construction Engineering Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541 .........................  16.540 Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 .................................  10.20 Council of the City of Sydney v West (1965) 114 CLR 481 ............................  9.430, 9.440 Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 ........  3.630 Cox v Hickman (1860) 11 ER 431 .....................  16.210 Cox v Mosman [1909] QSR 45 ..........................  15.150 Crabtree-​Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 ........  15.140, 15.370 Crago v Multiquip Pty Ltd (1998) ATPR 41-​620 ..............................................  13.1330 Crawford Fitting Co v Sydney Valve &Fittings Pty Ltd (1988) 14 NSWLR 438 .....................  11.110 Cribb v Korn (1911) 12 CLR 205 ......................  16.190 Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26 .....................................  3.731, 5.320, 9.110 Cruttwell v Lye (1810) 34 ER 129 .....................  16.390 Cummings v Claremont Petroleum NL [1992] FCA 674 ......................................  17.450 Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805 ..................................  9.370

D Dargusch v Sherley Investments Pty Ltd [1970] Qd R 338 ...........................................  15.480 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 ...........  7.200 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 .................................  11.370 Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642 .........................................  9.420 Dawson v World Travel Headquarters Pty Ltd (1981) 53 FLR 455 ...........................  13.620 Day v O’Leary (1992) 57 SASR 206 ..................  12.140 De Francesco v Barnum (1890) 45 Ch D 430 .........  6.80 Dearle v Hall (1828) 3 Russ 1; 38 ER 475 .........  10.200 Deatons Pty Ltd v Flew (1949) 79 CLR 370 .....................................  14.870, 15.720 Debenham v Mellon (1880) 5 QBD 394 ............  15.200 Degiorgio v Dunn [2004] NSWSC 767 ..............  16.150

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Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 .........................................  13.160 Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633 .......................................  9.600 Derry v Peek (1889) 14 App Cas 337 ...................  7.250 Dick Bentley Productions Limited v Harold Smith (Motors) Ltd [1965] 1 WLR 623 ............................................  9.60 Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 .........................................  8.340 Donoghue v Stevenson [1932] AC 562 .....  14.40, 14.70, 14.80, 14.90, 14.100 Ducret v Colourshot Pty Ltd (1981) 35 ALR 503 ..................................................  13.540

E EBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450 ...................................................  9.520 EHT18 v Melbourne IVF [2018] FCA 1421 .............................................  1.200, 1.300 Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1995) 63 SASR 235 ...........................  3.500 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 ...............................................  3.360 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 ...................  4.20, 4.30 Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC 260 ..............................................  11.270 Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 ................  14.430

F Falko v James McEwan & Co Ltd [1977] VR 447 ..............................................  12.220 Famestock Pty Ltd v Body Corporate for No 9 Port Douglas Road Community Title Scheme 24368 [2013] QCA 354 .............................................  9.550 Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037 ...................................................  3.380 Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 ..................................................  8.160 Fitzgerald v Penn (1945) 71 CLR 637 ................  12.120 Foakes v Beer (1884) 9 App Cas 605 ........  5.170, 5.230 Forrest v ASIC [2012] HCA 39 ..............................  2.40 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 .......  15.140, 15.230, 15.280, 15.290, 15.370 Fulcher & Ors v Knott Investments Pty Ltd & Ors [2012] QSC 232 ..................  13.1670 Fullwood v Hurley [1928] 1 KB 498 ..................  15.510

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G Gaffney v Ryan [1995] 1 Qd R 19 .........................  8.90 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 .......................................  7.590 Gibbons v Wright (1954) 91 CLR 423 .................  6.170 Gibson v Manchester City Council [1979] 1 All ER 972 ..........................................  3.80 Gippsreal Ltd v Registrar of Titles (2007) 20 VR 127 .............................................  2.90 Given v Pryor (1980) 30 ALR 189 .....................  13.510 Glasbrook v Glamorgan County Council [1925] AC 270 ................................................  5.130 Gnych v Polish Club Ltd (2015) 255 CLR 414 ....  8.110 Godecke v Kirwan (1973) 129 CLR 629 ..............  3.650 Goldberg v Jenkins (1889) 15 VLR 36 ...............  16.520 Goldsbrough, Mort & Co Ltd v Quinn (1910) 10 CLR 674 .........................................  3.240 Gonzalez v Agoda Pty Ltd [2017] NSWSC 1133 ..................................................  9.480 Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170 ........................  10.150, 10.170 Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 .................  13.110 Goudberg v Herniman Associates Pty Ltd [2007] VSCA 12 ............................................  16.130 Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 .....................................  14.590 Grant v Australian Knitting Mills Ltd [1936] A.C. 85 ................................................  14.90 Great Northern Railway Co v Swaffield (1874) LR 9 Exch 132 ...................................  15.180

H H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] 1 QB 791 ...............................  12.130 Hadley v Baxendale (1854) 9 Exch 341 .........................................  12.90, 12.100 Hall & Barker, Re [1878] 9 Ch D 538 .................  11.30 Hamerhaven Pty Ltd v Ogge [1996] 2 VR 488 ...........................................  16.580 Hamilton v Lethbridge (1912) 14 CLR 236 ......................................................  6.60 Harris v Nickerson (1872–​73) LR 8 QB 286 ........  3.140 Hart v O’Connor [1985] AC 1000 .......................  6.170 Hartley v Ponsonby (1857) 7 E & B 872 ..............  5.160 Harvey v Harvey (1970) 120 CLR 529 ..............  16.370 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 .............  14.280, 14.350 Helicopter Sales (Aust) Pty Ltd v Rotor-​Work Pty Ltd (1974) 132 CLR 1 ...........  9.600 Hely-​Hutchinson v Brayhead Ltd [1968] 1 QB 549 ..............................  15.250, 15.340

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Table of Cases

Henjo Investments Pty Ltd v Collins Marrickville (1988) 79 ALR 83 .....................  13.150 Henthorn v Fraser [1892] 2 Ch 27 .......................  3.490 Herbert Morris Ltd v Saxelby [1916] 1 AC 688 ..................................  8.400, 8.410 Hermann v Charlesworth [1905] 2 KB 123 ...................................  8.350, 8.640 Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 ............................................  11.330 Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 .................................................  8.400 Hoenig v Isaacs [1952] 2 All ER 176 ...................  11.50 Hollis v Vabu Pty Ltd (2001) 207 CLR 21 .........  14.860 Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 .......  9.200, 11.230 Hopcroft v Edmunds (2013) 116 SASR 191 ...............................................  15.260 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 ...........................................  15.150 Howe v Teefy (1927) 27 SR (NSW) 301 .............  12.200 Humberstone v Northern Timber Mills (1949) 79 CLR 389 .......................................  14.860 Hyde v Wrench (1840) 49 ER 132 ............  3.290, 3.310 Hyder v McGrath Sales Pty Ltd [2018] NSWCA 223 ..........  13.130, 13.860, 13.1590

I Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd (2013) 101 IPR 484 .......................................  10.160 Insight Vacations Pty Ltd v Young (2011) 243 CLR 149 ..................................................  9.390 International Harvester Co of Australia v Carrigan’s Hazeldene Pastoral Co [1958] 100 CLR 644 ............................  15.30, 15.40

J J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyds Rep 1 ...................................  11.460 Jaensch v Coffey [1984] HCA 52 ..........  14.180, 14.190 Jardin v Metcash Ltd (2011) 285 ALR 677 ..........  8.430 Jarvis v Swans Tours Ltd [1973] 1 QB 233 ........  12.240 Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101 ........................................  5.260 Jillawarra Grazing Co v John Shearer Ltd (1984) ATPR 40-​441 ...................................  13.1330 Johnson Tiles Ltd v Esso Australia Pty Ltd [2004] VSC 466 ...............................  14.280, 14.310 Johnson v Buttress (1936) 56 CLR 113 ................  7.480 Jones v Canavan [1972] 2 NSWLR 236 .............  15.510 Jones v Vernon’s Pools Ltd [1938] 2 All ER 626 ........................................  4.170

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K Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 .......................................  7.570 Keighley, Maxsted & Co v Durant [1901] AC 240 .................................  15.400, 15.660 Kelner v Baxter (1866) LR 2 CP 174 ..................  15.640 Khan v Miah [2000] 1 WLR 2123 ........  16.110, 16.130 King v Philcox (2015) 255 CLR 304 ..................  14.210 Kiriri Cotton Co Ltd v Dewani [1960] AC 192 ................................................  8.570 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 ........................  9.190, 11.230, 11.240 Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462 ..............................................  15.730 Koufos v Czarnikow Ltd [1969] 1 AC 350 .........  12.120 Krell v Henry [1903] 2 KB 740 ..........................  11.320

L L J Hooker Ltd v W J Adams Estate Pty Ltd (1977) 138 CLR 52 .................................  15.570 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 .................................  9.140 L’Estrange v F Graucob Ltd [1934] 2 KB 394 ............................................  15.220 La Rosa v Nudrill Pty Ltd [2013] WASCA 18 ...........................................  9.350 Laurinda Pty Ltd Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 .............  11.170 Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53 ......................................  13.1320 Le Mans Grand Prix Circuits Pty Ltd v Illiadis [1998] VSC 331 ...................................  9.270 Leaf v International Galleries [1950] 2 KB 86 ........  7.70 LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 .........................  10.110 Leibler v Air New Zealand Ltd [1999] 1 VR 1 .....  7.230 Leonard v PepsiCo 88 F Supp 2d 116 (1999) .........  3.60 Leslie v Sheill [1914] 3 KB 607 ............................  6.140 Lewis v Averay [1972] 1 QB 198 ....  7.140, 7.150, 7.380 Lintrose Nominees Pty Ltd v King [1995] 1 VR 574 ...........................................  15.460 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 ........................................  8.420 Lloyd v Grace, Smith & Co [1912] AC 716 .......  16.690 Lloyd’s Bank Ltd v Bundy [1975] QB 326 ............  7.510 Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 .................  8.380 Louth v Diprose (1992) 175 CLR 621 .................  7.560 Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 ..............................................  15.560

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M Mabo v State of Queensland (No 2) (1992) 175 CLR 1 ................................  1.110, 1.130 Mahmoud & Ispahani, Re [1921] 2 KB 716 .....................................  8.40, 8.130 Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227 ...........................  4.130 Mann v Paterson Constructions Pty Ltd [2018] VSC 119 ............................................  12.460 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 .....................................  14.820 Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232 ...............  15.650 Marsh v Baxter (2015) 49 WAR 1 .........  14.280, 14.320 Marsh v Joseph [1897] 1 Ch 213 .......................  15.150 Martin v Gale (1876) 4 Ch D 428 ........................  6.130 Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 ...........................  8.70 Masters v Cameron (1954) 91 CLR 353 ..............  3.420 Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 ..........................  15.660 McFarlane v Daniell (1938) 38 SR (NSW) 337 ....  8.610 McLaughlin v City Bank of Sydney (1912) 14 CLR 684 .........................................  6.170 McMahon v National Foods Milk Ltd (2009) 25 VR 251 ...........................................  9.120 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 .......................  7.90 McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394 ...........  13.280 Megevand, Re; Ex parte Delhasse (1878) 7 Ch D 511 ........................................  16.230 Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103 ....................................  16.510 Mercantile Union Guarantee Corp Ltd v Ball [1937] 2 KB 498 .........................................  6.90 Mercer v Commissioner for Road Transport and Tramways (NSW) (1936) 56 CLR 580 ..........  14.590 Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145 284 ALR 1 ............................  13.1400, 13.1540 Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd (1976) 133 CLR 671 .....................................  11.400 Merritt v Merritt [1970] 1 WLR 1211 ...................  4.80 Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119 ..................................  11.350 Meyer v Kalanick No 15 Civ. 9796 ...........  9.510, 9.520 Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 ............................................  1.70 Miller Associates (Australia) Pty Ltd v Bennington Pty Ltd [1975] 2 NSWLR 506 .......................  15.630 Minchello v Ford Motor Company [1995] 2 VR 594 .........................................  13.1330

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Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp [1984] WAR 365 ..............................  15.530, 15.610 Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254 .............  14.160 Moorcock, The (1889) 14 PD 64 ..............  9.550, 9.560 Moss v Elphick [1910] 1 KB 846 .......................  16.730 Mules v Ferguson [2015] QCA 5 .......................  14.670 Munro v Willmott [1949] 1 KB 295 ...................  15.190 Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 ...................................  5.210 Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 ............  14.280, 14.370, 14.430 MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575 ...........................................  9.420

N Nagle v Rottnest Island Authority (1993) 177 CLR 423 .....................................  14.270 National Commercial Banking Corp of Australia Ltd v Batty (1986) 160 CLR 251 ...................  16.650 NE Perry Pty Ltd v Judge (2002) 84 SASR 86 ......  8.470 New South Wales v Fahy (2007) 232 CLR 486 ................................................  14.500 New South Wales v Lepore (2003) 212 CLR 511 ................................................  14.860 Noonan v Martin (1987) 10 NSWLR 402 .........  15.810 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 ................  8.370 Norris v Sibberas [1990] VR 161 .......................  15.680 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] 1 QB 705 ............  7.450 Nouri v Australian Capital Territory [2018] ACTSC 275 ........................................  14.740 NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98 ........................................  13.1130

O O’Brien v Smolonogov (1983) 53 ALR 107 .........  13.80 O’Toole v Charles David Pty Ltd (1991) 171 CLR 232 .......................................  1.370 Olley v Marlborough Court Ltd [1949] 1 KB 532 ...................................  9.320, 9.490 On Call Interpreters and Translators Agency Pty Ltd v the Commissioner of Taxation (No 3) [2011] FCA 366 ..................  14.860 Optus Mobile Pty Ltd v Telstra Corporation Limited [2018] FCA 745 ...............................  13.430 Oscar Chess Ltd v Williams [1957] 1 WLR 370 .................................  7.340, 9.50

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Table of Cases

Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The Wagon Mound No 2) [1967] AC 617 ..............................................  14.780 Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388 .......................  14.760, 14.770

P Packer v Tall Ships Sailing Cruises Aust P/​L & Anor [2015] QCA 108 ..................................  14.510 Persimmon Homes Ltd v Ove Arup and Partners Ltd [2017] EWCA Civ 373 ................  9.410 Plaintiff S195/​2016 v Minister for Immigration and Border Protection [2017] HCA 31 ..............  1.50 Plimer v Roberts (1997) 150 ALR 235 .................  13.90 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 .....................................  15.350 Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28 ..............  12.340 Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 .............................  15.330, 17.190, 17.220, 17.280 Paris v Stepney Borough Council [1951] AC 367 .................................  14.550, 14.570 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 ......  13.290 Parker v McKenna (1874) 10 Ch App 96 ...........  15.490 Perre v Apand Pty Ltd (1999) 198 CLR 180 ...............................................  14.280, 14.300, 14.310, 14.320, 14.760 Petelin v Cullen (1975) 132 CLR 355 ..................  7.170 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 .............................................  3.100 Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827 ..............  9.410, 9.450, 9.460 Plummer v Thomas [2002] NSWSC 1185 ..........  16.220 Polkinghorne v Holland (1934) 51 CLR 143 .....  16.660 Popat v Schonchhatra (1997) 3 All ER 800 ........  16.280 Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1980) 144 CLR 300 .................................  10.60 Press v Mathers [1927] VLR 326 .......................  15.220 Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462 .........................  2.20 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 ..............  11.180, 11.220 Public Service Employees Credit Union Co-​operative Ltd v Campion (1984) 56 ACTR 39 ....................................................  8.250 Petrofina (Great Britain) Ltd v Martin [1966] 1 Ch 146 ..............................................  8.360

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Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187 .......................................  8.450 Powell v Lee (1908) 99 LT 284 ............................  3.480 Pearce v Brain [1929] 2 KB 310 ...........................  6.110 Peek v Gurney (1873) LR 6 HL 377 .....................  7.250 Positive Endeavour Pty Ltd v Madigan (2009) 105 SASR 109 ......................................  8.390 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 .....................................  12.440 Pukallus v Cameron (1982) 180 CLR 447 ...........  7.220 Payzu Ltd v Saunders [1919] 2 KB 581 ..............  12.160 Pao On v Lau Yiu Long [1980] AC 614 ...............  5.100 Parkinson v College of Ambulance Ltd [1925] 2 KB 1 .......................................  8.290, 8.560 Pennington v Norris (1956) 96 CLR 10 .............  14.810 Palsgraf v Long Island Railway Co (1928) 248 NY 339 .........................................  14.40 Perisher Blue Pty Ltd v Nair Smith (2015) 295 FLR 153 ........................................  14.50

Q Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 .....................................  17.500

R R v Clarke (1927) 40 CLR 227 .................  3.210, 3.390 R v Hannes (2002) 173 FLR 1 ...........................  17.550 R v Rivkin (2004) 59 NSWLR 284 ....................  17.570 Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109 ........................................  3.460 Reardon v Morley Ford Pty Ltd (1980) 33 ALR 417 .......................................  13.640 Reckitt Benckiser (Australia) Pty Limited v Australian Competition and Consumer Commission [2017] HCASL 86 .....................  13.220 Redgrave v Hurd (1881) 20 Ch D 1 .....................  7.360 Regal (Hastings) Ltd v Gulliver [1942] UKHL 1 .............................................  15.500 Regazzoni v KC Sethia (1944) Ltd [1958] AC 301 ................................................  8.310 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 ...................................  9.640 Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd (2012) 37 VR 486 ...........................................  9.120 Richtoll Pty Ltd v WW Lawyers Pty Ltd (In Liquidation) [2016] NSWCA 308 ............  14.720 Riley v Osborne [1986] VR 193 ...........................  5.400 Roads and Traffic Authority of NSW v Dederer (2007) 238 ALR 761 ...........  14.520, 14.540 Robb v Green [1895] 2 QB 315 ..............  8.400, 15.480 Robinson v Davison (1871) LR 6 Ex 269 ...........  11.280

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Robinson v Harman (1848) 154 ER 363 ..............  12.50 Rogers v Whitaker (1992) 175 CLR 479 ...........  14.230, 14.560, 14.580 Roots v Oentory Pty Ltd [1983] 2 Qd R 745 ........................................  15.680 Roscorla v Thomas (1842) 3 QB 234 .....................  5.90 Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445 ..................................  4.150 Ross v Allis-​Chalmers Australia Pty Ltd (1980) 32 ALR 561 ...........................................  9.70 Rowe v McCartney [1976] 2 NSWLR 72 ...........  14.790 Royal Globe Life Assurance Co Ltd v Kovacevic (1979) 22 SASR 78 .......................  15.700 Ryan v Mutual Tontine Westminster Chambers Assoc [1893] 1 Ch 116 .................  12.390

S Sachs v Miklos [1948] 2 KB 23 ..........................  15.170 Salomon v Salomon & Co Ltd [1897] AC 22 .......................................  17.40, 17.50 San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 .........  14.280, 14.410 Sanders v Snell (1998) 196 CLR 329 ..................  10.110 Scanlon’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 .......................................  11.410 Scarborough v Sturzaker (1905) 1 Tas LR 117 .......  6.40 Scolio Pty Ltd v Cote (1992) 6 WAR 475 ..........................................  8.260, 8.270 Scott v Coulson [1903] 2 Ch 249 ...........................  7.50 Scott v Scott (1904) 25 ALT 174 ..........................  8.350 Seidler v Schallhofer [1982] 2 NSWLR 80 ...........  8.220 Seven Network (Operations) Ltd v Warburton [2011] NSWSC 386 ......................  8.440 Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 ...............  14.280, 14.380, 14.390 Sharp v Union Trustee Co of Aust Ltd (1944) 69 CLR 539 .......................................  16.380 Shelley v Paddock [1980] QB 348 ........................  8.580 Shevill v Builders Licensing Board (1982) 149 CLR 620 .....................................  11.210 Shields v Deliopoulos [2016] VSC 500 .................  1.555 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 ..............................................  9.560 Sidhu v Van Dyke (2014) 88 ALJR 640 ................  5.290 Siu Yin Kwan (Administratrix of the Estate of Chan Ying Lung, Decd) v Eastern Insurance Co Ltd [1994] 2 AC 199 ...............................  15.660 SKM Industries Pty Ltd v Australian Reliance Pty Ltd [2017] VSC 159 ................................  14.490 Smythe v Thomas [2007] NSWSC 844 .................  3.170 Soltykoff, Re; Ex parte Margrett [1891] 1 QB 413 .............................................  6.130

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Solution 1 Pty Limited v Optus Networks Pty Ltd [2010] NSWSC 1060 .......................................  9.670 Specht v Netscape Communications Corp 306 F 3d 17 (2d Cir 2002) ..........  9.500, 9.520 Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd (2009) 253 ALR 364 .......................................  8.610 Spira v Commonwealth Bank of Australia (2003) 57 NSWLR 544 ...............................  13.1100 Spong v Spong (1914) 18 CLR 544 ......................  7.500 St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 ..............................  8.20, 8.160 Stellard Pty Ltd v North Queensland Fuel Pty Ltd [2015] QSC 119 ..................................  3.540 Stevens v Bodribb Sawmilling Co Ltd (1986) 160 CLR 16 .......................................  14.860 Stevenson Jaques & Co v McLean [1880] 5 QBD 346 ..........................................  3.310 Stilk v Myrick (1809) 2 Camp 317 ...........  5.140, 5.150, 5.180, 5.190 Strong v Woolworths Ltd (2012) 246 CLR 182 ................................................  14.700 Sumpter v Hedges [1898] 1 QB 673 .....................  11.80 Sweeney v Boylan Nominees (2006) 226 CLR 161 ................................................  14.860 SZTAL v Minister for Immigration and Border Protection [2017] HCA 34 ...................  1.290

T Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 ...........................  12.80 Tame v New South Wales (2002) 211 CLR 317 ..........................................  14.110, 14.190 Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309 ...................................................  11.300 Taylor v Johnson (1983) 151 CLR 422 ...............  7.110, 7.120, 7.180 Telstra Corporation Ltd v Singtel Optus Pty Ltd (No 2) [2018] VSC 280 ........................................................  13.230 Thomas v Thomas (1842) 2 QB 851 ......................  5.50 Thompson v Henderson & Partners Pty Ltd (1990) 58 SASR 548 ...............................  15.680 Thomson v Excel Intelligent Pty Ltd [2018] ACAT 4 ............................................  13.1380 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 .............................................  9.340 Todd v Nicol [1957] SASR 72 ..............................  4.100 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 .............................  9.250, 9.260, 9.490, 15.220 Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397 ............................................  16.600 Trego v Hunt [1896] AC 7 .................................  16.390

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Table of Cases

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 .......  1.360, 10.70, 10.80, 10.90 Trollope (George) & Sons v Martyn Bros [1934] 2 KB 436 ............................................  15.800 Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591 ...............................  13.840 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 .....................................  11.430 Tweddle v Atkinson (1861) 1 B & S 393 ..............  10.30

U Ultramares v Touche (1931) 255 NY 170 ............................................  14.280, 14.760 United Dominion Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 ...................................  16.310

V Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 ..........................................  13.40 Van Den Esschert v Chappell [1960] WAR 114 ...............................................  9.90 Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70 ....................  10.60 Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21 ..............................  3.530 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 .....................  12.110 Videon v Barry Burroughs Pty Ltd (1981) 37 ALR 365 .......................................  13.520 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 ...................................  9.660

W Wakefield Trucks Pty Ltd v Lach Transport Pty Ltd (2001) 79 SASR 517 .........................  13.880 Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 .......................  15.480 Walker v European Electronics Pty Ltd (1990) 23 NSWLR 1 .....................................  16.630 Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 ................................................  9.380 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 .................  5.270, 5.280, 5.300

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Watt v Hertfordshire CC [1954] 1 WLR 835 ......................................  14.590, 14.630 Waugh v HB Clifford & Sons Ltd [1982] 1 Ch 374 ............................................  15.380 Weigall & Co v Runciman & Co (1916) 85 LJKB 1187 ....................................  15.670 Weld-​Blundell v Stephens [1920] AC 956 ...........  15.540 Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129 .......................................  8.170 Westminster Properties Pty Ltd v Comco Constructions Pty Ltd (1991) 5 WAR 191 .................................................  13.1330 White v Bluett (1853) 23 LJ Ex 36 .........................  5.70 Whitehouse v Carlton Hotel Pty Ltd (1987) 5 ACLC 725 ................................  17.410 Wilkinson v Osborne (1915) 21 CLR 89 ..............  8.300 Williams Group Australia Pty Ltd v Crocker (2016) NSWCA 265 ...........  15.310, 15.410 Williams v Pisano (2015) 90 NSWLR 342 ....................................................  13.80 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All ER 512 .............................  5.190, 5.200, 5.210 Wilson v Nilepac Pty Ltd t/​as Vision Personal Training (Crows Nest) [2011] NSWCA 63 ........................................  14.640 Woods v Multi-​Sport Holding Pty Ltd (2002) 208 CLR 460 ...............................  14.600 Woolley v Dunford (1972) 3 SASR 43 ................  10.110 Wynbergen v Hoyts Corporation Pty Ltd (1997) 149 ALR 25 ...........................  14.810 Wyong Shire Council v Shirt (1980) 146 CLR 40 .............  14.450, 14.520, 14.660

Y Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 ..................................  8.20, 8.50, 8.60 Yonge v Toynbee [1910] 1 KB 215 ........  15.670, 15.820 Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661 ......................  13.120, 13.900, 13.910

Z Zhang v VP302 SPV (2009) 223 FLR 213 .........  15.380 Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 ....  10.110, 10.120

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Table of Statutes COMMONWEALTH Acts Interpretation Act 1901: 1.280, 1.290 s 3A(2): 1.280 s 15AA: 1.290 s 15AB: 1.310 s 15AB(1): 1.310 s 15AB(2): 1.310 Australian Consumer Bill: 13.10 Australian Consumer Law: 7.400, 7.600, 9.40, 9.600, 9.620, 12.10, 13.20, 13.30, 13.40, 13.50, 13.60, 13.70, 13.80, 13.570, 13.940, 13.950, 13.990, 13.1000, 13.1040, 13.1340, 13.1470, 13.1500, 13.1550, 13.1690, 15.680, 18.60 s 2(1): 13.400, 13.900, 13.910, 13.920, 13.1310, 13.1340, 13.1490, 13.1550, 13.1640, 13.1650 s 2(2)(a): 13.140 s 2(2)(c): 13.140 s 3: 13.1500 s 3(1): 13.1320 s 3(2): 13.1320 s 3(3): 13.1320 s 4(1): 13.550 s 7: 13.1290 s 7(1): 13.1560 s 9(1): 13.1540 s 9(2): 13.1540 s 9(3): 13.1540 s 9(4): 13.1540 s 10(1): 13.670 s 18: 1.370, 3.120, 8.100, 13.40, 13.50, 13.70, 13.80, 13.120, 13.180, 13.190, 13.200, 13.210, 13.220, 13.250, 13.270, 13.310, 13.320, 13.330, 13.340, 13.350, 13.360, 13.370, 13.380, 13.400, 13.420, 13.440, 13.450,

06_Table of Statutes.indd 19

13.460, 13.490, 13.690, 13.760, 13.770, 13.780, 13.890, 13.900, 13.910, 13.920, 13.970, 13.1040, 13.1050, 14.440, 15.680, 16.620 s 18(1): 7.400, 13.70, 13.170, 13.280, 13.290, 13.300 s 19: 13.380 s 19(2): 13.380 s 20: 13.1060, 13.1070, 13.1080, 13.1090, 13.1100, 13.1110 s 20(1): 13.1070 ss 20 to 22: 7.600, 13.770, 13.780, 13.1060 s 21: 7.460, 13.1060, 13.1100, 13.1110, 13.1140, 13.1150 s 21(1): 13.1110 s 21(4)(a): 13.1110 s 21(4)(b): 13.1110 s 21(4)(c): 13.1110, 13.1150 s 22: 13.1060, 13.1110, 13.1150 s 22(1): 13.1110, 13.1150 s 22(2): 13.1110 s 23: 13.1190, 13.1210 s 23(1)(b): 13.1230 s 23(3): 13.1200 s 23(4): 13.1200 ss 23 to 27: 13.770 s 24(1): 13.1220 s 24(2): 13.1220 s 24(3): 13.1220 s 24(4): 13.1220 s 26(1): 13.1230 s 27(2): 13.1230 s 29: 13.400 s 29(1): 7.400, 13.400 s 29(1)(a): 13.210, 13.420 s 29(1)(b): 13.430 s 29(1)(g): 13.440 s 29(1)(i): 13.450 s 29(1)(k): 13.470, 13.490 s 29(1)(m): 13.40, 13.460, 13.470 ss 29 to 50: 13.50

s 30: 13.520 s 30(1): 13.500 s 30(1)(f): 13.510 s 31: 13.580 s 32(1): 13.590 s 33: 13.220, 13.600, 13.800 s 34: 13.250, 13.430, 13.610 s 35: 13.640 s 36: 13.650 s 37: 13.540 s 37(1): 13.530 s 37(2): 13.530 s 39(1): 13.660 ss 40(1) to (2): 13.670 s 40(4): 13.670 s 41(1): 13.680 s 41(2): 13.680 s 41(3): 13.680 s 41(4): 13.680 s 42: 13.680 s 43(1): 13.690 s 43(4): 13.690 ss 44 to 46: 13.700 s 47(1): 13.720, 13.790 s 48: 13.200, 13.730 s 48(1): 13.720 s 48(4A): 13.720 s 49: 13.740 s 50: 7.460 s 50(1): 13.750 s 51: 13.1290, 13.1500 s 51(1): 13.1350 ss 51 to 59: 13.1290 s 52: 13.1290, 13.1350, 13.1500 s 53: 13.1290, 13.1500 s 53(1): 13.13.1350 s 53(2): 13.1350 s 53(3): 13.1350 s 54: 13.1290, 13.1370, 13.1380, 13.1640, 13.1650, 13.1670 s 54(1): 13.1360 s 54(2): 13.1370 s 54(3): 13.1370 s 54(4): 13.1370 s 54(5): 13.1370 s 54(6): 13.1370

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Australian Consumer Law — cont s 55: 13.1290, 13.1650, 13.1670 s 55(1): 13.1390 s 55(2): 13.1410 s 55(3): 13.1410 s 56: 13.1290, 13.1380, 13.1640, 13.1650 s 56(1): 13.1420 s 56(2): 13.1420 s 56(3): 13.1420 s 57: 13.1290 s 57(1): 13.1420, 13.1430 s 58: 13.1290, 13.1640 s 58(1): 13.1440 s 58(2): 13.1440 s 59: 13.1290, 13.1640, 13.1670 s 59(1): 13.1290, 13.1450 s 59(2): 13.1290 s 60: 13.1300, 13.1470, 13.1480, 14.50 ss 60 to 64: 13.1300 s 61: 13.1300, 13.1480 s 61(1): 13.1490 s 61(2): 13.1490 s 61(3): 13.1490 s 62: 13.1300, 13.1490 s 63: 13.1490 s 64: 13.1300 s 64(1): 9.380, 13.1500 s 64A(1) to 64A(2): 13.1500 s 64A(3): 13.1500 s 64A(4): 13.1500 s 75B: 13.910 s 106(1): 13.790, 13.1680 s 106(2): 13.790 s 106(3): 13.790 s 106(5): 13.790 s 107(1): 13.790 s 107(2): 13.790 s 109(1): 13.1680 s 114(1): 13.1680 s 118(1): 13.1680 s 122(1): 13.1680 s 123(1): 13.1680 s 123(1)(c): 13.1680 s 127(1): 13.1680 s 127(2): 13.1680 s 127(3): 13.1680 s 129: 13.1680 s 131(1): 13.1680 s 134: 13.1680 s 136(1): 13.1680 s 138(1): 13.1530 s 138(2): 13.1530 ss 138 to 150: 13.1520

06_Table of Statutes.indd 20

s 139: 13.1530 s 139A(1): 13.1500 s 139A(2): 13.1500 s 139A(3): 13.1500 s 139B(2): 13.810 s 140: 13.1530 s 141: 13.1530 s 142: 13.1570 s 143: 13.1600 s 146: 13.1620 s 148: 13.1570 s 149: 13.1630 s 150(1): 13.1610 s 151: 13.790 ss 151 to 168: 13.760, 13.770 s 152: 13.790 s 153: 13.790 s 154: 13.790 s 155: 13.790 s 156: 13.790 ss 157: 13.790 s 158: 13.790 s 159: 13.790 s 167: 13.790 s 168: 13.790 s 194(1): 13.1680 s 197(1): 13.1680 s 199(1): 13.1680 s 202(1): 13.1680 s 203(1): 13.1680 s 204(1): 13.1680 s 205(1): 13.1010 s 207: 13.820 s 207(1): 13.820 s 207(2): 13.820 s 208: 13.820 s 208(1): 13.820 s 209: 13.820 s 210(1): 13.1680 s 212: 13.770 s 217: 13.770 s 218: 13.1000 s 219: 13.1010 s 223: 13.1020 s 224(1): 13.760, 13.780 s 224(1)(a)(i): 13.780 s 232: 13.760, 13.830 s 232(2): 13.840 s 233: 13.830 s 236: 1.370, 13.760, 13.850, 13.870, 13.880, 13.890 s 236(1): 13.890, 13.900 s 236(2): 13.930 s 237: 13.760, 13.950, 13.970 s 237(3): 13.950, 13.970

s 239: 13.970 s 239(1): 13.960 s 239(3): 13.960 s 239(4): 13.960 s 243: 8.100, 13.760, 13.970, 13.980 s 246(2): 13.1030 s 247: 13.1040 s 248(1): 13.1050 s 250(1): 13.1230 s 250(3): 13.1230 s 251: 13.820 s 252: 13.1680 s 255: 13.480 s 255(3): 13.480 ss 255 to 257: 13.480 ss 256 to 257: 13.480 s 259(1) to (2): 13.1510 s 259(3): 13.1510 s 259(4): 13.1510 s 259(5): 13.1510 s 260: 13.1510 s 260(a): 13.1510 s 260(c): 13.1510 s 260(d): 13.1510 s 260(e): 13.1510 s 262(1): 13.1510 s 262(2): 13.1510 s 263(2) to (3): 13.1510 s 263(4): 13.1510 s 266: 13.1510 ss 267 to 268: 13.1510 s 271: 13.1520, 13.1640, 13.1670 s 271(1): 13.1640 s 271(1) to 271(2): 13.1290 s 271(3): 13.1640 s 271(3) to (4): 13.1290 s 271(5): 13.1290, 13.1640 s 271(6): 13.1290 s 272: 13.1640 s 273: 13.1640 s 274: 13.1510, 13.1520, 13.1650 s 274(2): 13.1650 s 276: 13.1660 s 276A(1): 13.1660 s 276A(2): 13.1660 s 276A(3): 13. 1660 s 276A(4): 13. 1660 Ch 3: 13.390 Pt 2-​2: 13.790 Pt 3-​1: 13.400, 13.790 Pt 3-​1, Div 1: 13.400 Pt 3-​2: 13.1280

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Table of Statutes

Australian Consumer Law — cont Pt 3-​2, Div 1: 13.400 Pt 3-​3: 13.1680 Pt 3-​5: 13.1520 Pt 5-​3: 13.480 Pt 5-​4: 13.1510 Australian Human Rights Commission Act 1986 ss 46P to 46PN: 1.620

s 106: 1.170 s 107: 1.170 s 109: 1.190 s 128: 1.240 Company Law Review Act 1998: 17.150

Bankruptcy Act 1966: 6.190, 11.500 s 126: 6.190 s 269: 6.190 Pt X: 17.600

Competition and Consumer Act 2010: 1.400, 1.470, 1.530, 2.20, 13.10, 13.60, 13.780, 13.810, 13.1500, 13.1670, 18.160 s 6(3): 13.30 s 131(1): 13.30 s 137A: 13.1580 ss 138 to 138B: 13.30 s 139A(1): 13.1500 s 139A(3): 13.1500 Pt IVB: 18.150 Sch 2: 7.400, 7.600, 9.600, 13.10, 14.50, 15.680

Bills of Exchange Act 1909 s 8: 5.340 s 89: 5.340

Competition and Consumer Legislation Amendment Act 2011: 13.1060, 13.1150

Business Names Registration Act 2011: 16.70

Copyright Act 1968 s 196(3): 5.340

Cheques Act 1986 s 10: 5.340

Corporations Act 2001: 1.530, 6.160, 16.780, 17.10, 17.20, 17.60, 17.70, 17.80, 17.110, 17.240, 17.280, 17.310, 17.340, 17.400, 17.510, 17.540, 17.600, 18.60, 18.90, 18.170 s 9: 17.80, 17.90, 17.280, 17.290 s 95A: 17.500 s 103: 16.30 s 115: 16.30 s 117(1): 17.30 s 117(2): 17.30 s 118(1): 17.30 s 119: 17.30, 17.40 s 120: 17.230 s 121: 17.260 s 123: 17.140 s 124: 6.160 s 124(1): 17.40 s 124(2): 17.170 s 125: 6.160, 17.180 s 125(1): 17.170 s 125(2): 17.170 s 126: 6.160, 17.40, 17.190 s 127: 6.160, 17.40, 17.180, 17.190 s 127(1): 17.190

Australian Securities and Investments Commission Act 2001: 18.90 Banking Act 1959: 8.60

Commonwealth of Australia Constitution Act 1900: 1.140, 1.160, 1.170, 1.280 s 1: 1.170 s 51: 1.170, 1.190 s 51(i): 1.190 s 51(ii): 1.190 s 51(v): 1.190 s 51(vi): 1.190 s 51(xii): 1.190 s 51(xiii): 1.190 s 51(xiv): 1.190 s 51(xvi): 1.190 s 51(xvii): 1.190 s 51(xviii): 1.190 s 51(xx): 1.190 s 51(xxvi): 1.240 s 51(xxix): 1.190 s 51(xxxv): 1.190 s 57: 1.280 s 61: 1.170, 1.210 s 64: 1.210 s 73: 1.390 s 75: 1.390 s 76: 1.390 s 90: 1.190

06_Table of Statutes.indd 21

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s 127(2): 17.190 s 128: 6.160, 17.190 s 128(3): 17.190 s 128(4): 17.180, 17.190 s 129: 17.190 s 129(1): 17.190 s 129(2): 17.190 s 129(3): 17.190, 17.200 s 129(4): 17.190 s 129(5): 17.180, 17.190 s 129(6): 17.180, 17.190 s 129(7): 17.190 s 130: 17.170 s 131: 15.150 s 134: 17.160 s 135(1): 17.150 s 135(2): 17.160 s 136(1): 17.160 s 140(1): 17.160 s 141: 17.160 ss 142 to 145: 17.260 s 172: 17.230 s 180: 17.300, 17.320, 17.330, 17.360, 17.400, 17.420, 17.480 s 180(1): 17.320, 17.330, 17.380, 17.400 s 180(2): 17.380 ss 180 to 183: 17.310, 17.320, 17.420, 17.440 s 181: 17.300, 17.320, 17.410, 17.420 ss 181 to 183: 17.300, 17.320 s 182: 17.320, 17.430, 17.440 ss 182 to 183: 17.300, 17.430 s 183: 17.320, 17.430, 17.460 s 184: 17.320, 17.470, 17.480, s 184(1): 17.470 s 184(2): 17.470 s 184(3): 17.470 s 189D: 17.330 s 190(1): 17.330 s 191: 17.310, 17.430 s 191(1): 17.490 s 191(3): 17.490 s 191(4): 17.490 ss 191 to 192: 17.270 s 194: 17.490 s 195(1): 17.490 s 195(2): 17.490 s 196: 17.490 s 198A: 17.270 ss 200A to 200J: 17.590 s 201A: 17.270 s 201M: 17.290

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Corporations Act 2001 — cont s 203C: 17.580 s 203D: 17.580 s 204A: 17.280 s 204D: 17.280 s 205G: 17.270 s 206B(1): 17.600 s 206B(3): 13.1050, 17.600 s 206B(4): 17.600 s 206C: 17.600 s 206D: 17.600 s 206E: 17.600 s 206F: 17.600 s 206G: 17.600 s 206EA: 17.600 s 206EAA: 17.600 s 232: 17.460 s 249D: 17.310 s 588: 17.510, 17.520 s 588G: 17.500 s 588G(1): 17.500 s 588G(2): 17.500 ss 588G to 588M: 17.60 s 588H(2): 17.520 s 588H(3): 17.520 s 588H(4): 17.520 s 588H(5): 17.520 s 588H(6): 17.520 s 588J: 17.520 s 588M: 17.520 s 601AD(1): 17.40 s 1013D(1)(l): 18.170 ss 1042A to 1042H: 17.540 s 1043A: 17.540, 17.560 ss 1043B to 1043K: 17.540 s 1043L: 17.540 s 1043M: 17.540 s 1317H: 17.480 s 1317J: 17.480 s 1317K: 17.480 s 1317S: 17.480 Corporations Regulations 2001 reg 2A.1.01: 16.30 Criminal Code Act 1995 Sch 1, s 70.2(1A): 18.160 Sch 1, s 70.2(2): 18.160 Sch 1, s 70.2(3): 18.160 Sch 1, s 70.3: 18.160 Sch 1, s 70.4(1): 18.160 Sch 1, s 70.5(1): 18.160 Electronic Transactions Act 1999 s 8: 3.550 s 9: 3.560 s 10: 3.570

06_Table of Statutes.indd 22

s 11: 3.580 s 14: 3.600 s 14A: 3.610 Insurance Contracts Act 1984: 2.20 s 48: 10.70 s 48(1): 10.90

Agents Act 2003: 15.910 Civil Law (Property) Act 2006 s 204: 5.360 s 205: 10.170 s 219: 5.220

National Credit Code 2009: 7.610 s 7(8): 7.610 s 8: 5.370 s 9: 5.370 s 76(1): 7.610

Civil Law (Wrongs) Act 2002: 14.50 s 41: 14.50 s 43(1): 14.450, 14.520 s 43(2): 14.520 s 44: 14.610 s 45(1)(a): 14.690 s 45(1)(b): 14.750 ss 95 to 96: 14.810 s 96: 14.850 s 98: 14.50 s 99: 14.50 s 102: 12.270, 14.840 Ch 8: 14.50 Pt 2.2: 14.50 Pt 2.2A: 14.50 Pt 3.2: 14.210 Sch 3: 14.850

Native Title Act 1993: 1.130

Civil Procedure Rules 2006: 16.410

Sex Discrimination Act 1984 s 22: 1.200

Electronic Transactions Act 2001 s 7: 3.550 s 8: 3.560 s 9: 3.570 s 10: 3.580 s 13: 3.600 s 13A: 3.610

Legislation Act 2003 s 38: 1.320 s 42: 1.320 Life Insurance Act 1995 s 200(2)(a): 5.340 Marine Insurance Act 1909 s 28: 5.340 National Consumer Credit Protection Act 2009: 15.910 Sch 1: 7.610

Tobacco Advertising Prohibition Act 1992 s 13: 18.160 s 15: 18.160 Trade Practices Act 1974: 7.400, 7.600, 9.600, 13.10, 13.30, 13.1360, 13.1670, 15.680, 18.20 s 52: 8.100, 15.680 s 74(1): 14.50 s 74B: 13.1670 s 74D: 13.1670 s 74G: 13.1670 s 87: 8.100 Venture Capital Act 2002: 16.800 Volunteers Protection Act 2003: 14.50

AUSTRALIAN CAPITAL TERRITORY ACT Civil and Administrative Tribunal Act 2008 s 18: 1.480 Age of Majority Act 1974 s 5: 6.20

Fair Trading (Australian Consumer Law) Act 1992 s 7(1): 13.30 Human Rights Commission Act 2005 ss 54 to 67: 1.620 Law Reform (Miscellaneous Provisions) Act 1955 s 15: 14.810 Legislation Act 2001: 1.350 s 139: 1.290 Married Persons’ Property Act 1986 s 5: 15.210, 15.910 Mercantile Law Act 1962 s 12: 5.370 Partnership Act 1963: 16.10 s 4: 16.80 s 5: 16.10 s 6: 16.80

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Table of Statutes

Partnership Act 1963 — cont s 7: 16.170 s 8: 16.70 s 9: 16.420, 16.470, 16.550 s 11: 16.440 s 12: 16.440 s 14: 16.620 s 15: 16.680 s 16: 16.620 s 17: 16.700 s 18: 16.610 s 21: 16.560, 16.570 s 22: 16.340 s 24: 16.360 s 29: 16.270 s 30: 16.270 s 31: 16.330 s 32: 16.350 s 33: 16.290 ss 33 to 35: 16.290 s 34: 16.290 s 36: 16.290 s 39: 16.720 s 40: 16.740 s 41: 16.570 s 42: 16.590 s 45: 16.760 s 50: 16.770 Pt 6: 16.10, 16.800 Powers of Attorney Act 1956: 15.810 Sale of Goods Act 1954 s 7: 6.40, 6.170 Unlawful Gambling Act 2009 s 47: 8.170

NEW SOUTH WALES Anti-​Discrimination Act  1977 s 91A: 1.620 Builders Licensing Act 1971: 12.440 s 45: 12.440 Civil Liability Act 2002: 9.420, 14.50, 14.640, 14.810 s 5A(1): 14.50 s 5B: 14.520 s 5B(1): 14.450, 14.520 s 5B(2): 14.520, 14.660 s 5C: 14.610 s 5D(1)(a): 14.690 s 5D(1)(b): 14.750 s 5G: 14.850 s 5O: 14.50, 14.560, 14.660

06_Table of Statutes.indd 23

s 5P: 14.50, 14.660 s 5R: 14.810 s 5S: 14.810 s 12: 14.50 s 16: 14.50 s 21: 14.50 Pt 1A, Div 5: 14.50 Pt 2: 14.50 Pt 3: 14.210 Pt 5: 14.50 Pt 6: 14.810 Pt 9: 14.50 Commercial Agents and Private Inquiry Agents Act 2004: 15.910 Conveyancing Act 1919 s 12: 10.170 s 38(1): 5.220 s 54A: 5.360 s 163: 15.110 Electronic Transactions Act 2000: 3.680 s 7: 3.550 s 8: 3.560 s 9: 3.570 s 9(1): 9.480 s 10: 3.580 s 13: 3.600 s 13A: 3.610 Factors (Mercantile Agents) Act 1923: 15.860 Fair Trading Act 1987 s 28(1): 13.30 s 79S(7): 1.480 Pt 6A: 1.480 Interpretation Act 1987 s 33: 1.290 Law Reform (Miscellaneous Provisions) Act 1965 s 9: 12.270, 14.840 s 10: 14.810 Legal Profession Act 1987: 14.50 Local Court Act 2007 s 29: 1.480 Married Persons (Equality of Status) Act 1996 s 4: 6.180 s 7: 15.210, 15.910 Minors (Property and Contracts) Act 1970: 6.40, 6.150, 16.60

xxiii

s 6(1): 6.20, 6.150 s 6(3): 6.150 s 16: 6.150 s 18: 6.150 s 19: 6.150 s 20(1): 6.150 s 21: 6.150 s 30(1): 6.150 s 30(1)(b): 6.150 s 30(4): 6.150 s 31(1): 6.150 s 33(2): 6.150 s 34(1): 6.150 s 34(2): 6.150 s 48: 6.140 Partnership Act 1892: 16.10 s 1: 16.80 s 2: 16.170 s 4: 16.70 s 5: 16.420, 16.470 s 7: 16.440 s 8: 16.440 s 9: 16.550 s 10: 16.620, 16.630 s 11: 16.680 s 12: 16.620 s 13: 16.700 s 14: 16.610 s 17: 16.560, 16.570 s 18: 16.340 s 20: 16.360 s 23: 16.410 s 24: 16.270 s 25: 16.270 s 26: 16.330 s 27: 16.350 s 28: 16.290 ss 28 to 30: 16.290 s 29: 16.290 s 30: 16.290 s 34: 16.720 s 35: 16.740 s 36: 16.570 s 37: 16.590 s 39: 16.760 s 44: 16.770 s 45: 16.80 s 46: 16.10 Pt 3: 16.10, 16.780, 16.800 Real Property Act 1900 s 88: 15.110 Real Property (Amendment) Act 1970 s 13: 15.110

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Sale of Goods Act 1923 s 7: 6.170 Unlawful Gambling Act 1998 s 56: 8.170 s 56(2): 8.170

NORTHERN TERRITORY Age of Majority Act s 4: 6.20 Anti-​Discrimination Act  1992 ss 78 to 81: 1.620 Auctioneers Act 1935: 15.910 Commercial and Private Agents Licensing Act 1979: 15.910 Consumer Affairs and Fair Trading Act 1990 s 27(1): 13.30 Electronic Transactions (Northern Territory) Act 2000 s 7: 3.550 s 8: 3.560 s 9: 3.570 s 10: 3.580 s 13: 3.600 s 13A: 3.610

s 17: 16.700 s 18: 16.610 s 21: 16.560, 16.570 s 22: 16.340 s 24: 16.360 s 27: 16.410 s 28: 16.270 s 29: 16.270 s 30: 16.330 s 31: 16.350 s 32: 16.290 ss 32 to 34: 16.290 s 33: 16.290 s 34: 16.290 s 38: 16.720 s 39: 16.740 s 40: 16.570 s 41: 16.590 s 43: 16.760 s 48: 16.770 Pt 3: 16.10, 16.800

s 23: 14.810 s 24: 14.810 s 48: 14.850 s 52: 14.50 s 54: 14.50 s 62: 14.50 Pt 1, Div 2: 14.750 Pt 1, Div 4: 14.50 Pt 3: 14.50 Pt 3, Div 2: 14.50 Pt 4, Div 2: 14.810 Electronic Transactions (Queensland) Act 2001 s 8: 3.550 ss 9 to 13: 3.560 ss 14 to 15: 3.570 ss 16 to 18: 3.580 s 23: 3.600 s 24: 3.610 Factors Act 1892: 15.860

Personal Injuries (Civil Claims) Act 2003: 14.50

Fair Trading Act 1989 s 16(1): 13.30 Land Title Act 1994 ss 132 to 135: 15.110

Interpretation Act 1978 s 62A: 1.290

Personal Injuries (Liabilities and Damages) Act 2003: 14.50 s 4: 14.50 ss 14 to 15: 14.810 s 20: 14.50 ss 24 to 28: 14.50

Law Reform (Miscellaneous Provisions) Act 1956 s 16: 12.270, 14.810, 14.840

Racing and Betting Act s 135: 8.170 s 135(1): 8.170

Law of Property Act 2000 s 56(6): 10.20 s 62: 5.360 s 182: 10.170

Sale of Goods Act 1972 s 7: 6.40, 6.170

Married Persons (Equality of Status) Act 1989 s 3: 6.180 s 5: 15.210, 15.910 Partnership Act 1997: 16.10 s 3: 16.80 s 4: 16.10 s 5: 16.80 s 6: 16.170 s 8: 16.70 s 9: 16.420, 16.470, 16.550 s 11: 16.440 s 12: 16.440 s 14: 16.620 s 15: 16.680 s 16: 16.620

06_Table of Statutes.indd 24

Small Claims Act 2016 s 5: 1.480

QUEENSLAND Acts Interpretation Act 1954 s 15AA: 1.290 Anti-​Discrimination Act  1991 ss 158 to 164AA: 1.620 Civil Liability Act 2003: 14.50 s 4(1): 14.50 s 9(1): 14.450, 14.520 s 9(2): 14.520 s 10: 14.610 s 11(1)(a): 14.690 s 11(1)(b): 14.750 s 14: 14.850 s 22: 14.50, 14.660

Law of Property Act 1974 s 56: 5.370 Law Reform Act 1995 s 10: 12.270, 14.810, 14.840 s 17: 6.20 s 18: 6.180 Local Government Act 2009 s 28(1): 1.320 Partnership Act 1891: 16.10 s 3: 16.70, 16.80 s 5: 16.80 s 6: 16.170 s 8: 16.420, 16.470 s 10: 16.440 s 11: 16.440 s 12: 16.550 s 13: 16.620 s 14: 16.680 s 15: 16.620 s 16: 16.700 s 17: 16.610 s 20: 16.560, 16.570 s 21: 16.340 s 23: 16.360 s 26: 16.410 s 27: 16.270 s 28: 16.270 s 29: 16.330

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Table of Statutes

Partnership Act 1891 — cont s 30: 16.350 s 31: 16.290 ss 31 to 33: 16.290 s 32: 16.290 s 33: 16.290 s 37: 16.720 s 38: 16.740 s 39: 16.570 s 40: 16.590 s 42: 16.760 s 47: 16770 s 48: 16.10 Ch 3: 16.10, 16.780 Ch 4: 16.10, 16.800 Personal Injuries Proceedings Act 2002: 14.50 Property Agents and Motor Dealers Act 2000 s 45: 15.910 s 117: 15.910 s 140: 15.910 s 217: 15.910 s 288: 15.910 s 346: 15.910 Property Law Act 1974 s 45: 5.220 s 55: 10.20 s 59: 5.360 s 199: 10.170 Queensland Civil and Administrative Tribunal Act 2009 s 11: 1.480 Sch 3: 1.480 Racing Act 2002 s 341: 8.170 s 342: 8.170

s 34(1)(a): 14.690 s 34(1)(b): 14.750 s 37: 14.850 s 41: 14.50, 14.660 s 44: 14.810 s 46: 14.810 s 47: 14.850 s 52: 14.50 s 53: 14.210 s 53(1): 14.210 s 54: 14.50 Pt 9, Div 11A: 14.50 Electronic Transactions Act 2000 s 7: 3.550 s 8: 3.560 s 9: 3.570 s 10: 3.580 s 13: 3.600 s 13A: 3.610 Equal Opportunity Act 1984 s 27: 1.620 s 95: 1.620 Fair Trading Act 1987 s 14(1): 13.30 Land Agents Act 1994 s 6(2): 15.910 Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001: 12.270, 14.840 s 7: 14.810 Law of Property Act 1936 s 15: 10.170 s 26: 5.360 s 41: 5.220 ss 92 to 111: 6.180 s 104: 15.210, 15.910

s 5: 16.420, 16470, 16.550 s 7: 16.440 s 8: 16.440 s 10: 16.620 s 11: 16.680 s 12: 16.620 s 13: 16.700 s 14: 16.610 s 17: 16.560, 16.570 s 18: 16.340 s 20: 16.360 s 23: 16.410 s 24: 16.270 s 25: 16.270 s 26: 16.330 s 27: 16.350 s 28: 16.290 ss 28 to 30: 16.290 s 29: 16.290 s 30: 16.290 s 34: 16.720 s 35: 16.740 s 36: 16.570 s 37: 16.590 s 39: 16.760 s 44: 16.770 s 45: 16.80 s 46: 16.10 Pt 3: 16.10, 16.780 Pt 6: 16.10, 16.800 Powers of Attorney and Agency Act 1984 s 12: 15.810 Real Property Act 1886 s 156: 15.110 Recreational Services (Limitation of Liability) Act 2002: 14.50 Registration of Deeds Act 1935 s 35: 15.110

Sale of Goods Act 1896 s 5: 6.40, 6.170

Lottery and Gaming Act 1936 s 50: 8.170 s 50A: 8.170

SOUTH AUSTRALIA

Magistrates Court Act 1991 s 3: 1.480 s 38: 1.480

Security and Investigation Agents Act 1995: 15.910

Mercantile Law Act 1936: 15.860

Volunteers Protection Act 2001: 14.50

Acts Interpretation Act 1915 s 22: 1.290 Age of Majority (Reduction) Act 1971 s 3(1): 6.20

Minors Contracts (Miscellaneous Provisions) Act 1979: 6.150, 16.60

Civil Liability Act 1936: 14.50 s 4: 14.50 s 32(1): 14.450, 14.520 s 32(2): 14.520

Partnership Act 1891: 16.10 s 1: 16.80 s 2: 16.170 s 4: 16.70

06_Table of Statutes.indd 25

xxv

Sale of Goods Act 1895 s 2: 6.40, 6.170

TASMANIA Acts Interpretation Act 1931 s 8A: 1.290 Age of Majority Act 1973 s 3(1): 6.20

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Anti-​Discrimination Act  1998 ss 75 to 77: 1.900 Australian Consumer Law (Tasmania) Act 2010 s 6(1): 13.30 Civil Liability Act 2002: 14.50 s 4: 14.50 s 11(1): 14.450, 14.520 s 11(2): 14.520 s 12: 14.610 s 13(1)(a): 14.690 s 13(1)(b): 14.750 s 16: 14.850 s 22: 14.50, 14.660 s 23: 14.810 s 26: 14.50 ss 27 to 28: 14.50 s 34: 14.210 Pt 2: 14.810 Pt 6, Div 5: 14.50 Pt 8B: 14.50 Pt 9: 14.50 Pt 10: 14.50 Conveyancing and Law of Property Act 1884 s 36: 5.360 s 63: 5.220 s 86: 10.170 Electronic Transactions Act 2000 s 5: 3.550 s 7: 3.570 s 8: 3.560, 3.580 s 11: 3.600 s 11A: 3.610 Factors Act 1891: 15.860 Magistrates Court (Civil Division) Act 1992 s 3: 1.480 s 7(2): 1.480 Married Women’s Property Act 1935 s 3: 6.180 s 7: 6.180 s 11: 6.180 Mercantile Law Act 1935 s 6: 5.360, 5.370, 16.20 Partnership Act 1891: 16.10 s 4: 16.80 s 5: 16.10 s 6: 16.80 s 7: 16.170

06_Table of Statutes.indd 26

s 9: 16.70 s 10: 16.420, 16.470, 16.550 s 12: 16.440 s 13: 16.440 s 15: 16.620 s 16: 16.680 s 17: 16.620 s 18: 16.700 s 19: 16.610 s 22: 16.560, 16.570 s 23: 16.340 s 25: 16.360 s 28: 16.410 s 29: 16.270 s 30: 16.270 s 31: 16.330 s 32: 16.350 s 33: 16.290 ss 33 to 35: 16.290 s 34: 16.290 s 35: 16.290 s 39: 16.720 s 40: 16.740 s 41: 16.570 s 42: 16.590 s 44: 16.760 s 49: 16.770 Pt 3: 16.10, 16.780, 16.800 Powers of Attorney Act 2000:15.110 s 52: 15.810 Property Agents and Land Transactions Act 2005 s 18: 15.910 Racing Regulation Act 2004 s 103: 8.170 s 103(2): 8.170 Sale of Goods Act 1896 s 7: 6.40, 6.170

Auction Sales Act 1958: 15.910 Auction Sales (Repeal) Act 2001 s 3: 15.910 Australian Consumer Law and Fair Trading Act 2012: 11.470, 11.480 s 11(1): 13.30 s 36(1): 11.480 s 37: 11.480 s 38(1) to (2): 11.480 s 38(3): 11.480 s 41: 11.480 ss 182 to 192: 1.480 Credit Act 1984: 2.20 Electronic Transactions (Victoria) Act 2000 s 7: 3.550 s 8: 3.560 s 9: 3.570 s 10: 3.580 s 13: 3.600 s 13A: 3.610 Equal Opportunity Act 2010 s 112: 1.620 Estate Agents Act 1980 s 49A: 15.910 s 50: 15.910 Gambling Regulation Act 2003 s 2.4.1: 8.170 s 2.4.2: 8.170 Goods Act 1958 s 7: 6.40, 6.170 ss 65 to 72: 15.860 Instruments Act 1958 s 126: 5.360, 5.370 Pt XI: 15.110

Security and Investigations Agents Act 2002: 15.910

Interpretation of Legislation Act 1984 s 35: 1.290

Wrongs Act 1954 s 4: 12.270, 14.810 s 44: 14.840

Local Government (Decentralised Industries) Act 1963: 9.570

VICTORIA Age of Majority Act 1977 s 3(1): 6.20 Assisted Reproductive Treatment Act 2008 s 10(1)(a): 1.200, 1.300

Marriage Act 1958: 1.30 ss 156 to 161: 6.180 Partnership Act 1958: 16.10 s 3: 16.80 s 4: 16.10 s 5: 16.80 s 6: 16.170 s 8: 16.70

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Table of Statutes

Partnership Act 1958 — cont s 9: 16.420, 16.470 s 11: 16.440 s 12: 16.440 s 13: 16.550 s 14: 16.620 s 15: 16.680 s 16: 16.620 s 17: 16.700 s 18: 16.610 s 21: 16.560, 16.570 s 22: 16.340 s 24: 16.360 s 27: 16.410 s 28: 16.270 s 28(1): 16.270 s 29: 16.270 s 30: 16.330 s 31: 16.350 s 32: 16.290 ss 32 to 34: 16.290 s 33: 16.290 s 34: 16.290 s 38: 16.720 s 39: 16.740 s 40: 16.570, 16.580 s 41: 16.590 s 42: 16.590 s 43: 16.760 s 46: 16.620 s 48: 16.770 Pt 3: 16.10, 16.780 Pt 5: 16.10, 16.800 Property Law Act 1958 s 73: 5.220 s 134: 10.170 Residential Tenancies Act 1997: 2.20 Supreme Court Act 1986 s 49: 6.120, 6.130 s 51: 6.130 Transfer of Land Act 1958 s 94: 15.110 Wrongs Act 1958: 14.50 s 14G: 14.810 s 26: 12.270, 14.810, 14.840 s 28F: 14.50 s 28G: 14.50 s 28H: 14.50 ss 34 to 37: 14.50 s 44: 14.50 s 48(1): 14.450, 14.520 s 48(2): 14.520, 14.660

06_Table of Statutes.indd 27

s 49: 14.610 s 51(1)(a): 14.690 s 51(1)(b): 14.750 s 54: 14.840 s 59: 14.50, 14.560, 14.660 s 60: 14.50, 14.660 s 62: 14.810 s 63: 14.810 Pt VBA: 14.50 Pt XI: 14.210 Pt XXII: 14.50

WESTERN AUSTRALIA Age of Majority Act 1972 s 5(1): 6.20 Auction Sales Act 1973: 15.910 Betting Control Act 1954: 8.170 Civil Liability Act 2002: 14.50 s 1B: 14.210 s 5B(1): 14.450, 14.520 s 5B(2): 14.520 s 5C(1)(a): 14.690 s 5C(1)(b): 14.750 s 5K: 14.810 s 5L: 14.810 s 5N: 14.850 s 5PB(1): 14.610 s 6: 14.50 ss 9 to 10A: 14.50 s 11: 14.50 Pt 1A, Div 4: 14.50 Pt 1C: 14.50 Civil Judgments Enforcement Act 2004 s 14(4): 16.410 Debt Collectors Licensing Act 1964:15.910 Electronic Transactions Act 2011 s 8: 3.550 s 9: 3.560 s 10: 3.570 s 11: 3.580 s 13: 3.600 s 14: 3.610 Equal Opportunity Act 1984 ss 91 to 92: 1.620 Factors’ Acts Amendment Act 1878: 15.860 Fair Trading Act 2010 s 19(2): 13.30

xxvii

Gaming and Betting (Contracts and Securities) Act 1985 s 4: 8.170 s 5: 8.170 Imperial Act 5 & 6 Vict, c 39: 15.860 Interpretation Act 1984 s 18: 1.290 Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 s 4: 12.270, 14.810, 14.840 Law Reform (Miscellaneous Provisions) Act 1941 ss 2 to 3: 6.180 Law Reform (Statute of Frauds) Act 1962 s 2: 5.370 Limited Partnerships Act 1909: 16.10, 16.780 Magistrates Court (Civil Proceedings) Act 2004 s 3: 1.480 s 26: 1.480 Partnership Act 1895: 16.10 s 3: 16.80 s 6: 16.10 s 7: 16.80 s 8: 16.170 s 10: 16.70 s 14: 16.440 s 15: 16.440 s 17: 16.620 s 18: 16.680 s 19: 16.620 s 20: 16.700 s 21: 16.610 s 24: 16.560, 16.570 s 25: 16.340 s 26: 16.420, 16.470, 16.550 s 30: 16.360 s 34: 16.270 s 35: 16.270 s 36: 16.270 s 37: 16.330 s 38: 16.350 s 39: 16.290 ss 39 to 41: 16.290 s 40: 16.290 s 41: 16.290 s 45: 16.720

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Partnership Act 1895 — cont s 46: 16.740 s 47: 16.570 s 48: 16.590 s 50: 16.760 s 57: 16.770 Property Law Act 1969 s 9: 5.220 s 11(2): 10.20 s 11(3): 10.20 s 20: 10.170 s 85: 15.110 s 85(2): 15.810 Real Estate and Business Agents Act 1978 s 60: 15.910

UNITED KINGDOM Companies Act 2006: 18.80 s 172(1)(d) to (e): 18.80 Exchange Control Act 1947: 8.580 Judicature Act 1873: 1.350 Modern Slavery Act 2015: 18.50 Pharmacy Poisons Act 1933: 3.100 Statute of Frauds 1677: 16.20

TREATIES AND CONVENTIONS

Sale of Goods Act 1895 s 2: 6.40, 6.170

Convention on the Elimination of All Forms of Discrimination Against Women Art 2(e): 18.130

Transfer of Land Act 1893 s 143: 15.110 s 144: 15.110

Convention on the Rights of the Child Art 32(1): 18.130

Volunteers (Protection from Liability) Act 2002: 14.50

ILO Convention concerning the Prohibition and Immediate

06_Table of Statutes.indd 28

Action for the Elimination of the Worst Forms of Child Labour (No 182): 18.130 International Convention on the Elimination of All Forms of Racial Discrimination Art 2(e): 18.130 International Covenant on Economic, Social and Cultural Rights Art 10(3): 18.130 UN Convention on the use of Electronic Communications in International Contracts paras 177 to 178: 3.600 UN Convention Against Corruption: 18.90 Art 12(1): 18.90 Art 12(2)(b): 18.90 Art 12(2)(f): 18.90 Art 12(3): 18.90 Arts 21 to 22: 18.90

13-Dec-18 9:08:14 PM

Table of Abbreviations ABC … Australian Bankruptcy Cases. 1929-​1964. ABC (ns) … Australian Bankruptcy Cases (New Series). 1999 onwards. AC … Law Reports, Appeal Cases. 1891 onwards. ACLC … Australian Company Law Cases. 1971 onwards. ACLR … Australian Company Law Reports. 1974-​1989. ACSR … Australian Corporations and Securities Reports. 1990 onwards. ACTLR … Australian Capital Territory Law Reports. 2007 onwards. ACTR … Australian Capital Territory Reports. 1973 onwards. AILR … Australian Industrial Law Reports. 1997 onwards. AILR … Australian Industrial Law Review. 1961-​1996. AIPC … Australian Intellectual Property Cases. 1982 onwards. AJR … Australian Jurist Reports. 1870-​1874. ALJ … Australian Law Journal. 1927 onwards. ALJR … Australian Law Journal Reports. 1958 onwards. ALLR  … Australian Labour Law Reporter. 1977 onwards. Argus LR … Argus Law Reports. 1895-​1973. ALR … Australian Law Reports. 1973 onwards. ALT … Australian Law Times. 1879-​1928. ANZ Insurance Cases … Australian and New Zealand Insurance Cases. 1979 onwards. All ER … All England Law Reports. 1936 onwards. App Cas … Law Reports. Appeal Cases. 1876-​1890. AR (NSW) … Industrial Arbitration Reports (New South Wales). 1902-​1989. ASC … Australian Consumer Sales and Credit Law Reporter. 1997 onwards. ASTLR … Australian Succession and Trusts Law Reports. 2006 onwards. ATPR … Australian Trade Practices Reports. 1974 onwards. Aust Torts Reports … Australian Torts Reports. 1984 onwards.

DCR (NSW) … New South Wales District Court Reports. 1963-​1976. DLR … Dominion Law Reports. 1912 onwards.

BCL … Building and Construction Law. 1985 onwards. BPR … Butterworths Property Reports. 1950 onwards.

NSW Conv R … New South Wales Conveyancing Reports. 1980 onwards. NSWLR … New South Wales Law Reports. 1800-​1900, 1971 onwards. NTLR … Northern Territory Law Reports. 1992 onwards. NTR … Northern Territory Reports. 1978 onwards. NZLR … New Zealand Law Reports. 1883 onwards.

CAR … Commonwealth Arbitration Reports. 1905-​1993. CLR … Commonwealth Law Reports. 1903 onwards. CPD … Common Pleas Division. 1875-​1880. Ch … Law Reports. Chancery. 1891 onwards. Ch D … Law Reports. Chancery Division. 1876-​1890. Ch App … Chancery Appeal Cases. 1865-​1875.

07_Abbreviations.indd 29

ER … English Reports. 1220-​1865. Ex … Exchequer Reports. 1848-​1856. Ex D … Exchequer Division. 1875-​1880. F 3d … Federal Reporter, Third Series. 1993 onwards. FCR … Federal Court Reports. 1984 onwards. Fed Appx … Federal Appendix. 2001 onwards. FLR … Federal Law Reports. 1956 onwards. FSR … Fleet Street Reports. 1975 onwards. F Supp … Federal Supplement. 1932 onwards. HLC … House of Lords Cases (Clark). 1847-​1866. IPR … Intellectual Property Reports. 1982 onwards. IR … Industrial Reports. 1982 onwards. KB … Law Reports. King’s Bench. 1901 onwards. LJ Ch … Law Journal Reports. Chancery. 1831-​1946. LJ Ex … Law Journal Reports. Exchequer. LJKB … Law Journal Reports. King’s Bench. 1831-​1946. LJPC … Law Journal Reports. Privy Council. 1865-​1946. LJQB … Law Journal Reports. Queen’s Bench. 1831-​1946. LR (NSW) Eq … Law Reports. NSW Equity. 1880-​1900. LR App Cas … Law Reports. Appeal Cases. 1876-​1890. LRCP … Law Reports. Common Pleas. 1865-​1875. LR Eq … Law Reports. Equity. 1865-​1875. LR Ex … Law Reports. Exchequer. 1865-​1875. LR Ex D … Law Reports. Exchequer Div. 1876-​1880. LRPC … Law Reports. Privy Council, Appeal Cases. 1865-​1875. LRQB … Law Reports. Queen’s Bench. 1865-​1876. LT … Law Times. 1859-​1947. Lloyd’s Rep … Lloyd’s List Law Reports. 1951 onwards.

P … Law Reports. Probate Division. 1891-​1971. PD … Probate Division. 1875-​1890.

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QB … Queen’s Bench Reports. 1841-​1852. QB … Law Reports. Queen’s Bench. 1891 onwards. QBD … Law Reports. Queen’s Bench. 1876-​1890. QGIG … Queensland Government Industrial Gazette. 1916 onwards. QSR … State Reports (Queensland). 1902-​1957. Qd R … Queensland Reports. 1958 onwards.

SR (NSW) … New South Wales State Reports. 1901-​1970.

RPC … Reports of Patent Cases. 1884 onwards.

US … United States Reports. 1790 onwards.

SALR … South Australian Law Reports. 1865-​1892, 1899-​1920. SASR … South Australian State Reports. 1921 onwards. SCR (NSW) … Supreme Court Reports, New South Wales. 1862-​1876.

VLR … Victorian Law Reports. 1875-​1956. VR … Victorian Reports. 1957 onwards.

07_Abbreviations.indd 30

TLR … Times Law Reports. 1855-​1952. Tas LR … Tasmanian Law Reports. 1905-​1940. Tas R … Tasmanian Reports. 1979 onwards. Tas SR … Tasmanian State Reports. 1941-​1978.

WALR … Western Australian Law Reports. 1898-​1959. WAR … Western Australian Reports. 1960 onwards.

13-Dec-18 9:09:15 PM

Glossary Actual authority In agency law, actual authority refers to the authority that an agent has been given by a principal. May be express or implied, oral or written. Compare Apparent (ostensible) authority. Adversarial Often used to describe the common law procedure used in litigation. The central feature of an adversarial litigation process is that the parties are (generally) responsible for the conduct of their case with the judge ensuring the procedural rules are followed but not actively involved in the case. Compare the inquisitorial process of civil law jurisdictions. Affirm 1. When the innocent party elects to proceed with a contract that could have been rescinded (a voidable contract) for misrepresentation or unconscionable conduct; 2. to confirm the judgment of a lower court. Ambiguity Where a word or a phrase has more than one meaning. Often used in relation to the interpretation of a contractual term, especially an exclusion clause (where any ambiguity is interpreted against the party relying on the clause). Apparent (ostensible) authority In agency law, apparent authority refers to the power that an agent appears to have. There is no actual authority but merely the appearance of authority. Where a principal represents (“holds out”) either by words or conduct that an agent has authority to contract on the principal's behalf, the principal will be bound by those acts of the agent that fall within that apparent authority. Appeal Refers to a review of the decision of a lower court by a higher court. Appellant The person who appeals against a decision. Appellate Authority to hear appeals, eg appellate court. Balance of probabilities The standard of proof required in a civil case –​plaintiff has the onus (responsibility) to prove his story is “more likely than not” to be true. Barrister A lawyer whose main function is to provide specialist advice and/​or represent (advocate for) persons in court. Beneficiary A person who benefits from a will or trust. Bilateral contract A contract where each of the parties exchange promises –​sometimes called an executory contract. An example is the typical contract for the sale of goods where A promises to buy and B promises to sell. Compare to Unilateral contract. Binding Legally enforceable. Often refers to an enforceable contract (as in “the contract is binding on X”). Bona fide In good faith. Breach To break one or more of the terms of the contract or not to reach the required standard of care (tort of negligence). Burden of proof The obligation imposed on a party in a court case to produce sufficient evidence to prove their case to the required standard. Capacity In contract law, the legal ability to enter into a contract. Individuals may lack capacity because, for example, of age or mental impairment. Caveat emptor “Let the buyer beware”. It was common in the pre-​consumer protection era to put the onus or responsibility onto the consumer to make his or her own enquiries about the goods being acquired. Now there are statutory guarantees and implied terms that have shifted the onus onto the vendor or supplier. Civil action A legal action other than a criminal proceeding that typically involves the enforcement of an individual’s (including a corporation’s) rights under a contract or in tort or under certain legislation such as the Australian Consumer Law, the Corporations Act or the Partnership Act. A civil action differs in a number of ways from a criminal action –​for example, the parties, the remedies, the procedures and the standard of proof are different.

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Codify A form of legislation that involves taking accepted common law and equitable principles and putting them into a statutory form. The Queensland Criminal Code is an example. More common in the civil law countries of mainland Europe. Collateral In contract law, an agreement entered into alongside the main agreement. May also mean security for a loan. Committal proceedings Where serious (indictable) offences, the proceedings held to inquire whether the prosecutor can establish a prima facie case against the defendant. If so, the case will proceed to a jury. Common law The part of English law that is derived from judicial precedent rather than statutes. Common law is often contrasted with civil law systems that require all laws to be written in a code. Company See Corporation. Concurrent At the same time, eg concurrent powers of State and Federal Parliament. Condition An important promise in a contract, a breach of which may allow termination and damages. Consensus ad idem A meeting of minds. In contract law, where the parties are in agreement. Consideration Consideration is the price paid for the promise of the other party. The price must be something of value (but need not be money). Consideration may be some right, interest or benefit going to one party or some detriment or loss given, suffered by the other party. Required for every simple contract. Contingent Dependent upon something. Contra proferentum Against the person who alleges it. In contract law, it is a maxim of contractual interpretation often used when interpretation of an exclusion clause is required. Contract An agreement that the law will enforce. Contributory negligence A defence that a plaintiff in a negligence claim contributed to their own losses/​injuries through their own negligence. Corporation A corporation is a separate legal entity and able to act as such. It can sue or be sued, own property, borrow money, pay tax, break the law. A corporation is established through a formal registration process. Damages The main civil remedy for breach of contract, tort and breach of the Australian Consumer Law. Debenture A document issued by a corporation securing a loan. Debtor A party who owes money or some form of obligation to another. Deed A written document signed, sealed and delivered or expressed to be a deed. Deemed Treated as, even if not, in fact. Defendant The person against whom a civil or criminal action is brought. Distinguish To argue that the material facts of one case are different from another. In terms of the doctrine of precedent, if an earlier case in a higher court can be “distinguished” it is no longer binding on the later court. Dividend A distribution of a company's profits to shareholders. Duress Any unreasonable or unlawful pressure on another person or the person’s property. In relation to the formation of a contract, duress vitiates the consent and has the effect of making any contract voidable. Duty of care In relation to the law of torts, a duty of care is a legal obligation that is imposed on an individual to avoid acts or omissions that can be reasonably foreseen as likely to cause loss or damage to another. It is the first element in a negligence claim: a duty of care must be established to proceed with an action in negligence. Its modern formulation around the “neighbour test” began in Donoghue v Stevenson (1932) AC 562. Equity Legal rules, originally developed in courts of equity, based on fairness and justice developed in England to overcome the pedantic and hard edge of the common law. Examples of equitable concepts include the concept of a mortgage, the obligations of fiduciary, the doctrine of estoppel, the contractual remedies of specific performance and injunction. There are no longer separate common law and equity courts. Exclusion clause A term in a contract designed to limit or exclude one party’s liability for loss or damage caused by a breach of contract, negligence or breach of a statutory duty. Exclusive Available only to one party/​group. In constitutional terms, the Commonwealth has certain exclusive law-​ making powers. Executed Carried out, performed. In contract, executed consideration is where one party has performed his or her obligations.

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Executory Yet to be carried out or performed. In contract, executory consideration is where the promises are not yet performed. Extrinsic Outside, eg extrinsic material to assist interpretation of statute (material outside the Act itself). Fiduciary relationship A fiduciary relationship is a relationship of trust and confidence where one person (the fiduciary) promises to act for another (the principal), and in doing so, must act in good faith and must place the principal's interests ahead of his or her own interests. Agent-​principal, solicitor-​client, partner-​partner and director-​corporation are examples of fiduciary relationships. Formal contract A contract written in a recognised form, usually called a deed. A deed must be signed, dated and witnessed. It is different from a simple contract in that no consideration is required. Frustration In contract law, a contract that is impossible or very difficult to perform because of the occurrence of an event such as war or flood (and where there is no provision in the contract) is said to be frustrated. Has the effect of automatically terminating the contract. Goods All chattels personal other than money, emblements and fixtures. Very broad definition of “goods” in the Competition and Consumer Act 2010: s 2. Goodwill The intangible value that a business has because of its clientele or location or reputation of the owner. Gratuitous Free. In contract law, a gratuitous promise is generally not enforceable because the promisee has not provided consideration. Guarantee A promise made by a person to meet the obligation of another if that person does not. Guarantor The person who promises to meet the obligations of another if the other does not. Hold out To “represent” that a person has a certain capacity, status or power. Often used in relation to agency law (“the company held out X as being the CEO or having the power of a CEO”). Imply To suggest. In contract, an implied term is not express. A term may be implied for a number of reasons including the prior dealings between the parties or because of a legal requirement or because it is necessary to make the contract work. Incorporated Limited Partnership A relatively new form of partnership agreement to pursue, in particular, joint ventures. Incorporation In relation to corporations law, it is the act of registration of a corporation under the Corporations Act. In relation to contract law, it refers to the process of inclusion of a statement (written or oral) into the contract. Often discussed in relation to exclusion clauses where the first question may be whether the clause has been “incorporated” into the contract. Injunction An order by a court to someone not to do something or to cease doing something. Insolvent trading Occurs when a director of a company allows the company to continue trading when he or she knows or should know the company cannot pay its debts or will be unable to pay its debts if a contract is entered into. Inter alia “Among other things”. Joint liability Where parties have joint liability, they must be sued together for the whole amount. Compare several liability where the parties may be sued separately. Joint venture Contract between two or more parties to develop a project. The parties remain separate and distinct entities. Compare a partnership arrangement. Judgment A decision of a court. Jurisdiction An area or the limit of a court's powers. For instance, the Magistrate’s Courts' civil jurisdiction is limited to hearing disputes worth less than $100,000. Lawyers A general term used to describe members of the legal profession. Generally refers to solicitors and barristers. Limited partnership Legislation allows for the formation of a partnership in which there is at least one general partner with unlimited liability and one or more partners whose liability for debts and obligations of the partnership is limited. A limited partner cannot take part in the management of the business of the firm. Liquidated damages A fixed sum that is agreed upon in the contract as a means of compensation following a breach of a contract. Most commonly they occur as a result of breach to deliver a good or service on time (eg late performance). Litigation Legal proceedings in court.

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Magistrate A legal officer in charge of local courts. Mere puff A statement not to be taken seriously, of no contractual significance, much loved by advertisers. Minor A person under the age of 18 years. Mitigate In contract law, the duty on a plaintiff to do what is reasonable to reduce the loss that he or she suffers as a result of the breach. Negligence A failure to meet the standard of care expected of a reasonable person in circumstances where a duty of care is owed. Non est factum “It is not my deed” –​a form of mistake that, if proven, allows a person to escape performance of an agreement that is fundamentally different from what he or she intended to execute or sign (eg the person may have reasonably thought the document he or she was signing was a receipt when in fact it was an option contract). A claim of non est factum means that the signature on the contract was signed by mistake –​this would make the contract void ab initio. Notice The knowledge of something. A person may have actual notice (the person is actually aware of a fact) or notice may be deemed or constructive (the person is considered to have notice because he or she should have known it). Most commonly, if certain notification procedures have been followed (eg advertisements placed in newspapers), the law will deem the person to have received notice, even if in fact they did not. Obiter dictum A statement by a judge that is not necessary to decide a particular case. May be persuasive but is not binding on a later court. Compare Ratio decidendi. Obligation A legal duty. Onus of proof The obligation to prove any allegations in court. In a civil action the onus is on the plaintiff; in a criminal case, the onus is (generally) on the Crown. Option In contract, an option contract is an enforceable agreement (ie consideration must be provided for the option) between a buyer and seller that gives the option-​holder the right to buy or sell goods or real property at a later date at an agreed price. The option-​holder is under no obligation to take up the option. Ostensible authority See Apparent authority. Parol “Other”. Hence the parol evidence rule in contract law refers to the rule that when the contract is entirely in writing no parol (other) evidence is admissible to add to vary or contradict the written contract. Partnership Two or more persons carrying on a business in common with a view to profit. Precedent (Judicial) precedent refers to the process whereby judges follow previously decided cases where the facts are similar. The doctrine involves an application of the principle of stare decisis (ie, to stand by what has been decided). It is the foundation principle of common law legal systems. Presumption An assumption. In contract law, it is often used in relation to the question of whether there was an intention to enter into a legal relationship. Two presumptions apply –​if the agreement is of a private or domestic or social nature, there is a presumption that there is no intention. On the other hand, if the agreement is of a commercial nature, there is a presumption that there is an intention to enter into a contractual relationship. Both presumptions are rebuttable (can be overturned) if there is evidence to the contrary. Prima facie As it looks apparently from the first view. Privity of contract The principle that limits rights and obligations to the parties who enter into the contract. Third parties cannot (generally) enjoy the benefits or suffer the obligations of the contract. Promissory estoppel Where a person makes a promise that is intended to be acted upon and it is acted upon in a reasonable way, the promisor cannot resile from that promise where it would be unfair on the promisee to do so. Estoppel is relied upon where the promisee has not provided consideration for the promise. Property Property can mean something that can be owned (eg “those goods, shares etc are my property”) or it can refer to ownership (or title) itself (“I have property in those goods”). Proprietary company A proprietary company is a company that is usually limited by shares (pty ltd) or be an unlimited company with a share capital; it must have no more than 50 non-​employee shareholders; and have at least one director. A proprietary company has the advantage of privacy –​it does not have the same disclosure as public companies but cannot go to the public to raise capital. Public company The most common public company is one that is limited by shares. What distinguishes public from proprietary companies is that public companies may offer their shares and other securities to the general public. A public company may be listed on the stock exchange.

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Pure economic loss Pure economic loss is financial damage suffered as the result of the negligent act of another party that is not accompanied by any physical or property damage. Often used in the context of loss suffered as a result of negligent misstatement. Ratify To approve or consent in retrospect. Ratio decidendi “The reasons for a decision” –​the legal principle that is the basis for the decision. The ratio is binding on a later court lower in the same hierarchy where the facts are similar. Compare Obiter dictum. Rebuttable presumption A presumption that may be overturned or defeated by evidence to the contrary, eg the presumption of innocence in criminal law. Representation In relation to the law of contract, a representation is a statement of fact made by one party to the other, before or at the time of making the contract that induces (is influential in persuading) the other party to enter into the agreement. Compare Term and Mere puff. Repudiate To renounce, cancel. In contract law, it refers to an action by one of the parties that indicates the party cannot or will not perform, or will not complete, the contract. Res ipsa loquitur “Things speak for themselves”. Often used in negligence actions when there is no direct evidence about what happened. Rescind Terminate, revoke, cancel. Often used in contract law when the consent that is required for a contract to be formed is not genuine because of misrepresentation, mistake, duress or unconscionable conduct. The innocent party may be able to rescind the contract (put the parties back in their original, pre-​contractual positions). Residual “That which remains”. The States have jurisdiction over those policy areas that are not exclusively given to the Commonwealth or are not concurrent powers, shared with the Commonwealth. Examples are health and police. Respondent A party against whom an appeal is filed. Restitution Generally means the act of restoring. In contract law, restitution may be required where one party has conferred a benefit on another (eg built a house or part of a house) but cannot claim the contract price because the contract is not enforceable (because, for example, it is not in the required form). Restitution (eg providing a reasonable price for what has been done) prevents the owner from being unjustly enriched. Right An interest or benefit recognised by law. The law of torts is based on rights –​the right not to be injured by careless conduct (negligence), the right to a good reputation (defamation), the right to quiet enjoyment (trespass/​nuisance). Rule of law The legal principle that is the basis of democratic rule –​that law, not individuals acting arbitrarily, should govern a nation and every person is subject to the same law and has access to the same legal and judicial processes. Sanction A legal penalty or punishment. Seal A formal signature. Secret commission Receiving a secret benefit from a third party in breach of the law. Often used in principal-​agent relationship. Separation of powers Under this principle, the power to govern is distributed between the Parliament, the Executive and the Judiciary. Each group is “separated” and should work within constitutionally defined areas of responsibility in order that there are checks and balances. Australia does not have a complete separation of powers because, in a Westminster system, some of the roles of the parliament and the executive and, to a lesser extent, the judiciary overlap. Settlor A person who makes a settlement, especially of property, in setting up a trust to be administered by a trustee for the benefit of beneficiaries. Simple contract Any contract that is not a formal contract. All simple contracts require consideration. Sole trader A person carrying on a business as an individual. Solicitor A lawyer who handles general legal matters and provides legal advice or legal services (such as conveyancing). The first stop for people seeking legal advice or considering initiating legal action. Sovereignty The power of a governing body (such as the parliament) to govern, without any interference or control from outside sources or bodies. Specific performance An order compelling a party to do something. In contract law, an order for specific performance is usually reserved for contracts for the sale of land. Courts do not generally order parties to perform their obligations. Courts prefer to order compensation where the breach causes loss.

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Standard of proof The amount of proof required in a court case, eg in a criminal trial the standard of proof is “beyond reasonable doubt” and in civil matters, the proof required is “on the balance of probabilities”. Statute An Act of Parliament. Strict liability Where fault does not have to be proved in the party accused of wrongdoing. Sue To commence legal action in a civil matter. Summary offence A less serious offence tried by a magistrate. Term A promise that forms part of the contract. A term may be a condition or a warranty or an innominate term. Terra nullius Land belonging to no-​one. Refers to the concept that (incorrectly) underpinned the “settlement” of the colony of NSW by the British in 1788. It was overruled by the High Court in Mabo’s case in 1992. Third party A stranger to a transaction, legal proceeding or relationship. In a contractual sense, it means someone who is not a party to the contract. Tort A tort is a civil wrong. The law of torts is based on protecting certain rights that people have been given by the courts –​examples include the right not to be injured by careless conduct (tort of negligence), the right to a good reputation (tort of defamation), the right to quiet enjoyment (torts of trespass and nuisance). Trust An equitable entity involving a relationship where a person holds property or income on behalf of another. Trustee A person holding assets or receiving income on behalf of another under a trust or will. Trust property Property that is the subject of a trust. Uberrimae fidei Utmost good faith. Ultra vires Beyond the powers (of). Unconscionable Generally means conduct that is unfair, harsh or oppressive, taking into account the circumstances or the condition of the other person. In contract law, it has both a common law and a statutory meaning. Unenforceable An unenforceable contract is one which is, prima facie, a valid contract but which by reason of some technical defect is not capable of being enforced by action by one or both of the parties, for example, a contract made verbally which is required by statute to be evidenced in writing and which has not been so evidenced. Compare valid, void and voidable. Unilateral contracts A “one-​sided” contract –​one side (the offeror) makes a promise to do something in exchange for an act by another person (the offeree). If the offeree performs the act, the offeror must fulfill the promise. An offeree is not obliged to perform the act but if he or she does perform only one enforceable promise exists –​the offeror’s promise. Reward cases are good examples: “I will pay $500 for the return of my dog”. Compare Bilateral contracts. Valid In respect of a contract, valid means a contract recognised by law and enforceable in the courts. Compare Valid, Void and Unenforceable. Valuable In contract law, refers to the fact that the consideration provided by the promisee must be of some value to the promisor. The consideration need only be sufficient, not adequate. Vicarious liability Liability is vicarious when a person is regarded by the law as responsible for the acts or omissions of another person. Vicarious liability arises where a particular relationship exists between the person held responsible and the wrongdoer (eg the relationship of employer and employee). It is a form of strict liability where a person is held responsible for the acts or defaults of another even though they may not themselves have been personally at fault. Void A void contract (or a contract that is void ab initio (“from the beginning”)) is of no legal effect and thus does not create legal rights or obligations. For instance, a void contract (for the sale of goods) cannot pass title from the seller to the buyer. Examples of void contracts include ones that are illegal or affected by a fundamental common mistake. Compare Valid, Voidable and Unenforceable. Voidable A voidable contract is one that a party may avoid, that is, get out of, if that party wishes to do so. For example, a person who was induced to enter into a contract by the other party's fraud may (depending on a number of factors including whether the parties can be substantially returned to their original pre-​contractual positions) be able to avoid (“rescind”) the contract. Compare Valid, Void and Unenforceable.

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AN INTRODUCTION TO STUDYING LAW UNITS

How to approach assessment tasks 1. Approaching the hypothetical legal problem One of the most common forms of assessment of law units is to ask students to unravel hypothetical legal problems. Generally speaking, you are given a story to read which ends badly (or less well) for one or more of the parties. Your task is (usually) to “advise” the parties or “discuss” their rights and obligations. Your advice (or the legal discussion) must be based on the law (cases or legislation). For this reason, from the start of the course, you are “invited” to read legal cases (or, more correctly, summaries of legal cases) and legislation. If you absorb the lessons of the first topic, you will appreciate the significance of case law in a common law legal system –​in a nutshell, precedents matter! Therefore, before you can unravel a legal hypothetical (for a tutorial or for a piece of assessment or to enable you to participate actively in lectures), you should be familiar with the cases. In this instance, “familiar” means you need to know what happened (the facts), what the outcome was (the decision) and the reason for that decision (the legal principle or ratio decidendi). Therefore, in practical terms, to “read” a case properly you should: ▶▶ ▶▶

▶▶

identify the material (relevant) facts; identify the legal issue(s) that arise from those facts (is the question about the duty of care of occupiers or insolvent trading and directors’ duties or remedies available for breach of the consumer guarantees?); make the argument that each side would have made (in every case, there is a reasonable argument to be made by each side (no-​one goes to court (especially an appeal court) without a chance of success));

▶▶

note what decision the court reached; and

▶▶

note the reasoning of the court (the legal principle or “ratio decidendi”).

Having studied the cases in this way, the next question is how to approach the hypothetical problem itself. First, you read the story carefully. Be clear about what has happened. Then identify the legal issue(s) raised in the story. Once you have isolated the issue(s) you need to discuss/​explain the relevant law or legal principles referring, wherever possible, to the source (cases and/​or legislation) of the law. Finally, and most importantly, you must apply that law to the facts and come to a conclusion about the rights and obligations of the parties. Provided, in the course of your answer, you touch these bases (identifying the issues, discussing the law and applying the law to the facts), the precise path you follow and the writing style is a matter for you. You may choose to start at the beginning (“There are three relevant issues to discuss. The first is…”), or you may prefer to start with your conclusion and work backwards (“I believe that X is liable for breach of contract for the following reasons…”) –​the important thing is that your “advice” is clear, logical and well-​supported.

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2. Writing  tips Whilst we encourage you to find your own voice, the following tips will ensure you are not singing off-​key: 1.

Plan your answer. A  well-​planned, well-​structured answer will always do better than one that “spontaneously arises” or is the product of a “stream of consciousness”. If your answer lacks planning and structure, it is more likely to contain irrelevant or illogical material.

2.

Canvas all the relevant issues, not simply the major one. Marks are allocated for each relevant issue so make sure you give proportionate time to each one. At the same time, you should resist the “shopping list” approach to answering questions –​covering every aspect of the law on a particular point because of a fear you may leave something out. Be brave: stay relevant.

3.

Don’t repeat or rewrite the question. This is a waste of time for which no marks are given. Instead, a brief introduction setting the scene is a useful device –​it gets you off to a good start and indicates to the examiner where you are heading. It need only be brief. For example, “I am asked to advise P whether he has any rights against the partnership. In order to do this it is necessary to (a) decide when the partnership began; (b) identify the partnership property; (c) decide when the partnership came to an end; and (d) decide whether appropriate notice of dissolution was given”.

4.

Explain yourself. Ensure that you support your propositional statements (“this action constitutes a breach of contract” or “there is a breach of the duty of care” or “this constitutes a breach of s 18”) with evidence. To insert the conjunction “because…” is a useful strategy which ensures you explain your bold propositions.

5.

Don’t include too much information. In particular, when discussing relevant precedents do not include a summary of the facts of the cases. If there is a critical fact or two, state it concisely and move on to the argument or analysis. There is never a need for a case summary.

6.

Objective advice. In most hypothetical problem questions, you are asked to “advise”. This should be done “objectively”; you are not usually being asked to be an advocate for one party. Provide an answer that considers both sides and comes to a reasoned conclusion, even if it is not what your client would like to hear!

7.

Write good English. Be clear and concise. Do not overwrite and do not use words just because you think they sound “lawyerly”. Good lawyers (and, a fortiori, good, non-​law undergraduate students) write and speak in plain English: they do not use words like “aforementioned”, they do not use Latin and they know that only the Marx Bros say “the party of the first part alleges that the party of the second part….”. Grammar and spelling are important so do the very best you can.

3. Worked examples To help you appreciate that there is no great mystery to it, we provide answer guides to three legal hypotheticals.

Question 1 Best Guys Pty Ltd, an electrical goods retailer, advertised a range of specials in the newspaper including this one: “NEVER TO BE REPEATED OFFERS ON FAMOUS BRAND 65” 4K Ultra HD LED LCD Smart TV…ready to go from $3500”

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On Wednesday September 19, Ben saw the advertisement and decided he would buy one. He immediately went down to the store near his home, walked over to Mary, the sales manager, and said that he accepted the store’s offer, would pay now and take it home in the ute. However, Mary told him to slow down. “Unfortunately, we are completely out of stock”, she said. She then said, “The only similar television that I have left is the demonstration model, and you can have that for $2,000. Not a bad price as they usually sell for around $3,000”. Ben was very annoyed, believing that he already had made a contract with the store. Nevertheless, he said that he would think about her offer. Then Mary said, “Look, I’ll hold it for you for two days. Here’s my business card –​just ring or email me with your decision before Friday at noon”. Ben mumbled agreement and left the shop. The next day (Thursday), Jessie walked into the store and fell in love with the same demonstration model. Mary said it was “on hold” but when Jessie offered to buy it for $3,000. Mary decided that it was better (for her) to get a certain sale and sold it to Jessie on the spot. On Friday morning, at 10.00 am, Ben, who had stopped sulking, emailed Mary, advising her that he would buy the demonstration model. “I’ll pay for it and pick it up after work”, he wrote. When Mary saw the email, she immediately rang him and told him that it had been sold. Ben is now enraged and seeks your advice as to whether he had an enforceable agreement or an option contract with Best Guys Pty Ltd on the Wednesday or an enforceable agreement on the Friday.

Suggested answer guide Introductory paragraph. For an enforceable agreement to occur, there must be an offer and an acceptance of that offer. The main issue in this question is whether Ben and Mary (as the agent of BG) have made an enforceable agreement either on Wednesday (when Ben visited the store) or on Friday (when he rang and “accepted” the offer). If Ben is to succeed, he must prove on the balance of probabilities that, either on Wednesday or on Friday, NP/​Mary made an offer that he accepted. The events of Wednesday. The issue here is whether an enforceable agreement was made on Wednesday and, if not, whether an option contract was made. For an agreement to have been made, it is necessary to characterize the advertisement that appeared in the brochure as an offer capable of acceptance and not an invitation to treat. To be an offer, there must be certainty as to the main terms and an indication, on the part of the offeror, that, if the person to whom the offer is directed (the offeree) accepts, an enforceable agreement will be made. An invitation to treat, on the other hand, is an indication that the party is open to negotiations, open to receiving an offer. The test is an objective one: in the light of all the circumstances, would a reasonable person regard this particular advertisement as an offer? There are two considerations that may make it hard for Ben to argue that this is an “offer”. First, although it is not impossible for an advertisement to be regarded as an offer –​see, for example, Carlill’s case –​the common law (the courts) has generally regarded advertisements as invitations to treat only: see, for example, Harvey v Facey, Partridge v Crittenden and Boots’ case. As the court said in Boots, it would be commercially inconvenient if an advertisement for the sale of goods or, as in Boots, the display of goods were to be regarded as an offer to sell to whomsoever “accepts”. If this were to be the position here, there would be a contract at the moment Ben “accepted” the offer and, in theory at least, if BG could not able to deliver the goods at that time, it would be in breach. Second, the wording of the advertisement itself is couched in general terms (no mention of a particular brand and no firm price is mentioned) so it is unlikely to be regarded as certain enough to be regarded as

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an offer. The use of the word “offer” is not conclusive –​it depends how a reasonable person would regard the advertisement as a whole: see, for example, Schuler v Wickman Tools. Carlill can be distinguished because the company went one step further than BG –​it made a specific promise to reward anyone who contracted the flu after using the smoke ball as directed and it placed money in the Alliance Bank “to show its sincerity in the matter”. For these reasons, the advertisement should be regarded as an invitation to treat. Ben’s “acceptance” is therefore, in fact, an “offer” (to purchase the television). In effect, he is offering to purchase the television on the terms he has outlined. At this point, Mary responds by offering to sell him a demo model for $2,000. How do we characterize this response? It is neither a rejection nor an acceptance of the offer –​it is a counter-​offer, defined and exemplified in cases such as Harvey v Facey, as an offer from the offeree in response to the original offer. The effect of the counter-​offer is to “kill off” the original offer and leaves the ball in the court of the other party. In this scenario, Mary, appreciating that Ben is undecided (about whether he already has a contract and whether he should buy the demo model), takes a very important step: she promises to keep her offer (to sell him the demo model) open until Friday at noon. The legal question is whether Mary’s promise to keep this offer open is enforceable (as an “option”) or is a gratuitous (and therefore unenforceable) promise? An option gives the option holder a right to purchase at a later time but, in order for it to be regarded as an option, Ben must have provided some value (i.e. “consideration”) to Mary, in exchange for the promise to keep the offer open. This is the key to understanding the decision in Goldsbrough Mort. Unfortunately for Ben, as he has not provided any consideration to Mary for her promise, there is no enforceable agreement and no option contract concluded on the Wednesday. The events of Friday. The question now is whether an agreement was made when Ben purported to accept Mary’s offer on Friday at 10.00 am. The crucial issue is whether, after Mary sold the television to Jessie, the offer was still on the table. The rule is that an offer will lapse when any time limits have expired (in this case, noon on Friday) or when it is revoked. An offer can be revoked at any time before acceptance but revocation is not effective until communicated to the offeree: Byrne v Van Tienhoven. Therefore, until Mary informs Ben that she has sold the television to Jessie (ie has revoked her offer), he is in a position to accept her offer. And this he does when he emails his acceptance at 10.00 am (well before the noon deadline). Conclusion. Although no agreement (or option contract) was concluded on Wednesday September 19, an agreement was concluded on Friday at 10.00 am. In not being able to deliver the television, BG has breached that contract. Ben is entitled to damages to compensate him for the losses (if any) he has suffered.

Question 2 Sally Bowles owns and operates a very successful song and dance club called the Kit Kat Klub. One evening, her sophisticated sound system breaks down. She contracts with a sound technician, Cliff Bradshaw, to repair it. The faulty parts of the system have to be taken to his workshop but he promises that he will return the next day and have the system up and running so that she will not have to close the club. Unfortunately, because of Cliff’s carelessness, and lack of punctuality, the sound system is not returned for three days. Sally looks but is unable to find a substitute system so she has no choice but to close the club for those three nights. She now seeks compensation for the lost profits (approximately $6,500) for the first two nights she had to close the club. On the third night, she had contracted with Cosmo Brown, a famous American tap dancer, to perform and expected to earn an additional $15,000 profit from his appearance. Cliff was not aware that Cosmo was appearing at the Kit Kat Klub. Sally is also seeking damages to compensate her for

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the embarrassment she has suffered as a result of having to cancel the contract with Cosmo and disappoint his many fans. Please advise Sally whether you believe she would succeed in her claims for damages against Cliff.

Suggested answer guide Introductory paragraph. The issue in this question concerns whether Sally is entitled to claim damages from Cliff. At the outset, it should be noted that the aim or objective of an award of damages for breach of a contractual term is to place the plaintiff in the position he or she would have been in if the contract had been performed as expected. These are called expectation losses: Robinson v Harman. The claim for compensation for loss of profits. In order to be awarded damages for the breach, Sally has to establish (a) there is a causal link between Cliff’s breach of contract (not returning the sound system as promised) and her losses and (b) the damages are not too remote from the breach. Here causation is not an issue: it is clear that “but for” the breach the loss would not have occurred. In terms of remoteness, Sally must prove that the damages are a reasonably foreseeable result of the breach. Reasonable forseeability is usually considered under the two limbs of Hadley v Baxendale. The first limb concerns losses that are reasonably foreseeable because they are losses that “arise naturally” or “in the ordinary course of things”: Victoria Laundry and Parsons. The loss of profit for the first two nights ($6,500) would come under this limb. The claim for the losses arising from the cancellation of Cosmo’s performance is different. It may not be a “first limb” claim (it is not a loss arising naturally because a reasonable person would not expect such a famous person to be appearing on that night), so it would only be recoverable if it comes under the “second limb” (actual notice of the particular loss that might be suffered in the event of a breach has been given to the defendant). There is no evidence that Sally gave Cliff actual notice of the special performance, so it is unlikely she would be able to recover the $15,000 “super-​profit”. Nevertheless, she may be able to claim the ordinary or natural losses that resulted from the cancellation on the third night. The claim for compensation for her disappointment and embarrassment. Sally also claims damages to compensate her for the embarrassment and disappointment she suffered as a result of the breach. There is no doubting the genuine and authentic nature of Sally’s response when she had to close the Club. The question is whether she can claim damages to compensate her. In law, possibly because the courts have not wanted to deal with “hurt feelings”, damages are not generally recoverable for the disappointment, embarrassment or anger, however genuine, that a plaintiff suffers as a result of a breach. The exceptions to this rule are where the contract itself is for entertainment or enjoyment (see Dillon or a ski holiday (see Jarvis)). In these instances, a plaintiff may be compensated. However, as the contract between Cosmo and Sally was a strictly commercial deal (one that gave pleasure or enjoyment to others), it is unlikely she will be compensated. Duty to mitigate. A plaintiff must try to reduce or mitigate the loss that he or she suffered as a consequence of the breach. It is only necessary to do what is reasonable to try to reduce the lossess but if this is not done, the damages awarded to the plaintiff will be reduced: Payzu. In this instance, we are told that Sally did look for a substitute system so it is likely she did enough to try to mitigate her losses. Her damages would not be reduced. Conclusion. In conclusion, it is likely that Sally’s claim for loss of profits would be partially successful but her claim for compensation for her disappointment would fail. Any award would not be reduced because of a failure to mitigate her losses.

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Question 3 Soon after the same Kit Kat Club reopens, there are more than 200 patrons out on the dance floor. Don Lockwood is one of them. It is his first night at the Kit Kat Klub. He enters the club the same way everybody does –​walked in the main door and pays $20 to the cashier in the foyer and receives his ticket. He does not notice the large sign above the entrance door that says in very large, clear print: “Neither the Kit Kat Club nor its owners, employees or agents will be liable for any loss or damage to patrons, or their property, howsoever caused, including negligence and/​or breach of contract”. Don is having the time of his life as he always does when he comes to the Kit Kat Club when all of a sudden, without warning, the floorboards give way and Don falls 3 m to the ground below. He breaks his leg and several ribs and is severely concussed. Sally is aware that the regulations stated that there should be no more than 100 patrons on the dance floor at any one time but has long ignored that regulation. As a matter of fact, Sally recently noticed that the boards were wearing dangerously thin in the central area but decided to delay putting in a new floor until winter (a slow period for the Club). Don sues Sally for damages. Sally seeks your advice about her liability under the law of contract.

Suggested answer guide Introductory paragraph. The main issue in this question concerns the effect of the exclusion clause. There are two main issues here –​the first is whether the clause is in fact part of the contract; the second is to interpret the words of the exclusion clause to determine if it protects Sally. It is worth noting at the outset that the courts (and parliament) regard exclusion or limitation clauses with a healthy scepticism, particularly when the contract, as here, is a non-​commercial one, is not the product of a genuinely negotiated agreement and where the clause is harsh or unusual in scope. In such cases, the courts will attempt to raise the bar on incorporation and read down the words of the clause so as to limit its scope. Has the exclusion clause been incorporated into the contract? Where a person signs a document that is known to contain contractual terms they will normally be bound by the signature regardless of whether they were aware of the terms. Where, as here, the document is not signed, the question is whether Sally provided reasonable notice of the term. In order for the notice to be reasonable, notice of it must be provided before or at the time the contract was made. In Thornton and Olley, the defendants failed because notice of the exclusion was not provided until after the contract was made (when the ticket was issued in Thornton’s case and in the foyer of the hotel in Olley’s case). In this particular problem, the exclusion clause was above the entrance door of the Club and was in large clear print and did not contain the harsh, unusual or onerous terms that would have required something special by way of notice: Interfoto. In addition, because Don has been to the Club before, it will be easier to establish that a reasonable person would have or should been aware of the clause. For these reasons, it is likely that a court would find that notice was reasonable –​the clause is incorporated into the contract Does the exclusion clause protects Sally? Bearing in mind the point made earlier that the courts are hostile to exclusion clauses (at least in consumer-​type transactions) and interpret ambiguities or uncertainties contra proferentum, we need to carefully consider the words of the clause. When interpreting contractual terms, including exclusion clauses, the approach of the courts is to give effect to the objective intention of the parties and to give the words their natural and ordinary meaning … not twist them in order to reach a desired outcome. Here, the clause excludes liability “…for any loss or damage to patrons, or their property, howsoever caused, including negligence and/​or breach of contract”. In clearly excluding loss that arises as

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a result of breach of contract and negligence the clause has the effect of protecting Sally from any breaches of contract (such as an implied term that the premises be reasonably safe) and for negligence (for breach of a duty of care owed by an occupier to guests or visitors). However, the law has long said that exclusion clauses will not normally be construed as limiting or excluding liability for acts done that are well outside the terms or the scope or the “four corners” of the contract, in the sense that the parties would not have contemplated the act. Such actions are sometimes labelled fundamental breaches. There is no general rule that a fundamental breach cannot be protected by a well-​drafted exclusion clause. However, normally such acts would not be protected because, the courts say, it would not have been consistent with the objective intention of the parties to exclude liability if such an act were to occur. The courts are particularly concerned where such actions are carried out in the context of consumer-​type transactions (such as Sydney City Council v West where the act of the employee in handing the keys of West’s car to a rogue was construed as outside the “four corners” of the contract) rather than in commercial contracts (such as Photo Productions where the clause protected the defendant from an act (lighting an unauthorized fire and burning down the factory) that was, on the face of it, a fundamental breach). In this particular problem, we can ask whether the actions of Sally –​in breaking the building regulations (by over-​crowding the dance floor) and ignoring the state of the floorboards (in what might be described as a reckless manner) –​has committed an act that goes beyond the four corners of the contract and is therefore not protected by the exclusion clause. In this context, it is unlikely that her actions are protected by the exclusion clause.

Approaching the research question 1. Introduction As with any other piece of writing, a research paper must be logically structured and present a coherent answer to the question. The answer must not be a simple summary of the material you have assembled –​ you must demonstrate an understanding of the material and answer the question in a confident and individual way. To do this, you must follow the following steps: ▶▶ ▶▶

▶▶

Carefully consider and interpret the question –​what is it I am expected to do? Research the topic and assemble relevant materials (some of which will be used but much of which will not). Write a coherent and well-​structured paper that shows to the reader/​examiner that you have understood the question and conducted your research thoroughly.

2. Consider and interpret the question It is obviously a vital part of any essay to answer the question you have been asked. You need to be rigorous here –​assess precisely what the question is about and answer it accordingly. Don’t simply identify the general area of law (eg negligence) and summarise the relevant material. Sometimes, it helps to clarify the topic if you re-​form the question in your own words under the heading “what the question asks me to do”, noting: ▶▶ ▶▶

Any statements or propositions in the question. Any implicit approach or angle that is expressed or implied in the question itself (eg there has been a suggestion that s 18 of the Australian Consumer Law has gone too far …).

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▶▶

What the question asks you to do (eg examine, explain, analyse, interpret …). These instructional words will assist you in defining your task. Any restrictions on where you should go (eg “in Australian case law…”).

3. Research Once you have a clear idea of what the question means, your research begins. This is not an invitation to collect everything on a topic –​in this era of readily available internet searches of law databases (and even general databases like Google Scholar) the need for relevance is even more acute. You need to: ▶▶ ▶▶

▶▶

find material that is on the general topic (eg from table of contents or internet search of key words). skim read to see whether it is relevant to the key issues –​in particular whether it takes your argument further. filter in and out –​taking brief notes only if the material is relevant.

4. Writing Planning Planning is critical –​it will save you time because you will have a structure and direction from the start. The plan itself should break your essay into parts, usually under headings and subheadings. Once you have a “roadmap” of your essay in front of you, you can push and pull it into shape.

Writing Good writing of any kind is not easy. There are many general books on the subject, and they have one thing in common: writing is best when it is direct, active, concrete and verb-​filled. If you wish to do well in your legal research paper, please follow that advice. Of course, structure is important. As with any other essay, you need a short introduction, telling the examiner what the question is about and how you are going to answer it. Then follows the main body of the essay that sets out your arguments in a logical and coherent way (using headings or paragraphs). Remember your assertions or propositions should be supported by authority (eg case authority, legislation, scholarly writing). Many students have trouble with this –​but you must try not to make statements that are unsupported by either primary or secondary authority. Of course, your conclusion is your own but must be a logical conclusion  –​one that is consistent with the arguments in the body of the essay. Referencing is crucial: familiarise yourself with the style that is expected and follow it precisely.

5. Reviewing The review stage is a critical part of the writing task  –​it is the time when you edit, eliminating errors of style (how you have written –​grammar, spelling, structure and flow) and substance (what you have written –​weaknesses in the arguments, the analysis, etc). It is worth spending some time on this because it makes a substantial and tangible difference to your essay (and therefore your marks).

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Approaching multiple-​choice questions 1. Introduction A multiple-​choice exam is quite different from either an assignment (research or problem-​based) or a problem-​based exam. In a multiple-​choice exam, a student is typically asked to recognise a correct (or incorrect) answer among a set of options that include three or four wrong answers (called distractors), rather than analysing a hypothetical problem or producing an argumentative essay. Students often consider that multiple-​choice exams are easier than the problem-​based exams or research essay because the right answer is before their very eyes (somewhere) and, if the worst comes to the worst, the student can, as the joke goes, turn it into a multiple-​guess exam. Furthermore, the nature of the multiple-​ choice exam militates against analytical questions so that many multiple-​choice questions consist of basic definitions or simple comprehension questions. Finally, students may prefer this form of question because the stakes on each question are lower –​each question will be worth a single mark so there is always the chance of redemption with the very next question. The truth, however, is that multiple-​choice exams are difficult. With so many questions, the student must be familiar with the entire course; there is a need to be familiar with case and statutory details and, because the multiple-​choice exam is a closed book exam, there is nothing to prompt the student.

2. A sample multiple-​choice exam Chapter 2: An Introduction to Law and the Australian Legal System 1.

In Mabo v State of Queensland (1983), the High Court:



(A)

recognized a form of native title based on continuous prior possession of the indigenous claimant’s traditional lands.



(B)

decided that the doctrine of “terra nullius” had been correctly applied.



(C)

recognised a form of native title limited to the Miriam Islands.



(D)

decided that native title existed for all indigenous peoples.

2.

The legislative powers listed in s 51 of the Australian Constitution:



(A)

may only be relied upon by the Federal Parliament.



(B)

may be relied upon by the States but are subject to appeal in the High Court.



(C)

are the concurrent powers shared by the State and Federal Parliaments.



(D)

are powers that may be used by the Federal Parliament provided there is no conflict with the States.

3.

Which of the following is the best definition of “ratio decidendi”?



(A)

It refers to that part of the judgment that was not strictly necessary for the decision that was reached.



(B)

It refers to that part of the judgment that cannot be appealed to a higher court.



(C)

It refers to that part of the judgment that is binding on all courts lower in the same hierarchy when the facts are similar.



(D)

It refers to the decision of the court at first instance (the trial court).

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Chapter 3: Offer and Acceptance 4.

Which of the following is the most likely to be regarded as an offer rather than an invitation to treat?



(A)

Harvey Norman places an advertisement in a brochure advertising a flat screen television for $2,500.



(B)

Freddy bids at an auction run by Harvey Norman for the same flat screen television.



(C)

Harvey Norman puts the same flat screen television on its floor display with a price tag of $2,000.



(D)

The owner puts the same flat screen television on eBay (an online auction platform).

5.

Consider the following facts: 1 April: X telephones Y and offers to sell his or her piano. They swap postal addresses and email addresses for further communication. 3 April: Y sends a letter of acceptance. 5 April: X sends an email revoking his offer. Y is away and doesn’t have access to his computer for two days. 6 April: X receives Y’s letter of acceptance. 7 April: Y returns and reads X’s email.

Which of the following statements is most correct?

(A)

A contract is made on 3 April.



(B)

A contract is made on 6 April.



(C)

No contract is made because the revocation is effective on 5 April.



(D)

No contract is made because the revocation is effective on 7 April.

Chapter 4: Intention to Create Legal Relations 6.

Bob and Betty make an agreement that Betty will look after their mother who has Alzheimer’s disease and Bob will be responsible for the expenses associated with the care. If Bob subsequently refuses to honour this commitment, the courts would most likely say that the agreement:



(A)

is unenforceable because it is a private or domestic arrangement.



(B)

will only be enforceable if Betty can prove they intended to enter into legal relations.



(C)

will be enforced unless Bob can prove that no legal relations were intended.



(D)

was a commercial one and would therefore be enforceable unless Bob could prove there was no intention to enter into legal relations.

7.

In Ashton v Pratt (2015), what was the main reason the court decided there was no intention to create a legally binding contract?



(A)

The agreement was not reduced to writing.



(B)

The verbal language of the agreement lacked detail from either party and did not indicate definite obligations.



(C)

Pratt lacked the necessary contractual capacity due to his age and ill health.



(D)

The plaintiff had been a worker in the escort business and was therefore not morally entitled to any monies under the verbal agreement.

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Chapter 5: Consideration, Promissory Estoppel and Formalities 8.

What was NOT one of the “practical benefits” that Roffey Bros received when making Williams the promise of a bonus payment in Williams v Roffey Bros & Nicholls (Contractors) Ltd (1990)?



(A)

Roffey Bros did not have to sue Williams for breach of contract.



(B)

Roffey Bros avoided a penalty under the Head Contract for late completion of the project.



(C)

Roffey Bros expected to receive services from Williams that were greater than what Williams was obliged to provide under the original agreement.



(D)

Roffey Bros avoided having to find another subcontractor to replace Williams.

9.

In Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd (2016), the main reason the High Court did not accept Cosmopolitan Hotel’s argument that it was entitled to rely on the assurance from Crown that it would be “looked after at renewal time” (of the lease) was that:



(A)

the statement was a promise but was not enforceable because it had not been properly incorporated into the main contract.



(B)

the statement was not intended to create an enforceable legal relationship.



(C)

the statement was no more than vaguely encouraging and could therefore constitute a collateral warranty.



(D)

the statement was a representation that could not affect the contractual relationship between the parties.

Chapter 6: Contractual Capacity 10.

On her 17th birthday, Jenny purchases 100 shares in BHP Billiton Ltd at $50 per share. The terms of the share purchase are that she immediately pays for 50% of the value of each share and then pays the balance of the share price in six months. Jenny makes the initial payment of $2,500. Three months after their initial payment, Jenny no longer wishes to purchase the shares because the share price has plummeted to $25 a share. Jenny’s contractual obligation to purchase the shares is best described as follows:



(A)

The contract to purchase the shares is void and was never a valid contract because Jenny concluded the contract while a minor.



(B)

The contract to purchase the shares is illegal and never a valid contract because Jenny concluded the contract while a minor.



(C)

The contract to purchase the shares is voidable. Provided Jenny exercises her right to rescind the contract before she turns 18 years of age or within a reasonable time of attaining 18 years of age, she will not be liable for the outstanding payment on the shares. However, she will not be entitled to recover her initial payment of $25,000.



(D)

The contract to purchase the shares is voidable. If Jenny exercises her right to rescind the contract, she will not be liable for the outstanding payment and will be entitled to a recovery of the $2,500 already paid.

Chapter 7: Genuine Consent 11.

In Leaf v International Galleries (1950), which of the following is correct?



(A)

As the painting was a forgery, the contract was voidable at Leaf’s option.



(B)

The mistake that was made was a common mistake about a fundamental fact and therefore the contract was void.

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(C)

The contract could be rescinded because the misrepresentation was fraudulent.



(D)

The misrepresentation was an innocent one but because too much time had elapsed, the contract could not be rescinded.

12.

Which of the following is NOT true? In Taylor v Johnson (1983), the High Court said:



(A)

A contract affected by a unilateral mistake is void.



(B)

A contract affected by a unilateral mistake is voidable only.



(C)

There must be an element of unconscionable conduct before a court will declare a contract voidable because of a unilateral mistake.



(D)

The purchaser had behaved unconscionably in endeavouring to ensure the vendor remained unaware of the mistake.

Chapter 9: Contents and Interpretation of the Contract 13.

Which of the following statements is correct? In Associated Newspapers Ltd v Bancks (1953):



(A)

The court held that the term was not a condition but a warranty, which meant that Bancks was entitled to damages only.



(B)

The court decided that the contract to draw the cartoon character “Ginger Meggs” was void for uncertainty as there was no specification as to how many drawings would be produced each year.



(C)

The court decided that the promise to publish the cartoon on page one of the newspaper was a condition of the contract. Bancks could therefore terminate the agreement.



(D)

The court decided that the promise to publish the cartoon on page one was an innominate term which meant that the court had to assess the impact of the breach.

14.

Considering Thornton v Shoe Lane Parking Co Ltd (1971) which one of the following is NOT true?



(A)

The court decided that Shoe Lane could not rely on the exclusion clause on the ticket/​signs inside the car park because it had not done what was reasonably necessary to bring the exclusion clause to the attention of the plaintiff.



(B)

The exclusion clause on the post outside the car park entrance was incorporated into the contract but was not broad enough to protect the defendant in relation to the personal injury suffered by Thornton.



(C)

In injuring Thornton so carelessly, Shoe Lane had committed a fundamental breach of the contract and no exclusion can protect against a fundamental breach.



(D)

The contract was formed when Thornton “accepted” Shoe Lane’s “offer” by taking the ticket from the machine and thereafter it was too late to bring the exclusion to Thornton’s notice.

Chapter 11: Termination and Breach of Contract 15.

A breach of a warranty entitles:



(A)

The innocent party to sue for all damages that were caused by the breach.



(B)

The innocent party to terminate where the damage is serious.



(C)

The party in breach to remedy the breach and pay damages for any loss suffered.



(D)

The innocent party to sue for damages for losses that were caused by the breach and were reasonably foreseeable.

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16.

A contract CANNOT be terminated:



(A)

unilaterally by one party as a result of a breach of condition.



(B)

by the prior agreement of both parties.



(C)

by the agreement of both parties after the contract is formed.



(D)

unilaterally by one party as a result of a breach of a warranty.

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Chapter 12: Remedies 17.

According to the rule in Hadley v Baxendale (1854), for which types of loss can a plaintiff seek damages?



(A)

All losses arising from and caused by the breach of contract.



(B)

Losses arising from special circumstances where such circumstances were made known to the other party at the time the contract was formed.



(C)

All losses arising from the breach of contract that could be considered to be in the usual or normal course of things.



(D)

Those losses that were provided for in the contract provided they are not in the nature of a penalty.



(A) A



(B) C



(C)

B and C



(D)

B and D

18.

In which case did the High Court of Australia decide that contract damages are recoverable for disappointment or distress provided the object of the contract itself was to provide pleasure and enjoyment?

(A) Hadley v Baxendale (1854). (B) Waltons Stores v Maher (1983). (C) Baltic Shipping v Dillon (1993). (D) Jarvis v Swans Tours (1973). Chapter 13: Consumer Protection 19.

To succeed in a claim for damages under s 18 of the Australian Consumer Law, which one of the following is NOT true:



(A)

The misleading conduct must have caused the damage.



(B)

There must be reliance on the misleading conduct.



(C)

The damage must be pure economic loss only.



(D)

The plaintiff need not show that the defendant intended to mislead.

20.

Henry decides to sell his restaurant, El Bambino. It is licensed to seat 84 people at 26 tables. However, Henry, in breach of the licence, has always placed 120 chairs at 39 tables. The restaurant was sold to Colin, whose solicitor also did not enquire about the terms of the license. During the negotiations and during the four-​week trial period, Colin did not enquire about the license and Henry did not disclose any information about it. After the settlement, Colin was notified by the

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Licensing Court that El Bambino was only licensed to seat 84 patrons. He sued Henry for misleading or deceptive conduct under s 18 of the Australian Consumer Law. Which of the following is correct?

(A)

Henry is under no duty to disclose information unless asked by the prospective buyer.



(B)

Henry is only under a duty to disclose information if he is an expert in the area and would be expected by a reasonable person to disclose any relevant information.



(C)

For conduct to be misleading or deceptive, there must be some action or representation on the part of the defendant: mere silence is not “conduct” under s 18.



(D)

Silence or failure to disclose can be misleading or deceptive if, in all the circumstances, there is a reasonable expectation that disclosure would be made.

21.

Abe lives on a large cattle station in the Northern Territory. In order to take his children to school (200 kms away) and to do other personal and domestic tasks, he buys a helicopter from Whirlybirds Pty Ltd. The helicopter costs $75,000. The parties sign a written contract that is drafted by the seller and is not a standard form contract. Which one of the following is NOT correct?



(A)

For the purposes of the consumer guarantees in the Australian Consumer Law Abe would not be a “consumer”.



(B)

Because this is not a standard form contract, the unfair contract terms provisions of the Australian Consumer Law would not apply.



(C)

A term in the contract that said that the seller was not bound by the consumer guarantees provided in the Australian Consumer Law would be valid, provided Abe had reasonable notice of the term and consented.



(D)

A term in the contract that said that “any liability beyond that prescribed by law, in particular the Australian Consumer Law, is hereby excluded” would be valid.

22.

Which of the following statements about the consumer guarantee provisions in the Australian Consumer Law is NOT true?



(A)

The guarantees are non-​excludable.



(B)

The guarantee provisions only apply to “consumers” as defined in s 3.



(C)

The definition of “consumers” in s 3 is limited to purchases of goods or services under $40,000.



(D)

The remedies available for breach of the guarantee as to acceptable quality depend on whether the breach constitutes a major failure.

23.

Which of the following is NOT true? Where there is a “major failure” of a consumer guarantee under the Australian Consumer Law:



(A)

The consumer cannot get a refund but must accept a replacement of the goods from the supplier.



(B)

Where the failure can be fixed, the consumer can request that the supplier remedy the failure within a reasonable time.



(C)

It must be shown that a reasonable consumer, fully acquainted with the facts, would not have bought the goods.



(D)

The goods need not be valued at under $40,000.

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Chapter 14: Law of Torts 24.

In which of the following relationships is a duty of care most difficult to establish?



(A)

Manufacturer and consumer



(B)

Auditor and investor



(C)

Schoolteacher and student



(D)

Car driver and pedestrian

25.

Where a plaintiff sues for negligently inflicted pure psychiatric damage which of the following is NOT relevant to whether a duty of care is owed:



(A)

The relationship between the parties.



(B)

The plaintiff’s physical and temporal proximity to the event that causes the mental harm.



(C)

The conduct of the defendant.



(D)

What the reasonable response of a person of normal fortitude might be.

26.

In determining whether a duty of care arises in a case of pure economic loss, which of the following is NOT one of the “salient features” referred to by the High Court of Australia in Perre v Apand (1999)?



(A)

whether the economic loss suffered was reasonably foreseeable.



(B)

whether imposing the duty would expose the defendant to indeterminate liability



(C)

whether imposing the duty would unreasonably interfere with the defendant’s commercial freedom.



(D)

whether the plaintiff had contributed to the loss.

27.

Where a person gives advice, that advice is relied upon and the advice is incorrect, the person giving the advice may be liable in negligence. Which of the following is NOT correct?



(A)

The “special relationship” described in Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) has been accepted as the test for determining the existence of a duty of care with respect to negligent misstatements.



(B)

The duty of care only arises with respect to the giving of advice in a serious commercial context. It does not arise where only information is provided.



(C)

The duty of care is more difficult to establish where the adviser provides negligent advice to a client and a third person relies on that advice and as a result suffers reasonably foreseeable loss.



(D)

Once an adviser has been found to have breached the duty of care, s 59 of the Wrongs Act (Vic) 1958 offers a complete defence if the adviser can prove that he acted in a manner that was widely (but not universally) accepted by peer professional opinion as competent professional advice.

28.

Which of the following statements is correct? In Shaddock & Associates Pty Ltd v Parramatta City Council (1981), where the plaintiff property developers made inquiries of the relevant local council:



(A)

The plaintiffs were not owed a duty of care by the Council as the Council did not profess to possess skill or competence in that area.



(B)

The court found no distinction between the giving of advice and merely providing information.

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(C)

As the loss was pure economic loss, it was not recoverable by the plaintiffs without evidence of the loss being reasonably foreseeable.



(D)

The Council could not have known that the plaintiffs intended to rely on the information or advice it provided.

29.

Considering the High Court decision in Esanda v Peat Marwick Hungerfords (1997) which of the following is NOT correct?



(A)

Auditors, like PMH, have statutory and contractual duties to act with due care and skill to the company audited.



(B)

PMH owed Esanda a duty of care because it was reasonable to foresee that parties other than Excel might rely on the accounts when deciding whether to provide finance to Excel.



(C)

There is a significant difference between establishing a duty of care owed to a third party and a duty of care owed to a person who requests information.



(D)

The High Court held that a duty was not owed by PMH to Esanda because Esanda was an unknown and unintended user and mere foreseeability that someone like Esanda might rely on the information was not enough.

Chapter 15: Law of Agency 30.

Which of the following is NOT an example of an agent’s authority:



(A) Nominal.



(B)

Express actual.



(C)

Implied actual.



(D) Apparent.

31.

Which of the following is the best description of apparent or ostensible authority?



(A)

A has authority to do anything which is incidental to or necessary for the carrying out of acts within A’s actual authority.



(B)

Authority is conferred by P on A in writing.



(C)

Authority is conferred by P on A under seal.



(D)

P creates the appearance of authority by words or conduct but, in fact, that authority does not exist.

32.

Which of the following would NOT overcome a defect in an agent’s actual authority:



(A)

Implied actual authority.



(B)

Apparent authority.



(C)

A properly executed deed.



(D) Ratification.

Chapter 16: Law of Partnerships 33.

Which of the following is NOT a requirement of a partnership?



(A)

The partners aim to make a profit.



(B)

There is a mutuality of obligations.



(C)

They carry on a business.



(D)

They each contribute equally to partnership property.

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34.

Which of the following statements is NOT true?



(A)

Unless the partnership agreement provides otherwise, each partner has a right to participate in management.



(B)

The maximum number of partners in a partnership is usually 20.



(C)

Unless the partnership agreement says otherwise, a partnership of between 3 and 20 would continue on the death of a partner.



(D)

Partners are both agents and principals of one another.

35.

Felicity and Julie run a chain of women’s fashion clothing stores in partnership. Their agreement prohibits either partner spending more than $10,000 of business funds without the consent of the other. The business has been experiencing financial difficulties, and so Julie decided to buy a new line of exclusive cocktail dresses from Swish Manufacturing (in the hope of improving sales). Without Felicity’s knowledge, she ordered $200,000 worth of dresses. The strategy was unsuccessful, and the business is now unable to pay the debt. Who is liable for the $200,000 debt to Swish Manufacturing? (Swish was unaware of the cap on spending contained in the partnership agreement between Felicity and Julie.)



(A)

Julie is solely liable for the debt.



(B)

Felicity is solely liable for the debt.



(C)

Julie and Felicity are jointly liable for the debt.



(D)

Julie and Felicity are jointly and severally liable for the debt.

36.

Which of the following statements about the rights of partners in a partnership (subject to agreement to the contrary) is NOT true?



(A)

A majority of the partners can expel a partner.



(B)

The consent of all existing partners is needed to introduce new partners.



(C)

Partners may be both jointly and severally liable for the acts of a partner.



(D)

Any partner may access the partnership books in order to inspect and copy them.

liii

Chapter 17: Corporations Law 37.

Which of the following is NOT true?



(A)

A company can sue and be sued in its own name.



(B)

Directors, but not members/​shareholders, are personally liable for the debts of the company.



(C)

Directors may be personally liable for a breach of the insolvent trading provisions of the Corporations Act 2001 C’th.



(D)

Section 184 applies where the director has committed the ss 181–​183 offences recklessly or dishonestly.

38.

Which of the following is NOT true? To be guilty of insolvent trading under s 588 of the Corporations Act 2001 C’th it must be proven that:



(A)

The defendant was a director at the time when it incurs a debt.



(B)

The company was insolvent at that time or became insolvent by incurring the debt.



(C)

The director must have known that the company was insolvent or would become so when it took on the debt.



(D)

A reasonable person would have been aware that the company was insolvent.

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PART 1: INTRODUCTION

Chapter 1: An Introduction to Law and the Australian Legal System

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chapter 1

An Introduction to Law and the Australian Legal System [1.20] [1.70] [1.260] [1.330] [1.360] [1.500] [1.570]

The nature and concept of law and justice ............................................................................................ 3 The Australian legal system ......................................................................................................................... 7 Sources of law .................................................................................................................................................... 18 Judge-​made law ................................................................................................................................................ 24 The doctrine of precedent and the hierarchy of Australian courts ........................................ 25 Classification of law and legal proceedings ........................................................................................ 31 Alternative methods of dispute resolution ......................................................................................... 33

Introduction [1.10] The present work is primarily concerned with one particular area of law and regulation: commercial law. As with any significant area of law, commercial law is complex, broad in scope (in this text, we cover the law of contract, torts, consumer protection and various forms of business organisations) and constantly evolving. For this reason alone, it is important to develop some familiarity with the legal system that is responsible for making, developing and enforcing the laws.

The nature and concept of law and justice [1.20]  We begin our study of commercial law by briefly considering the nature of “law” itself. If we say that a law is a rule that we must follow, what distinguishes it from other non-​legal rules such as the rules that apply in sport or the rules that govern club membership, social rules or scientific rules. The answer depends on what we mean by a “law”. When we refer to “law”, we may refer to “natural law” (a universal understanding of what was right and wrong, fair and unfair, just and unjust –​the “law” that underpins universal human rights law today), “religious law” (codes of conduct often recorded in holy texts such as the Bible, the Koran or the Talmud that may be followed (or debated) by believers),

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“customary law” (rules of conduct widely observed as part of the tradition of a particular race or culture) and “positive law” (“law” as the body of rules that regulates the relationships between the members of society and between the government and its citizens so as to avoid conflict and promote social cohesion). It is this definition of “law” that we use in this book. If this is our definition, then it is clear that the major difference between a “law” and the other sorts of non-​ legal “rules” is the source: “laws” are made by the state (parliament and the courts), non-​legal rules are not. In addition, although breach of non-​legal rules often incurs sanctions (exclusion from the club, ostracism by the family or friends, excommunication (or worse) from religious organisations, ridicule from scientists), “laws” have state-​backed enforcement apparatus, procedures and sanctions depending on whether the matter is civil (eg a dispute about a contract, defamation or a road accident), criminal (eg murder and theft) or administrative (eg whether a particular action of the government in relation to an asylum seeker is constitutional).

The functions of law in a civil society Figure 1.1: The role of law in a civil society Provides rules and structures for dispute resolution

Regulatory function

Promotes justice and the rule of law

Role of law in society

Reflects basic community values

Promotes stability and cohesion

[1.30]  Accepting this limited but functional definition of “law”, we can then ask what is its role in a liberal democratic society1 such as Australia’s? As Figure 1.1 above indicates, there are a number of functions that the law has in a civil society. First, it regulates in a normative sense the way we live. Laws inform us what we may do and, if we do, how we should do it (eg make contracts, buy and sell property, get married or divorced, adopt children, register a company), what we cannot do without incurring sanctions (break contracts, take someone else’s property without consent, kill or injure another person without lawful excuse, marry more than one person at a time, practise law or medicine or accounting without a licence or certificate) and what we must do if we wish to avoid sanctions (pay our taxes, educate our children, vote in general elections). Second, it has a dispute resolution function. As we will soon see, commercial activity, as with any aspect of life, often involves disputes or disagreements about the parties’ rights and obligations. Quite often, the 1

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A democratic society with an emphasis on individual freedoms, equality of treatment based on the rule of law.

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stakes are high or the principles are important, and the role of the law is to provide a means for disputes to be resolved by ensuring, as far as possible, that the laws are clear and accessible (so the parties, or their lawyers, are able to settle their dispute without the need to go to court) but, if they cannot do this, the courts provide a fair, efficient, open and uncorrupted dispute resolution process. This applies to both civil and criminal matters (which is why the High Court of Australia was recently so critical (“appalling conduct”) of a barrister who, when representing many of the central figures during Victoria’s so-called Gangland Wars was, at the same time, a police informer, passing on information she obtained from her clients. On December 2, the Victorian Government set up a Royal Commission to investigate this matter). Third, the law maintains stability and social cohesion. In making laws that the community respects as being the product of a fair and proper process, untainted by corruption or improper interference, the law and the legal system ensures stability and social cohesion. This is obviously true for commercial activity: the law should provide a fair, stable and predictable base that allows commerce to flourish. Change is both possible and inevitable and the law should facilitate that change in an open, predictable and consistent manner. If it does not (as with the policy responses to climate change over the past 12 years in Australia), business is unable to make decisions. Fourth, law reinforces community values. The peace, order and social cohesion, referred to in the previous paragraph, are promoted when the legal system is seen, which reflects current community values but, at the same time, manages to respect the rights of minority stakeholders (to safeguard against the “tyranny of the majority”). The “same sex marriage” debate in 2018 that resulted in a change to the Marriage Act is a good example of the law and law-​makers taking into account a change in community values (that were not shared by everyone). Fifth, to promote justice and uphold the rule of law. Australia, as with many liberal democratic countries, upholds the rule of law. This is the idea that no person or institution –​not the Crown, not the Prime Minister or Cabinet Ministers, not Members of Parliament, not the judiciary –​is above the law. As Thomas Fuller, a British churchman and historian, famously put in the early 17th century: “Be ye so ever high, still the law is above you” –​in other words, those with power do not make decisions in an arbitrary and unpredictable manner, based on their prejudices or beliefs rather than the law. The following four principles are present in a society governed by the rule of law: 1.

The law applies to everyone equally regardless of social or political status, culture religion or race.

2.

The laws are clear, publicised, stable and just.

3.

The process by which the laws are enacted, administered and enforced is accessible, fair and efficient.

4.

Justice is delivered in a timely manner by competent and ethical judges who are free from interference, particularly from government.

Magna Carta

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[1.40]  We shall see in the brief overview of the development of the common law (see [1.340]) that the common law of England (that Australia “inherited” in 1788) evolved as a result of a centuries-​long struggle for some form of democratic system and a recognition of individual freedoms and rights. A seminal event in the struggle was the signing of the Magna Carta (the “Great Charter”) in 1215, a little over 800 years ago. Originally issued by King John of England as a practical solution to the political crisis he faced, Magna Carta established for the first time the principle that everybody, including the King, was subject to the law. Although nearly a third of the text was deleted or substantially rewritten within 10 years and almost all the clauses have been repealed in modern times, Magna Carta is a foundation stone of constitutional and parliamentary government for Britain and Commonwealth countries. As a statute of the realm from 1297, Magna Carta officially became a part of British law, to be referred to, interpreted and quoted in the courts and in parliaments of Britain and of countries that have adopted British law, including Australia. Buried within a number of clauses that dealt with particular issues concerning his rule were a number of fundamental values that both challenged the autocracy of the King and proved highly adaptable in future centuries. Most famously, the 39th clause gave all “free men” the right to justice and a fair trial. Some of Magna Carta’s core principles are echoed in the United States Bill of Rights (1791) and in many other constitutional documents around the world, as well as in the Universal Declaration of Human Rights (1948) and the European Convention on Human Rights (1950). The fact that a society upholds the rule of law does not mean that the laws are just. It simply means they have been made and enforced according to law and not in an arbitrary or corrupt way. The following case provides an example.

Plaintiff S195/​2016 v Minister for Immigration and Border Protection [1.50]  Plaintiff S195/​2016 v Minister for Immigration and Border Protection [2017] HCA 31. The plaintiff is an Iranian man, taken into Australian jurisdiction while on board an asylum-​ seeker vessel in July 2013. In August, he was transferred to the offshore immigration detention facility on Manus Island, PNG. This case is a response to the decision of the PNG Supreme Court in the Namah case that found that Australia’s detention of asylum seekers on Manus Island was illegal under PNG law. The High Court was asked to decide whether Australia could validly make and continue its arrangements for offshore processing and detention of asylum seekers on Manus Island, in light of the Namah decision. The High Court, after noting that the plaintiff was not able to cite any authority in either case law (precedent) or the text or structure of the Constitution, for the arguments made, rejected the claim that the Australian government can only exercise its powers outside Australia for purposes that would be legal under the law of the relevant foreign country and said that: … there should be no doubt that neither the legislative nor the executive power of the Commonwealth is constitutionally limited by any need to conform to the domestic law of another country.

  

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The High Court reiterated that even though laws may breach international treaties and human rights concerns, they will not be struck down by the courts if they are constitutionally valid: the responsibility for bringing Australian law and practice into line with international legal obligations remains squarely with the legislature, not the judiciary.

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[1.60]  The rule of law is not an abstract concept: it has relevance to commercial life. The truth is that without adherence to the rule of law, commercial life becomes dysfunctional. Systemic bribery and corruption in a society, particularly in its commercial sector, erode the certainty and stability, confidence and trust that is essential for a flourishing commercial environment. Where the rule of law exists, proper processes are followed, laws and regulations are accessible and transparent, the bureaucracy implements those laws and regulations in a fair and efficient manner and, in the event of a dispute or infraction, the wheels of justice turn equally for all parties. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the “Banking Royal Commission”) conducted hearings throughout 2018. These hearings have exposed massive, shocking and systemic fraud and misconduct by banks and insurance companies. One of the matters referred to in the Interim Report of the Royal Commission (released 26 September 2018) was the lack of respect for the rule of law shown by the big banks and insurance companies. The Royal Commissioner said “As commercial enterprises, each of the entities whose conduct was considered in the first round of hearings rightly pursues profit. Directors and other officers of the entities owe duties to shareholders to do that. But the duty to pursue profit is one that has a significant temporal dimension. The duty is to pursue the long-​term advantage of the enterprise. Pursuit of long-​term advantage (as distinct from short-​term gain) entails preserving and enhancing the reputation of the enterprise as engaging in the activities it pursues efficiently, honestly and fairly. And, lest there be any doubt, it also entails obeying the law. But to preserve and enhance a reputation for engaging in the enterprise’s activities efficiently, honestly and fairly, the enterprise must do more than not break the law. It must seek to do ‘the right thing’. The evidence that was led in the first round of hearings suggested that the entities examined had done, and were doing, as little as they thought they have needed to do to meet their legal obligations, offering no (or at best, next to no) encouragement to or reward for staff or third parties to pursue the interests of the consumer. Compliance appeared to have been relegated to a cost of doing business. And, the case studies undertaken in the first round of hearings showed, that there had been occasions when profit has been allowed to trump compliance with the law, and many more occasions where profit trumped doing the right thing by customers”.

The Australian legal system History and development of Australian law and legal system [1.70]  Pre-​European. Aboriginal and Torres Strait Islander peoples moved into Australia from the north around 50,000 years ago. They rapidly swept around the west and east coasts meeting around the Nullarbor just west of what is Adelaide today. Aboriginal Australians have effectively been on their country as long as modern human populations have been outside of Africa. By appreciating the sheer length of time that indigenous groups have been on their own particular country, we can begin to comprehend why being “on country” is not a “lifestyle choice” but is central to the very identity of an indigenous person. Over the 50,000 years, each indigenous group occupied a recognised tract of land where sacred sites were protected, and boundaries, designed in the Dreamtime, were crossed only by invitation. Their complex social systems and highly developed traditions reflected a deep connection with the land. They had their own “laws” –​a customary system –​with “laws” passed down orally from one generation to the next. The classification of this body of customary rules, values and traditions as “law” has caused difficulty, in part because most systems of customary laws include customs or rules that may appear to be more like

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social or cultural norms or religious beliefs (as well as other more conventional rules and procedures that would be regarded as “laws”). It is significant that in Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141, one of the first cases to consider the status of customary law, Blackburn J had no difficulty in regarding the indigenous plaintiffs from the Gove Peninsula in the north-​eastern corner of Arnhem Land as having a system of law, a rule of law, that was not the common law. It had been argued by the mining company that for a legal system to exist, there must be a definable community of people and some recognised authority that gave the “law” a capacity to be enforced. Blackburn J disagreed: Where, it was asked (by the defendant company), was there any indication of authority over all the clans, and where, beyond the influence of the elders, was the authority within each clan? Feuds were admitted to be common: did not this show that law was absent? None of these objections is in my opinion convincing ...The specialization of the functions performed by the officers of an advanced society is no proof that the same functions are not performed in primitive societies, though by less specially responsible officers. Law may be more effective in some fields to reduce conflict than in others, as evidently it is more effective among the plaintiff clans in the field of land relationships than in some other fields ... the same is patently true of our system of law. Not every rule of law in an advanced society has its sanction. [1.80]  European colonisation. The first recorded European contact with Australia was in March 1606, when a Dutch explorer arrived at its coastline. Over the next 200 years, European explorers and traders continued to explore and chart the coastline of “New Holland”. It was not until 1770, when another Englishman, Lieutenant (later Captain) James Cook, landed at Botany Bay’s Inscription Point (located near Silver Beach on the Kurnell Peninsula headland). He and his Endeavour crew stayed in the area for eight days and had a dramatic impact on Australian history. Cook then sailed north, landing at Botany Bay one week later, before continuing to chart the Australian coast all the way north to the tip of Queensland. There, just before sunset on Wednesday 22 August 1770, he declared the entire eastern half of New Holland a British possession. The central and western parts of the continent became colonies early in the 19th century. By 1786, Britain had decided on a use for its far-​flung colony. At home, after the Revolutionary War that ended in 1783, it had lost the US as a potential dumping ground and with its own prisons, hulks and poor houses full, Britain was desperate to find a new destination for its convicts. It decided to use its new colony as a penal colony and as a way of protecting its whaling industry. By January of the following year, the First Fleet of 11 ships under the command of Arthur Philip set sail, carrying about 1,500 people –​half of them convicts –​ and various animals (including, very regrettably, five rabbits) and, extraordinarily, on the flagship, HMS Sirius, a square piano belonging to navy surgeon Dr George Worgan. The fleet arrived in Botany Bay between the 18th and 20th of January 1788. However, this area was deemed to be unsuitable for settlement so they moved north, arriving at Port Jackson on 26 January 1788. In an interesting footnote, the French explorer La Pérouse sailed into Botany Bay only three days after Arthur Phillip and the First Fleet had arrived. After spending six weeks in Botany Bay, La Pérouse set sail to New Caledonia, and he and his ships were never seen again.2 2

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For those of us who might wish we ate croissants instead of porridge for breakfast, David Malouf, one of Australia’s finest writers of ‘historical fiction’, has said: “When Australians occasionally play the game of alternative beginnings, of imagining an Australia that might have been French, for example, or Spanish, it is worth reminding them of something. That in failing to be French we missed out on four bloody revolutions, as well as French cuisine and Gallic stylishness and wit, and in failing to be Spanish spared ourselves an almost continuous history of coups by army factions and the rule of a series of brutal juntas. Stability may be dull, and our society may lack passion ... but it does allow people breathing space – and if what this results in is a history without “interest”, it also produces fewer graves” (1998 Boyer Lectures later published in A Spirit of Play (ABC Books, 1998) 27-28).

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About 160,000 men and women were brought to Australia as convicts from 1788 until penal transportation ended in 1868. From the mid-​18th century, labour shortages, the vast expanses and new wealth based on farming and mining made Australia an attractive land for immigrants seeking “to start a new life and flutter with a new hope” (DH Lawrence, Kangaroo). [1.90]  Settled or invaded? The terra nullius question. As the ships of the First Fleet anchored in Sydney Cove on 7 February 1788 and the British flag was raised on the shore, the foundations for a new Colony were being laid on British soil. “Terra Australis” had been claimed by the British Crown as terra nullius –​ a Latin phrase meaning, literally, “nobody’s land”. Although there were between 500,000 and one million indigenous people inhabited the place –​a fact that the British were aware of ever since Cook came ashore –​ and had been on the land for, perhaps, 50,000 years or more, their culture, customs and, crucially, custodianship of the land were brutally denied in 1788 and the years beyond, a fact that has shaped the law and social attitudes towards the indigenous people ever since. One of the genuine mysteries regarding the adoption of the terra nullius doctrine in Australia is how it came to be established in the first place, at a time when the British acknowledged prior occupation (and proceeding by Treaty had been preferred in colonies such as New Zealand, the US and Canada). At least four factors –​each of which is highly contestable today –​have been put forward (by writers such as Bill Gammage, Bruce Pasco and Henry Reynolds) as reasons for the adoption of the doctrine in a land that was so obviously not nullius: ▶▶

the land was more sparsely inhabited than in other colonies;

▶▶

the British saw no evidence of cultivation of the land;

▶▶

▶▶

the indigenous people were not a real military risk in the same way as indigenous American or New Zealanders; and the indigenous people showed no interest in European trade or commerce.

Therefore, although Cook had been ordered not to seize land from any inhabitants, by the 1780s Arthur Phillip was doing just this. In this way,  terra nullius  was already in force well before it was formally declared as doctrine (in 1819). [1.100]  The Mabo story: from terra nullius to compensation. On 3 June 1992, the High Court of Australia decided that “the Meriam people are entitled as against the whole world to possession, occupation, use and enjoyment of the lands of the Murray Islands”. How did this momentous decision, that finally laid the doctrine of terra nullius to rest, come to pass?

Mabo v State of Queensland (No 2) [1.110]  Mabo v State of Queensland (No 2) (1992) 175 CLR 1 (Mabo). In May 1982, Eddie Mabo and four other Murray Islanders, who were members of the Meriam people, instituted legal proceedings in the original jurisdiction of the High Court, claiming rights to their traditional lands (the Murray Islands) in the Torres Strait off the North Queensland coast. The Murray Islanders commenced proceedings in the High Court in 1982, in response to the Queensland Amendment Act of that year which established a system of land grants on trust for Aboriginals and Torres Strait Islanders, grants which the Murray Islanders refused to accept. The action was brought as a test case to determine the legal rights of the Meriam people to their traditional islands, which Queensland took over in 1879. Prior to European settlement, the Meriam

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people had lived on the islands in a subsistence economy. Land on the islands was not the subject of public or general community ownership, but was regarded as belonging to individuals or groups. The plaintiffs argued that, despite the state’s claim to sovereignty, they retained ownership over the land. The basis of this argument is the reality that Australia was not uninhabited at the time of colonisation. To maintain a law based on this outdated fiction would be unjust. The Queensland Government argued that when the territory of a “settled” colony became part of the Crown’s dominions, the law of England became the law of the colony and, by that law, the Crown acquired the “absolute beneficial ownership” of all land in the territory. This concept was derived from the idea that Australia was “terra nullius”. Consequently, England could lawfully claim sovereignty over that territory. In 1992, 10 years after the case began and, sadly, just a few months after Eddie Mabo died, the High Court held, in a 6–​1 decision, that the common law of Australia recognized a form of native title. In their joint judgment, Deane and Gaudron JJ said: “The acts and events by which that dispossession in legal theory was carried into practical effect constitute the darkest aspect of the history of this nation. The nation as a whole must remain diminished unless and until there is an acknowledgement of, and retreat from, those past injustices”. Native title is the legal recognition that some Aboriginal and Torres Strait Islander (indigenous) peoples have rights to, and interests in, certain land because of their traditional laws and customs. In other words, native title rights depend on the traditional laws and customs of the claimants. It is also the case that other people’s rights and interests in or to the land are relevant, and often take precedence over native title. Relying on the Mabo judgment, to have native title recognised under the Native Title Act 1993, indigenous peoples must prove that they have a continuous connection to the land in question, and that they have not done anything to break that connection (such as selling or leasing the land). Native title can be recognised in different ways: indigenous peoples may be granted the right to live on the land or to access the area for traditional purposes or to protect sacred places and sites or to hunt, fish or gather traditional food or resources on the land or teach the particular tribal laws and customs in relation to the land. In some cases, native title can include the right to own and occupy an area of land or water to the exclusion of all others.

  

For the Meriam people, the decision meant that they were entitled to the occupation, use and enjoyment of the lands of the Murray Islands (except for the operation of Crown leases and some land set aside for administrative purposes).

[1.120]  Then Prime Minister Keating’s famous Redfern speech3 reflected the “darkest aspects of our history” sentiment referred to by the High Court justices and said something very profound about the idea of justice.

3

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P Keating, “Redfern Speech (Year for the World’s Indigenous People)” (Speech delivered at Redfern Park, 10 December 1992 at Redfern Park, Sydney). View at http://​www.antar.org.au/​issues_​and_​campaigns/​self-​determination/​paul_​keating_​redfern_​ speech.

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“[Reconciliation] begins, I  think, with the act of recognition. Recognition that it was we who did the dispossessing. We took the traditional lands and smashed the traditional way of life. We brought the disasters. The alcohol. We committed the murders. We took the children from their mothers. We practised discrimination and exclusion. It was our ignorance and our prejudice. And our failure to imagine these things being done to us. With some noble exceptions, we failed to make the most basic human response and enter into their hearts and minds. We failed to ask –​how would I feel if this were done to me? The Mabo judgement should be seen as one of these. By doing away with the bizarre conceit that this continent had no owners prior to the settlement of Europeans, Mabo establishes a fundamental truth and lays the basis for justice. It will be much easier to work from that basis than has ever been the case in the past … Mabo is a historic decision –​we can make it an historic turning point, the basis of a new relationship between indigenous and non-​Aboriginal Australians …. It seems to me that if we can imagine the injustice then we can imagine its opposite. And we can have justice”. [1.130]  Native title legislation. The Commonwealth Government’s legislative response to the High Court’s decision in Mabo v State of Queensland (No 2) (1992) 175 CLR 1 was to enact the Native Title Act 1993 (Cth).4 This legislation gave statutory effect to much of the decision in Mabo and had four main objectives: ▶▶ ▶▶

▶▶ ▶▶

To provide for the recognition and protection of native title. To establish ways in which future dealings affecting native title may proceed and to set standards for those dealings. To establish a mechanism for determining claims to native title. To provide for, or permit, the validation of past acts, and intermediate period acts, invalidated because of the existence of native title.

As of 2018, native title has been recognised over more than two million square kilometres of Australian land and water (approximately 15% of Australian territorial land and waters). There are approximately 967 registered Indigenous Land Use Agreements –​a voluntary agreement between a native title group and others about the use of land and waters –​in place.

Constitutional arrangements: a federal system [1.140] Australia is a federation. It consists of a central or federal government, which has certain law-​ making powers, six States and two Territories that also have law-​making powers and approximately 560 local councils that are empowered by the States/​Territories to make certain laws or regulations in relation to their local community. A feature of a federal legal system is that there is usually a written constitution, that is, a document setting out the powers of the federal government and its legal relationship with the States. In Australia, this is found in the Commonwealth of Australia Constitution Act 1900 (IMP), an Act of the United Kingdom Parliament, which contains the Commonwealth Constitution. In addition to the Commonwealth Constitution, each of the States also has its own Constitution that determines the system of government for that State. The law-​making power of each of the Territory legislatures is constrained by the federal statute that provides for the territory’s self-​governance. 4 The Native Title Act 1993 (Cth) came into operation on 1 January 1994. For more detailed discussion of the legislation, see MA Stephenson (ed), Mabo: The Native Title Legislation (University of Queensland Press, Brisbane, 1995).

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The Australian constitutional system of government comprises three main branches: (a)

the legislature –​the body which makes laws, usually in the form of statutes (Acts of Parliament);

(b)

the executive –​the body which administers and polices the law; and

(c)

the judiciary –​the body which declares what the law is and interprets the law, resolves disputes concerning its application and determines the sanctions for its breach.

The constitutional development of the Australian States [1.150]  Although the three separate branches of government (legislative, executive and judicial) are clearly apparent today, such a separation of powers was only gradually achieved in the Australian colonies (as the States were called prior to Federation in 1901). In broad terms, the basic pattern of legal development in each of the Australian colonies was to initially vest authority in the Governor, then, as the colony developed, to set up a Legislative Council consisting of persons nominated by the Governor to advise him in the performance of his official functions. The next stage was the introduction of representative government, where the members of the legislature were elected by the colonists rather than nominated by the Governor. The final stage was the introduction of responsible government, under which the executive branch of government was made responsible to the legislature.

The Federation movement [1.160]  The mid-​19th century onwards saw the constitutional development of Australia into six independent colonies, each with their own system of government and legal system. In the last decade of the 19th century, the question of federation of the Australian colonies became an increasingly real issue as it was gradually realised that a federal body could deal more effectively with issues such as national defence and intercolonial customs barriers. A convention of representatives from each of the colonies to consider a scheme for a federal Constitution was held in 1891. A second convention was held in 1897 and 1898. The product of these conventions was the drafting of the Commonwealth Constitution Bill. This was ultimately accepted by the majority of electors in each of the colonies (with the exception of Western Australia) at a referendum held in 1899. The Constitution Bill was enacted by the Imperial Parliament in 1900 as the Commonwealth of Australia Constitution Act 1900 (IMP). At this point, a majority of electors in Western Australia also voted in favour of joining the federation. Pursuant to royal proclamation, the federation, called the Commonwealth of Australia, came into being on 1 January 1901.

The Commonwealth Constitution –​a constitutional monarchy [1.170] The UK Parliament passed the Constitution Bill in 1900 in the Commonwealth of Australia Constitution Act 1900 and the Commonwealth of Australia came into being on 1 January 1901. The Act created a constitutional monarchy: the head of state is the monarch of England who holds her or his position not as of right but because of the Constitution. The Australian Constitution created a federal state –​a Parliament, called the Commonwealth Parliament, consisting of the Queen, the Senate and the House of Representatives: Constitution, s 1. Provision was also made for a Governor-​General to be the Queen’s representative in Australia: s 61. The Constitution gave the Commonwealth Parliament certain defined legislative powers but left the Australian States as

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self-​governing political units each with its own Constitution, Parliament and courts: Commonwealth of Australia Constitution Act 1900, ss 51, 106, 107. The State governments are not regarded as subordinate to the Federal government; rather, power is shared between the two in accordance with the Constitution with the Commonwealth having certain specific powers and the States having residual powers. There is no grandiloquent preamble in the Australian Constitution and no recognition or acknowledgement of Aboriginal and Torres Strait Islander peoples.5 Far from it, the first words of the Australian Constitution read as follows: “WHEREAS the people of New South Wales, Victoria, South Australia, Queensland, and Tasmania, humbly relying on the blessing of Almighty God, have agreed to unite in one indissoluble Federal Commonwealth under the Crown of the United Kingdom of Great Britain and Ireland, and under the Constitution hereby established: … Be it therefore enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: …”

Separation of powers [1.180]  The Constitution of Australia establishes a framework of government that reflects the doctrine of the separation of powers –​that is, that the body that makes law and the body that executes or administers the law and the body that adjudicates or interprets the law should be, as far as possible, separate. Figure 1.2: Separation of powers

Separation of powers

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Parliament: Chapter 1, s 1

Executive Government: Chapter 11, s 61

Judicature: Chapter 11, s 71

Makes laws (statutes)

Administers or executes the laws made by Parliament

Interprets and applies the laws (common law)

Although the Australian Government has subsequently honoured Aboriginal and Torres Strait Islander peoples as “the oldest continuing cultures in human history” in the National Apology to the Stolen Generations, Australia’s First Peoples are not yet mentioned in the nation’s founding document.

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The legislature Figure 1.3: Sources of legislative power

Sources of legislative powers under Federal Constitution

Exclusive powers – Commonwealth Parliament

Concurrent powers (Commonwealth and State Parliaments may pass laws but note the effect of s 109)

Residual powers – State Parliament

[1.190] Australia has a federal system of government with legislative power being divided between the Commonwealth government and the individual States. As Figure  1.3 indicates, there are some matters about which only the Commonwealth Parliament can make laws. These are called exclusive powers –​ for example, the power to impose customs and excise duties: s 90. There are other matters about which only the State Parliaments may make laws. These are residual powers  –​for example, the States are responsible for matters such as education and health, water policy, transport tourism, police and the courts. However, as the Federal Government controls the purse-​strings, a significant measure of control is often ceded to the Federal Parliament. Finally, there are some matters where the law making is shared between the Commonwealth and the State Parliaments. These are concurrent powers. The legislative powers enumerated below in s 51 are concurrent powers. The more important of these include the power to make laws with respect to the following matters: (a)

trade and commerce with other countries, and among the State (s 51(i));

(b)

taxation (s 51(ii));

(c)

postal, telegraphic, telephonic and other like services (including broadcasting and television) (s 51(v));

(d)

defence (s 51(vi));

(e)

currency, coinage and legal tender (s 51(xii));

(f)

banking and insurance (other than State banking or insurance not extending beyond the limits of the State concerned) (s 51(xiii), (xiv));

(g)

bills of exchange and promissory notes (s 51(xvi));

(h)

bankruptcy and insolvency (s 51(xvii));

(i)

copyright, patents, designs and trademarks (s 51(xviii));

(j)

foreign corporations and trading or financial corporations (s 51(xx));

(k)

external affairs (s 51(xxix)); and

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conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State: s 51(xxxv).

Thus, the fact that the Commonwealth has been given power to legislate with respect to such matters does not necessarily mean that the States cannot make laws on the same subject matter. However, as the following case demonstrates, if a State law is inconsistent with a law of the Commonwealth, the Commonwealth law prevails, and the State law, to the extent of the inconsistency, is invalid: s 109.

EHT18 v Melbourne IVF [1.200]  EHT18 v Melbourne IVF [2018] FCA 1421. Section 10(1)(a) of the Victorian Assisted Reproductive Treatment Act 2008 (Vic) provides that a woman may undergo an assisted reproductive treatment procedure only if the woman and her partner (if any) have given written consent. In s 3 of the Victorian Act, “partner”, in relation to a person, is defined to include (a) the person’s spouse. Section 22 of the Commonwealth Sex Discrimination Act 1984 makes it unlawful for a person to refuse to provide services to another person on the ground of the other person’s marital or relationship status. The applicant, a married woman but who had lived separately and apart from her husband for several months, wished to obtain IVF treatment from the respondent IVF clinic using donor sperm. She proposed to divorce her husband as soon as the requisite 12-​month period for living separately and apart had elapsed and said that her husband would have no role or responsibility in raising the child. There were medical reasons why she wished to have IVF treatment before then. The applicant sought a declaration that (a) on the proper construction of the Victorian Act, she was not required to obtain her husband’s consent in circumstances where he would have no involvement in the proposed treatment or (b) if his consent was required, the requirements of the Victorian Act are inconsistent with those of the Commonwealth Act, with the consequence that under s 109 of the Commonwealth Constitution, the State Act is inoperative to the extent of the inconsistency. In relation to (a)  the court denied the applicant’s claim finding, as a matter of statutory construction, that the Victorian Act requires the applicant to obtain her estranged husband’s consent under s 10(1)(a).

  

In relation to (b) the court decided that because s 10(1)(a) requires the estranged husband’s consent and the respondent is precluded by the State Act from providing IVF treatment to the applicant without that consent, there is discrimination against the applicant because of her marital or relationship status. Section 22 of the Commonwealth Act prohibits discrimination on the ground of marital or relationship status in the provision of services. By requiring the applicant to obtain her estranged husband’s consent, the applicant was treated less favourably than, for example, a woman who has been in a de facto relationship but is now living separately from her de facto partner. That is because such a woman is not required by s 10(1)(a) to obtain such consent for her to obtain IVF treatment. Accordingly, the State Act is inconsistent with the Commonwealth Act.

The executive [1.210]  The Constitution gives the executive power of the Commonwealth –​the power to administer laws –​ to the Executive. Although the Constitution states in s 61 that the executive power of the Commonwealth

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is vested in the Queen and is exercisable by the Governor-​General as the Queen’s representative, in reality the executive power is exercised by the Prime Minister and Cabinet (consisting of senior Ministers). Their power derives: ▶▶

constitutionally from their membership of the Federal Executive Council and status as “advisers” to the Governor-​General;

▶▶

politically, from the people at elections for the House of Representatives; and

▶▶

from convention –​that is, custom and tradition.

As an example of a power that exists as a result of “convention” rather than the black letter of the Constitution, it should be noted that neither the Prime Minister nor the Cabinet is mentioned in the Constitution –​the framers of the Constitution simply adopted the conventions of the Westminster system of government. Also by convention, the Governor-​General invites the leader of the political party having the majority of members in the House of Representatives to form a government. The leader (or, in the case of the Labor Party, its Caucus) selects the members who are to be Ministers and they are then appointed by the Governor-​General. The Prime Minister allocates portfolios to the Ministers so appointed, that is, each Minister becomes responsible for one or more government departments. The Constitution further provides that no person can be a Minister of state unless he or she is a member of the Senate or House of Representatives: s 64. In other words, a government Minister must be a Member of Parliament. [1.220] In some matters, the Constitution gives the Governor-​ General powers to act independently. These include the power to dissolve the House of Representatives and, in certain situations, both Houses. However, in other than exceptional circumstances, the Governor-​General will follow the advice of a Prime Minister who retains the confidence of the House. The powers that the Governor-​General has to act without advice are referred to as “prerogative” or “reserve” powers, and these are not clearly defined in the Constitution and there is no agreement on the nature of the exceptional circumstances in which they may be exercised. The Governor-​General Sir John Kerr’s dismissal of the Whitlam government on 11 November 1975 provided the biggest Constitutional shock in Australian history. The Dismissal (as it has come to be known) focused attention on the Governor-​ General’s use of a reserved power to dismiss a duly elected Prime Minister who commanded a majority in the House of Representatives and sorely tested Australians’ understanding of their own Constitution and political system.

The judiciary [1.230] The Constitution vests the judicial power of the Commonwealth –​the power to interpret laws and to judge whether they apply in individual cases –​in the High Court and other federal courts. The High Court is established by the Constitution. Other federal courts are created by legislation of the Parliament. The principal functions of the High Court are to interpret the Constitution, act as an appellate court from other courts exercising federal jurisdiction, hear appeals from the Supreme Courts of the States and, in certain cases, act as a court of original jurisdiction. The High Court occupies a unique position of considerable constitutional importance. As the court responsible for interpreting the Constitution, the High Court determines the constitutionality of legislation (ie whether a particular Commonwealth or State statute is a valid exercise of legislative power). The High Court is the highest court of appeal from decisions of the highest State and Territory courts and the Federal Court. The court’s judgments are authoritative statements of law which constitute binding precedents for all other Australian courts.

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The binding nature of decisions of the High Court on all other Australian courts enables the maintenance of the unity of the common law across Australia.

Amending the Constitution [1.240]  One of the major functions of the High Court is to interpret the Constitution. The High Court may rule a law to be unconstitutional and therefore of no (or limited) effect. However, the Constitution cannot be changed by an Act of Parliament alone: a referendum is necessary. A referendum is a vote by Australians over the age of 18 to change the Constitution. Section 128 of the Constitution provides the mechanism for amending the Constitution. It is a complex process that involves the Parliament and the electorate. Once both Houses of Parliament have passed the proposed amendment to the Constitution, there is a referendum of all eligible voters who are asked to vote “yes” or “no”. If the proposal is approved of by a majority of voters in a majority of States, the Constitution is amended. It has proved to be very difficult to amend the Constitution: of the 44 referenda put to the people since 1901 only eight have passed. The most significant amendment to the Constitution occurred in the 1967 referendum when over 90% of Australian voters agreed to change s 51(xxvi) of the Constitution (Cth) to give the federal parliament the power to make laws in relation to Aboriginal and Torres Strait Islander people (previously, people of “the Aboriginal race in any State” were excluded) and to allow for Aboriginal and Torres Strait Islander people to be fully included in the census (formerly, indigenous people had not been included in the census for the purposes of Commonwealth funding grants to the States or Territories. From 1967, indigenous people were counted in the census and included in base figures for Commonwealth funding granted to the States and Territories on a per capita basis). The following proposal for Constitutional amendment is the latest attempt by indigenous people for Constitutional recognition

Constitutional amendment proposal: recognition of indigenous people –​the Uluru “Statement from the Heart” [1.250] A unique Constitutional Convention bringing together over 250 Aboriginal and Torres Strait Islander leaders met in 2017 at the foot of Uluru in the Northern Territory. The majority, in the “Uluru Statement from the Heart”, called for a constitutionally enshrined “Voice to Parliament”, in the form of a national indigenous advisory body, and a “Makarrata Commission” to supervise a process of “agreement-​making between governments and First Nations and truth-​telling about our history”. Makarrata is a word from the language of the Yolngu people in Arnhem Land. It captures the idea of two parties coming together after a struggle, healing the divisions of the past. Any move to enshrine a “Voice” for Aboriginal and Torres Strait Islander peoples in the Constitution would need to be passed at a referendum in the manner prescribed in s 128. Here is part of the Statement from the Heart: We, gathered at the 2017 National Constitutional Convention, coming from all points of the southern sky, make this statement from the heart: Our Aboriginal and Torres Strait Islander tribes were the first sovereign Nations of the Australian continent and its adjacent islands, and possessed it under our own laws and customs … according to the reckoning of our culture, from the Creation, according to the common law from “time immemorial”, and according to science more than 60,000 years ago. It has never

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been ceded or extinguished, and co-​exists with the sovereignty of the Crown …. We seek constitutional reforms to empower our people and take a rightful place in our own country ….We call for the establishment of a First Nations Voice enshrined in the Constitution. Makarrata is the culmination of our agenda:  the coming together after a struggle. It captures our aspirations for a fair and truthful relationship with the people of Australia and a better future for our children based on justice and self-​ determination. We seek a Makarrata Commission to supervise a process of agreement-​ making between governments and First Nations and truth-​telling about our history. In 1967 we were counted, in 2017 we seek to be heard …

  

In the immediate aftermath of the release of the Statement from the Heart, the key proposal, the establishment of a constitutionally enshrined advisory body, was rejected by the Government. It argued that the proposal was inconsistent with Australia’s constitutional and public law arrangements. The former Prime Minister Malcolm Turnbull said the Voice to Parliament body “would inevitably become seen as a third chamber of parliament” and “such a radical change to our constitution’s representative institutions has (no) realistic prospect of being supported by a majority of Australians in a majority of states”. The prospect of short-​term constitutional recognition of indigenous people is slim.

Sources of law Figure 1.4: Sources of law

Sources of law

Courts

“Common law” – developed by judges in superior courts

Statute

Method based on judicial precedent that depends upon:

Law reports

Court hierarchy

“Acts” made by parliament at state, territory and federal level

Delegated legislation

Substantive lawmaking power is constitutionallybased:

“Rules”, “regulations” “by-laws” made by executive council, councils

Division of powers between State and federal

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Conflict resolution: s 109 and High Court

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[1.260]  There are two sources of law –​primary and secondary. A primary source of law is a document that contains the law itself –​for our purposes, a case or a statute. A secondary source of law is a resource that explains or analyses the primary source or is prepared for law reform purposes. They include scholarly texts, articles in academic journals, law reform commission reports and other commentary, both national and international. Our focus is on the primary sources of law.

Statute law [1.270]  Until the assertion of democratic power by the parliament in Britain (a process which began in 1688), judges were the principal law-​makers. However, over the past 200 years, it has been Parliament, the heart of representative democracy, that has become the dominant law-​making institution. There has been a massive increase in the amount and scope of legislation considered by Parliament: so much so that a relevant statute affects virtually every aspect of our lives. If you are renting a house, getting married or divorced, buying or selling a car, taking out insurance, working part-​time or studying at a university, migrating to Australia or seeking protection as a refugee –​you are affected by a statute. If you are assaulted, defamed, injured at work, discriminated against because of your race or religion or sexual orientation, misled by false advertising or injured by a faulty product –​a statute will be relevant to any claim for compensation. In the federal arena alone, there are now over 1,400 statutes and 600 regulations. Each year, the number of Acts passed by the Federal Parliament is around 180. In the middle of the 20th century, the figure was around 60 per year.6 In addition, State legislators are active law-​makers. Parliament passes Bills which, on receipt of the royal assent, are called “statutes” or Acts of Parliament. These statutes become part of the body of law known as “statute law”. Statutes may: (a)

bring new laws into existence;

(b)

repeal old laws created either by earlier statutes or by decisions of the courts, which have ceased to be appropriate to present social needs; or

(c)

codify the law, that is, to include not only previous statutory provisions but also common law principles derived from decisions of the courts.

The making of statutes [1.280]  Where it is intended to make a new law on a particular matter or amend an existing law, a Bill will be drafted, usually by parliamentary counsel. Bills may be introduced in either House but will normally be introduced into the particular House of Parliament in which the Minister in charge of the Bill sits. Most Bills tend to be introduced in the Lower House, that is, the House of Representatives of the Commonwealth Parliament, or the Legislative Assembly in the case of the State Parliaments. After introduction of a Bill to the House, it will have to pass what are called three readings. The first reading is generally a formality involving stating the name of the Bill and moving that it be read a first time. If this is agreed to, the Bill will be printed and distributed to members of the House. The second reading of the Bill involves the Minister moving that the Bill be read a second time and the members will then debate the broad principles of the Bill. On the passing of the motion for a second

6

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http://​www.aph.gov.au/​Parliamentary_​Business/​Statistics.

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Figure 1.5: The making of statutes

THE usual PATH of a BILL HOUSE OF REPRESENTATIVES 1ST READING

• 1st reading—the bill is introduced to the House of Representatives.

2ND READING

• 2nd reading—members debate and vote on the main idea of the bill. • House committee*—public inquiry

House committee*

the House.

Consideration in detail*

• Consideration in detail*—members discuss the bill in detail, including any changes to the bill. • 3rd reading—members vote on the

3RD READING • The bill is passed of Representatives and sent to

BILLIS PASSED

Senate referral

• The Senate may refer the text of the bill to a Senate committee for inquiry (this can happen while the bill is in the House).

SENATE 1ST READING 2ND READING Senate committee*

• 1st reading—the bill is introduced to the Senate. • 2nd reading—senators debate and vote on the main idea of the bill. • Senate committee*—public inquiry the Senate.

Committee of the whole*

• Committee of the whole*—senators discuss the bill in detail, including any changes to the bill.

3RD READING

• 3rd reading—senators vote on the bill in its final form. • The bill is passed in the Senate.

BILL IS PASSED

GOVERNOR-GENERAL Royal Assent by the Governor-General BILL BECOMES AN ACT OF PARLIAMENT

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• Royal Assent signs the bill. • Bill becomes an Act of Parliament—

*optional stage

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reading, the Bill then moves on to the next stage, known as the committee stage. The committee may be a select or standing committee of the House or the whole House sitting as a committee. At this point, each clause of the Bill may be debated and amendments made; in practice, only the controversial parts of the Bill will be objected to and debated. Once all the clauses of the Bill have been considered, the Bill, if approved, is reported to the House as having passed the committee stage. A motion is then proposed that the Bill be read a third time. The third reading simply involves the House voting on the Bill as it stands after the committee stage. Once passed, the Bill is then sent to the other House, usually the Upper House (ie the Senate of the Commonwealth Parliament or the Legislative Council in the States other than Queensland), and the same process is repeated. If the Bill is passed by the Upper House unamended, it is sent to the Governor-​General of the Commonwealth, or the Governor of the State, for assent. After assent, the Bill becomes an Act of Parliament. An Act which is to be proclaimed to come into operation has no legal effect until such date has been proclaimed and has arrived. The Act will commence from the date specified, or it may provide that it is to operate from a date to be proclaimed by the Governor-​General or Governor and published in the Government Gazette. Where a Commonwealth Act is silent as to its commencement, it commences 28 days after the Governor-​General’s assent was given.7 Problems may arise where an Upper House refuses to pass a Bill that has been passed by a Lower House. With respect to the Commonwealth Parliament, this situation is provided for in s 57 of the Constitution, which sets down the following procedure for resolving such “deadlock”: (a)

If the Senate rejects a Bill, fails to pass it or passes it with amendments unacceptable to the House of Representatives, then after three months, the Bill can be reintroduced in the House of Representatives.

(b)

If the House of Representatives again passes the Bill but the Senate still rejects it, etc, then the Governor-​General may dissolve both Houses (known as a “double dissolution”) and call an election.

(c)

If, after the election, the House of Representatives passes the Bill and the Senate still rejects it, etc, the Governor-​General may convene a joint sitting of both Houses and if there is a majority vote in favour of the Bill then it goes to the Governor-​General for assent.

Interpretation of statutes –​a purposive approach [1.290]  In the context of disputes, the courts are frequently called upon to interpret legislation. The task of statutory interpretation is not a mechanical or scientific one if for no other reason than the lawyer speaks in a language that has all the uncertainties of English expression. How do the courts approach the task of interpreting the words that the parliaments have used? The common law rule, confirmed by statutory provisions requires that, so far as possible, courts give effect to the purpose of the legislative provision in question. In other words, the Court in performing the task of statutory interpretation should avoid taking over the policy choices that properly belong to the Parliament. The Court is not the legislator. Thus, any inquiry into the meaning of a statute should start with the question: “What message is the legislature trying to convey in this communication?” As the High Court has said, “The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. But in performing that task the courts look to the operation of the statute according to its terms and to legitimate aids 7

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Acts Interpretation Act 1901 (Cth), s 3A(2).

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to construction”:  Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26 The Commonwealth Parliament itself has put its imprimatur on the purposive approach: the Commonwealth Acts Interpretation Act 1901 (Cth)8 directs a court to have regard to the objects and purposes of an Act in interpreting its provisions. Thus, s 15AA provides: “In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation”. Such an approach involves the consideration of three factors: ▶▶ ▶▶

▶▶

the text (ie the actual word(s) or section); the context (ie this could extend to a study of the Act in its entirety, the state of the law at the time, relevant extrinsic materials ([1.310] below) and enactment history). the purpose of the legislation (ie the object of the Act, the intention of Parliament).

In SZTAL v Minister for Immigration and Border Protection [2017] HCA 34, the High Court summarised this contemporary approach to statutory construction: The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected. The significance of the text in the task of statutory construction was given perhaps even more emphasis by the High Court in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41. This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy. In the following case, first discussed in another context at [1.200], the court said that the text and other considerations could not “displace the clear meaning of the text”, not because it was inappropriate to adopt a purposive construction of s 10(1)(a) (considerations of text, context and purpose are at the forefront of the task of statutory construction) but because the relevant text was clear and unambiguous and the applicant did not draw the Court’s attention to any significant feature of the historical context which supported her preferred construction.

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There are purposive construction provisions in all of the State Acts Interpretation Acts: Interpretation Act 1987 (NSW), s 33; Interpretation of Legislation Act 1984 (Vic), s 35; Acts Interpretation Act 1954 (Qld), s 15AA; Acts Interpretation Act 1915 (SA), s 22; Interpretation Act 1984 (WA), s 18; Acts Interpretation Act 1931 (Tas), s 8A; Legislation Act 2001 (ACT), s 139; Interpretation Act 1978 (NT), s 62A.

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EHT18 v Melbourne IVF [1.300]  EHT18 v Melbourne IVF [2018] FCA 1421. The critical question concerned the interpretation of s 10(1)(a) of the Assisted Reproductive Treatment Act 2008 (Vic). It provides that a woman may undergo an assisted reproductive treatment procedure only if the woman and her partner (if any) have given written consent. In s 3, “partner” is defined to include the person’s spouse. As we saw in [1.200], the applicant, a married woman separated from her husband for months but not divorced, sought IVF treatment from the respondent IVF clinic using donor sperm. She proposes to divorce her husband as soon as she can the requisite 12-​month period for living separately elapsed. The husband will have no role or responsibility in raising the child. The applicant argued (a) s 10(1)(a) should be interpreted to mean that consent of a woman’s partner is only required if that partner is also involved with the woman in seeking treatment; or (b) that the term “spouse” in s 3 should be read as if it referred to spouses who were living together. The Court denied the applicant’s claim. It held that, as a matter of statutory construction, s 10(1)(a) requires the applicant to obtain her estranged husband’s consent. To accept her arguments in relation to statutory interpretation would involve the Court rewriting the legislation, which is clear in its terms. It is a matter for the Parliament, and not the Court, to amend the Act if it considers that the current provisions operate unfairly. (NB As we saw in [1.200], the applicant was successful on alternative grounds).

  

Extrinsic materials [1.310]  The Commonwealth Acts Interpretation Act 1901 (Cth) (s 15AB) allows a court to refer to extrinsic materials in interpreting a statute. The material which may be referred to includes relevant Law Reform Commission reports, relevant parliamentary committee reports, the explanatory memorandum for the Bill, the second reading speech of the Minister on the Bill and relevant material in parliamentary debates: Acts Interpretation Act 1901 (Cth), s 15AB(2). The section is essentially an aid to interpretation of a statutory provision. As the following case demonstrates, extrinsic materials can only be referred to when the “ordinary” rules of statutory construction have been exhausted. It is the words of the statute rather than the extrinsic materials that have primary importance for statutory interpretation.





Section 15AB(1) provides, in part, that: [I]‌n the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material: (a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or (b) to determine the meaning of the provision when –​ (i) the provision is ambiguous or obscure; or (ii) the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable.

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Delegated legislation [1.320]  Delegated legislation is legislation made under the authority of an Act of Parliament. It is also known as subordinate legislation. It is not uncommon for an Act of Parliament to set out the law on a particular matter in general terms and go on to delegate or empower some person. Examples of the persons and bodies to whom such power is commonly given include the Governor-​General or Governor in Council, government Ministers and local authorities. The reasons for conferring power on others to make delegated legislation are: (a)

Parliament does not have the time to deal in detail with the many matters that claim its attention; and

(b)

much of the legislation that is passed is of a highly technical, specialised or essentially local nature so that the details are better left to experts or local bodies.

The power given by the particular Act may be quite specific as to the regulations which may be made under it or it may confer a broad power to make delegated legislation. An example of the latter is the power given to local governments by the Queensland Local Government Act 2009 (Qld), s 28(1): “A local government may make … any local law that is necessary or convenient for the good rule and local government of its local government area”. This situation has the appearance of a considerable violation of the principle of the separation of powers, the principle that laws should be made by the elected representatives of the people in Parliament and not by the executive government. The principle has been largely preserved, however, by a system for the parliamentary control of executive law-​making. Parliament maintains some control over delegated legislation through the requirement that regulations be tabled or laid before the Parliament9 and by retaining the option of disallowing such regulations within specified periods after their tabling.10 In both the Commonwealth and State Parliaments, committees have been setup to examine delegated legislation tabled before the Parliament with a view to maintaining some general supervisory control over its content. There are thousands of legislative instruments (as delegated legislation is called) currently in force in Australia, covering a wide range of subject matter, including laws about food standards, fisheries, civil aviation, corporations, superannuation, taxation and migration, to name only a few subjects.

Judge-​made  law [1.330]  Another important source of law is judge-​made law, which comprises the principles of law propounded by judges in deciding particular cases. The term “common law” is in fact used in a number of different ways. It may refer to: (a) (b) (c)

the common law as the law made by judges as distinct from statutory law which are (laws made by Parliament); the common law as a body of law historically made by the common law courts as distinct from equity law that was made in courts of equity; and the common law a system of law practised in Britain and those countries which inherited the British system (eg Australia) as distinct from a civil law system as practised in many European and some Asian countries.

The term “common law” in the present work generally refers to the law made by judges in deciding particular cases and includes both the common law and equity. To appreciate the essential nature of judge-​made 9 10

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Legislation Act 2003 (Cth), s 38. Legislation Act 2003 (Cth), s 42.

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law, and particularly to understand the reasons for the distinction between common law and equitable principles, it is useful to have some familiarity with the historical development of judge-​made law. In this context, we distinguish between common law and equity.

Development of the common law and equity [1.340]  Prior to the Norman Conquest of England in 1066, the law in England consisted of local or customary law that varied from place to place. In the 12th century, King Henry 11 sent judges around the kingdom to administer Royal justice which at first was based on local customary law but gradually judges sought to achieve a level of consistency and a respect for precedent so that by the 14th century, a more or less common set of laws had begun to emerge that were administered by Royal or Common Law Courts. It was in these central courts that a law common to all of England gradually evolved. However, the legal system during this period suffered from a number of serious deficiencies. Only certain types of writ were available and if the wrong complained of could not be framed so as to fit within one of the existing writs, then the complainant had no cause of action and hence no remedy. Furthermore, the procedure involved in proving a case became increasingly complex and very strict. A case could be lost for non-​compliance with the merest technicality. These deficiencies in the common law led to the rise of equity as a source of law. [1.350]  Equity developed to soften the harsh consequences that often flowed from strict application of the common law rules. Where persons were unable to obtain a remedy for their grievances in the Common Law courts because of the deficiencies in the common law, they would petition the King for relief. The increase in the number of these petitions asking the King as a matter of conscience or justice to redress the petitioners’ grievances led to them being dealt with by the Chancellor, one of the King’s principal advisers. Eventually, aggrieved petitioners would send their petitions directly to the Chancellor. The Chancellor was also the head of the Chancery, the body responsible for issuing writs to those seeking a remedy in one of the Common Law courts. The hearing of petitions by the Chancellor led to the emergence during the 15th century of the separate jurisdiction of the Chancery as a court of equity, later known as the Court of Chancery. The system of law administered by the court, which came to be known as equity, was not seen as a rival system to the common law but as supplementing the common law by providing remedies that the common law could not supply and by acknowledging rights not recognised by the Common Law courts. For example, the recognition and enforcement of trusts was exclusively a development of equity since the common law made no provision for the legal owner of property holding it on behalf of another. Further, the remedy of the Common Law courts was to award monetary compensation called “damages” to a person who had suffered injury, whereas the Court of Chancery could grant specific performance (ie compel a person to do what he or she had promised) or an injunction (ie order a person to abstain from doing something). Equitable remedies were (and remain today) discretionary. There gradually evolved two systems of law –​common law and equity –​but all the Australian States have followed the United Kingdom Judicature Act 1873 model, so that both common law and equitable principles are applied in the one proceeding.

The doctrine of precedent and the hierarchy of Australian courts [1.360]  The principles of the common law are to be found in the decisions of the various courts. Justice requires that similar cases should be decided in a similar way (stare decisis) or, to put it another way, that the legal principles applied in similar situations should be consistent. The common law gives effect to this

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notion by what is called the doctrine of precedent. In simple terms, the doctrine requires that the decision of a court in a decided case binds judges lower in the same court hierarchy in deciding cases of a similar nature. For example, a decision of the High Court of Australia on a particular issue is binding on State Supreme Courts and the Federal Court, should they have to decide the same issue in a later case. The rationale for the doctrine was explained in the High Court in this way: “If an intermediate appellate court were free to disregard a fundamental doctrine settled by the final appellate court, an endemic uncertainty would infect the administration of justice … Courts are bound to apply the principles laid down by courts higher in the appellate hierarchy and observance of that rule avoids the futility of delivering judgments which will be reversed on appeal”: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. Cases decided in one hierarchy are not strictly binding on the courts in another but will be of persuasive authority only. The precedential value of the decisions of the appellate courts of other States is very strong. A further question that arises is whether an appellate court in a particular hierarchy is bound by a previous decision of the same court. The High Court “has never regarded itself as bound by its own previous decisions, which is all the more appropriate now that it is a court of last resort for all purposes”. In practice, the High Court will normally follow its own earlier decisions and will only depart from them where there is a strong reason for so doing. However, a State or Territory court of appeal will normally follow its own previous decisions and the circumstances in which it determines not to do so will be comparatively rare.

The ratio decidendi of a case [1.370]  Not all of the judgment of a higher court is necessarily binding on a lower court. Only the reason/​ s given for deciding the earlier case, called the “ratio decidendi” (often shortened to ratio), creates a binding precedent. In the High Court decision in O’Toole v Charles David Pty Ltd (1991) 171 CLR 232, the court said: “[T]‌he law is changed by judicial decision, especially by decision of the higher appellate courts. Thereafter, the law is taken to be and to have been in accordance with the principle which informs the new decision: the ratio decidendi. The ratio, which is expressed in or necessarily implied by reasons for judgment to which a majority of the participating judges assent, is the law. It is not merely a judicial opinion as to what the law is; it is a source of law”. A statement of principle made in the earlier case that was not strictly necessary for the decision is not binding: such a statement is called an “obiter dictum” (singular) or “obiter dicta” (plural). However, the High Court has modified this traditional rule by stating that lower courts are bound by its “seriously considered dicta”. A lower court must determine precisely what was the ratio of the higher court which is binding, a task which is often more complex than might at first appear. Furthermore, it might be found that there is some differentiating feature between the fact situations in the two cases so that the earlier case can be distinguished from the later, in other words, held not to apply because of the differing circumstances of the later case. The following case provides an example of the way in which the courts “make” law and demonstrates the interconnectedness of the parliament and the courts in the development of law.

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Example 1 Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246. A plastering company Brighton Australia sued the construction group Multiplex, which was commissioned by CBUS in 2011 to build the Docklands headquarters of the National Australia Bank in Melbourne. The plastering company claimed that as a result of delays at the Docklands site in early 2012, it incurred significant costs. In 2014, Brighton Australia sued Multiplex under s 18 of the Australian Consumer Law (ACL), arising from what it alleged were misleading and deceptive representations about the project delays. The contract between Multiplex and Brighton provided for only a seven-​day period to give notice of a claim under s 18. Section 236 of the ACL says an action for damages may be commenced within six years after the event. On the question of whether the term in the contract took precedence over the statute the Victorian Supreme Court held that the contractual term allowing only seven days to lodge a claim had no effect. The court said that the “no exclusion” principle applies because the legislative purpose of the legislation would not be fulfilled if the court privileged private contractual arrangements above public policy objectives. Apart from demonstrating the purposive approach to statutory interpretation, the decision also provides a useful illustration of the way in which the courts make law –​all courts lower than the Supreme Court in the hierarchy are bound by the decision.

The hierarchy of courts and law reporting Figure 1.6: Hierarchy of the Australian Courts

High Court of Australia (Appellate jurisdiction)

Full Court of the Federal Court of Australia including Family Law Appeal Division

High Court of Australia (Original jurisdiction)

(Appellate jurisdiction)

Federal Court of Australia (Original jurisdiction)

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Federal Circuit and Family Court of Australia (Original jurisdiction)

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High Court of Australia

Court of Appeal (Appellate jurisdiction)

Supreme Court (Original jurisdiction)

District/County Court (Appellate jurisdiction)

District/County Court

Magistrates/Local Court

[1.380]  The application of the doctrine of precedent depends, in part, on the hierarchy of the court system and a system of authoritative law reports. No system of law-​making through precedent is possible without an acceptance that one court is superior or inferior to another and a reliable system of law reporting is essential in order for courts to be able to examine the reasons that a court had for making the decisions.

Hierarchy of the Australian courts Federal courts High Court of Australia [1.390]  The High Court of Australia is the highest court in Australia. The court has both an original and an appellate jurisdiction. Under s 75 of the Constitution, the court has original jurisdiction in matters: (i) arising under any treaty; (ii) affecting consuls or other representatives of other countries; (iii) in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party; (iv) between states, between residents of different states or between a state and a resident of another state. The Parliament may make laws conferring original jurisdiction on the High Court in a range of matters

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(i)  arising under this Constitution, or involving its interpretation; (ii) arising under any laws made by the Parliament: s 76 of the Constitution. One justice can hear cases before the court in its original jurisdiction. The High Court is the final appeal court in Australia. Its appellate jurisdiction stems from s 73 of the Constitution which provides that the court can hear and determine appeals from: (a)

any justice/​s exercising the original jurisdiction of the court;

(b)

any federal court or court exercising federal jurisdiction; and

(c)

the Supreme Court of any state.

Litigants generally need to obtain special leave to appeal to the High Court. What this means is that the High Court will hear an application to appeal and decide whether or not to hear the appeal. Special leave to appeal will normally only be granted where the case involves some important question of law, or in a criminal case, a serious miscarriage of justice.

Federal Court of Australia [1.400]  The Federal Court has both an original and appellate jurisdiction. The court enforces federal legislation such as the Competition and Consumer Act 2010 (Cth). It has concurrent jurisdiction over bankruptcy and intellectual property matters. In its appellate jurisdiction, where the court sits as a Full Court comprised of three judges, the Federal Court hears appeals from: (a)

a single judge of the court; and

(b)

a single judge of a State Supreme Court which is exercising federal jurisdiction in regard to intellectual property matters (ie patents, trademarks, copyright and designs).

Application for special leave to appeal may be made to the High Court from a decision of the Full Court of the Federal Court.

Federal Circuit and Family Court of Australia [1.410]  On 1 January 2019, a new Federal Circuit and Family Court of Australia (FCFCA) was created through the amalgamation of the Family Court of Australia (Family Court) and the Federal Circuit Court of Australia (FCCA). A new Family Law Appeal Division (FLAD) in the Federal Court of Australia (Federal Court) will also be established to hear all appeals in family law matters from the FCFCA (and some appeals from the Family Court of Western Australia).

State courts [1.420]  Each of the Australian States and Territories has its own separate hierarchy of courts. The basic structure in most of the states comprises: (a)

Supreme  Court;

(b)

District or County Courts; and

(c)

Local or Magistrates Courts.

Supreme Court [1.430] The highest court in each State and Territory is the Supreme Court, which exercises both civil and criminal jurisdiction. The Supreme Court has unlimited civil jurisdiction in all matters not expressly excluded by statute and vested in, for example, the Federal Court or the High Court.

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The original jurisdiction of the Supreme Court is exercised by a single judge. A decision of a single judge may be appealed to the Court of Appeal (in New South Wales, Victoria, Queensland, Western Australia, Australian Capital Territory and Northern Territory) or Full Court of the State (in South Australia and Tasmania).

District or County Courts [1.440]  Most States have established intermediate courts called District Courts or County Courts which have a statutory jurisdiction. This jurisdiction is limited with respect to subject matter and value of money or property in dispute. Where higher amounts are involved, proceedings must be taken in the Supreme Court.

Local or Magistrates Courts [1.450]  The lowest courts in the hierarchy of State courts are those presided over by magistrates. These courts are variously known as Local Courts, Magistrates Courts and Courts of Petty Sessions (when exercising criminal jurisdiction). In civil cases, the jurisdiction of the courts is generally limited to claims up to a certain monetary value (usually, approximately $100,000).

Other courts and tribunals [1.460]  In addition to the principal courts discussed above, there are a number of other courts and tribunals in Australia both at federal and state level.

Federal tribunals and commissions [1.470] A number of quasi-​judicial bodies, tribunals and commissions have been established under federal legislation, the most significant of which for our purposes is the Australian Competition and Consumer Commission (ACCC) that has general responsibility for initiating proceedings for contravention of the Commonwealth Competition and Consumer Act 2010 (Cth) in anti-​competitive conduct cases and for instituting prosecutions for offences against the consumer protection provisions of the Act.

Specialist State courts and tribunals [1.480]  There are a considerable number of specialist State courts and tribunals. One of the more important of these is the Small Claims Tribunals (in Victoria, the Victorian Civil and Administrative Appeals Tribunal) that provide a cheaper, speedier and more informal method of resolving disputes, particularly between consumers and traders, involving comparatively small sums of money.11 The parties normally present their own case, and the dispute is heard before a referee.

Law reports [1.490]  The common law comprises the decisions of judges in deciding particular cases. Those decisions are published in law reports. For the High Court, the authorised law reports are the Commonwealth 11

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Local Court Act 2007 (NSW), s 29 (in Local Court); Fair Trading Act 1987 (NSW), Pt 6A and s 79S(7) (in Civil and Administrative Tribunal); Australian Consumer Law and Fair Trading Act 2012 (Vic), ss 182–​192; Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 11, Sch 3; Magistrates Court Act 1991 (SA), ss 3, 38; Magistrates Court (Civil Proceedings) Act 2004 (WA), ss 3, 26; Magistrates Court (Civil Division) Act 1992 (Tas), ss 3, 7(2); ACT Civil and Administrative Tribunal Act 2008 (ACT), s 18; Small Claims Act 2016 (NT), s 5.

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Law Reports (published since 1903) and for the Federal Court, the Federal Court Reports (since 1984). In the States and Territories, the authorised law reports are the New South Wales Law Reports, Victorian Reports, Queensland Reports, South Australian State Reports, Western Australian Reports, Tasmanian Reports, Australian Capital Territory Law Reports and the Northern Territory Law Reports. In addition, there are many specialist series of reports containing decisions on particular aspects of the law such as intellectual property, trade practices, torts, insurance, consumer credit, industrial law, trusts and so on.

Classification of law and legal proceedings Public law and private law [1.500]  Law can be classified as either public law or private law. Public law is concerned with the organisation of government and with the relationship between the government and the people. It includes constitutional law, administrative law and criminal law. Constitutional law defines the structure of government and the rights of individuals under that government. Administrative law regulates the exercise of powers and duties by government administrative officers and authorities. Criminal law defines offences against the State and provides punishment for their commission. Public law is concerned with matters affecting the State and its relationship with individuals, whereas private law deals with the relationships between private persons or organisations. There are many branches of private law, some of the more important of which include the following: 1.

The law of contract, which is concerned with the rights and duties arising out of those agreements between individuals the law regards as legally binding.

2.

The law of tort, which requires a person who has committed a civil wrong, other than a breach of contract, to compensate the person against whom or whose property the wrong was committed.

3.

The law of property, which deals with the ownership, possession, use and disposition of both real property (eg land) and personal property (eg goods).

4.

Corporations law, which regulates the incorporation, administration, winding-​up and dissolution of companies, and the responsibilities of directors and other officers of the company.

5.

The law of trusts, which determines the circumstances in which and the conditions on which a person (called “the trustee”) holds property on behalf of another person (ie “the beneficiary”).

Sometimes, an area of law may have both private and public law aspects, so many areas of law cannot be regarded as exclusively one or the other.

Substantive law and procedural law [1.510]  A distinction is made between substantive law and procedural law. Substantive law refers to actual rights and duties under the law. Procedural law refers to the formal steps to be followed in the enforcement of those rights and duties, in particular, the rules of procedure and evidence.

Civil law and criminal law [1.520]  The civil law is that law under which a person (the plaintiff) may sue another (the defendant) to obtain redress for a wrong committed by the defendant. The usual purpose of a civil action is to obtain monetary compensation or damages for the loss suffered by the plaintiff as a result of the defendant’s wrongful

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Figure 1.7: Public law and private law Constitutional Law Administrative Law Public Law

Criminal Law

Taxation Law

Tort Law Law Contract Law Competition Law Private Law

Property and Trusts Law Commercial Law Workplace Law Company and Partnership Law

act, for example, for a breach of contract or the commission of a tort. In some cases, damages are an inadequate remedy and the plaintiff might seek specific performance of a contract or an injunction to restrain some unlawful act or threatened act. In civil proceedings, the plaintiff has a lesser standard of proof than in criminal proceedings and so in order to succeed must prove their case on the balance of probabilities. The criminal law defines offences against the State and provides punishment for their commission. Crimes are defined by statute, delegated legislation or the common law and are prosecuted in the name of the Crown on behalf of the State. Criminal offences are of two types, namely, summary offences and indictable offences. Summary offences are criminal offences triable summarily, that is, offences which are heard and determined by a magistrate without a jury; they usually comprise minor offences. Indictable offences are criminal offences triable before a judge and jury; they are generally the more serious offences. In the case of indictable offences, there is a preliminary or committal hearing before a magistrate who conducts an inquiry to see if there is sufficient evidence to put the defendant on trial. The magistrate must determine whether a prima facie case has been made out, and if he or she so decides, the defendant is committed for trial before a judge and jury. In criminal law, the prosecution must prove their case beyond reasonable doubt.

Commercial law [1.530]  The present work is primarily concerned with a particular aspect of legal regulation –​commercial or business law. In other words, it is concerned with those parts of the law most commonly associated with

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ordinary business activities. These include the law of contract, agency, sale, credit, bills of exchange and cheques, partnership, companies, bankruptcy and insurance. In recent times, there has been a considerable body of statute law enacted to regulate particular aspects of commercial law. These statutes include the Commonwealth Competition and Consumer Act 2010 (Cth) which, inter alia, proscribes certain restrictive and unfair trading practices and the Corporations Act 2001 (Cth), which regulates the formation and general operation of companies. On the other hand, there are still areas of commercial law that are not regulated by statute but are determined by the principles of the common law, that is, the law developed by judicial decision-​making in particular cases over a long period of time. For example, much of the law of contract is still largely based on common law principles.

The legal profession [1.540]  The legal profession is composed of solicitors and barristers.

Solicitors [1.550]  A solicitor is a general practitioner of the law. Where a member of the public has a dispute which has legal implications, requires legal documents to be drawn up in respect of a particular transaction or matter or needs advice on some aspect of the law, then they will generally consult a solicitor. The work of a solicitor includes, for example, drawing up contracts regarding commercial dealings, following through the legal technicalities of forming a company and advising on taxation matters. In relation to litigation, that is, cases to be heard before the court, the solicitor’s function is to ascertain the facts and procure the necessary documents and other evidence required by the barrister who has been briefed to conduct the case.

Barristers [1.560]  Barristers are generally responsible for actually conducting cases in court. They also provide solicitors with legal opinions on difficult points of law. Barristers tend to specialise in a particular branch of the law. Whereas a person can see a solicitor for the first time simply by going to the solicitor’s office, or phoning up to make an appointment, a barrister cannot usually deal directly with a client in this way but must first have been instructed in the matter by a solicitor. That is to say, the client will have gone to a solicitor with their problem and, if the problem involves litigation, the solicitor will usually “brief” or instruct a barrister in the matter. Alternatively, the issue in question may be one of some legal complexity requiring specialist advice and the solicitor may well seek an opinion from a barrister who is an expert in that particular area of law. Leading barristers in each State may apply to “take silk”, that is, be appointed a Senior Counsel (or SC).

Alternative methods of dispute resolution [1.570]  The delay and ever-​increasing cost of litigation has led in recent years to a growing emphasis on alternative methods of settling disputes outside formal court proceedings. Federal legislation now allows the Federal Court and the Federal Circuit Court to impose a penalty in costs where a party does not take “genuine steps” to resolve a dispute before civil proceedings are brought. Below, we outline the system of commercial arbitration and then consider other alternative methods of dispute resolution.

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Commercial arbitration [1.580]  Arbitration is the reference of a dispute to an independent third party selected by the parties or by their nominee instead of litigating the matter in the courts. Parties to a commercial dispute may agree to submit it to arbitration either by an arbitration clause in an agreement or at the time the dispute arises. The advantages of arbitration are avoidance of publicity (since the proceedings are in private); avoidance of delay in having the dispute settled; a simpler and less formal procedure than that in a court of law; reduction of expense and, should the matter be of a technical nature such as a building dispute or involve a complex accounting or commercial matter, the possibility of appointing as arbitrator a person with the required technical qualifications and expertise.

Alternative dispute resolution [1.590]  The expression “alternative dispute resolution” (or ADR) refers to methods of dispute management that offer an alternative to litigation. Methods of ADR can be classified as facilitative, advisory or determinative processes. Facilitative processes include negotiation, mediation and facilitation. Advisory processes include conciliation and independent expert appraisal. Determinative processes include arbitration and private judging. A range of ADR processes are described in the next section. The processes appear in order of the level of third-​party neutral intervention in the particular process.

Negotiation [1.600]  Negotiation between the parties with a view to seeking a mutually acceptable outcome through discussion, either with or without the assistance of a third party, is the most commonly used method of resolving disputes. The majority of commercial disputes are resolved by negotiation between the parties.

Mediation [1.610]  Where the parties are unable to negotiate a settlement between them, they may seek mediation of the dispute. Mediation is a voluntary negotiation process in which a neutral third party, the mediator, assists disputing parties to find their own solution to their dispute by helping them to isolate the issues in dispute, to develop options for their resolution and to reach an agreement that accommodates the interests and needs of all the parties.

Conciliation [1.620] In conciliation, a neutral third person assists the parties to negotiate as in mediation but exercises greater influence over the outcome than is the case with mediation. The conciliator may suggest options and possible solutions and is generally much more directive than a mediator. In Australia, conciliations often take place within a statutory framework, for example, complaints of discrimination under federal and State anti-​discrimination legislation.12

12

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Australian Human Rights Commission Act 1986 (Cth), ss 46P–​46PN; Anti-​Discrimination Act 1977 (NSW), s 91A; Equal Opportunity Act 2010 (Vic), s 112; Anti-​Discrimination Act 1991 (Qld), ss 158–​164AA; Equal Opportunity Act 1984 (SA), ss 27, 95; Equal Opportunity Act 1984 (WA), ss 91–​92; Anti-​Discrimination Act 1998 (Tas), ss 75–​77; Human Rights Commission Act 2005, ss 54–​67 (ACT); Anti-​Discrimination Act 1992 (NT), ss 78–​81.

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Further reading Australian Legal Development R Hinchy, The Australian Legal System: History, Institutions and Method (2nd ed, Thomson Reuters, Sydney, 2015).

Australian Constitutional System G Williams, S Brennan and A Lynch, Blackshield and Williams Australian Constitutional Law and Theory: Commentary and Materials (6th ed, Federation Press, Sydney, 2014). GA Moens and J Trone, Lumb, Moens and Trone, Constitution of the Commonwealth of Australia Annotated (9th ed, LexisNexis Butterworths, Sydney, 2016).

Sources of Law K Hall and C Macken, Legislation and Statutory Interpretation (3rd ed, LexisNexis Butterworths, Sydney, 2012). P Herzfeld, T Prince and S Tully, Statutory Interpretation Principles (Thomson Reuters, Sydney, 2014).

Legal Research and Writing C Cook et al, Laying Down the Law (9th ed, LexisNexis Butterworths, Sydney, 2015).

Doctrine of Precedent and Hierarchy of the Courts J Carvan, Understanding the Australian Legal System (7th ed, Thomson Reuters, Sydney, 2015).

Legal Profession A Lamb, J Littrich, K Murray, Lawyers in Australia (3rd ed, Federation Press, Sydney, 2015).

Internet sites Legislation and Case Law Australasian Legal Information Institute (AustLII): http://​www.austlii.edu.au (decisions of federal, State and Territory courts and tribunals; Commonwealth, State and Territory consolidated statutes).

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Tutorial activities 1.

2.

The role of the law in a liberal democratic society (a)

What is the basic positivist definition of “law”? What distinguishes a “law” from a non-legal rule? Is it true to say that only “laws” have sanctions?

(b)

Read [1.30] carefully. What are the five functions of “law” in a liberal democratic society? Find a current example of one or more of these functions.

The rule of law and the doctrine of separation of powers (a)

The fifth function of “law” (see [1.30]) is to “promote justice and uphold the rule of law”. Explain the concept of the “rule of law” and the significance of Magna Carta.

(b)

Which of the elements of A V Dicey’s characteristics of the “rule of law” do you think is most important?

(c)

In what sense is a strong “rule of law” culture beneficial to commercial activity in a liberal democratic society?

(d)

What is the doctrine of separation of powers?

(e)

“Of the three branches of government (legislature, executive, judiciary) it is the independence of the judiciary that is most critical”. Do you agree?

(f)

In November 2018, the Chief Justice of the US Supreme Court, Chief Justice John Roberts, issued a rare judicial rebuke after President Donald Trump told reporters that he wanted to file a complaint against the “Obama judge” who ruled against his migrant asylum policy (denying access to the US from particular countries). The Chief Justice said: “We do not have Obama judges or Trump judges, Bush judges or Clinton judges. What we have is an extraordinary group of dedicated judges doing their level best to do equal right to those appearing before them. That independent judiciary is something we should all be thankful for”.



What did President Trump mean by an “Obama” judge, and why do you think the Chief Justice says that an “independent judiciary is something we should all be thankful for”?

3.

“Terra nullius” and the importance of Mabo

4.

(a)

Read [1.70]–[1.100] carefully. What is the meaning of terra nullius? Considering indigenous peoples were there to “greet” the First Fleet, on what basis did the British regard its new colony (unlike New Zealand, Canada and the US) as “terra nullius”? What was the consequence (under the common law) of that decision?

(b)

Read the extract carefully. What was the effect of the High Court’s decision?

(c)

What did former Prime Minister Paul Keating mean when he said “…Mabo lays the basis for justice”? How would you describe “native title”?

The Federation (a)

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The Commonwealth of Australia Constitution of Australia Act 1900 created both a “federation” and a “constitutional monarchy”. Explain the basic structure of the federation and the concept of a constitutional monarch.

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6.

7.

8.

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(b)

In a federation, power is shared. Explain how this power-sharing works in Australia, with reference to exclusive, concurrent and residual powers.

(c)

Section 51 of the Constitution lists the concurrent powers that are shared between the States and the Commonwealth. What happens if there is an inconsistency between a law made by the State Parliament and a law made by the Commonwealth Parliament? Use EHT v Melbourne IVF [2018] FCA 142 as an example.

37

Sources of law (a)

What are the two primary sources of law in Australia? Of the two, which is the “sovereign” or “supreme” lawmaker? Can you suggest a reason for this?

(b)

Read the extract of Plaintiff S195/2016 v Minister carefully. The High Court stated that “the responsibility for bringing Australian law and practice into line with international legal obligations remains squarely with the legislature, not the judiciary”. Does this confirm your answer to the previous question concerning the “sovereign” or “supreme” lawmaker?

(c)

What are the three definitions of the phrase “common law”? Of the three, which is of most relevance in the context of this course?

(d)

What is the difference between criminal and civil law? What is the difference in terms of the consequences for breach of a criminal or civil law?

Doctrine of precedent and hierarchy of courts (a)

In relation to lawmaking by the courts, what is the doctrine of precedent? How does the decision in Brighton Australia Pty Ltd v Multiplex Constructions [2018] VSC 246 illustrate (i) the way in which the doctrine works and (ii) the hierarchy of courts.

(b)

What is the difference between a binding and a persuasive precedent?

(c)

Read the extract of Plaintiff S195/2016 v Minister for Immigration and Border Protection [2017] HCA 31 (see [1.50]). What precedent was established by the High Court in this case? On what courts, and in what circumstances, would the decision be binding?

Statutory interpretation (a)

Why does a statute require interpretation? In your answer, refer to s 18 of the Australian Consumer Law (see [13.70]), and identify three words or phrases that you believe may require interpretation by the courts.

(b)

What is the main objective of the court when it interprets a statute? In your answer, refer to (i) s 15AA of the Commonwealth Acts Interpretation Act, (ii) the three factors that a Court may take into account when deciding on the purpose of a statute and (iii) the extract from SZTAL v Minister [2017] HCA 34.

Uber is an app-based on-demand car hire service. It uses a smartphone app to receive ride requests and then sends these trip requests to their drivers. It is a controversial service currently involved in nearly 200 separate court actions. Taxi drivers argue that Uber is really a taxi service and should have to comply with the same regulations as they do. Uber argues it is just providing a mechanism that connects people who would like to travel with people who are prepared to take them where they wish to go, for a fee.

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In London, Transport for London, the transport regulator, has prosecuted Uber under s 11 of the Private Hire Vehicles Act 1998. Private Hire Vehicles Act 1998 11 Prohibition of taximeters

(1) No vehicle to which a London Private Hire Vehicle licence relates shall be equipped with a taximeter.



(2) If such a vehicle is equipped with a taximeter, the owner of that vehicle is guilty of an offence and liable on summary conviction to a fine.



(3) In this section “taximeter” means a device for calculating the fare to be charged in respect of any journey by reference to the distance travelled or time elapsed since the start of the journey (or a combination of both).

The transport regulator claims that the Uber app is being used as a taximeter. The taximeter is a privilege afforded only to black cab drivers in return for the extensive training they undergo to learn London’s streets. Uber argues that while the smartphone using the driver’s app may be essential to enable the calculation of fares, that does not make it a device “for” calculating fares and therefore does not breach the s 11 prohibition on taximeters. By applying the principles of statutory interpretation, how would you interpret s 11? 9.

Consider s 9 from the Voluntary Assisted Dying Act 2017 (Vic) 9 Eligibility criteria for access to voluntary assisted dying

(1) For a person to be eligible for access to voluntary assisted dying–

(a) the person must be aged 18 years or more; and



(b) the person must–

(i) be an Australian citizen or permanent resident; and



(ii) be ordinarily resident in Victoria; and



(iii) at the time of making a first request, have been ordinarily resident in Victoria for at least 12 months; and



(c) the person must have decision-making capacity in relation to voluntary assisted dying; and



(d) the person must be diagnosed with a disease, illness or medical condition that–

(i) is incurable; and



(ii) is advanced, progressive and will cause death; and



(iii) is expected to cause death within weeks or months, not exceeding 6 months; and

is causing suffering to the person that cannot be relieved in a manner that the person considers tolerable. Consider the circumstances of Tony Nicholson in Nicklinson v DPP (2012). In the words of the judge: “Tony Nicholson is now aged 58. He suffered a catastrophic stroke in June 2005. He is paralysed below the neck and unable to speak. He cannot move anything except for his head and eyes….In these circumstances Tony wants to be able to choose to end his life

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by voluntary euthanasia…he wants to establish the right to die with dignity at a time of his choosing. Tony’s circumstances are deeply moving….”

10.

(a)

Would Tony Nicholson be eligible for access to voluntary assisted dying under the Victorian legislation (assuming he qualified under s 9 (1)(b))? Explain.

(b)

Would a person suffering from Alzheimer’s disease be eligible for access to voluntary assisted dying under the Victorian legislation? A person with terminal cancer who is not expected to live more than a few weeks?

(c)

In what sense, if any, does this legislation raise both moral or ethical and legal issues?

(a) Section 5 of the Civic Spaces Act 2018 (Vic) provides, “It is an offence to deface any public space in Victoria”. The maximum penalty is $5,000. In the Second Reading speech, the Minister for the Environment said, “the reason why we need this legislation is because we are sick of idiots defacing our public places, especially our trains and buildings, with their foul pictures and meaningless graffiti. We want families to be able to come to the city and not be confronted by this rubbish”. The Long Title says, “An Act to Promote Clean Public Places”. On 20 July 2018, Rosie, an artist with a social conscience, draws a large picture, using chalk, on the pavement outside Parliament depicting a homeless person under a bridge. She does the same drawing, using paint, on the toilet door of a public library. The caption on both, in her finest print, says “Make Homelessness History”. She is arrested and charged on summons with two breaches of s 5 of the Act. Please advise her of the likely outcome drawing on your understanding of the common law and statutory guides to statutory interpretation. (b)

Imagine that s 314 of the Road Offences Act 2018 (Vic) provides that “the use of a mobile phone whilst driving is an offence”. In s 4 (the definition section), “use” is defined as “communicating with an electronic device such as a mobile phone, laptop computer or tablet in any way whatsoever”. “Driving” is defined as “being in control of a vehicle whilst on the road”. The Minister in her Second Reading speech said that the purpose of the legislation was to reduce the rate of motor accidents caused by the use of mobile phones: “They are potentially lethal in the hands of car drivers and this legislation is intended to do something about it.”



In the following two cases, the defendants are prosecuted under s 314 and will appear in the Magistrates Court in Melbourne:

▶▶

Anna had an iPhone in a cradle on the dashboard of her car and was looking at Google Maps as she was driving.

▶▶

Charlie pulled over to the side of the road and was talking on his mobile phone with the engine off.

On the basis of your understanding of the approach to statutory interpretation, advise Anna and Charlie. What would be the effect of an earlier ruling by (i) the Supreme Court of Victoria and (ii) the Supreme Court of Queensland on a similar set of facts? Bearing in mind the intention of the legislature, draft amendments to s 314 that would strengthen the law.

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PART 2: LAW OF CONTRACT

Chapter 2: Introduction to the Law of Contract Chapter 3: Offer and Acceptance Chapter 4: Intention to Create Legal Relations Chapter 5: Consideration, Promissory Estoppel and Formalities Chapter 6: Contractual Capacity Chapter 7: Genuine Consent Chapter 8: Legality of Object Chapter 9: Contents and Interpretation of the Contract Chapter 10: Operation of the Contract Chapter 11: Termination and Breach of a Contract Chapter 12: Remedies

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chapter 2

Introduction to the Law of Contract [2.20] [2.30] [2.40] [2.50]

The evolution of the law of contract ........................................................................................................... 44 Definition of a contract ..................................................................................................................................... 44 Essential elements of a contract ................................................................................................................. 45 Classification of contracts ............................................................................................................................... 46

Introduction [2.10]  As contracts are at the hub of commercial life, an understanding of the law of contract is essential. The concept that is at the heart of the law of contract is that (certain) agreements will be enforced by the courts. Obviously, some contracts are more complex than others (eg a contract for the sale of iron ore or gas to China is a different order of magnitude and complexity to a contract for the purchase of a car); some contracts are made and executed in an instant (eg buying a daily newspaper) whereas others are designed for a longer term (eg the LNG (liquid natural gas) contract with China is a 50-​year contract); some are for domestic purposes (eg buying a television) whereas others are commercial (eg multi-​billion dollar construction contracts to extend the Metro or build freeways); some involve international trade (eg contracts to purchase fighter jets from the US); some contracts are controlled by or subject to statutes (eg residential tenancy agreements or consumer contracts); some have no requirements as to the form in which they must be expressed (eg most sales of goods may be oral or written) whereas others have strict requirements as to the form of the contract (eg a contract for the sale of land which must be evidenced in writing or a transfer of shares which must be in writing). The principles that make up the law of contract derive from the English common law courts. Even today, many of the early English cases are still cited as authority for one principle or another. Of course we now have a substantial body of Australian case law and in addition, over the past 50 years or so, both State and Federal parliaments have passed statutes that affect a wide spectrum of commercial agreements and (often) assert standards of commercial behaviour that the common law did not. At the outset, it is worth noting that the basic functions of a contract extend beyond the enforcement role. Contracts allow us: ▶▶

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To secure expectations –​that the promises made will be kept or compensation or other remedies will be paid to the innocent party;

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▶▶

▶▶

▶▶

▶▶

To facilitate planning –​parties can more confidently plan for the future, knowing what is expected of them and what they can expect of the other party; To establish market value for goods and services –​the contract fixes the price (or provides mechanisms to adjust the price); To allocate risk –​the economic risks (eg regarding pricing or supply of goods) are allocated in advance by the parties; and To provide for a formal dispute-​resolution process when required.

The evolution of the law of contract [2.20]  In the 19th century, as industrial capitalism and the market economy came to dominate the economic and political landscape, the emerging law of contract became the main tool that facilitated and concluded market transactions. George Jessel MR, in Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462 at 465, captured the prevailing political and economic mood in England in the mid-​ 19th century when he said: “If there is one thing more than another which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty in contracting and their contracts, when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts … therefore you have this paramount public policy to consider in that you are not lightly to interfere with this freedom of contract”. The law of contract that emerged in the 19th century reflected the individualistic, self-​reliant ethic of the times. The courts stressed the virtues of freedom and sanctity of contract: parties had the freedom to negotiate and consent to the terms of their contract and, once this was done, the courts ensured the sanctity of the contract by strictly enforcing the terms of the contract (except where there was no genuine consent, such as where the agreement was affected by vitiating elements, eg, mistake, fraud, duress or misrepresentation). The mass production of goods in the 20th century signalled a growing gap between those with bargaining power and those without such power. The complex nature of many consumer goods means that there is an information gap between sellers and buyers which affects a buyer’s ability to meaningfully assess the quality of the goods. Responding to the demands for protection of the vulnerable, the courts and legislatures have made laws designed to protect individuals (eg employees, tenants, consumers, borrowers) and small businesses from conduct that is, for example, unfair, misleading or unconscionable. The Competition and Consumer Act 2010 (Cth) is an excellent example. There are other examples of statutes that affect specific kinds of contracts:  Insurance Contracts Act 1984 (Cth), Credit Act 1984 (Vic) and Residential Tenancies Act 1997 (Vic).

Definition of a contract [2.30]  The terms “contract” and “agreement” are frequently used interchangeably. Every contract involves an element of agreement; however, not every agreement is a contract. For this reason, it is necessary to define what constitutes a “contract”.

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A contract is an agreement between two or more parties under which legal rights and obligations are created which are enforceable in the courts. More succinctly, a contract is a promise or a set of promises that the law will enforce. It is the possibility of enforcement that distinguishes a contract from other kinds of agreements. The law of contract is concerned with the principles applicable to the formation, performance, interpretation and breach of contracts.

Essential elements of a contract Figure 2.1: Elements of a valid contract

Offer and acceptance

Intention to create a contract

Legality of objects

Elements of a valid contract

Genuine consent

Form of consideration

Legal capacity

[2.40]  For there to be a contract, certain essential elements must be present. In the absence of one or more of these elements, the agreement between the parties will not constitute a contract and will not be enforced by the courts. The essential elements of a contract are as follows: (a)

an offer by one party and its acceptance by the other indicating the parties have reached agreement;

(b)

the intention of the parties to create legal relations;

(c)

valuable consideration (unless the promise is made by deed);

(d)

legal capacity of the parties to act;

(e)

a genuine consent by the parties; and

(f)

legality of the objects of the agreement.

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Part 2: Law of Contract

The requirement (see (a) above) that there be an offer by one party which is accepted by the other together forms the agreement between the parties. The nucleus of all contracts is the notion of agreement or consensus. Where there is a dispute as to whether an agreement has occurred, the courts generally apply the offer and acceptance analysis –​that is, they ask whether there has been a clear indication from one party of a willingness to enter into a contract with another without further negotiation (“the offer”) and, in response, an unqualified statement or act that indicates that the other party accepts the terms of the offer (“the acceptance”). In the event of a dispute as to whether a contract has come into existence, the court considers whether a reasonable person looking objectively at what the parties have said and looking at their conduct would say that there was an agreement. As the High Court has said: “Regardless of the subjective intentions of the parties, the question of whether the parties had made contracts of the kinds described was to be determined by taking an objective view of the agreements”: Forrest v ASIC [2012] HCA 39 at [34]. However, not all agreements are enforceable at law. For example, a social agreement (say, where A agrees with B to play cards at B’s house on a certain night) does not give rise to contractual rights since the parties do not intend their agreement to be legally binding. Hence, the requirement (see (b) above) that for a contract to come into existence, the parties must intend their agreement to create legal relations. A further essential element in the formation of a contract is that some value must have been given in exchange for the other party’s promise. That is, in a simple contract, the agreement must be supported by valuable consideration (see (c) above). This requirement means that the law will not enforce a promise for which nothing is given or promised in return. For example, a serious promise, even one in writing, by A to give $5000 to B is not legally enforceable because B has not provided anything or suffered any detriment. An exception is where the promise is made under seal, that is, contained in a formal deed. The parties to a contract must be legally capable of reaching a binding agreement, that is, have the legal capacity to enter into a contract (see (d) above). To be enforceable, the agreement must have been the product of a genuine consent by each of the parties. Factors affecting genuine consent such as mistake, misrepresentation, duress and undue influence may affect the enforceability of the agreement (see (e) above). And finally, the contract must be legal (see (f) above). Each of these essential elements of a contract is discussed in further detail in the following chapters. If one of these essential elements is lacking, then the courts will not enforce the agreement between the parties. Assuming that the court is satisfied that there is a valid contract, its next task in the event of dispute is to determine the nature and extent of what the parties have agreed by interpreting the terms of the contract. The court is then in a position to determine whether a party is in breach of their obligations under the contract and, if so, to decide the appropriate remedy available to the other party.

Classification of contracts [2.50]  Some of the common types of contract and their basic characteristics are outlined below.

Simple contracts [2.60]  All contracts (other than contracts under seal) are termed “simple contracts”. In general, a simple contract may be oral, may be wholly or partly in writing or may even be implied by the conduct of the parties. However, some simple contracts are required by statutory provision to be in writing, and others

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are required to be evidenced in writing. Every simple contract, irrespective of how it is formed, must be supported by consideration: see Chapter 5 ([5.20]).

Contracts under seal [2.70]  A contract under seal (or formal contract) is referred to as a deed. It derives its validity from its particular form. A contract under seal must be in writing and signed, sealed and delivered. The basic distinction between a simple contract and a contract under seal is that the latter does not require consideration: see Chapter 5 ([5.20]).

Express and implied contracts [2.80]  Where the intentions of the parties are stated in explicit terms, either orally or in writing, they constitute an express contract. This is the usual type of contract. For example, an agreement is signed to buy a car and the price is to be paid by instalments over the next 12 months. All the terms of the contract are agreed upon and expressed in the written contract. An implied contract is one in which the terms of the contract are inferred from the conduct of the parties and the surrounding circumstances. An example of this type of contract is where you hail and enter a taxi. By this act, the law implies that you promise to pay the fare to your destination and the taxi driver impliedly agrees to transport you.

Bilateral and unilateral contracts [2.90]  Most contracts consist of the exchange of mutual promises, the actual performance of which is to occur at some future time. For example, where a steel manufacturer enters into a contract with a coal supplier in February for the delivery of coal during August at a specified price, each party has made a promise to the other to do something at a future date. Such a contract, consisting of a “promise for a promise”, is a bilateral contract. A unilateral contract is one in which an offer is made inviting acceptance by actual performance rather than by a promise. For example, the offer of a reward for the return of a lost dog is accepted by the return of the dog. A unilateral contract “comes into existence when one party promises to do something in return for acts performed by the other party, with the intention of being contractually bound if those acts are performed, and the other party accepts that promise by performing his or her side of the bargain”: Gippsreal Ltd v Registrar of Titles (2007) 20 VR 127.

Valid, voidable, void and unenforceable contracts [2.100] A valid contract is one in which all the essential elements are present. As a result, it is enforceable against both parties. The usual remedy for breach of the contract is a judgment for damages. Sometimes an equitable remedy such as specific performance may be available. A voidable contract is one which a party may avoid, that is, get out of, if that party wishes to do so. For example, a person who was induced to enter into a contract by the other party’s fraud may avoid the contract. A void contract is one which, as far as the law is concerned, never existed at all. It is of no legal effect between the parties and thus does not create legal rights or obligations. For example, where the purpose of the contract is totally illegal, such as a contract to commit a crime, the contract would be void.

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An unenforceable contract is one which is prima facie a valid contract but which by reason of some technical defect is not capable of being enforced by action by one or both of the parties. For example, a contract made verbally which is required by statute to be evidenced in writing and which has not been so evidenced.

Further reading for Chapters 2–​12 JW Carter, Contract Law in Australia (6th ed, LexisNexis Butterworths, Sydney, 2013). J Gooley, P Radan and I Vickovich, Principles of Australian Contract Law (3rd ed, LexisNexis Butterworths, Sydney, 2014). S Graw, An Introduction to the Law of Contract (7th ed, Thomson Reuters, Sydney, 2012). J Paterson, R Robertson and A Duke, Principles of Contract Law (5th ed, Thomson Reuters, Sydney, 2015).

Tutorial activities Contract of Employment (Sales Representative for Hamstrung Computers) This agreement is made and takes effect on the date of this agreement between ………. (“the Company”) and …….. (“the Employee”).

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1. The Company hereby employs the Employee commencing on the date of this agreement and Employee hereby accepts such employment.



2. During the Employee’s employment he/she will perform such duties as may reasonably be required of him/her by the Company and devote as much time and effort as may be reasonably required to perform those duties.



3.



4. The Company agrees to pay the Employee an annual salary of $................payable monthly and an annual bonus of $....provided the Employee has achieved her sales goals in 9 of the 12 months. Four weeks annual recreation leave and 12 weeks of parental leave are included in the package.



5. The Employee agrees that during his/her term of employment by the Company and for a period of three years after termination of such employment, he/she will not act as an employee or agent or otherwise engage in any business selling computers or computer-related products, similar to those customarily sold by the Company, within a 10-km radius of the Head Office.



6. The Employee understands that he/she will acquire confidential information of business value to the Company during the course of his/her employment. The Employee hereby agrees not to disclose such confidential information to any other party, or to use such information for his/her own profit except in performance of employment activities beneficial to the Company.



7. The Company may, at any time, with or without cause, terminate the contract of employment by giving Employee written notice of such termination. Employee

Not engage in any other employment or business activity without the Company’s written consent.

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must provide one month’s notice in writing of his/her intention to terminate the employment.

8. This agreement constitutes the entire agreement between Company and Employee. No representations made by the Company’s directors or other agents will have any effect unless they are included in this agreement.



9. This agreement shall be interpreted and, if necessary, adjudicated in accordance with the laws of Victoria.



10. All notices or responses from the Employee shall be sent to the email address provided to the Employee and shall be deemed to have been communicated when the email is actually received by the Company’s representative



In witness to their agreement to these terms, the Company’s representative and the Employee affix their signatures below:

…………………………………… …………………………………………

Dated ……. day of ……. 20..

1.

With a partner, read the contract carefully. Make sure you understand the terms of the contract. Now, with one partner acting for the Company and the other as acting as the prospective Employee, engage in good faith negotiations over the Employee’s salary with a view to achieving a fair and reasonable “market-based” outcome.

2.

Is this a simple contract or a formal contract? Explain.

3.

Is this a unilateral or a bilateral contract? Explain.

4.

Is this a “standard form” contract? Explain.

5.

Are cll 5 and 7 reasonable terms for the Employee?

6.

What is the effect of cl 6?

7.

Assume the Company’s director orally agrees to 26 weeks of parental leave. Considering the effect of cl 8; what do you think the Employee will do to protect herself?

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chapter 3

Offer and Acceptance [3.20] The offer ................................................................................................................................................................ 52 [3.330] Acceptance .......................................................................................................................................................... 60 [3.520] Online contracting ............................................................................................................................................ 65

Introduction [3.10]  In this and the following three chapters, we discuss the essential elements of a legally binding contract exists. The first requirement is that the parties must have reached an agreement. It is common to use offer and acceptance as the analytical tool to decide whether, in fact, an agreement has occurred: we ask whether there is an offer from one party that has been accepted by the other. This methodology works well enough in many straightforward contractual negotiations (eg the purchase of a car or consumer goods), but in many cases (eg complex and/​or protracted commercial contracts or the purchase of an air ticket or buying goods on eBay), the conventional offer and acceptance analysis does not work so well, and we may have to decide whether there is an enforceable agreement using other means (eg by examining the conduct of the parties or whether they have made agreements in the past and, if so, how those agreements were made).

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Part 2: Law of Contract

The offer Figure 3.1: Rules as to offer

May be made to one or more people

May be revoked or lapse

All major terms must be included

Rules as to Offer

Must be communicated to offeree

May specify conditions to be followed

[3.20]  An offer is a proposal by one party to enter into a legally binding contract with another. The offer may be made in writing, orally or implied by conduct. Its major terms should be clear, and the offeror must intend that it can be converted into a binding agreement by acceptance. When the courts are required to determine whether a statement amounts to an offer, for the purposes of determining whether the parties have ultimately concluded a legally enforceable contract, we will see that the courts distinguish offers from other statements such as puffs, invitations to treat and statements supplying information. It is not always an easy matter to decide whether a statement amounts to an offer.

Offers distinguished from mere puffs, invitations to treat and statements supplying information Offers and mere puffs [3.30] The advertising and marketing world is replete with “puffery”: statements containing such exaggerated claims and assertions about products or services or real estate that no reasonable person would take them seriously. For this reason, puffs cannot be construed as offers, and they have no contractual

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significance. Of course, there may be borderline instances, and a dispute may arise as to whether it was reasonable to take the statement or claim seriously. The following case has made its way into contract law folk history, partly on the back of a discussion as to whether the key statement in the advertisement constituted an “offer” or was “mere puffery”.

Carlill v Carbolic Smoke Ball Co [3.40]  Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. The flu epidemic of 1891 was responsible for many deaths in Britain and no shortage of medical quackery followed in its wake. In an advertisement published in an English newspaper (see below), the Carbolic Smoke Ball Company, manufacturers of the “carbolic smoke ball”, claimed it would prevent the onset of influenza and other maladies and offered to pay £100 to any customer who, despite using the ball as directed, caught influenza. The company deposited £1,000 with its bankers, “showing our sincerity in the matter”. Mrs Carlill saw the advertisement, bought a smoke ball and used it as directed. She nevertheless contracted influenza. When she requested that the company pay her the £100, it refused and she sued the company for breach of contract. The company denied liability. The case involved a number of issues –​the first was whether the advertisement was an offer or a “mere puff”. The court held that the advertisement was more than a “mere puff”. The Carbolic Smoke Ball Co made a serious offer to the whole world that could be accepted by anyone coming forward and satisfying the conditions. The court relied on the statement in the advertisement, “£1,000 is deposited with the Alliance Bank showing our sincerity in the matter”, as evidence that it was not engaging in mere puffery. Lindley LJ said: “Now for what was that money deposited or that statement made except to negative the suggestion that this was a mere puff and meant nothing at all? The deposit is called in aid by the advertiser as proof of his sincerity in the matter –​that is the sincerity of his promise to pay this £100 in the event which he has specified. I say this for the purpose of giving point to the observation that we are not inferring a promise; there is the promise, as plain as words can make it. Then it is contended that it is not binding. In the first place, it is said that it is not made with anybody in particular. Now that point is common to the words of this advertisement and to the words of all other advertisements offering rewards. They are offers to anybody who performs the conditions named in the advertisement and anybody who does perform the condition accepts the offer. In point of law this advertisement is an offer to pay £100 to anybody who will perform these conditions, and the performance of these conditions is the acceptance of the offer.”

  

(It should be noted that claims such as Mrs Carlill’s would now be made under consumer protection laws that prohibit misleading or deceptive conduct and not under the law of contract.)

[3.50] Compare Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 with the following, more recent example from the United States:

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Part 2: Law of Contract

Figure 3.2: Carbolic Smoke Ball advertisement

Leonard v PepsiCo Leonard v PepsiCo 88 F Supp 2d 116 (1999). PepsiCo ran an advertising campaign in which consumers were encouraged to collect “Pepsi Points” from specially marked packages of Pepsi. A television commercial for “Pepsi Stuff” showed a series of products with the Pepsi logo and the number of Pepsi Points that were required to purchase them. (It was possible to purchase additional Points for 10 cents each, if a person wanted an item for which he or she had insufficient points.) In the final scene from the advertisement, a young boy is seen flying a Harrier jet fighter to school. After he parked the jet on the school playground he emerged with a Pepsi in hand, and the words “HARRIER FIGHTER 7,000,000 PEPSI POINTS” appeared on the screen. After seeing the commercial, Leonard (and his syndicate) decided to purchase a jet fighter by “buying” the 7,000,000 points. He submitted an order form (though the jet was not included in the catalogue) with a cheque for $700,008.50. When PepsiCo rejected his order and returned his cheque, Leonard sought specific performance of the unilateral contract that he alleged had been formed when he performed his obligations.

  

The court decided that because of the comical or playful nature of the commercial, a reasonable person would not conclude that PepsiCo was offering a Harrier Jet to anyone who collected 7,000,000 points. It was a mere puff and could not be accepted by Leonard and his syndicate.

  

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Offers, invitations to treat and statements supplying information [3.70]  It is important to distinguish an “offer” (that, if accepted, will give rise to legally enforceable agreement) from an “invitation to treat” which is essentially an indication that a person is prepared to enter into negotiations that may (or may not) result in a contract. In the following case, the issue was whether the letter of the Council could be regarded as an offer or an invitation to treat.

Gibson v Manchester City Council [3.80]  Gibson v Manchester City Council [1979] 1 All ER 972. Manchester City Council adopted a policy that allowed its housing tenants to purchase their flats. Gibson, one of the tenants, was sent a letter in which the Council said it “may be prepared to sell” him the flat for a particular price and outlining other terms and conditions. It went on, “If you would like to make a formal application to buy your Council house please complete the enclosed application form and return it”. Gibson completed an application form, but before formal contracts were signed, the Council policy changed and it only proceeded with those contracts that had already been executed. Gibson argued that the Council’s letter was an offer and his response was an acceptance of that offer. By contrast, the Council argued that its letter was an invitation to treat and that Gibson’s response was an offer that had not been accepted by the Council. The House of Lords decided that there was no agreement because the Council’s letter was an invitation to treat, not an offer. Lord Diplock said,

  

“the words (of the letter) … make it quite impossible to construe this letter as a contractual offer capable of being converted into a legally enforceable open contract for the sale of land by Mr Gibson’s written acceptance of it. The words ‘may be prepared to sell’ are fatal to this; so is the invitation … ‘to make formal application to buy’ on the enclosed application. It is … a letter setting out the financial terms on which it may be the council would be prepared to consider a sale … in due course.”

[3.90]  Window displays, catalogues, price lists circulars and advertisements are usually invitations to treat and not firm offers by the seller. The following case, although it was criminal prosecution, the defendant chemist’s guilt or innocence turned on whether the display of goods in a supermarket was an offer.

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [3.100]  Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795. Boots Cash Chemists opened the first large self-​service pharmacy in England. Pharmaceutical supplies, including medicines and pharmaceutical drugs, were displayed on the shelves for customers to select and take to the cash register where a qualified pharmacist was always in attendance near the cash registers. The Pharmaceutical Society objected to this new method of retailing pharmaceuticals and attempted to close down the self-​service part of the business by having Boots prosecuted under the Pharmacy Poisons Act 1933 (UK). The Act required prescribed drugs to be “sold” under the supervision of a pharmacist. The Society argued that an offer was made when the chemist placed the drugs on the shelves and the offer

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was accepted and a contract was made when the customer placed the drugs in the basket. If a sales agreement was made in this way, it would have breached the Act because the sale would not have been “supervised”. Boots argued that its placing of the goods on the shelf was an invitation to treat, and the customer made the “offer” by taking it to the cashier who “accepted” the offer under the watchful gaze of a registered pharmacist. The court accepted Boots’ argument:

  

“the mere fact that a customer picks up a bottle of medicine from the shelves … does not amount to an acceptance of an offer to sell. It is an offer by the customer to buy and there is no sale effected until the buyer’s offer to buy is accepted … the sale takes place under the supervision of the pharmacist…it would be wrong to say that the shopkeeper is making an offer to sell every article in the shop to any person who might come in and that that person can insist on buying any article by saying ‘I accept your offer’. I agree with the illustration put forward during the case of a person who might go into a shop where books are displayed … There is no contract by the shopkeeper to sell until the customer has taken the book to the shopkeeper … and said ‘I want to buy this book’ and the shopkeeper says ‘Yes’. That would not prevent the shopkeeper, seeing the book picked up, saying: ‘I am sorry I cannot let you have that book: it is the only copy I have got and I have already promised it to another customer’.”

[3.110]  However, an advertisement may be regarded as an offer if it is sufficiently definite in its terms (eg in relation to quantity, quality and price) and is communicated in such a way that a reasonable person would say that the advertiser intends to enter into a contract if the response from the person receiving the communication is positive. For example, an advertisement that says that “the first 50 people through the doors will receive a TV at half price” is a unilateral offer that is “accepted” by the first 50 people who come through the doors (as confirmed by CCTV footage!)

The effect of the Australian Consumer Law [3.120]  The fact that a statement is an invitation to treat does not mean that the statement cannot constitute misleading or deceptive conduct under s 18 of the Australian Consumer Law (Cth) (ACL). Indeed, it is increasingly important that parties who are negotiating contracts or advertising goods or services are aware of the broad reach of s 18 and other sections of the ACL. Statements or conduct that may have been excused as mere puffery or as part of non-​binding pre-​contractual negotiations may now be considered to be false or misleading conduct. We will examine this part of the law in Chapter 13.

Auction sales [3.130]  In the case of a typical auction sale, the auctioneer’s call for bids is an invitation to treat. Where a bid is made, it is an offer from the bidder to buy at that price. The auctioneer may then either accept or reject the offer on behalf of the principal or, more usually, attempt to solicit a higher bid.

Harris v Nickerson [3.140]  Harris v Nickerson (1872–​73) LR 8 QB 286. The defendant advertised that an auction of certain goods would take place at a stated time and place. The plaintiff travelled to the

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auction only to find that items that he was interested in had been withdrawn. He claimed compensation for breach of contract, arguing that the advertisement constituted an offer, and his travelling to the auction, with an acceptance by conduct. The court held that the advertisement was not an offer: it was merely a declaration of intention or an invitation to treat.

[3.150]  The position in Australia is unclear where the auction is advertised as one “without reserve” or where the reserve has been withdrawn. It could be argued that in either of these circumstances the promise may be regarded as a collateral warranty to sell to the highest bidder:  AGC v McWhirter (1977) 1 BPR 9595.

Online sales [3.160]  Auctions conducted online, such as on eBay, raise interesting questions about the process of contract formation. So, too, does internet shopping. In the following case, the seller auctioned an aircraft with what was effectively a collateral promise to sell to the highest bidder once the bid is accepted. In this sense, in an online auction, the listing constitutes an offer, not merely an invitation to treat.

Smythe v Thomas

  

[3.170]  Smythe v Thomas [2007] NSWSC 844. Thomas listed a Wirraway aircraft on eBay with an effective disclosed reserve of $150,000. Smythe made a bid of $150,000 in accordance with eBay rules and was the highest bidder. Both parties received a notification that Smythe had won the “auction”. Thomas, however, refused to complete the transaction, arguing that no contract had been made between Smythe and himself. He argued there were only contracts between eBay and the buyer, and eBay and the seller. The court decided that when Thomas listed the plane on eBay he agreed to be bound by eBay’s terms and conditions, one of which was that Thomas was obliged to enter into a contract with the highest bidder.

Tenders [3.180]  An advertisement calling for tenders (to, for example, provide services, like hard rubbish collection for a local council or to build freeways or tunnels or other infrastructure for the government) is usually regarded as an invitation to treat. A party submitting a tender makes the offer, and there is no contract until the person who called for tenders accepts the tender. Further, unless it says so in the original document calling for tenders, the person calling for tenders is not obliged to accept the lowest (or any) tender. However, if the call for tenders states that the highest or lowest tender will be accepted (or that all tenders will be considered), a failure to comply may be a breach of a collateral warranty

Persons to whom an offer may be made [3.190]  An offer can be made to a specific person or persons, to a particular class of persons, or to the world at large. The person or persons for whom it was intended are the only ones who can accept it. However, if the offer is made to the world at large, for example, by way of a general advertisement, then it may be accepted by anyone who reads the advertisement. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 is a good example (see [3.40]).

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Communication of offer [3.200]  The offer must be communicated, that is, brought to the notice of the person to whom it is made. Unless an offer is communicated, there can be no acceptance and therefore no contract.

R v Clarke [3.210]  R v Clarke (1927) 40 CLR 227. A proclamation offered a reward of £1,000 for information that would lead to the arrest and conviction of the person who had murdered two policemen. Clarke and an associate were arrested and charged with the murder of one of the policemen. Clarke gave evidence that led to the conviction of two men for the murder. Clarke was subsequently released from custody and claimed the reward of £1,000. It was revealed in evidence that Clarke volunteered the information in order to clear himself of a false charge of murder.

  

The High Court held that because Clarke did not act in reliance upon the offer, there was no acceptance of the offer and therefore there was no contract between the parties. Clarke was unable to claim the reward.

Revocation of offer [3.220]  An offer can be revoked at any time before acceptance. The revocation is only effective when it is communicated to the offeree.

Option agreements [3.230]  A promise by the offeror that her offer will remain “on the table” for a period of time is not generally enforceable unless the parties enter into a separate option agreement. Under an option agreement, the offeree provides consideration (something of value, usually money) to the offeror in exchange for the promise not to revoke the offer. For example, A’s promise to B that, if he pays her $100, she will keep her offer to sell her house to B, open for seven days, is enforceable. B is under no obligation to buy the house, but he has bought himself some time to consider the offer. The price of the option is neither refundable nor is it included in the sale price as a deposit (if the offeree ultimately accepts the offer). The following case provides a good illustration of an option contract at work, and it highlights the remedies that may be available where land is the subject matter of the contract.

Goldsbrough, Mort & Co Ltd v Quinn

  

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[3.240]  Goldsbrough, Mort & Co Ltd v Quinn (1910) 10 CLR 674. Quinn promised GM that it would have the right to purchase certain property within one week at a stated price. GM paid Quinn the sum of 5s in consideration for this option. Before the week expired, Quinn purported to revoke the offer. GM accepted the offer within the week and sued for specific performance of the agreement. It was held that the option having been given for value was not revocable, and that the acceptance of the offer by GM constituted a binding contract. The court made an order of specific performance, forcing Quinn to transfer title to the land (and not simply pay damages for breach)

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[3.250] To be effective, the revocation of an offer, like the offer itself, must be communicated to the offeree. Until the time the offeree becomes aware of the revocation, he or she can accept the offer and create a valid and binding contract.

Byrne & Co v Leon Van Tienhoven & Co [3.260]  Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344. Van Tienhoven wrote on 1 October from Cardiff offering to sell 1,000 boxes of tin plates to Byrne in New York. Byrne received the offer on 11 October and accepted it by telegram on the same day, and by letter on 15 October. Meanwhile, on 8 October, Van Tienhoven had posted a letter withdrawing the offer (because the price of tin plates had risen by 25%). The letter did not reach Byrne until 20 October.

  

The withdrawal of the offer was ineffective. While an offer could be revoked at any time before its acceptance, a revocation of the offer was not effective until it had been communicated to the offeree. A contract binding both parties had been entered into on 11 October when Byrne accepted by telegram the offer of 1 October.

[3.270]  The law does not stipulate any particular way in which the revocation is communicated to the offeree. It simply requires that the offeree be made aware that the offer has been withdrawn. Accordingly, any method of communication is sufficient provided revocation actually comes to the offeree’s notice.

Lapse of offer [3.280]  An offer will lapse: (a)

if not accepted within the time stated;

(b)

if not accepted within a reasonable time, where no time for acceptance has been stated;

(c)

if a counteroffer is made –​for example, if X offered to sell her car to Y for $50,000 and Y replied that she would pay $45,000 for the car, this reply would constitute a counteroffer to buy and the original offer would lapse. The buyer could not then purport to contract by accepting the original offer of $50,000. The essential characteristic of a counteroffer is that it changes one or more of the material terms of the offer (such as price or quantity or quality).

Hyde v Wrench [3.290]  Hyde v Wrench (1840) 49 ER 132. Wrench offered to sell land to Hyde for £1,200. Hyde rejected the offer. He then offered to sell for £1,000. Hyde responded by offering to purchase the land for £950. The defendant refused to sell at this price. The plaintiff then said that he would accept the earlier offer to sell at £1,000. When Wrench refused to sell, Hyde brought an action for specific performance (ie Hyde asked the court to find that a contract existed and order Wrench to perform it and hand over title to the property).

  

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Held:  The court refused. It held that there was no agreement  –​the earlier offer to sell at £1,000 was terminated by Hyde’s counteroffer of £950, and it could not subsequently be revived. In effect, Hyde, in purporting to accept Wrench’s offer, was, in fact, making an offer to buy it at that price. Of course, Wrench was free to reject the offer which he did.

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A request for information or a counteroffer [3.300]  It is not unusual for the offeree to want to clarify or seek more information about the terms of the offer. He or she may want to know if the offeror is prepared to modify one or more terms. Such a response is not a counteroffer, so the offer does not lapse. It is a question of fact in each case whether the offeree’s response is a counteroffer or whether it is an attempt to clarify or seek additional information about the offer. In the above example (see [3.280]), if Y had enquired whether X would accept Russian roubles as payment for the car, this would be regarded as a request for further information and not a counteroffer.

Stevenson Jaques & Co v McLean [3.310]  Stevenson Jaques & Co v McLean [1880] 5 QBD 346. The parties were operating in a volatile iron ore market where price fluctuated quickly. McLean, an iron merchant, offered to sell iron to Stevenson Jaques, a buyer, for “40 shillings net cash”. McLean promised that the offer would remain open until Monday. Stevenson Jaques responded by asking whether McLean would accept 40 shillings “for delivery over two months or if not the longest limit you would give”. McLean, without answering, sold to another buyer. On Monday, when it had not received a response, Stevenson Jaques purported to accept the offer but discovered that McLean had sold the iron elsewhere. Stevenson Jaques sued McLean for breach of a contract. The issue was whether its initial response was a request for information or a counteroffer. If the former, the offer was still able to be accepted (as a revocation had not been communicated). If the latter, Stevenson Jaques could no longer accept (as a counteroffer kills the offer which cannot subsequently be revived).

  

In contrast to the decision in Hyde v Wrench (see [3.290]) the court decided that Stevenson Jaques’ acceptance was valid –​its response was merely seeking to clarify the terms of the offer, not impose new or different terms. While the promise of the offer remaining open until Monday was not itself binding and an offeror can revoke at any time before acceptance, no revocation had been communicated in this case. McLean was therefore in breach and liable in damages for its non-​delivery of the iron.

[3.320]  An offer will lapse: (d)

on the death of either party before acceptance. The death of either party before acceptance generally causes the offer to lapse.

(e)

by loss of contractual capacity by either party, for example, by insanity.

Acceptance [3.330]  An agreement is concluded when the offeree communicates a clear and unconditional acceptance of the offer to the offeror. The requirement that acceptance of the offer is clear and unconditional is consistent with the mutual assent theory of contract: only when the parties have, objectively speaking, given their mutual consent, will law lend its weight to enforcing the agreement if a dispute arises.

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Figure 3.3: Rules as to acceptance

Must be communicated unless waived or unless postal rule applies May be by conduct but cannot be imposed by silence

Must be unconditional

Rules as to acceptance Special rules: postal acceptance and electronic communication

Must follow any method set out in offer Can only be accepted by a person to whom offer directed

Rules as to acceptance [3.340] 1.  The general principle is that acceptance of an offer must be communicated to the offeror for there to be a binding contract between the parties. Acceptance can be communicated by express words or in writing, by conduct or by performance of an act requested by the offeror. Where instantaneous or electronic communication (e.g telephone) is used as a method of acceptance, acceptance is effective when the offeror receives the communication. There are particular rules in relation to emails that will be discussed later in the chapter. [3.350]  2. Acceptance can be implied from the conduct of the parties, particularly where the traditional “offer and acceptance” model does not work as well.

Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd [3.360]  Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. A property developer, Empirnall, hired architects, Machon Paull, to act as a project manager, to draw plans and to obtain permits for a property development. Machon Paull forwarded a contract for signature and a progress payment claim to Empirnall, which paid on the claim and asked Machon Paull to submit progress claims. However, Empirnall did not sign the contract because its director “does not sign contracts”. Later, when Machon Paull sent another progress claim, it forwarded a contract for signature. Again the contract was not signed. Some two weeks later, they wrote saying:

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“we are proceeding on the understanding that the conditions of the contract are accepted by you and works are being conducted in accordance with those terms and conditions.”

  

It was important for Machon Paull that the court infer acceptance of the written contract (and not simply infer an agreement) because the written contract contained a clause that gave Machon Paull some security over the land in question. A dispute subsequently arose and Empirnall denied that the written contract had ever been accepted. The issue was whether a reasonable person would regard Empirnall’s conduct as showing that it had accepted that the work was to be done according to the written contract. The court said that as Empirnall had taken the benefit of the work done, a reasonable person would say that it had accepted the offer.

[3.370]  3. Acceptance cannot be inferred from the silence or inaction of the offeree. In other words, an offeror cannot say that if the offeree does not communicate; this will be taken to be an acceptance of the offer. The following case, involving a horse, an uncle, a nephew and a forgetful auctioneer, illustrates the point well.

Felthouse v Bindley [3.380]  Felthouse v Bindley (1862) 142 ER 1037. Felthouse offered to buy a particular horse from his nephew and stated in a written offer that “if I hear no more about him, I consider the horse mine at £30 15s”. His nephew did not reply but instructed the auctioneer, Bindley, not to sell the horse. Unfortunately, Bindley forgot to withdraw the horse from sale and sold it to another buyer. Felthouse sued the auctioneer in the tort of conversion (selling property belonging to another person). To succeed in an action for conversion, Felthouse needed to demonstrate that he, Felthouse, was the owner of the horse at the time of the sale –​as he would have been if there were a valid contract between himself and his nephew.

  

The Court decided that Felthouse could not impose on his nephew a duty to respond if he did not wish to sell on those terms. There was no communication of acceptance before the sale and therefore the uncle was not the owner of the horse at the time the auctioneer sold the horse to another.

[3.390]  4. There can be no acceptance if the offeree is unaware of the offer. It may happen that a person carries out certain acts in ignorance of the fact that an offer exists. In such a case, there is not an acceptance capable of resulting in a binding contract: R v Clarke (1927) 40 CLR 227 (see [3.210]). [3.400]  5. In a unilateral contract, the offeror has waived its right to communication of acceptance. Where the offer is a unilateral one, it is not necessary that acceptance be communicated prior to performance. The offeror has waived its rights in this respect. In Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, for example, Mrs Carlill did not have to contact the company and indicate that she intended to purchase the Smoke Ball and use it as directed. Her performance constituted acceptance of the offer. [3.410]  6. Acceptance must be unconditional.

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An acceptance that is not unconditional is not binding. It is in effect a counteroffer. For example, if the offeree said she would accept the offer “provided you deliver the goods to my place of business”, this is a conditional acceptance and therefore not one that results in a legally enforceable agreement. There is some uncertainty where parties reach an agreement during negotiations but use the expression “subject to contract” or “subject to a formal contract to be drawn up by our solicitors” or similar expression. This is increasingly common where business people negotiate using emails in which they express informal agreement on the terms but say “it is subject to a contract being executed”. A dispute may arise because one of the parties thinks that they will not be bound until a formal contract is executed, whereas the other thinks that a binding agreement is immediately in place but it just needs to be put in a formal document. Whether or not a contract has been formed requires an objective determination of the intention of the parties. What effect, in this case, do the words “subject to contract” have? In the final analysis, were the offer and the acceptance unconditional? In the following case, the High Court considered the alternatives.

Masters v Cameron [3.420]  Masters v Cameron (1954) 91 CLR 353. Masters signed an agreement to purchase Cameron’s rural property. The agreement included the following clause: “This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions.” Masters paid the agent £1,750 deposit when he signed the agreement. When Masters refused to proceed with the purchase, both parties claimed the deposit moneys. Masters argued there was no binding agreement made when the contract was signed and therefore he was entitled to a refund. Cameron argued that a binding agreement had been made and the moneys, being a deposit, were forfeited when the purchaser refused to proceed. The High Court decided that there was no binding agreement. On the evidence, the court said that the parties had not intended that a legally binding agreement would exist until or unless a formal contract acceptable to Masters’ solicitors was signed. As this had not occurred, the £1,750 had to be refunded. In the course of the judgment, the High Court noted that where parties reach agreement on the terms of a contract but also agree that the agreement shall be expressed in a more formal way, one of three alternatives is possible: ▶▶

▶▶

▶▶

the parties intend to be immediately bound by the agreement but agree that the agreement should be restated in a more precise way. Thus, a contract exists at the time the agreement is made and the parties are bound to perform it whether the formal document is signed or not; the parties have agreed on all the terms but have made performance conditional on the execution of a formal document. Again, as in the first alternative, a contract exists at the time the agreement is made but, in this instance, the parties have agreed that a formal document must be executed before they perform the agreement; and the intention of the parties is not to conclude an agreement at all unless or until a formal contract is executed.

The High Court then said:

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“… in each of the first two cases there is a binding contract but the third class (of agreements) are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own … there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape.”

[3.430]  7. In order to be valid, an acceptance must follow the conditions or the form stated in the offer. Where the offeror does not specify any particular form of acceptance, there is a presumption that acceptance will be in the same form as the offer. [3.440]  8. Acceptance can be made only by the party to whom the offer was made. As we have seen, an offer may be made to one or more people or to the world at large: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. [3.450] 9. Acceptance can be withdrawn at any time prior to acceptance being communicated to the offeror. It is only when acceptance is communicated that an agreement is made. Until that time, the offeror is free to revoke the offer. [3.460]  10. Acceptance must be made within the time prescribed or, if no time has been prescribed, within a reasonable time: Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109. [3.470]  11. Communication of acceptance must be made in a regular and authorised manner.

Powell v Lee

  

[3.480]  Powell v Lee (1908) 99 LT 284. Powell applied for the position of headmaster of a school. The school board passed a resolution appointing him. The resolution was not communicated to Powell officially. One of the board members privately informed him of it. Subsequently, the resolution was rescinded. It was held that Powell’s offer had not been accepted as the resolution was never communicated to him in an authorised manner.

[3.490]  12. The postal acceptance rule. As we have seen, the general principle is that an acceptance must be communicated to the offeror. However, the postal acceptance rule is an exception. According to this rule, where acceptance by post is contemplated by the parties, acceptance is complete as soon as a properly addressed letter of acceptance is properly posted: Henthorn v Fraser [1892] 2 Ch 27. An offeror can stipulate the required method of acceptance of their offer. Accordingly, the postal acceptance rule is excluded where the offeror requires actual communication of the acceptance. This may arise, for example, where there is an express stipulation in the offer requiring receipt by the offeror of the offeree’s acceptance for it to be effective. In such a case, the mere act of posting the letter of acceptance would not create a binding contract. In effect, the postal acceptance rule shifts the risk that a letter of acceptance sent by post may be delayed or lost onto the offeror. As we have noted above, the offeror is able to stipulate the method of acceptance (or specify that an acceptance by post will not be effective until the offeror receives it), so it is reasonable that if he or she fails to do so and the postal rule comes into effect, the offeror bears the risk.

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With the reduction in the use of the regular post and the rise in the number of electronic communications, the postal acceptance rule is in imminent and not unwelcome danger of obsolescence.

Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd [3.500] In Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1995) 63 SASR 235, Corralyn sent a letter by ordinary post to Elizabeth City Centre (ECC) giving notice within the specified time that it wished to exercise an option to renew its sub-​lease. ECC claimed that it never received the letter. A clause in the sub-​lease provided that a notice mailed by registered or certified letter was deemed to be served on ECC on the third business day following that on which it was posted.

  

The court held the postal acceptance rule could not be relied upon as its operation was impliedly excluded by the clause regarding notification by certified mail. In the circumstances, the ordinary rule requiring communication of acceptance applied. Since Corralyn’s notice had not been actually communicated to ECC, Corralyn had not effectively exercised its option to renew.

[3.510]  Where the postal acceptance rule applies, a person who makes an offer cannot revoke the offer once the offeree has posted a letter of acceptance. This is because the letter of acceptance creates a binding contract at the time of its posting. Where the postal acceptance rule does not apply, the normal rule applies:  an offer can be revoked provided it is communicated to the offeree before the acceptance is communicated.

Online contracting [3.520] The development of security protocols has aided the expansion of electronic commerce by substantially reducing commercial risk factors and as a result online contracting (shopping, banking, etc) has become commonplace. With so much business being done online, it is crucial that issues concerning agreement and the terms on which the parties have agreed are kept to a minimum. As the following cases show, businesses should ensure that the processes in relation to contractual validation and authentication are clear and that important terms such as limitation, exemption or indemnity clauses are accessible to the other contracting party. Consumers, on the other hand, should be careful when clicking “I agree” (without reading the terms) because these terms may well be enforceable (as they are in traditional contracting scenarios).

Vantage Systems v Priolo Corporation [2015] WASCA 21 [3.530]  Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21. The parties negotiated a lease, mainly by email. The landlord emailed the tenant with a proposal for a renewal of a lease, “subject to formal lease documents being signed”. Amendments were then negotiated by email, and the essential terms were agreed upon by email. The tenant asked the landlord to prepare lease documents although some minor terms (eg car parking licence fee) had not been agreed upon. However, the tenant then refused to sign the lease. The Court decided that on an objective assessment, both parties indicated that they were willing to and did bind themselves to a new lease on the terms set out in the revised proposal contained in the email. The further negotiations between the parties did not destroy the earlier

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agreement. The lesson is to remember that emails, even though having less gravitas than a more formal written document, can create binding agreements.

Stellard Pty Ltd v North Queensland Fuel Pty Ltd [2015] QSC 119 [3.540]  Stellard Pty Ltd v North Queensland Fuel Pty Ltd [2015] QSC 119. A buyer offered to purchase a roadhouse business and property for $1.6 million. The seller’s agent emailed the buyer, setting out the basis on which the seller would sign a contract. The email included all the main terms –​price, deposit, settlement date and other conditions –​attached in a draft. There were further negotiations by phone and email. The buyer confirmed its offer by email, “subject to contract and due diligence as previously discussed”, and asked for the offer to be accepted immediately so that it could begin its investigations. The seller accepted the offer by email, “subject to execution of the contract provided”. The buyer sought further amendments to the form of contract, but in the meantime, the seller found another buyer for a higher price (in fact, the seller was playing one buyer off against the other) and refused to execute the contract.

  

The court decided that the seller intended to be immediately bound by the initial offer, despite the fact that no formal contract had been signed. The broader context of the emails strongly suggested that the parties intended to be bound immediately by the terms they had agreed upon, with the intention that they would be formally recorded later.

This part examines the important legal issues arising in the context of e-​commerce.

Electronic Transactions Acts –​main features Validity of electronic transactions [3.550] The Electronic Transactions Acts provide that a transaction is not invalid because it took place wholly or partly by means of one or more electronic communications.1

Writing [3.560] Where a law permits or requires a person to give information in writing, that permission or requirement is taken to have been met if the person gives the information by means of an electronic communication.2

1

2

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Electronic Transactions Act 1999 (Cth), s 8; Electronic Transactions Act 2000 (NSW), s 7; Electronic Transactions (Victoria) Act 2000 (Vic), s 7; Electronic Transactions (Queensland) Act 2001 (Qld), s 8; Electronic Transactions Act 2000 (SA), s 7; Electronic Transactions Act 2011 (WA), s 8; Electronic Transactions Act 2000 (Tas), s 5; Electronic Transactions Act 2001 (ACT), s 7; Electronic Transactions (Northern Territory) Act 2000 (NT), s 7. Electronic Transactions Act 1999 (Cth), s 9; Electronic Transactions Act 2000 (NSW), s 8; Electronic Transactions (Victoria) Act 2000 (Vic), s 8; Electronic Transactions (Queensland) Act 2001 (Qld), ss 9–​13; Electronic Transactions Act 2000 (SA), s 8; Electronic Transactions Act 2011 (WA), s 9; Electronic Transactions Act 2000 (Tas), s 8; Electronic Transactions Act 2001 (ACT), s 8; Electronic Transactions (Northern Territory) Act 2000 (NT), s 8.

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Signatures [3.570]  Where a law requires a person to provide a signature, that requirement is taken to have been met if a method is used to identify that person and to indicate the person’s intention in respect of the information communicated.3

Production of documents [3.580]  A person who is required or permitted by law to produce a document in hard copy may instead produce the document in electronic form.4

Consent [3.590]  The inclusion of a consent provision for electronic writing, signature and production provisions has been regarded as a serious weakness. Parties must reach an agreement in advance as to the use of the particular electronic communication. Consent includes consent that can reasonably be inferred from the conduct of the person concerned.

Time of dispatch of electronic communications [3.600]  An electronic communication is taken to have been dispatched by the sender when the electronic communication “leaves an information system under the control” of the sender. However, where the electronic communication has not left an information system under the control of the sender, the time of dispatch is when the electronic communication is received by the addressee. This second circumstance was included in the recent amendments to the Electronic Transactions Acts, and deals with the position where, in certain email systems, the sender retains the ability to recall an email from the recipient; hence it is dispatched when “received”.5

Time of receipt of electronic communications [3.610] An electronic communication is taken to have been received by the addressee when it becomes “capable of being retrieved” by the addressee at an electronic address designated by the addressee. Where the addressee has not designated an electronic address, the time of receipt is when the electronic communication has become capable of being retrieved by the addressee, and when the addressee has become aware that the electronic communication has been sent to that address.6 This is presumed to be when the 3

4

5

6

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Electronic Transactions Act 1999 (Cth), s 10; Electronic Transactions Act 2000 (NSW), s 9; Electronic Transactions (Victoria) Act 2000 (Vic), s 9; Electronic Transactions (Queensland) Act 2001 (Qld), ss 14–​15; Electronic Transactions Act 2000 (SA), s 9; Electronic Transactions Act 2011 (WA), s 10; Electronic Transactions Act 2000 (Tas), s 7; Electronic Transactions Act 2001 (ACT), s 9; Electronic Transactions (Northern Territory) Act 2000 (NT), s 9. Electronic Transactions Act 1999 (Cth), s 11; Electronic Transactions Act 2000 (NSW), s 10; Electronic Transactions (Victoria) Act 2000 (Vic), s 10; Electronic Transactions (Queensland) Act 2001 (Qld), ss 16–​18; Electronic Transactions Act 2000 (SA), s 10; Electronic Transactions Act 2011 (WA), s 11; Electronic Transactions Act 2000 (Tas), s 8; Electronic Transactions Act 2001 (ACT), s 10; Electronic Transactions (Northern Territory) Act 2000 (NT), s 10. Electronic Transactions Act 1999 (Cth), s 14; Electronic Transactions Act 2000 (NSW), s 13; Electronic Transactions (Victoria) Act 2000 (Vic), s 13; Electronic Transactions (Queensland) Act 2001 (Qld), s 23; Electronic Transactions Act 2000 (SA), s 13; Electronic Transactions Act 2011 (WA), s 13; Electronic Transactions Act 2000 (Tas), s 11; Electronic Transactions Act 2001 (ACT), s 13; Electronic Transactions (Northern Territory) Act 2000 (NT), s 13. See Explanatory Note to the UN Convention on the use of Electronic Communications in International Contracts (INT) [177]–​[178]. Electronic Transactions Act 1999 (Cth), s 14A; Electronic Transactions Act 2000 (NSW), s 13A; Electronic Transactions (Victoria) Act 2000 (Vic), s 13A; Electronic Transactions (Queensland) Act 2001 (Qld), s 24; Electronic Transactions Act 2000 (SA), s 13A; Electronic Transactions Act 2011 (WA), s 14; Electronic Transactions Act 2000 (Tas), s 11A; Electronic Transactions Act 2001 (ACT), s 13A; Electronic Transactions (Northern Territory) Act 2000 (NT), s 13A.

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electronic communication reaches the addressee’s electronic address whether or not it is opened or read and even where the email was caught by the recipient spam filter:  Bauen Constructions Pty Ltd v Sky General Services Pty Ltd [2012] NSWSC 1123.

The question of certainty [3.620]  The courts endeavour to uphold commercial agreements wherever possible. However, the courts will not make an agreement for the parties where they have not themselves agreed upon essential terms nor agreed upon a mechanism for determining those terms nor where an essential term is left to the discretion of one of the parties.

Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd [3.630]  Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd [1968] HCA 8. The Council signed a contract to supply Australian Chilling & Freezing with electricity. Clause  5 of the contract stated “if the Supplier’s costs shall vary in other respects than has been herein before provided the Supplier shall have the right to vary the maximum demand charge and energy charge …”. The Council sought to increase its charges, but Australian Chilling & Freezing said the contract was unenforceable because of the lack of certainty about the term “supplier’s costs”. The parties had made no attempt to define what those costs might be.

  

The High Court decided that a contract is not automatically void for uncertainty just because it may be construed in more than one way: “As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction:  and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it.” It observed that a “narrow or pedantic approach” to interpretation should not be taken –​it was clear that in this case there was no uncertainty even though there may be scope for disagreement about what constituted “supplier’s costs” in individual cases.

[3.640]  In the following case, an agreement had been made even though some of the terms had not been finally negotiated.

Godecke v Kirwan [3.650]  Godecke v Kirwan (1973) 129 CLR 629. Godecke (buyer) and Kirwan (vendor) entered into a written agreement for the sale of land for $110,000 which included a clause that said, if Kirwan required it, Godecke would execute a further agreement containing the terms of that agreement and any other as determined by Kirwan’s solicitors (within reason). Kirwan subsequently refused to proceed with the sale. The court held that a binding agreement may leave some important matter to be settled by a third party or even by one of the parties. The parties had set out all the principal terms

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governing the sale of land, including “an obligation to execute a formal contract” and a promise by the seller to “execute, if required … a further agreement”. The court said that although the clause gave the vendor the choice of inserting additional terms to those already agreed upon, the vendor could not insert terms that were inconsistent with those in the document and any such additional conditions needed to be “reasonable”. This was an agreement by Godecke to accept additional provisions if reasonably required. A binding agreement had been made.

  

Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [3.660]  Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53. Booker leased to Wilson a service station and car park. A clause of the lease gave an option for a further three years at a rent “to be mutually agreed. Failing such agreement the lease provided for rent to be set by an arbitrator appointed by the President of the Law Society”. Wilson purported to exercise the option but Booker refused, arguing that an essential term had not been agreed to, and sought recovery of possession. The High Court decided there was a valid agreement to renew because the parties had provided a mechanism that allowed an essential term (the rent) to be determined by a third party with no further agreement required of the parties. Had the lease had said the option could be exercised but at a “rental to be agreed”, there would be no enforceable agreement.

  

Further reading See texts listed at the end of Chapter 2.

Tutorial activities 1.

What is an “offer”? How is it different from an “invitation to treat” or a “mere puff”? Examine newspapers, magazines or other material (online or hard copy) and provide current examples of each.

2.

Carlill v Carbolic Smoke Ball is an example of a unilateral contract. In what sense is it “unilateral”? What transformed the promise (to pay a significant amount of money to a person who contracted the flu) from mere puffery to an offer? Watch the YouTube video that was central to Leonard v PepsiCo (see [3.60]) https://youtu.be/U_n5SNrMaL8 and explain why Leonard was not so fortunate.

3.

In Gibson and Boots what did the court decide about whether offers had been made to the resident and the customer respectively?

4.

Describe how an auction contract is formed. Is it the same with eBay? Refer to Smythe v Thomas in your answer.

5.

What is an option contract? What makes it different from a mere promise not to revoke an offer? What obligation, if any, is the offeree under with regard to the main offer?

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6.

If it is possible for an offeror to revoke an offer, explain why the revocation was ineffective in Byrne v Van Tienhoven?

7.

If the effect of a counteroffer is to “kill off” the original offer, explain the decision in Stevenson Jaques v McLean?

8.

Acceptance of an offer can be implied from the conduct of the parties. What was the conduct of the developer in that implied it had accepted the offer of the architects?

9.

An acceptance must be unconditional. What, in effect, is a conditional acceptance? Masters v Cameron is an example of a contract that was “subject to…” or “conditional upon…”. What did the High Court decide about whether a binding contract had been made?

10.

In an online environment, both and illustrate that contracts can be formed via exchanges of emails. Read the extract at [3.530] and explain how the contract was made.

11.

Under the Electronic Transactions Act a communication (like an email) is deemed to have been received when it becomes “capable of being retrieved”. What does that mean?

12.

Is it necessary to agree on every term before a binding contract exists? In Godecke v Kirwan and Booker Industries v Wilson Parking explain why apparently incomplete contracts were held to be enforceable.

13.

Hardly Normal Pty Ltd, a vendor of electronic equipment, advertised:



“NEVER TO BE REPEATED OFFER. 50in PANASONIC PLASMA 3D TELEVISIONS @ $7,500”



Ben saw the advertisement and the next day (Thursday) went to the store and said to Mary, the sales manager: “I accept the offer on the plasma 3D TV – here is my card – please deliver it as soon as possible”.



Mary told him to slow down. “Unfortunately, there has been a rush and we’ve sold out”, she said. “Look”, said Ben, “I know my business law – we’ve got a contract”. Mary told him he was a young fool but went on to say: “The only 3D plasma left is the demonstration model, and you can have that for $6,000. Not a bad price as they usually sell for around $7,500. That should make you happy”.



Ben was not sure and said that he would think about it and let her know by noon the next day (Friday). Mary said she would definitely keep it for him until then. However, at 9.00 am on Friday Jin Tao walked into the store, saw the demonstration model, and offered Mary $6,500 for it. Mary sold it to her. At 10.00 am on Friday, Ben rang Mary and told her that he would buy the demonstration set at the price she offered. Mary then told him the bad news – the set had been sold.



Ben comes to your law office and seeks your advice as to whether a contract has been formed on either Thursday or Friday. Advise him whether a contract has been formed.

14.

On Monday, Ruth sent an email to Raymond offering to sell Dark Caviar (her very fast racehorse) for $3 million. As Dark Caviar is not cheap, Raymond replied (in another email) that he needed some time to think about it and organise a syndicate. Ruth, replied back “don’t worry – let me know by Sunday 6.00 pm. I’ll keep it open until then”.

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On Friday, Ruth sold Dark Caviar to Bart, a retired trainer and sent an email to Raymond informing him that Dark Caviar had been sold. However, Raymond does not check his email during the weekends.



On Sunday morning, Raymond finally organises a syndicate to stump up the $3 million, and, in a state of great excitement, calls Ruth and, before she can get a word in, accepts her offer in these words “Ruth, I accept – assuming we can agree on a delivery date”. Ruth then informs him that she has sold Dark Caviar to Bart.



Raymond is shocked. He drives straight to your office and asks if she can do that? Please advise him. In your advice, indicate whether: (a)

Ruth’s promise that she would keep her offer open until Sunday at 6.00 pm is enforceable;

(b)

Ruth’s revocation by email or over the phone is effective; and

(c)

assuming the offer is open on Sunday, indicate whether Raymond’s purported acceptance is valid.

15.

Reginald decided he no longer wanted to keep the holiday house he owns at Lorne on Victoria’s south-west coast. He agrees to sell it to his brother, Tom. They agree on a purchase price of $280,000 and sign a document dated 10 June by which Tom agreed to buy and Reginald agreed to sell “subject to a proper contract being prepared on these same terms by the purchaser’s solicitors”. The settlement date was named as 10  September, on which date the purchase money was to be paid and possession given to Tom. A contract of sale, prepared by Tom’s solicitors, was sent to Reginald for signature on 20 June. However, Reginald refused to sign, saying he had changed his mind. Advise Tom of any rights he may have. Please cite relevant case authorities

16.

In an advertisement by “Regrowth”, the company claims its tablets, if taken as directed over a 12-month period, will “make hair grow on a bald man’s head.” “We could make a billiard ball hairy” is the claim. The advertisement further promises to pay $1,000 to any “bald head” that is not “lush” at the end of the 12 months. Jack sees the advertisement and buys the tablets for $2,000, payable monthly. He takes them as directed for 12 months but is as bald as ever at the end. He contacts “Regrowth”, shows them the “before and after” photos and makes a claim for the $1,000. In reply, “Regrowth” refuses to pay, arguing that:

17.

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(a)

advertisements are not offers;

(b)

anyway, this particular advertisement was clearly a “jokey thing”; and

(c)

as Jack had never accepted the “offer”, there could not be a contract.



Advise Jack.

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The Financial Times of 6 October 2018 reported that one of Banksy’s painting Girl With Balloon spontaneously destructed at a Sotheby’s auction in London. The anonymous and mischievous British artist had set the painting up so that immediately after the painting had been sold to a phone bidder for £1.04 million ($A1.93 million), it slid down the frame and was shredded. Sotheby’s said, “We have not experienced this situation in the past … We are busily figuring out what this means in an auction context and have talked with the successful purchaser who was surprised by the story. We are in discussion about next steps”. Advise the purchaser whether a contract was made.

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chapter 4

Intention to Create Legal Relations [4.40] Intention and social and domestic agreements ............................................................................... 74 [4.120] Intention and commercial agreements ................................................................................................ 76

Introduction [4.10]  Agreement alone is not sufficient to make an agreement legally binding. The second requirement is that the parties must intend to create a legally enforceable agreement. If there is a dispute about intention of the parties (and most contracts do not contain an express term that indicates their intentions), the courts ask what a reasonable person would objectively conclude, based on the words and conduct of the parties. In assessing, objectively, whether there was the required intention, two basic presumptions have evolved to assist the courts: first, it is presumed that parties who make social or domestic agreements do not intend that the agreement will be legally binding; second, and conversely, parties involved in commercial agreements do intend the agreement to be legally binding. As the High Court said in the following case, these presumptions are merely an aide to determining the intention of the parties –​the fact that an agreement is a family matter or is an arrangement within a religious community or arises out of a commercial relationship is not determinative of the issue but forms part of the surrounding circumstances from which the court will decide whether the parties intended to enter into a legally binding agreement.

Ermogenous v Greek Orthodox Community of SA Inc [4.20]  Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95. When Archbishop Ermogenous resigned after more than 20  years’ employment with the Greek Orthodox Church, he made a claim for payments for annual and long service leave. The Church refused, arguing that his employment with the Church was not “contractual”. The Archbishop eventually took his case to the High Court and succeeded. The High Court said it would be both difficult and wrong to use strict rules in relation to “presumptions” to determine whether or not intention exists in any particular case. The majority of the Court said it was wrong to make a presumption that there was no intention to create legal relations simply because it was a matter concerning the engagement of a minister of religion. Kirby J said:

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“… It would be contrary to basic principle to suggest that his spiritual calling somehow placed him outside the rights and duties of the law ... a proved agreement with a body such as the respondent to provide for the necessities of life of a minister of religion ... is not one which Australian law will refuse to enforce because the law presumes a lack of intention to enter legal relations”.

[4.30]  Bearing in mind the High Court’s direction in Ermogenous v Greek Orthodox Community of SA Inc, we will consider whether there is an intention to create legal relations by looking at the presumptions that may arise in relation to social/​domestic agreements and commercial agreements.

Intention and social and domestic agreements [4.40]  The circumstances surrounding social and domestic agreements usually indicate that the parties did not intend to create legal relations. However, there are circumstances where this is not true.

Agreements between a husband and wife [4.50]  In normal circumstances, where the parties were living “in amity” at the time an agreement was made, the courts will regard them as not having intended to create a legally binding agreement.

Balfour v Balfour [4.60]  Balfour v Balfour [1919] 2 KB 571. The defendant was a civil engineer employed by the Government of Sri Lanka (or Ceylon, as it was then called) as Director of Irrigation. He and his wife lived in Sri Lanka together until they returned to England for his leave. When he returned to Sri Lanka, she was unable to accompany him because of her ill health. At this point, he promised to pay her £30 a month as maintenance during the time that they were forced to live apart. When the relationship deteriorated, she commenced divorce proceedings. She claimed she was entitled to the amount she and her husband had agreed upon. Her action failed. The Court held that the agreement was an ordinary domestic arrangement, which was not intended to give rise to a legally binding contract. Atkin LJ said:

  

“The common law does not regulate the form of agreements between spouses. Their promises are not sealed with seals and sealing wax. The consideration that really obtains for them is that natural love and affection which counts for so little in these cold courts ... the plaintiff has not established any contract”.

[4.70]  For obvious reasons, the courts have said that the parties intend to create (very) legally binding agreements where those agreements are made after the relationship has broken down.

Merritt v Merritt [4.80]  Merritt v Merritt [1970] 1 WLR 1211. After a couple had separated, it was arranged that the husband would pay the wife a monthly allowance out of which she was to pay the

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outstanding balance on the mortgage of the matrimonial home, which was in their joint names. The husband signed a document stating that, in consideration of her paying all charges in connection with the home until the mortgage repayments had been completed, he agreed to transfer the house into her sole ownership. The wife paid off the remainder of the mortgage but the husband refused to transfer the house to her. It was held that, since the parties had separated, the agreement regarding the ownership of the matrimonial home was intended to create legal relations and was binding on them.

Other family or social agreements [4.90]  Although the surrounding circumstances in many family arrangements may suggest the parties did not intend to create a binding agreement, the court is more inclined to find an intention to create legal relations where one of the parties has significantly changed their position in reliance on the agreement or there is, materially speaking, a lot at stake. However, as always, each case depends on its own facts.

Todd v Nicol [4.100]  Todd v Nicol [1957] SASR 72. Mrs Nicol was living in South Australia by herself after her husband died. She wrote to her sister-​in-​law, Margaret Todd, and Margaret’s daughter, Gracie, who lived in Scotland, and invited them to come and live with her on the understanding that they would live rent-​free and that she would leave her house to them when she died. The Todds replied, accepting her invitation. They terminated the lease on their home and sold their furniture and surplus belongings. Margaret resigned from her job, and they bought tickets to travel by sea to Australia. Shortly after they arrived in Australia, the parties argued and Mrs Nicol sought to remove the plaintiffs from her house. The plaintiffs sued, claiming a contract had been formed on the terms outlined by Mrs Nicol. The court decided that although there was a presumption that in a family arrangement of this kind there would be no intention to create a legal relationship, it was rebutted by evidence of the cost and inconvenience to the plaintiffs.

  

Note: Although the plaintiffs succeeded in establishing that there was an intention to create a contract, the Court held there was an implied term in the agreement that obliged the Todds to behave in a reasonable manner. In behaving badly towards Mrs Nicol, they had breached this implied term and the court refused to order Mrs Nicol to allow them to live in her home. It was, in other words, a pyrrhic victory for the Todds.

Ashton v Pratt [4.110]  Ashton v Pratt [2015] NSWCA 12. Around November 2003, the late Richard Pratt, described as a man of “exceptional wealth”, offered Ms Madison Ashton the position of his “mistress” in exchange for a trust of $2.5 million to be set up for each of her children, a payment of $500,000 per year for her services, a car and certain allowances –​some of which were to encourage Ashton not to return to her work in the escort industry. This agreement was never reduced to writing. From this time until approximately December 2004, Ashton was Pratt’s

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“mistress”. She received the use of a car and certain allowances but the entire agreement, including the establishment of a trust, was never carried out. After Pratt’s death, when the executor refused to comply with Ashton’s demands, she sued the estate, seeking damages for breach of the agreement including the trust.

  

The Court of Appeal was unanimous in finding that there was no intention to create a legally binding agreement between Mr Pratt and Ms Ashton. This was because the conversation was “not cast in the language of obligation” and there was an absence of attention in the conversation to important matters of detail such as the duration of any arrangement, how it might be terminated and what should happen upon its termination, the definition of the services which Ms Ashton was required to do as well as key issues in relation to the establishment of the trust.

Intention and commercial agreements [4.120]  Where an agreement is reached in the course of business dealings, the circumstances will generally indicate that the parties intended to create legal relations. Rogers CJ said it well in Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 “There should be no room in the proper flow of commerce for some purgatory where statements made by businessmen, after hard bargaining and made to induce another business person to enter into a business transaction would, without any express statement to that effect, reside in a twilight zone of merely honourable engagement. The whole thrust of the law today is to attempt to give proper effect to commercial transactions. If the statements are appropriately promissory in character, courts should enforce them when they are uttered in the course of business and there is no clear indication that they are not intended to be legally enforceable”.

Malago Pty Ltd v AW Ellis Engineering Pty Ltd [4.130]  Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227. Following a mediation, the parties entered into Heads of Agreement. The Agreement provided that: “[w]‌ithout affecting the binding nature of these Heads of Agreement the parties within 7  days [are] to execute a formal document or documents as agreed between their respective solicitors to carry out and express in more formal terms and additional terms as these Heads of Agreement”.

  

The New South Wales Court of Appeal held that the Agreement was binding. The words “without affecting the binding nature” of the Agreement were “decisive” in establishing the intention to be bound.

Express exclusion of intention [4.140]  Where the agreement includes an express stipulation that it is not intended to give rise to legally enforceable obligations, the courts will give effect to such provision. Accordingly, such an agreement will not be enforceable at law.

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Rose & Frank Co v JR Crompton & Bros Ltd [4.150]  Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445. An agreement contained a clause which stated: “This arrangement is not entered into … as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts …, but it is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves, with the fullest confidence –​based on past business with each other –​that it will be carried through by each of the three parties with mutual loyalty and friendly co-​operation”. It was held that the agreement was not a legally binding contract. It was clear from the clause that the agreement was intended to be binding in honour only and not intended to create legal obligations. The use of words in the agreement such as “not ... a formal agreement” and “honourably pledge” indicated that the parties did not have the intention to create a legally binding agreement. As Atkin LJ said:

  

“In this document, construed as a whole ... the clause in question expresses in clear terms the mutual intention of the parties not to enter into legal obligations ... I  see nothing necessarily absurd in businessmen seeking to regulate their business relations by mutual promises which fall short of legal obligations, and rest on obligations of either honour or self-​interest”.

[4.160]  It is common to insert in competition, lottery and pools forms a stipulation to the effect that entry into the competition is not intended to give rise to legally enforceable obligations.

Jones v Vernon’s Pools Ltd [4.170]  Jones v Vernon’s Pools Ltd [1938] 2 All ER 626. The plaintiff alleged that he had sent in a completed football coupon to the defendant pools company. It would have been a winning coupon but could not be traced by the defendant. When sued by the plaintiff, the defendant relied on the following clause included on its coupons: “It is a basic condition of the sending in and acceptance of this coupon that it is intended and agreed that the conduct of the pools and everything done in connection therewith … shall not be attended by or give rise to any legal relationship, rights, duties or consequences whatsoever or be legally enforceable or the subject of litigation, but all such arrangements, agreements and transactions are binding in honour only”.

  

It was held that the clause was decisive: the agreement was not intended to give rise to a legally binding contract.

Letters of comfort [4.180]  A letter of comfort is usually written by a parent company to a lender giving “comfort” to the lender about a loan to be made by the lender to a subsidiary of the parent company. The question is then

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whether or not the letter may be regarded by the lender as an alternative to a guarantee or other form of security for the loan. Letters of comfort tend to be construed by the courts as merely statements of commercial intent and not legally enforceable contracts of security (akin to a guarantee) but did not do so in the following case:

Banque Brussels Lambert SA v Australian National Industries Ltd [4.190]  Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502. When Banque Brussels was negotiating a loan of $5 million to Smedley Securities, ANI (which had a controlling interest in Smedley’s parent company) provided a letter of comfort to the bank in which ANI agreed to inform the bank if it decided to dispose of its holding in Smedley’s parent company. The letter also said: “We take this opportunity to confirm that it is our practice to ensure that Smedley Securities Ltd will at all times be in a position to meet its financial obligations ... (including) repayment of all loans made by your bank”.

  

ANI disposed of its holding without giving notice and Smedley went into liquidation. When the bank could not recover its loan, it sued ANI, arguing that the letter of comfort contained a contractual promise that it would in effect guarantee the loan made to Smedley. ANI argued that the letter was not intended to create a legal relationship between itself and the bank. The court began with the presumption that parties to commercial arrangements intend their agreements to have legal effect and found that ANI had not adduced enough evidence to rebut the presumption.

Government policy proposals [4.200]  The courts have traditionally kept out of political fights, in much the same way, as we saw earlier, that they have been reluctant to arbitrate family disputes. Where promises made by government are in the nature of policy commitments (eg the promise to build a national broadband network or a school hall or subsidise solar panels), the courts have been reluctant to say that these promises create contractual obligations between the government and some of the citizenry. Broken policy commitments may have political consequences; they do not generally have legal ones. However, where the government enters into normal commercial agreements to buy or sell goods or services (eg it signs contracts with Toyota to purchase a fleet of cars or with a builder to construct a school hall or with Transurban to build an $8 billion tunnel or a tollway), it is bound by the normal presumption that the parties to commercial contracts intend them to be legally enforceable and, in those circumstances, any such contracts are enforceable by and against the government.

Australian Woollen Mills Pty Ltd v Commonwealth of Australia [4.210]  Australian Woollen Mills Pty Ltd v Commonwealth of Australia (1954) 92 CLR 424. After World War II, the Commonwealth Government announced that it would pay a subsidy for wool that was bought by manufacturers for the purpose of manufacturing within Australia.

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Acting on the policy, Australian Woollen Mills (AWM) bought wool and received a subsidy for one year. However, when AWM purchased wool the next year and then applied for the subsidy they were refused, as the government announced the scheme would be terminated. The question arose as to whether the Commonwealth had intended to enter into a contract to continue the subsidy. The High Court found that there were a number of factors that indicated that this was more in the nature of an administrative scheme rather than a contractual obligation to pay a subsidy. For instance, the Commonwealth expressly reserved the right to vary the amount of the subsidy and there was no formal agreement between the government and the manufacturers. The court decided that these factors, combined with the general reluctance of the courts to regard policy commitments as contractual obligations, meant that there was no binding contract to subsidise wool purchases.

  

Further reading See contract texts listed at the end of Chapter 2.

Tutorial activities 1.

In assessing whether there was the required intention to create a legally binding agreement, the courts have developed two presumptions. What are they and how may they be rebutted?

2.

Read the extracts of two important decisions – Ermogenous v Greek Orthodox Community and Ashton v Pratt – and discuss whether you believe the decision in each case was fair. In case what would you have advised her to do after the initial conversation she had with Pratt?

3.

Paddy was 34 years old and a single mother living in Melbourne. She had a good, reliable, well-paid job as a clerk. Her mother, Jay, wanted her daughter to become a lawyer and promised to pay her university fees and allow her to live rent free in her mother’s house if she studied law. Paddy enrolled, moved into the house and her mother paid her university fees. There was nothing written down and no agreement as to how long this arrangement would continue. After a serious disagreement about the length of time it was taking Paddy to graduate (six years and counting), Jay stopped the payments and asked her daughter to move out. Paddy seeks your advice as to whether there is an enforceable contract between her mother and herself.

4.

S was a boarder at P’s house where P lived with her granddaughter, B. S regularly entered into newspaper competitions. For one of the weekly newspaper competitions, the three agreed that S would fill in a weekly coupon, with each person making three predictions, submit them in P’s name, and divide the prize equally in the event of a prize being won. After a short while, one of B’s predictions won a substantial prize (under P’s name). When P refused to distribute the prize, S claimed his one-third share of the prize under their agreement. Advise S whether the agreement is legally enforceable.

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5.

Mac Investments Pty Ltd (MI) received a call from Como Bank Ltd (Como). It was concerned about lending a substantial sum of money to Bankers Trust Pty Ltd (BT), a subsidiary company of MI. In the wake of the 2009 Global Financial Crisis, the parent company was aware that BT needed to borrow funds to continue trading in the securities and futures market and wrote a letter to Como in the following terms:



MI supports the loan to BT and undertakes to ensure that it remains in a position to repay the loan.



BT subsequently defaults on the loan and Como looks to MI to compensate it for its losses. Advise Como of its rights and explain how it might better protect itself in the future.

6.

Promises made by governments that are of a political nature (eg the promise to pay a subsidy to woolgrowers or to build a national broadband network or to rebuild infrastructure after floods or bushfires) are not legally enforceable. Can you justify this position?

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chapter 5

Consideration, Promissory Estoppel and Formalities [5.20] Consideration ..................................................................................................................................................... 81 [5.230] Promissory or equitable estoppel ............................................................................................................ 88 [5.330] Formalities ........................................................................................................................................................... 93

Introduction [5.10] This chapter discusses three issues. First, we consider the third essential element in the formation of a contract –​consideration. Second, we consider the equitable doctrine of promissory estoppel, which offers some relief from the strict common law rule that a promise is not enforceable unless some consideration has been given. Third, some contracts will only be enforceable if certain formalities are complied with.

Consideration The requirement of consideration [5.20] Broadly speaking, the requirement of consideration means that a promise can only be legally enforced by the promisee (the person to whom the promise is made) if the promisee can show that he or she has given or promised to give something of value or has suffered some detriment in exchange for the promise. For example, a promise by A to give B her car is not enforceable because nothing of value has been given or promised by B. The same promise but with a requirement that B pay her $100 is, if B accepts, enforceable because consideration (“something of value”) has been provided by B. The courts are, generally speaking, not concerned about whether the $100 is a fair and reasonable price for the car. However, as we shall see, particularly in relation to estoppel, the law has developed certain principles to deal with situations where one party seeks to take advantage of the strict letter of the law in relation to consideration.

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The definition of consideration [5.30]  Consideration was described in the New South Wales Court of Appeal as follows: “Without consideration, a promise is unenforceable at law. The modern theory of consideration has arisen from the notion that a contract is a bargain struck between the parties by an exchange. By that modern theory, consideration must be satisfied in the form of a price in return for the promisor’s promise. The price can be in the form of an act, forbearance or promise”: Beaton v McDevitt (1987) 13 NSWLR 162. The following rules have been developed by the courts in cases where the dispute concerned whether the promisee has provided consideration for the promise he or she is seeking to enforce.

Essential rules regarding consideration Figure 5.1: Rules of consideration

Consideration must be sufficient, need not be adequate

Consideration may be executed or executory but cannot be past consideration

Consideration must not be uncertain or illusory

Rules of consideration

Consideration must move from the promisee

Performing an existing obligation (at law or under contract) is not good consideration

[5.40]  1. Consideration must be sufficient but need not be adequate.

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The consideration provided by the promisee must have some recognised legal “value” but it need not be a “fair” exchange. The courts are not inclined to assess whether the deal was a good one for both parties. Thus, a promise to lease premises in exchange for a promise to pay a “peppercorn rental” (say $1 per annum) is of sufficient value to make an enforceable contract.

Thomas v Thomas [5.50]  Thomas v Thomas (1842) 2 QB 851. Just before he died, John Thomas orally expressed a desire for his wife to have their house. After his death, the executors of his estate entered into an agreement with his wife “in consideration of John’s desires” pursuant to which she would stay in the house and, in return, pay one pound per year. After a certain time, she would be entitled to have the title conveyed to her. She lived in the house for some time but the executor refused to complete the conveyance, claiming the agreement was unenforceable because no valuable consideration had been provided.

  

The court decided in favour of the wife. It said that the court will not look into the adequacy of consideration or the motivation for entering the agreement (honouring Thomas’ dying wish) provided that there is a real bargain between the parties. Motive is irrelevant. In this case, there was sufficient consideration (the token rental) coming from Thomas’ wife, and for this reason alone (and quite independent of the moral feeling that motivated the executors to enter into the agreement) the agreement was enforceable.

[5.60]  2. Consideration must not be vague or illusory. If the promise is too vague or uncertain or does not oblige the promisor to do anything, it will have no legal value and cannot be consideration for the promise that the promisee is seeking to enforce.

White v Bluett

  

[5.70]  White v Bluett (1853) 23 LJ Ex 36. Bluett had loaned his son some money. After Bluett died, the executor, White, sued the son when he refused to repay the loan money. In his defense, the son argued that his father had said the son need not repay if the son would stop complaining about how his father would distribute his property in his will (he was anxious about his siblings getting more than him). White succeeded. The Court held there was no consideration provided by the son to his father for any discharge of the obligation to repay. The son had no ‘right’ to complain. Therefore not complaining was an entirely intangible (and not ‘valuable’) benefit and therefore did not amount to consideration.

[5.80]  3. Consideration may be executed or executory but cannot be past. Consideration is executed where one party performs an act in exchange for the other party’s promise. For example, A offers a $100 reward for the return of his lost wallet. B, on finding and returning the wallet, has performed her part of the bargain. It remains for A to fulfil his obligation by paying the reward. Consideration is executory where one party has given a promise to do, or refrain from doing, something in exchange for the other party’s promise. For example, A agrees to sell B a crate of apples on the basis that B is to pay for it on delivery. In this case, both promises are not yet performed and each provides consideration for the other.

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If a person does something (delivers goods from Sydney to Melbourne) and then, after the act is performed, the other person makes a promise (A promises B $200 for delivering the goods), the promise is unenforceable because the act was not done in exchange for the promise. This is called past consideration. Since “consideration” is defined as the price paid in exchange for a promise, acts that are done prior to the promise cannot generally amount to consideration sufficient to support a subsequent promise.

Roscorla v Thomas [5.90]  Roscorla v Thomas (1842) 3 QB 234. Roscorla bought a horse from Thomas. After the sale had been completed, Thomas promised him that it was a sound horse and was “free of vice”. The truth however was quite different: the horse was ferocious. Roscorla sued for breach of the promise. The court decided that the statement about the horse had taken place after the sale was completed and therefore Roscorla had not provided any consideration for it. It was unenforceable.

  

[5.100]  4. Exception or qualification to the “past consideration” rule. Where the consideration amounts to some past act or forbearance, it may not be past consideration if: ▶▶ ▶▶

the act was done at the promisor’s request; the parties understood that the act was to be remunerated either by a payment or the conferment of some other benefit, and payment must have been legally enforceable had it been promised in advance (in the usual way): Pao On v Lau Yiu Long [1980] AC 614.

As an example, assume Jane, a law faculty administrative officer, is asked to assist at a conference to be held at the weekend. The conference is very successful and, on the following Monday, the Dean promises her a bonus of $1,000. Later, after they argue about an unrelated matter, he informs her that he has changed his mind and will not give her the bonus. She sues him. In this case, the consideration may appear to be “past” because the promise to pay came after the act (working at the weekend) but the three criteria mentioned in Pao On v Lau Yiu Long have been met: Jane worked at the promisor’s (the Dean’s) request;

▶▶ ▶▶

there would have been an understanding that she would not work for nothing (why would an administrative officer work on the weekend for no reward?); and

▶▶

the promise would have been enforceable if it had been made before the act in question.

[5.110]  5. Performing an existing public or contractual obligation is not good consideration.

Collins v Godefroy [5.120]  Collins v Godefroy (1831) 109 ER 1040. A attended on subpoena to give evidence on B’s behalf in a case in which B was a litigant. A sued B to recover moneys which he alleged B had agreed to pay him in consideration of his giving evidence.

  

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The Court held that A was under a legal duty to give evidence because he had been subpoenaed so therefore the giving of evidence was not consideration.

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Glasbrook v Glamorgan County Council

  

[5.130]  Glasbrook v Glamorgan County Council [1925] AC 270. A miners’ strike at a coal mine resulted in the police being called. In discussions as to how best to protect the mine, the company asked for police to be stationed permanently at the coal mine. However, the police felt that a mobile patrol would be sufficient. The mine company then offered to pay £2,200 for the police to have a presence on the premises and the police accepted. The mine company later refused to pay, arguing that the police had not provided consideration for the promise –​ they were doing no more than their public duty. The House of Lords decided that valuable consideration had been provided by the police. The police were under a public duty to provide protection for the mine but they had formed the view that a mobile patrol was adequate and a promise to provide more protection was consideration for the promise by the company to pay for these services.

Stilk v Myrick [5.140]  Stilk v Myrick (1809) 2 Camp 317. The plaintiff contracted to work as one of 11 seamen on a return voyage from London to the Baltic at the rate of £5 per month. During that voyage, two seamen deserted and the captain promised the remaining seamen that they could divide the deserters’ wages between them if they continued to sail the ship. The plaintiff sued for his share when the captain returned to London and refused to honour his promise.

  

The Court decided that Stilk was under a contractual duty to provide his services, including the duty to cover for others in an emergency. As he had done nothing more than what he was obligated to do under the existing contract, he had not provided valuable consideration for the captain’s promise. There may have been public policy reasons for the court’s insistence on a strict adherence to the original contract (not the least of which would be that the law did not want to encourage mutiny on the high seas).

[5.150]  Compare Stilk v Myrick (1809) 2 Camp 317 with the following case.

Hartley v Ponsonby [5.160]  Hartley v Ponsonby (1857) 7 E & B 872. Hartley signed on as a crew member of the sailing ship The Mobile. When the ship reached Port Philip (in Victoria), 17 of the 36 crew deserted, leaving only 19 to sail back to India. Of those 19, only five were qualified mariners. To encourage the remainder to continue, the captain, Ponsonby, promised them additional wages. Hartley sued Ponsonby when he refused to honour his promise.

  

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The court concluded that Hartley had done more than his existing contractual duty. In the wake of the desertion of so many men, the ship had become unseaworthy, so that Hartley would have been entitled to terminate the contract. In agreeing to sail on, Hartley had provided valuable consideration for the modified contract.

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Part payment of a debt –​the rule in Foakes v Beer [5.170]   The rule that the performance of an existing contractual duty is not sufficient consideration has interesting consequences in the context of a part payment of a debt. For example, if A owes B $10,000 and the debt is payable on 1 January 2019. If, on 1 January 2019, A offers B $8000 in full settlement of the debt and B accepts, can B subsequently change his mind and claim the balance? The so-​called rule in Foakes v Beer (1884) 9 App Cas 605 says that the promise by a debtor to pay part of a debt is not sufficient consideration for a promise by the creditor to forgive the balance of the debt. Thus B is able to change his mind and sue for the balance of the debt. Where, however, the debtor agrees to do something more or something different from that which they are already obliged to do and the creditor agrees to accept that in discharge of the existing obligation, then there is sufficient consideration even though the substituted performance may not be as valuable as the original obligation. For instance, taking the above example a little further, the parties may agree that: ▶▶

the $8,000 is to be paid earlier than the due date (eg on 31 December 2018);

▶▶

it be paid in a different currency (eg in US dollars);

▶▶

something additional is promised (eg the $8,000 plus a canary); or

▶▶

the debt is to be paid to a third party, at the request of the creditor.

Furthermore the creditor’s promise to accept part payment may be enforceable where: ▶▶

the promise is engrossed in a deed (see [5.180]);

▶▶

the practical benefit test is satisfied; or

▶▶

the equitable doctrine of promissory estoppel applies [5.230].

A modern approach: the practical benefit test [5.180]  In recent times, when faced with the question of when the performance of a prior contractual obligation may be considered to have satisfied the consideration requirement, the courts have developed a more pragmatic response: the “practical benefit” test. From the following two cases –​one, a construction contract (in England) and the other, a leasing dispute (in NSW) –​it is possible to state the broad parameters: one party (the promise) does not perform, or is not performing, their contractual obligations, the other (the promisor) makes a promise that alters the obligations (in favour of the promisee) who performs their (altered) obligations which results in the promisor receiving a practical benefit (or avoiding a detriment such as a penalty for late completion) but who then, relying on the common law rule in Stilk, refuses to honour the promise under the (amended) contract.

Williams v Roffey Bros & Nicholls (Contractors) Ltd [5.190]  Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All ER 512. Roffey Bros and Nicholls Ltd (Roffey), a construction company, had contracted with a housing association to renovate a block of flats. There was a penalty clause in the main contract, compelling Roffey to pay significant damages to the purchaser of the flats if it finished late. Some of the carpentry work was subcontracted to Williams for £20,000. Williams performed some of the work and received £16,200. However, it then became clear that he had under-​quoted for the job and would not be able to fulfil his obligations on time. When Roffey became aware of this, he

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promised to pay Williams an extra £10,300. Only £1,500 was paid to Williams before a dispute arose and Roffey refused to pay any more money. The court decided that Williams could enforce the contractual variation. Although he had not done more than he was obliged to do under the original contract, the court decided that the promise to pay the extra money was enforceable. The court said that the traditional common law rule (Stilk v Myrick) does not apply when: ▶▶

▶▶

▶▶

▶▶ ▶▶ ▶▶

A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; at some stage before A has completely performed his obligations under the contract, B has reason to doubt whether A will be able to complete his side of the bargain; B promises A an additional payment in return for A’s promise to perform his contractual obligations on time; as a result of A giving his promise, B obtains in practice a benefit, or obviates a disbenefit; B’s promise is not given as a result of economic duress or fraud on the part of A; and the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.

The first three criteria had been met. But what “practical benefit” had Roffey received as a result of the variation? First, Williams continued on the project, relieving Roffey of the need to find another subcontractor; second, Roffey avoided having to pay penalty damages under the head contract for failing to complete on time; and third, he did not have to sue Williams for breach of contract (litigation is expensive, lengthy and uncertain).

  

Furthermore, and a very important consideration for those who argue that contractors might be ‘held to ransom’, there was no suggestion that Williams had applied any duress to Roffey. It was, in fact, Roffey Bros that had initiated the variation. Had Williams had Roffey “over a barrel” and threatened not to work until Roffey promised him an extra payment, the variation would not have been enforced (as it would encourage opportunistic or bullying behaviour by a party in a stronger position).

[5.200]  The major problem with the reasoning in Williams v Roffey Bros is that the law has always required that consideration be something that is bargained for –​it has never been sufficient for the promisor to simply have benefited in some incidental way. Although the reasoning in Williams was accepted (and extended) in the following Australian (NSW) case, it remains to be seen whether appellate courts in Australia, particularly the High Court, accept it.

Musumeci v Winadell Pty Ltd [5.210]  Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723. Musumeci leased a shop in a shopping mall owned by Winadell. He sold fruit and vegetables. Winadell subsequently leased another shop in the centre to another fruit and vegetable business. Musumeci asked for a 30% rent reduction to compensate for this and, rather than lose a tenant, Winadell agreed. When a dispute later arose, Winadell changed his mind about having Musumeci as

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a tenant. He terminated the lease, arguing the new one (with the reduced rental) was not binding because Musumeci had not provided sufficient consideration for the promise to reduce the rental.

  

The NSW Supreme Court held that the promise to reduce the rent was properly supported by consideration and therefore legally binding. Santow J said that the “practical benefit” exception, as explained by Glidewell LJ in Roffey Bros, should be accepted in Australia. His Honour then indicated that he would add an element to Glidewell LJ’s criteria in Roffey Bros. The fourth element should make it a requirement that, as a result of giving this promise, A (the promisee) puts himself in a worse position than if he were to breach the contract by non-​performance and, on the flip-​side, B, the promisor, obtains a practical benefit. Either way –​whether it be the benefit to B or the detriment to A –​there is sufficient consideration to make the promise of additional payment by B binding.

Contracts under seal [5.220]  A contract under seal must be in writing and signed, sealed and delivered. Contracts under seal obtain their binding force from their form alone, there is no need for consideration. Every deed must now be signed1 and attested by at least one witness who is not a party to the deed. The deed may be signed by an agent on behalf of a party to the deed, though the agent’s authority to do so must derive from a deed. It is not always essential that a seal be actually affixed, it being sufficient if the contract is expressed to be a deed.

Promissory or equitable estoppel The general nature of promissory estoppel [5.230] We have seen that under the common law unless a promisee has provided consideration for a promise made by a promisor, that promise is not enforceable by the promisor. However, as we saw in Chapter 1, the courts of equity developed certain principles and doctrines that were designed to soften the harsh consequences that flowed from a rigid application of common law rules. One example has been the development of the equitable doctrine of promissory estoppel, designed to ameliorate the rule that a promisor is not bound to honour a promise for which consideration has not been paid, even though the promisor intended the promisee to rely on it and he or she did rely on it. For example, we have seen that if A owes B $10,000 and B promises to accept $8000 in full satisfaction of the debt, B may later claim the balance of $2000 because A had not provided any consideration for the promise by B. The effect of this rule was “commercially inconvenient” (to use the phrase from Foakes v Beer) because it failed to respect the view of the parties at the time the promise was made that $2000 was sufficient value. The doctrine of promissory or equitable estoppel has evolved as a response to the harshness of the common law rule. It began with the following English decision.

1

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Conveyancing Act 1919 (NSW), s 38(1); Property Law Act 1958 (Vic), s 73; Property Law Act 1974 (Qld), s 45; Property Law Act 1969 (WA), s 9; Conveyancing and Law of Property Act 1884 (Tas), s 63; Law of Property Act 1936 (SA), s 41; Civil Law (Property) Act 2006 (ACT), s 219.

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Central London Property Trust Ltd v High Trees House Ltd [5.240]  Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130. The defendant lessee (HTH) leased a block of flats in London from the plaintiff/​landlord (CLP). During the blitz of London, many of its sub-​tenants moved out and HTH could not pay the rent. CLP promised to reduce the rent by 50% for the duration of the war. However, towards the end of the war, when conditions had improved and people began to return to London, the plaintiff gave notice to the defendant that it wished to return to the rental to which the parties originally agreed.

  

The Court decided that the plaintiff was entitled to give notice that it wished to return to the original rental. However, it indicated that if the landlord had gone further and claimed the arrears of rent back to 1940, it would have been “estopped” from doing so. Although the parties had not formally varied the lease, and notwithstanding that the promise by CLP was not supported by any consideration from HTH, it would have been unconscionable for CLP to be allowed to break its promise once HTH could show it had relied on the promise and would suffer detriment if the promise was broken.

[5.250]  It will be seen from the above decision that the doctrine of “promissory estoppel” does not necessarily prevent the promisor from reverting back to his or her strict legal position. Thus, where the contract is of a continuing nature, the promisor, by giving reasonable notice, can resume the right which they have suspended and revert, for the future, to the original contract.

Je Maintiendrai Pty Ltd v Quaglia [5.260]  Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101. The defendant tenant leased a shop in the plaintiff landlord’s shopping centre. On the expiry of the first three-​year lease for the shop in 1976, the tenant signed a new lease at a substantially increased rental. Some months later, the landlord orally agreed to a reduction of rent for an indefinite period. The tenant continued to pay the reduced rental for the next 18 months. The landlord then found that the tenant was about to vacate the premises and demanded the accumulated “arrears” of rent, that is, the difference between the rental stipulated in the lease and the amount the tenant had actually been paying in consequence of the landlord’s oral agreement to a rent reduction. The landlord brought an action to recover the alleged “arrears” of rent.

  

It was held by a majority of the court that the tenant had so altered his position, that is, had suffered a detriment, by continuing in possession at the reduced rental on the basis that the landlord’s promise would not be resiled from, that it would be inequitable to allow the landlord to go back on his promise. Accordingly, the landlord was estopped in the circumstances from claiming the alleged “arrears” of rent.

The High Court’s decision Waltons Stores v Maher Waltons Stores (Interstate) Ltd v Maher [5.270]  Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. Waltons Stores negotiated with Maher for the lease of commercial premises. Under the proposal, Maher was to

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demolish an existing structure on the site and erect a new building to be leased by Waltons. After discussions between the parties’ solicitors, the contracts documents were drawn up. Maher’s solicitors proposed certain amendments. Waltons’ solicitors said they believed approval for the amendments would be forthcoming from their client, adding: “We shall let you know tomorrow if any amendments are not agreed to”. A few days later, Maher’s solicitors, having heard nothing about the amendments, submitted, “by way of exchange”, documents executed by their client for signature by Waltons. Receipt of these documents was not acknowledged for nearly two months because Waltons was privately reconsidering their position in view of impending policy changes to their future trading operations. Meanwhile, Maher sought finance for redevelopment of the site and proceeded to demolish the existing building, which Waltons became aware of shortly afterwards. Erection of the new building was begun to ensure completion by the required date. When the building was 40 per cent completed, Maher was advised that Waltons did not intend to proceed with the transaction. No binding contract to lease the premises had been concluded between the parties, as there had been no exchange of documents. The High Court held that Maher had assumed that exchange of contracts would take place as a mere formality. The inaction of Waltons in retaining the executed documents and doing nothing constituted clear encouragement or inducement to Maher to continue to act on the assumption that the lease was proceeding. It was unconscionable for Waltons, knowing that Maher was exposing himself to detriment by acting on the basis of a false assumption, to adopt such a course of inaction that had encouraged Maher to proceed. Brennan J summarised the criteria (see fig 5.2) that must be met before a promisor will be estopped from adopting a course of action that would cause harm to the promisee (the relevant conduct in Walton Stores is in parentheses): ▶▶

▶▶

▶▶

▶▶

▶▶

▶▶

  

The promisee assumed that a legal relationship existed or would exist (the parties had been in negotiations for a long time, and clear indications from Waltons were that a lease would be signed); The promisor induced that assumption or expectation (Waltons solicitors’ statement that “we shall let you know tomorrow if any amendments are not agreed to” induced Maher’s assumption); The promisee acted, or refrained from acting, in reliance on that assumption or expectation (Maher sent the executed lease and began the demolition in reliance on the assumption); The promisor knew that the promisee intended to act in that way (Waltons was aware of Maher’s actions. They had encouraged Maher to act by stressing that time was short); The promisee will suffer a detriment (material loss) if the assumption is not fulfilled (Maher’s detriment was the reliance loss, the wasted expenditure on the demolition and reconstruction of the building); The promisor acted unconscionably in failing to prevent the damage to the promisee. Merely proving that the promisee had acted on an assumption is not sufficient (when Waltons, knowing that Maher was acting on the assumption that a lease had been (or would be) executed, decided not to inform him of their change of heart, it was acting unconscionably).

[5.280]  Following Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, the basis for the application of promissory estoppel would appear to be the prevention of unconscionable (ie unfair or unjust)

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Figure 5.2: Six requirements for promissory estoppel

Six requirements for promissory estoppel

Remedies – object: to relieve the detriment -rescission/damages/specific performance

1. The promisee assumed that a legal relationship existed or would exist

2. The promisor induced that assumption

3. The promisee acted, or refrained from acting, in reliance on that assumption

4. The promisor knew that the promisee intended to act in that way

5. The promisee will suffer a detriment (material loss) if the assumption is not fulfilled

6. The promisor acted unconscionably in failing to prevent the damage to the promisee

conduct on the part of the person making the promise so as to avoid the loss or detriment that would otherwise be suffered by the person to whom the promise is made. The trigger for estoppel is detrimental reliance –​not merely unconscionable conduct. In the following case, the High Court explained the notion of detrimental reliance.

Sidhu v Van Dyke [5.290]  Sidhu v Van Dyke (2014) 88 ALJR 640. Ms Van Dyke had rented Oaks Cottage from Sidhu and his wife who both lived on a property nearby. Van Dyke and Sidhu commenced a sexual relationship that led to the breakdown of Van Dyke’s marriage. Sidhu told Van Dyke not to worry about getting a property settlement in the divorce, as he would subdivide the land belonging to him and his wife and give the cottage to Van Dyke. However, when his relationship with Van Dyke ended some eight years later, Sidhu reneged on his promises (and his wife refused to consent to a subdivision). The Court concluded that Van Dyke had proven detrimental reliance –​essentially because she had improved Oaks Cottage in reliance on the promise by Sidhu –​so Sidhu was estopped from changing course. The High Court explained the rationale for estoppel:  “It is not the breach of promise, but the promisor’s responsibility for the detrimental reliance by the promisee, which makes it unconscionable for the promisor to resile from his or her promise”. The Court then posed a hypothetical scenario that demonstrated the unfairness of Sidhu’s argument that there was no detrimental reliance by Van Dyke:

  

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“The extent to which it is unconscionable of the appellant to seek to resile from the position expressed in his assurances to the respondent may be gauged by reflecting on the likely response of the respondent if the appellant had told her in January 1998: ‘I am happy for you to remain at Oaks Cottage, but only for so long as it suits me and my wife to have you here; and, while you remain on the property, you must care for it as if you were the owner of the property and do unpaid work on parts of Burra Station other than the property. Until I make the property over to you, you must pay rent … Should you choose to leave, you will leave with nothing in return for the value of your work here’ ”.

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Austotel Pty Ltd v Franklins Selfserve Pty Ltd [5.300]  Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582. Austotel (a property developer) negotiated with Franklins (a supermarket chain) for the lease of a supermarket in one of its shopping complexes. During the negotiations, Franklins agreed to lease an area larger than in its earlier written agreement. Austotel built the supermarket to Franklins’ specifications, Franklins ordered equipment and Austotel used Franklins’ intended presence as a means of getting the extra finance it needed. No lease was executed and exchanged. When Franklins learnt that Austotel was negotiating with another supermarket, it sought an order for specific performance of the lease, arguing on the basis of Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 that Austotel should be estopped from resiling from its position, even though no contract had been signed.

  

The Court refused to grant the order. Although the parties had equal bargaining power and had engaged in some tough commercial negotiating, it was no more than that: Austotel had not behaved unconscionably.

[5.310]  The following case demonstrates (as all “estoppel” cases do) that best practice demands that if oral representations or promises are important to the promisee, they should be included in the written contract. Whilst equity (in the form of an estoppel) may come to the rescue, it is more efficient and the outcome is more certain if the statement is included in the written contract in the first place.

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [5.320]  Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26. Crown is the owner of the Melbourne Casino and Entertainment Complex. Cosmopolitan held two leases in the complex limited to a term of 5 years. The leases required Cosmopolitan to undertake extensive refurbishments. Crown did not renew either of the leases following a tender process. Cosmopolitan subsequently became insolvent due to write-​downs of more than $2 million in the value of the refurbishments that were carried out. It alleged that, in order to induce it to enter into the leases with a short 5-​year term, Crown made an oral statement that Cosmopolitan would be “looked after at renewal time” that (a) amounted to a collateral contract that the landlord would renew the leases for a further 5 years if they undertook the refurbishments (see [9.110]) or (b) Crown was estopped from resiling from its promise.

  

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On the estoppel issue, the High Court held that the statement that the tenant would be “looked after at renewal time” did not give rise to a promissory estoppel because the representation was not capable of conveying to a reasonable person that the tenant would be offered a further lease on the same terms as the original lease. As the Court said, “it would reduce the law to incoherence if a representation, too uncertain or ambiguous to give rise to a contract or a variation of contractual rights and liabilities, were held to be sufficient to found a promissory estoppel”. Commerce needed for certainty as to the terms on which parties have agreed to be bound at the conclusion of the negotiations.

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Formalities [5.330]  The common law does not require a simple contract to be in writing nor that written evidence of the details of the contract exist in order for the contract to be enforceable. As long as the requirements of a contract are met (eg agreement, intention, consideration), the form the contract takes is not relevant. Many contracts, particularly those of a minor nature, are made by word of mouth and are legally enforceable (provided, of course, that the plaintiff can prove, on the balance of probabilities, what the parties promised). Where the contract is of importance, it is generally wise to reduce its terms to writing as this provides valuable evidence of the terms of the agreement in the event of dispute. Accordingly, in practice, many oral contracts are confirmed in writing as soon as possible after they are made. However, in some cases, various statutes require that in order for a contract to be enforceable, it must be in writing. In other cases, there are statutory provisions to the effect that in order for a contract to be enforceable, some written evidence of it must exist, that is, it must be evidenced in writing.

Contracts required to be in writing [5.340]  Certain kinds of simple contracts are required by various statutes to be entirely in writing; otherwise they will be void or unenforceable. Examples are as follows: 1.

Bills of exchange and promissory notes: Bills of Exchange Act 1909 (Cth), ss 8, 89.

2.

Cheques: Cheques Act 1986 (Cth), s 10.

3.

Assignments of copyright: Copyright Act 1968 (Cth), s 196(3).

4.

Contracts of marine insurance: Marine Insurance Act 1909 (Cth), s 28.

5.

Assignments and mortgages of life insurance policies: Life Insurance Act 1995 (Cth), s 200(2)(a).

6.

An acknowledgment of a debt barred by the State Limitation Acts.

7.

Most forms of consumer credit contract.

Contracts to be evidenced in writing [5.350]  In order to prevent fraud or false claims that oral promises were made that should be enforced, some contracts are required by legislation to be evidenced in writing. That means that one or more documents must exist that proves the existence of the contract. The main types of contract required to be evidenced by a written memorandum are (a) contracts dealing with an interest in land and (b) contracts of guarantee.

(a) Contracts dealing with an interest in land [5.360]  A contract for the sale or other disposition of land or any interest in land is required to be evidenced in writing.2 Agreements to buy, sell or lease land fall within the provision, and a contract to assign a lease has been held to be an interest in land and therefore required to be evidenced in writing. 2

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Conveyancing Act 1919 (NSW), s 54A; Instruments Act 1958 (Vic), s 126; Property Law Act 1974 (Qld), s 59; Law of Property Act 1936 (SA), s 26; Mercantile Law Act 1935 (Tas), s 6 and Conveyancing and Law of Property Act 1884 (Tas), s 36; Law of Property Act 2000 (NT), s 62; Civil Law (Property) Act 2006 (ACT), s 204.

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(b) Contracts of guarantee [5.370]  A further important category of contract required to evidenced in writing is a guarantee.3

The memorandum required [5.380]  Attention must be paid to the following matters that must be covered by the memorandum: 1.

The names of the parties must be specified.

2.

The subject matter must be stated.

3.

The consideration must be apparent (except in guarantees).

4.

The memorandum must be signed by the party to be charged or by some person authorised by them to contract on their behalf.

The memorandum is not the agreement; it is merely evidence of the agreement. To be efficacious, the memorandum must contain all the express terms of the agreement.

Effect of non-​compliance: the doctrine of part performance [5.390]  A contract that is not evidenced in writing as required by the legislation is unenforceable at common law. However, equity will enforce such a contract provided that the claimant for relief has partly performed the contract. The basis of the equitable doctrine is that it would be unconscionable to allow a defendant to rely on the requirement that the contract be evidenced in writing to deny relief to a claimant who has performed either the whole or part of her or his obligations in reliance on the contract. The application of the doctrine of part performance has, in practice, generally been confined to contracts for the sale or other disposition of an interest in land.

Riley v Osborne [5.400]  Riley v Osborne [1986] VR 193. The deceased had orally agreed with the defendant that he would build a house for her and her family if she would take care of him as part of her family for the rest of his life. After the house was built, the defendant and her family moved in with the deceased who was looked after by the defendant for some 23 years before he died. The deceased’s administrator brought an action to recover possession of the house from the defendant for the benefit of the deceased’s estate.

  

It was held that the contract indicated by the defendant’s acts of performance was one in which, in consideration of her making her home with the deceased and caring for him for the remainder of his life, the deceased had agreed to transfer the title of the property to her. Accordingly, the court granted a decree of specific performance of the agreement and a declaration that the defendant was the beneficial owner of the property.

[5.410]  A claimant must establish that the acts of part performance relied on are referable to the contract in the sense that the parties’ conduct must be inexplicable except on the assumption that some such

3

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National Credit Code 2009 (Cth), ss 8, 9; Mercantile Law Act 1962 (ACT), s 12; Law of Property Act 1974 (Qld), s 56; Mercantile Law Act 1935 (Tas), s 6; Instruments Act 1958 (Vic), s 126; Law Reform (Statute of Frauds) Act 1962 (WA), s 2.

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contract as that alleged has been made. The payment of money on its own will not usually be regarded as a sufficiently unequivocal act since it may also be consistent with either no, or some other kind of, agreement between the parties.

Further reading See contract texts listed at the end of Chapter 2.

Tutorial activities 1.

What is “consideration”? What is at the heart of the requirement that consideration is required in all simple contracts?

2.

What is a deed and why is consideration not required when a deed is executed?

3.

What is the rule in Stilk v Myrick and how does the developments in affect the rule?

4.

How does the doctrine of promissory estoppel change the common law requirement that consideration be provided for a promise to be enforceable?

5.

In both [5.290] and [5.320], both plaintiffs argued that the defendants should be estopped from resiling from their promises. Why were the results different? Do you think the difference in the nature of the contract and position of the plaintiffs affected the decisions?

6.

The following things happen to Alex the Harley Davidson rider in December 2018:

7.

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(a)

Alex orally offers to give his Harley Davidson to Freddy. Freddy orally accepts. Is there a valid contract? Would it make a difference if the promise was in writing and signed by the parties? Would it make a difference if Freddy agrees to pay $1?

(b)

Alex agrees to buy a new Harley Davidson motorbike from Bob’s Bikes for $13,000. After the contract is signed, he asks Jeff, the sales manager, if they will provide the first service free of charge. Advise Alex whether he can enforce the promise.

(c)

Alex agrees in writing to provide free bike rides at his child’s school fair. However, he later changes his mind because he has to work on that day. The school is furious and threatens to sue him. Advise Alex whether the school could sue him.

(d)

On 1 December 2010, Alex’s boss promises Alex a bonus of $15,000 after a successful year. Advise Alex whether the promise is binding? What should he do next year, if the promise is made, to ensure the promise is legally binding?

(e)

Alex agrees to sell and Barry agrees to buy his old Harley for $7,000. Barry agrees to pay on delivery. Is there a valid contract at the time the promises are exchanged?

(f)

Alex promises to give his Harley to his nephew Otto “provided you stop smoking, cut your hair, graduate with a law degree and be nice to your mother”. Otto does all of those things. Is Alex bound by the promise?

Peter, an accountant, lives in an apartment that he leases from Sally for $2,000 per month. In August 2008, Peter invested most of his money in the booming share market only to see his investment halve in the space of four weeks. By December 2008, with his income slashed, Peter was unable to pay his rent and so went to see Sally. She agreed to accept half the rent until December 2010. However, in September 2009, Peter was promoted and the

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market had improved. Sally wrote and told him he would have to resume paying $2,000 per month in October 2009. His reaction was so negative that she also claimed the rental she had foregone from December 2008 to October 2009. (a)

Please advise Peter whether he has to resume paying the original rental immediately.

(b)

Advise Sally whether she could claim the rent foregone (ie $10,000).

8.

Jonathon and his family were negotiating a lease for commercial premises to be used for their Italian restaurant. Part of the negotiation concerned the ability of Jonathon to demolish a wall in order to remodel the interior and build a pizza oven. The landlord shook Jonathon’s hand and told him they had a deal and that he could go ahead and get started. Jonathon took out a large bank loan to finance the remodelling. Four weeks later, Jonathon received a letter from the landlord indicating that he did not intend to proceed with the lease. Jonathon has already spent $100,000 on the remodelling, but he has not received a signed lease as yet. Since there is no breach of contract, does Jonathon have any other recourse in equity?

9.

Judy runs an antique jewellery store. One evening, a hooded man stormed into her store and robbed $100,000 from the register. One month later, Judy decides to run a stocktake sale from 5.00 pm to midnight but is still afraid of being robbed. She asks a police officer she knows, Peter, if he will attend her store while the stocktake sale is on and provide her with personal protection from any potential robbers. She offers to pay him $1,000 for his effort. Peter agrees, even though it is normally his night off duty. During the sale, Peter stays by Judy’s side and protects her. The next day, Peter attends the store to collect his payment and Judy refuses to pay him for “doing his duty”. Can Peter sue Judy to enforce their verbal agreement?

10.

Mike enters into a contract with his tax accountant, Andrew, to prepare his business tax return within four weeks of the end of the tax year. The contract provides that Andrew is to receive $1,500 for his work and specifies that time is of the essence. Three weeks after the end of the tax year, Andrew calls Mike saying that there may be delays in processing the tax return. He demands an extra $500 to make sure that the return is finished on time. Mike is hesitant but agrees. The tax return is finished on time and Mike receives his tax refund. He sends Andrew a cheque for $1,500. Andrew rings Mike to remind him about the extra $500 “as agreed” and says that if Mike refuses to pay, he will take legal action. Can Andrew insist on the $500?

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chapter 6

Contractual Capacity [6.20] Minors .................................................................................................................................................................... 97 [6.160] Corporations ....................................................................................................................................................  101 [6.170] Mentally incapacitated and intoxicated persons..........................................................................  102 [6.180] Married women .............................................................................................................................................  102 [6.190] Bankrupts .........................................................................................................................................................  103

Introduction [6.10]  Not all persons can enter into a valid contract. Certain classes of persons are regarded by law as incapable, either wholly or partly, of entering into contractual obligations. The capacity of the following persons to enter into valid contracts will be discussed: 1.

Minors.

2.

Corporations.

3.

Mentally incapacitated and intoxicated persons.

4.

Married  women.

5.

Bankrupts.

Minors [6.20]  Formerly, a minor1 was a person who had not reached the age of 21 years. However, in all States and Territories, the age of majority has been reduced to 18 years.2 In New South Wales and South Australia, the legal position of minors differs markedly from that in the other States. The position in these States will be considered separately at the end of this section. With the exception of New South Wales and South Australia (see [6.150]), contracts with minors may be considered under three headings depending on their legal effect. Such contracts may be: (a) valid; (b) voidable;  or (c) void. 1 2

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The earlier cases and legislation used the expression “infant” when referring to a person below the age of majority. However, the modern legislative trend is to use the more appropriate term “minor”. Minors (Property and Contracts) Act 1970 (NSW), s 6(1); Age of Majority Act 1977 (Vic), s 3(1); Law Reform Act 1995 (Qld), s 17; Age of Majority (Reduction) Act 1971 (SA), s 3(1); Age of Majority Act 1972 (WA), s 5(1); Age of Majority Act 1973 (Tas), s 3(1); Age of Majority Act 1974 (ACT), s 5; Age of Majority Act (NT), s 4.

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Valid contracts [6.30]  Two classes of contracts with minors are binding, namely: (a)

a contract for the supply of “necessaries”; and

(b)

a beneficial contract of service, such as a contract of apprenticeship.

A minor is liable under a contract for “necessaries” [6.40]  The word “necessaries” is not confined to articles necessary for the maintenance of life but includes goods and services fit to maintain the person in question at the standard of living and in the position in life which he or she enjoys. So far as goods are concerned, necessaries have been defined as “goods suitable to the condition in life of such minor and … to his actual requirements at the time of the sale and delivery”.3 In any given case, there are two questions involved: (a)

are the goods or services within the classes of goods which can be classed as “necessaries” for a person in the circumstances of the minor in question?; and

(b)

were the goods or services in fact necessary to the minor at the time?

It follows that no hard and fast rules can be laid down as to what a minor will be made liable to pay for, as the position must vary in every case. Thus, in Scarborough v Sturzaker (1905) 1 Tas LR 117, it was held that a minor who was accustomed to cycle a distance of some 12 miles to his daily employment was liable to pay for a new bicycle. By contrast, in Bojczuk v Gregorcewicz [1961] SASR 128, a minor who lived in Poland and had a permanent job there, but who wished to emigrate to Australia, was held not to be liable to repay to a relative, who had paid for her passage to Australia, the cost of the passage. If the court finds that the goods or services are not within the classes of necessaries, or were not in fact necessary, then the minor is not liable to pay nor, unless he or she obtained them by fraud, to return the goods. Even where the goods are found to be necessaries, the minor is not bound to pay the contract price but only a reasonable price.

A minor is liable under a beneficial contract of service [6.50]  This particularly applies to agreements relating to services to provide the minor with a means of livelihood, apprenticeship contracts or contracts relating to education. In deciding whether the contract is for the minor’s benefit, the agreement must be taken as a whole and any restrictions placed on the minor at the present time and in the future closely considered.

Hamilton v Lethbridge [6.60]  Hamilton v Lethbridge (1912) 14 CLR 236. While still a minor, the defendant had entered into articles of clerkship with the plaintiff. The articles contained a covenant by the defendant that he would not practise as a solicitor within 50 miles of Toowoomba where the

3

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Goods Act 1958 (Vic), s 7; Sale of Goods Act 1896 (Qld), s 5; Sale of Goods Act 1895 (SA), s 2; Sale of Goods Act 1895 (WA), s 2; Sale of Goods Act 1896 (Tas), s 7; Sale of Goods Act 1954 (ACT), s 7; Sale of Goods Act 1972 (NT), s 7. In New South Wales, the position is now governed by the Minors (Property and Contracts) Act 1970 (NSW).

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plaintiff carried on his practice. Within a year of qualifying, the defendant started to practise in Toowoomba. The plaintiff sued for an injunction to restrain the defendant from so practising. The defendant pleaded his infancy at the time of entering into the articles as a defence.

  

The High Court unanimously held that the covenant was enforceable against the defendant. Although the contract contained clauses that were prejudicial to him, the contract as a whole was beneficial and therefore enforceable.

[6.70]  In contrast, if the contract is substantially detrimental to the interests of the minor, it will not be enforced against her or him.

De Francesco v Barnum [6.80]  De Francesco v Barnum (1890) 45 Ch D 430. A girl aged 14 years entered into a seven-​ year apprenticeship with the plaintiff to be taught stage dancing. She agreed that she would not marry during the apprenticeship and would not accept professional engagements without the plaintiff’s permission. The plaintiff did not bind himself to provide her with engagements nor was he obliged to maintain her while she was not working. The pay he agreed to give in the event of her employment was less than generous. The plaintiff was entitled at his own discretion to terminate the contract if, after a fair trial, he decided that she was unfit for stage dancing.   

It was held that the terms of the apprenticeship deed were unreasonable and unenforceable.

[6.90]  The question of whether the contract is beneficial to the minor is the crucial issue in determining the validity of this type of contract. On the other hand, this does not mean that any contract which benefits the minor will be enforced against her or him. Thus, it is well established that a trading contract is not binding on a minor, notwithstanding that it may be financially beneficial. For example, a minor who carried on business as a haulage contractor agreed to purchase a lorry under a hire-​purchase agreement. When he was sued for arrears under the agreement, it was held that the contract was a trading contract by which the minor could not be bound: Mercantile Union Guarantee Corp Ltd v Ball [1937] 2 KB 498.

Voidable contracts [6.100]  The contracts voidable by a minor are either: (a)

Those binding unless repudiated by the minor during their minority or within a reasonable time after attaining their majority; or

(b)

Those not binding unless ratified within a reasonable time after attaining the age of majority.

Those binding unless repudiated by the minor during their minority or within a reasonable time after attaining their majority [6.110] This applies to contracts which are of a permanent nature  –​those which involve a continuing obligation, for example: (a)

shares in a company;

(b)

leases;

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(c)

partnerships;  or

(d)

marriage settlements.

A minor is bound by such contracts unless he or she takes steps to repudiate them within a reasonable time after attaining majority. If the minor has received no benefit under the contract, he or she may repudiate it and also secure a return of any money paid on the contract. If, however, the minor had the benefit or the use of goods, he or she, while able to renounce the contract, cannot obtain a refund of the money paid for them: Pearce v Brain [1929] 2 KB 310. In other words, rescission avoids future liability only.

Those not binding unless ratified within a reasonable time after attaining the age of majority [6.120]  These are contracts which are not of a continuing nature, for example, the purchase of goods which are not necessaries. These contracts require the express ratification of the minor after coming of age to make them binding. In Victoria, these contracts, that is those not binding unless ratified within a reasonable time after attaining the age of majority, are not effective, as in that State, legislation makes such contracts absolutely void and incapable of ratification by the minor after attaining majority.4

Void contracts [6.130] In Victoria, all contracts, whether simple or made under a deed, are void: (a)

for the repayment of money lent or to be lent;

(b)

for the payment of goods supplied or to be supplied (other than contracts for necessaries); or

(c)

all accounts stated (ie an account acknowledged by the parties to be correct): Supreme Court Act 1986 (Vic), s 49.

In all States, a minor is not liable on a bill of exchange (or cheque) even if given for the price of necessaries: Re Soltykoff; Ex parte Margrett [1891] 1 QB 413. A minor cannot give a valid security to repay advances even if made to enable her or him to purchase necessaries: Martin v Gale (1876) 4 Ch D 428. In Victoria, a contract made by a minor, after he or she comes of age, to repay a loan contracted during minority is void.5

Misrepresentation by minors [6.140]  Minors are not liable for a tort6 directly connected with any contract upon which no action will lie against them. It is impossible indirectly to enforce such a contract by changing the form of action to one in tort. Thus, an action of deceit does not lie against minors who, by falsely representing themselves to be of full age, have fraudulently induced another to contract with them, since to enable a plaintiff to convert a breach of contract into a tort would destroy the protection that the law affords to minors: Leslie v Sheill [1914] 3 KB 607.7

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Supreme Court Act 1986 (Vic), s 49. Supreme Court Act 1986 (Vic), s 51. A tort is a civil wrong, committed by one person against another, consisting in the infringement of a right created independent of contract, giving the injured party a right to claim damages or compensation. This is no longer the position in New South Wales: see Minors (Property and Contracts) Act 1970 (NSW), s 48.

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Contractual capacity of minors in New South Wales [6.150] The New South Wales Minors (Property and Contracts) Act 1970 (NSW) contains extensive provision for regulating the contractual capacity of minors, that is, those under 18 years of age.8 The liability of minors is based on their participation in a civil act:  s  16. The legislation defines “civil act” as including a contract; an election to rescind or determine a contract for fraud, mistake or breach; a disposition of property; an assent to or waiver of any matter affecting their rights or obligations under a contract or relating to property; and any other act relating to contractual or proprietary rights or obligations: s 6(1). The Act provides that where a minor participates in a civil act and that participation is for their benefit, the civil act is “presumptively binding” on the minor: s 19. The expression “presumptively binding” means that the civil act is as binding on the minor as if he or she was not a minor at the time of their participation: s 6(3). The Act also makes certain transactions presumptively binding on a minor even though they may not necessarily be for her or his benefit. For example, where a minor makes a disposition of property for a consideration which is not manifestly inadequate and he or she received the whole or any part of the consideration, the disposition is presumptively binding on the minor: s 20(1). Similarly, the disposition of property by the minor either wholly or partly as a gift, where the disposition was reasonable at the time it was made, is another example of a civil act made presumptively binding on a minor: s 21. However, a minor will not be presumptively bound by a civil act where he or she lacks, by reason of youth, the understanding necessary for participation in such act: s 18. Where a civil act, for example, a contract entered into by a minor, is not presumptively binding on the minor, it may be affirmed on their behalf by a court whilst the minor remains a minor: s 30(1). A minor may personally affirm a civil act, not otherwise presumptively binding, after he or she attains the age of 18  years:  s  30(1)(b). The effect of affirmation is to make the civil act presumptively binding on the minor: s 30(4). A civil act may be repudiated by a minor at any time during minority or before he or she attains the age of 19 years: s 31(1). To be effective, the repudiation must be in writing, signed by the person making it or their agent and served on the person affected by the repudiation: s 33(2). The court also has power to repudiate a civil act on behalf of a minor at any time during minority: s 34(1). However, in all cases, a purported repudiation is of no effect if it appears that, at the time of repudiation, the civil act is for the benefit of the minor: ss 31(1), 34(2).

Corporations [6.160] Corporations are created by the Corporations Act 2001 (Cth) and are referred to as “bodies corporate”. Many businesses are conducted through corporations. However, it is to be noted that the Corporations Act 2001 gives corporations all of the legal capacity of a natural person: s 124. This legal capacity allows a corporation to enter contracts, own assets and sue and be sued (eg for negligence or breach of contract). In some respects, a company has greater capacity than a natural person as it also has the capacity to issue shares in itself: s 124.

8

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In South Australia, the Minors Contracts (Miscellaneous Provisions) Act 1979 (SA) is similar.

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A corporation is able to enter a contract either directly (by using the company seal or by the directors signing) or by using an agent: ss 126 and 127. Most people would be familiar with corporations through the transactions they engage in with businesses in daily life, for example, banking, purchasing food in a supermarket, education services. In most of these routine, everyday interactions, the corporation often acts through an agent (usually an employee) rather than acting directly itself. Although the Corporations Act 2001 gives corporations full legal capacity, a corporation may specify in its company constitution that its legal capacity is restricted in certain ways. For example, a corporation may state in its constitution that it will not borrow money or that it will not sell off its main business venture or that contracts must be signed by all of the members of the board. Such statements in the constitution will not affect the corporation’s capacity to contract with third parties and the corporation will be bound (providing the contract is valid in other respects): s 125. Under the revisions to the Corporations Act 2001, such restrictions in the corporation’s constitution will be binding internally on the members and directors and officers of the corporation. The constitutional restrictions will not be binding on third parties dealing with the corporation –​unless the third party is aware of the restriction: s 128.

Mentally incapacitated and intoxicated persons [6.170]  Mentally incapacitated and intoxicated persons may be made liable under contracts for the provision of necessaries. However, all other contracts entered into by them will be voidable provided: (a)

they were incapable of understanding the nature of what they were agreeing to at the time they contracted; and

(b)

the other party was aware, or should have been aware, of their incapacity.

Accordingly, a person of unsound mind will not be able to avoid a contract where the other party was unaware of their mental incapacity: Hart v O’Connor [1985] AC 1000. The onus of proving the existence of both incapacity and the knowledge of the other party of that incapacity rests with the mentally incapacitated or intoxicated person. The effect of mental incapacity or intoxication is to make the contract voidable at the option of the person suffering the disability and does not entitle the other party to set aside the contract: Gibbons v Wright (1954) 91 CLR 423. A voidable contract can be ratified on the intoxicated person regaining sobriety, or the mentally incapacitated person recovering their sanity, and the ratified contract will then become binding: McLaughlin v City Bank of Sydney (1912) 14 CLR 684. Both mentally incapacitated and intoxicated persons are bound to pay a reasonable price for necessaries obtained while incapable of knowing what they were doing.9

Married women [6.180]  Formerly, married women lacked legal capacity. Women were regarded as losing their legal capacity on marriage when the “very being or legal existence of the women is suspended during the marriage and …

9

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Sale of Goods Act 1923 (NSW), s 7; Goods Act 1958 (Vic), s 7; Sale of Goods Act 1896 (Qld), s 5; Sale of Goods Act 1895 (SA), s 2; Sale of Goods Act 1895 (WA), s 2; Sale of Goods Act 1896 (Tas), s 7; Sale of Goods Act 1954 (ACT), s 7; Sale of Goods Act 1972 (NT), s 7.

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consolidated into that of the husband”. This concept was known as “coverture” and theoretically provided the woman, upon marriage, with the protection of her husband. The position of married women is now much the same as that of a single woman or a man and this is enshrined in legislation throughout Australia.11 10

Bankrupts [6.190]  A bankrupt is not deprived of their general capacity to contract. However, there are certain provisions of the Bankruptcy Act 1966 (Cth) which relate to dealings by bankrupts. If an undischarged bankrupt, or a debtor who is party to a debt agreement, obtains credit or enters into a contract for goods and services involving an obligation to pay $3,000 or more (indexed in accordance with the Consumer Price Index) without disclosing they are an undischarged bankrupt, they are liable to imprisonment for up to three years: s 269. An undischarged bankrupt is liable to the same penalty if they carry on business under an assumed or firm name without disclosing the bankrupt’s true identity and the fact that they are an undischarged bankrupt. Certain transactions by a bankrupt in relation to property acquired after the date of the sequestration order are valid against their trustee provided they are completed before any intervention by the trustee: s 126.

Further reading See contract texts listed at the end of Chapter 2.

Tutorial activities 1.

Explain, with reference to the cases, how a court concludes whether a minor is liable under a contract for “necessaries” or for a “beneficial contract of service”.

2.

Certain contracts entered into by a minor or a mentally incapacitated or intoxicated person are voidable. Explain using examples.

3.

What capacity does a corporation have to enter a legally binding contract?

4.

Joshua, a 15-year-old boy, signed a contract for a mobile phone service. The contract obliges him to pay $29.95 a month for a year. After the first month, he refuses to pay. His parents also refuse to take over the contract on his behalf. Please advise the mobile phone company whether it can sue Joshua (or his parents).

5.

James Marsden, who owned $280,000 worth of shares in a mining company, was an alcoholic. His fondness for alcohol was well known. On one occasion, when he was under the influence, the local bank manager got Marsden to transfer the shares to the bank as security for an unsecured loan it had given to Marsden three months earlier. When he sobered up and learned what had happened, he wanted to have the agreement declared void. Advise him.

10 11

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Sir William Blackstone, Commentaries on Laws of England (Chapter 15) (1765-​1769), Co Lit 112. Married Persons (Equality of Status) Act 1996 (NSW), s 4; Marriage Act 1958 (Vic), ss 156–​161; Law Reform Act 1995 (Qld), s 18; Law of Property Act 1936 (SA), ss 92–​111; Law Reform (Miscellaneous Provisions) Act 1941 (WA), ss 2–​3; Married Women’s Property Act 1935 (Tas), ss 3, 7, 11; Married Persons (Equality of Status) Act 1989 (NT), s 3.

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chapter 7

Genuine Consent [7.20] Mistake ..............................................................................................................................................................  106 [7.240] Misrepresentation .......................................................................................................................................  111 [7.330] Innocent misrepresentation ...................................................................................................................  114 [7.410] Negligent misrepresentation .................................................................................................................  116 [7.420] Duress ................................................................................................................................................................  116 [7.470] Undue influence ............................................................................................................................................  119 [7.530] Unconscionable conduct ..........................................................................................................................  121

Introduction [7.10]  Consent remains the cornerstone of the law of contract  –​all obligations undertaken by the parties must be freely entered into. If that consent is vitiated by a mistake or induced by a misrepresentation or extracted as a result of duress, undue influence or unconscionable conduct, the agreement may not be enforceable. In this chapter, we examine the circumstances in which the common law (including equity) may order rescission of a contract because of a lack of genuine consent. We also examine the effect of significant statutory reforms, particularly in relation to misrepresentation and other kinds of unfair conduct, that have transformed this area of law and given courts greater scope to examine the way that agreements are formed.

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Mistake Figure 7.1: Mistake

Mistake

Common mistake

Mutual mistake

Unilateral mistake

Parties make the same mistake – about fundamental fact or identity. If operative, contract is void.

Parties make a different mistake about a fundamental matter. If operative, contract is void.

Only one party is mistaken as to terms, identity or nature of document. If operative, contract is voidable.

[7.20]  The courts are reluctant to allow parties to avoid a contract simply because they entered into the contract on the basis of a mistake. The view of the courts has always been that if a person is permitted to avoid a contract simply because they have made a mistake –​particularly about an assumption (eg X purchases a cafe assuming McDonald’s would not open a store nearby) or the quality of the subject matter (eg X buys a Picasso believing it to be an original) –​it would seriously undermine confidence in the certainty and reliability of contracts and, axiomatically, the entire commercial system. Therefore, for the most part, the parties “own” the consequences of their decisions and cannot complain about the mistakes they made prior to or at formation. Where a mistake is actionable, the courts will order rescission of the contract (or order rectification of a mistake) if an innocent third party will not be affected, and it would be unconscionable for a party to benefit from the agreement.

Mistakes of fact [7.30]  In relation to mistakes of fact, it is necessary to distinguish between common, mutual and unilateral types of mistake

Common mistake [7.40]  A common mistake is one where both parties make the same mistake. It has no effect at common law unless the mistake was about a fundamental fact. The most common instances are (a) where the subject matter of the contract has ceased to exist before the date of the contract and (b) about the quality of the subject matter.

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Scott v Coulson

  

[7.50]  Scott v Coulson [1903] 2 Ch 249. A  contract for the assignment of a life insurance policy was made upon the basis of a belief common to both parties that the assured was alive. In fact, he had died before the contract of assignment was made. It was held that there was a common mistake, and therefore the contract was one that could not be enforced.

[7.60]  Contracts will rarely be avoided where the common mistake concerns the qualities or attributes of the subject matter.

Leaf v International Galleries [7.70]  Leaf v International Galleries [1950] 2 KB 86. The plaintiff purchased a painting of Salisbury Cathedral from the defendants, which both parties mistakenly believed had been painted by John Constable. When the plaintiff attempted to resell the painting, he discovered that it was not a Constable. The plaintiff sought rescission of the contract for the defendant’s innocent misrepresentation that the painting was a Constable. The Court of Appeal decided that: “There was a mistake about the quality of the subject-​ matter, because both parties believed the picture to be a Constable; and that mistake was in one sense essential or fundamental. But such a mistake does not avoid the contract: there was no mistake at all about the subject-​matter of the sale. It was a specific picture, ‘Salisbury Cathedral’. The parties were agreed in the same terms on the same subject-​matter, and that is sufficient to make a contract.”

  

Note that the plaintiff sought to have the contract declared void for mistake because the remedies for innocent misrepresentation (which this clearly was) would not have allowed him a remedy (no damages for an innocent misrepresentation and the right to rescind for an innocent misrepresentation would have lapsed).

[7.80]  If the court believes that the agreement between the parties was conditional on something being true (such as the existence of the subject matter of the contract), then, if it is not so, the contract may be void. If, however, there is no such condition precedent, there is a valid contract and the seller is liable for breach of contract if the goods are not available. This was the position in the following case.

McRae v Commonwealth Disposals Commission

  

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[7.90]  McRae v Commonwealth Disposals Commission (1951) 84 CLR 377. The CDC advertised for tenders for the purchase of a wrecked tanker on a reef near Indonesia. The plaintiff was the successful tenderer and spent a considerable amount of money on the recovery effort but, in fact, and unknown to both parties, no wreck existed on the reef specified. The plaintiff sued for breach of contract, but the CDC argued that there was a common mistake about the existence of the wreck and therefore the contract was void. The High Court decided that there was a valid contract. The CDC had impliedly promised that the wreck existed and was liable for the breach of that promise.

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Mutual mistake [7.100]  Where there is a mutual mistake, the parties are at cross-​purposes –​there is in fact no correspondence of offer and acceptance. For example, one party believes that she is purchasing a tonne of Sri Lankan green tea from the Dilma estate at Nuwar Eliya and the other believes the tea is from Hatton estate. In such cases, the court seeks to determine what a reasonable person would infer from the negotiations. If the court cannot say what a reasonable person would have concluded (for instance, that it was reasonable to believe that the tea would come from Hatton), then there is no enforceable agreement.

Unilateral mistake As to the promise of one party [7.110]  A unilateral mistake is one where only one of the parties is mistaken. Generally speaking (and consistent with the court’s general approach to mistake), a unilateral mistake will not affect the contract unless (a) the mistake is about a fundamental term of the contract, (b) the other party is aware of the mistake that the other party is under and (c) seeks to take unfair or unconscionable advantage of it. Unilateral mistake as to a fundamental term of the contract was considered by the High Court in Taylor v Johnson (1983) 151 CLR 422

Taylor v Johnson [7.120]  Taylor v Johnson (1983) 151 CLR 422. The vendor granted to a purchaser an option to purchase two adjoining blocks of land. The option was exercised and the parties entered into a written contract of sale for the land. In both the option and the sale agreements, the purchase price stipulated was $15,000. The vendor later refused to complete the purchase on the ground that she had mistakenly believed that the option and sale agreements provided for a price of $15,000 per acre which would have amounted to a total purchase price of $150,000, the two blocks comprising 10 acres. The High Court set aside the contract. It considered that the evidence led to the inference that the purchaser believed that the vendor was acting under a serious mistake about either the terms (the price) or the subject matter (its value) of the transaction and deliberately set out to ensure that she did not appreciate the mistake she was making.

  

As to the identity of the person with whom the contract is made [7.130]  A unilateral mistake as to the identity of the person with whom a party is contracting will only make the contract void and of no effect if (a) the identity of the other party is of fundamental importance to the contract and (b) the other party knows it to be so. There are circumstances where the identity of the person is fundamental. For example, where the contract is for some kind of personal service (eg the artist commissioned to paint the portrait or make the lead light windows or the architect hired to design the new hall), identity may be crucial. When a seller deals with a person actually present before him, the presumption is that he is contracting with that person, even though the latter fraudulently impersonates someone else. The following case is an example.

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Lewis v Averay [7.140]  Lewis v Averay [1972] 1 QB 198. Lewis advertised his car for sale. A rogue tested the vehicle and said he liked it. He said he was “Richard Green” and led Lewis to believe he was the well-​known film actor of that name. The rogue wrote out a cheque for the agreed price of the vehicle and signed it “RA Green”. He wanted to take the vehicle at once, but Lewis was hesitant and asked for proof of identity. The rogue produced a special pass of admission to Pinewood Studios in Hollywood with an official stamp on it. It bore the name “Richard A Green” and a photograph that was plainly that of the rogue. On seeing this Lewis was satisfied and let the rogue have the car. A few days later, the cheque bounced. Meanwhile, the rogue had sold the car to Averay who bought it in good faith and without knowledge of the fraud. Lewis brought an action against Averay for conversion of the car. The court held that the contract between Lewis and the rogue was not void for mistake and, therefore, the third party, Averay acquired a good title to the car. On the facts, Lewis had contracted with the person present before him, that is, the rogue, and therefore although that contract was voidable because of the rogue’s fraudulent misrepresentation, it was not void for mistake (and the right to rescind for the misrepresentation had been lost when the innocent third party acquired rights to the goods).

  

[7.150]  Lewis v Averay [1972] 1 QB 198 demonstrates that where there is a mistake as to the identity of a party, but that mistake was not essential to the other party’s decision to enter the contract, the contract will be voidable, that is, liable to be set aside by the mistaken person for the fraudulent misrepresentation so long as the mistaken party does so before a third party in good faith acquires rights under it, for example, by purchasing the goods from the rogue.

Mistake as to the nature of the transaction [7.160]  If a person signs a written document which he or she mistakenly believes to relate to a transaction entirely different in character from that to which in fact it does relate he or she will not be bound. To an action on the contract, such person has a defence which is called non est factum (“it is not his deed”). This defence will only succeed where a person (a) can establish that the document they signed was fundamentally different in character from that which they thought it to be and (b) the person was not careless in failing to take reasonable precautions before signing the document. This was the approach of the High Court in the following case.

Petelin v Cullen [7.170]  Petelin v Cullen (1975) 132 CLR 355. Petelin owned land that Cullen wished to buy and develop. He obtained a six-​month option to purchase for which he handed over a cheque for $50 and promised another $50 later on. Shortly after the expiry of the option, he wrote a letter to Petelin enclosing a further cheque for $50. When Cullen saw Petelin, he asked him whether he had received the cheque. Petelin said that he had, and Cullen then showed him a document that he pretended was a receipt for the cheque but was in fact an extension of the option. Petelin, who could not read English, signed the document in the belief that it was a

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receipt. Cullen exercised the option within the period of the second six months, but Petelin refused to sell the land. When Cullen brought an action for specific performance of the option, Petelin relied on the defence of non est factum.

  

The High Court decided that Petelin had discharged the onus on him of showing that there was a radical difference between what he signed (ie an extension of the option) and what he thought he was signing (that is, a receipt) and had therefore made out the defence of non est factum.

Effect of mistake of fact [7.180]  The general position where a mistake of fact is legally operative is that it renders the contract void. However, the High Court in Taylor v Johnson (1983) 151 CLR 422 held that a unilateral mistake as to the actual terms of a written contract does not render the contract void but voidable, that is, binding unless and until set aside in equity: for example, for reason of fraud, misrepresentation or unconscionable dealing.

Mistake of law [7.190]  A person is entitled to recover monies paid under a mistake if the money was paid because they believed there was a legal obligation on them to do so and the recipient was legally entitled to the payment. This obligation can be set aside where the recipient can demonstrate that repayment would result in injustice, for example where the recipient has altered their position because of the payment.

David Securities Pty Ltd v Commonwealth Bank of Australia [7.200]  David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353. The appellants entered into an agreement with the Commonwealth Bank for a foreign currency loan. The loan agreement required the appellants to pay the bank in respect of its withholding tax liability. Subsequently, the appellants suffered considerable financial losses owing to adverse fluctuations in exchange rates and claimed damages against the bank and the accountants who had advised them in relation to the loan. The bank cross-​claimed for recovery of moneys due under the loan.

  

The High Court held that money paid under a mistake of law is prima facie recoverable in the same way as payments made under a mistake of fact. However, the recipient of money paid under a mistake will not be liable to repay the money if, in reliance upon receipt of the payments, the recipient, in good faith, changed its position to its detriment (eg can point to expenditure or financial commitment which can be ascribed to the mistaken payment).

Remedy of rectification [7.210]  Where the parties are agreed and there has been no mistake as to what they have agreed upon, but the contract has been reduced to writing and by a common mistake such writing erroneously records the effect of what has been already agreed, equity will order the written contract to be rectified to accord with the parties’ intention. The contract is actually rewritten to accord with the intention of the parties.

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For rectification of a contract to be granted, convincing proof must be given that the written contract does not embody the final intention of the parties and the omitted ingredient must be capable of such proof in clear and convincing terms.

Pukallus v Cameron [7.220]  Pukallus v Cameron (1982) 180 CLR 447. Both parties to a sale of land believed that an area containing a bore and some 27 acres of cultivated land lay within the portion sold. In fact, they were mistaken: it was within land retained by the vendor. This was only discovered after completion of the contract. The purchaser sought rectification of the contract to include the bore and cultivated land.

  

The High Court denied an order for rectification. The purchaser had not advanced convincing proof that the written contract describing the specific parcel of land to be conveyed did not embody the final intention of the parties. The term proposed was clearly inconsistent with the description of the land in the contract and, further, the purchaser had failed to establish the precise terms of the new boundary line.

[7.230]  In some cases where the mistake has been unilateral, for instance, where one party has “snapped up” an offer which they knew was not intended, and the contract has then been reduced to writing, the court has given the defendant a choice of either having the contract rectified or have it rescinded by the court. The Victorian Court of Appeal has stated the principles concerning rectification for unilateral mistake as follows: “If (1) one party, A, makes an agreement under a misapprehension that the agreement contains a particular provision which the agreement does not in fact contain; and (2) the other party, B, knows of the omission and that it is due to a mistake on A’s part; and (3) lets A remain under the misapprehension and concludes the agreement on the mistaken basis in circumstances where equity would require B to take some step or steps … to bring the mistake to A’s attention; then (4) B will be precluded from relying upon A’s execution of the agreement to resist A’s claim for rectification to give effect to A’s intention”: Leibler v Air New Zealand Ltd [1999] 1 VR 1.

Misrepresentation [7.240]  Statements made by parties during contractual negotiations may either be terms of the contract (including collateral contracts), representations or mere puffs. It is vital to distinguish simple representations from representations that are terms of the contract. Simple representations as to fact are not terms of the contract; they merely persuade or induce the person to enter into the contract. If the representation is untrue, that is, where it constitutes a misrepresentation, the remedies available to a party vary according to the nature of the misrepresentation, that is, whether the misrepresentation was made innocently, fraudulently, or negligently. In addition, remedies may also be available under statute for misleading conduct. However, if the party making a statement promises the truth of that statement in the sense of making it part of the contractual bargain, then it is a term of the contract, and non-​fulfilment entitles the other party to take action for breach of contract. In such a case, the innocent party always has the right of suing for damages, but if the term is a condition, that is, a term of such importance as to go to the heart of the contract, he or she can terminate the contract. If it is merely a warranty, that is a term of lesser significance, the party can only sue for damages.

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Each of the categories of fraudulent, innocent and negligent misrepresentation will now be considered. Figure 7.2: Pre-​contractual statements

Pre-contractual statements

Mere puffs (exaggerated talk)

Representations (induce contract)

Terms (promissory)

No legal consequences

If wrong, consequences depend on kind of representation

If breach, consequences depend on kind of term

Fraudulent misrepresentation [7.250]  Fraud exists “when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”: Derry v Peek (1889) 14 App Cas 337. Fraud may also exist where there is a partial statement of fact in such a manner that the withholding of what is not stated “makes that which is stated absolutely false”: Peek v Gurney (1873) LR 6 HL 377. For an action for fraud to succeed, or for the other party to have the remedies given to a person induced to enter into a contract by means of fraudulent misrepresentation, the following six elements must be established: 1.

The representation must be one of fact.

2.

The representation must be false.

3.

The party who makes such representation must know that what they are stating is false, or they must have no belief in its truth, or be reckless about whether it is true or false.

4.

The party who makes the representation must intend the other party to the contract to act upon such representation.

5.

The representation must, in fact, have been acted upon by the other party.

6.

The person claiming must have suffered damage.

The presence of each element is necessary in order to constitute the grounds for an action for fraud, or to afford those remedies to the other party to the contract.

1. Statement of fact [7.260] To be a misrepresentation, a person must make a representation of a past or present fact. For example, “we have a contract with Chinese investors to build a railway and a port”. That is a statement of fact that is either true or false when made. A statement of opinion or intention or a prediction about the

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future cannot be true or false at the time the statement is made. However, they may be misrepresentations if the representor does not, in fact, hold that opinion or have that intention or does not have reasonable grounds for making the prediction.

2. Falsity [7.270]  This is obviously a necessary ingredient of liability. It is a question of fact in each case whether the representation is false or not. If the representation is true when made but becomes false to the knowledge of the representor before the contract is concluded, and the representor concludes the contract without disclosing the falsity of the representation, they are just as liable as if the representation had been false to their knowledge when originally made.

3. Known to be false, or without belief in its truth, or recklessly careless whether it be true or false [7.280] The representor need not actually know that what they are representing is in fact untrue. The representor is liable if they make the false statement when they have no knowledge whether it is true or false, and also when they do not trouble to verify the truth of what is said. If, on the other hand, the person making the representation genuinely believed the statement to be true, there is no fraud even though their belief was formed negligently.

4. Intended to be relied upon [7.290]  This means, for example, intending that the other party enter into a contract or do any other act in reliance on the statement.

5. In fact relied upon [7.300]  The misrepresentation must have induced the other party to enter into the contract. Accordingly, if the party to whom the representation is made is fully aware of the falsity of the statement, they will be unable to show that it induced them to enter into the contract. However, even where the person to whom the representation was made did not believe the representation to be entirely true, they will still have a remedy for fraudulent misrepresentation so long as they were not aware at the relevant time of the extent of the fraud.

6. Resulting in damage [7.310]  If no damage is suffered from the false representation, no action lies.

Remedies for fraudulent misrepresentation [7.320]  A person who has been induced to enter into a contract by reason of fraudulent misrepresentation may refuse to be bound by the contract (or successfully defend any attempts to enforce the contract against them) or affirm the contract and claim damages for any loss sustained. Where the latter approach is adopted, the general principle in assessing damages is that the plaintiff is to be put, so far as possible, in the position they would have been in if they had not acted on the fraudulent inducement. For example, where a person complains that they have been induced by fraud to buy something and pay more for it than it was worth, the measure of damages which that person is entitled to recover is, prima facie, the amount by which the price paid exceeds the value of the thing purchased at the time of sale. Consequential loss is also recoverable in an appropriate case. Where fraud is present, the contract is not void but merely voidable.

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Innocent misrepresentation [7.330]  An innocent misrepresentation occurs when a person makes an untrue statement of fact which was intended to, and did in fact, induce the other party to enter into the contract but without any fault on the part of the representor. There are many instances of innocent misrepresentations in commercial life. The following two cases provide examples.

Oscar Chess Ltd v Williams

  

[7.340]  Oscar Chess Ltd v Williams [1957] 1 WLR 370. Mr Williams bought a new Hillman Minx from Oscar Chess, a car dealer. He accepted as a trade-​in a used Morris as part payment. It was described as a 1948 Morris and was therefore valued at £290. In fact, it was a 1939 model worth £175. Mr Williams honestly believed it was a 1948 model, relying on the car’s registration papers. The papers, unknown to him, were a forgery. The error was discovered eight months later when the chassis and engine numbers were sent to Morris Motors Ltd. The Court of Appeal held that the statement was a misrepresentation and not a warranty. It listed a number of non-​binding factors to consider when distinguishing between the two: (1) Where an assumption is fundamental to a contract, it does not necessarily mean that it is a term of the contract (2) A warranty is a binding promise as well as a non-​essential term (3) Whether the parties intended the statement to be promissory (ie a term) is assessed objectively, based on the parties’ words and conduct. (4) Where the statement is made by a party who is expert or more knowledgeable than the other it is more likely to be a promise (5) An oral representation that is subsequently included in a written document is more likely to be regarded as a warranty, but it is not necessarily so. As the statement was an innocent representation and not a warranty, no damages could be awarded and, because of the lapse of time, rescission was not available. Oscar Chess therefore had no remedy.

Remedies for innocent misrepresentation [7.350]  The common law provided no remedy for an innocent misrepresentation (where the representation was not made a term of the contract); it neither awarded damages nor regarded the contract as void or liable to be rescinded. Subject to very limited exceptions, only the courts of equity provided a remedy for the victim of innocent misrepresentation. A person who was induced to enter a contract by an innocent misrepresentation has the right: (a)

to rescind the contract whereupon they can obtain an “indemnity” against expenses incurred because of the obligations in the contract; and

(b)

to resist successfully an action for specific performance of the contract.

The following case is an example of an innocent misrepresentation.

Redgrave v Hurd [7.360]  Redgrave v Hurd (1881) 20 Ch D 1. Redgrave, an elderly solicitor, advertised for a partner to join the business and buy the house in which the practice was located. Hurd

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responded. During the negotiations, Redgrave told Hurd that the practice brought in £300 pa, when, in fact, it brought in only £200 pa. Redgrave showed him the accounts which showed the business brought in £200 pa and told him that the rest of the £300 figure was borne out by other papers in the office that he could check if he wished. He did not do so (and, in fact, they showed no extra business). Hurd realised the true position just prior to settlement and refused to complete the transaction. Redgrave sued for specific performance, and Hurd counterclaimed for rescission based on fraudulent misrepresentation (because he wanted to claim damages as well).

  

Hurd was unsuccessful at the trial because the Court said he should have checked the documents to which Redgrave had referred. On appeal, Hurd’s counterclaim for fraudulent misrepresentation failed –​there was no evidence that Redgrave knew the statement was untrue nor was he reckless as to its truth or otherwise. However, the Court, in deciding that there was no duty on him to inspect the papers, ordered rescission of the contract for the innocent misrepresentation.

[7.370]  Several legislative modifications of these principles are discussed separately later in this chapter (see [7.400]).

The remedy of rescission [7.380]  This equitable remedy is available in the case of both fraudulent and innocent misrepresentation. It amounts to setting the contract aside and restoring the parties to the position they occupied before the contract was made. However, there are certain bars to rescission: 1.

The right is lost if the party entitled to rescind affirms the contract after becoming aware of the falsity of the representation. A contract is affirmed if the representee, after full knowledge of the facts, declares their intention to proceed with the contract, or does some act from which such an intention may be inferred. A representee will not generally be taken to have affirmed a contract unless they were also aware of their right to rescind. Where the contract is affirmed, the representee retains a right to sue for damages only if the representation was fraudulent.

2.

The right is lost if third parties acting in good faith acquire rights in the subject matter of the contract before the right to rescind is exercised. This occurred in Lewis v Averay [1972] 1 QB 198 (see [7.140]).

3.

The right to rescind is lost if by reason of the changes that have occurred to the subject matter it is no longer possible to restore the parties substantially to their pre-​contractual position. In this context, the court will go to considerable lengths in ordering payments and adjustments to be made, particularly in a case of fraudulent misrepresentation.

Alati v Kruger [7.390]  Alati v Kruger (1955) 94 CLR 216. Kruger purchased a fruit business from Alati for £700. Kruger alleged that he had been induced to enter into the contract of purchase by fraudulent misrepresentations as to the takings of the business made respectively by Alati and others. He also alleged that Alati had warranted in clause 21 of the contract that the average takings of the business were approximately £100 per week. The takings proved immediately to be much

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less than £100 per week. In fact, during the two weeks he was in possession of the business, the takings were less than half of the warranted amount.

  

The Court noted Kruger had three options: first, he could sue for damages for breach of the warranty contained in clause 21, but he could not do this and rescind the contract for misrepresentation. Second, he might sue to recover as damages for fraud the difference between the price he had paid and the fair value of the property at the time of the contract, but, again, he could not do this and rescind the contract. Or, third, provided that he was in a position to restore Alati substantially to the position he was in before the contract, he might rescind and sue to recover his purchase money. This is what he did. The High Court affirmed the decision to rescind the contract, order the return of the purchase money and award damages for losses Kruger suffered.

Misrepresentation under the Australian Consumer Law [7.400] The Australian Consumer Law1 provides civil remedies where misrepresentations by a person constitute misleading or deceptive conduct. Section 18(1) provides that: A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. The Act also provides civil remedies where misrepresentations are made in connection with the supply of goods or services: s 29(1) A more detailed account of the false or misleading representation provisions of the Australian Consumer Law will be found in Chapter 13.

Negligent misrepresentation [7.410]  So far we have been considering the remedies available where a person has been induced to enter into a contract with another as a result of an innocent or fraudulent misrepresentation made by the latter. However, a person may enter into a contract as a result of negligent advice or information given to them by a third party. Misrepresentations are negligent if: (a)

the representor owed the representee a duty of care  –​often this will happen where professional advice is being given;

(b)

there was a breach of that duty –​the representor was negligent in failing to do what a reasonable person would have done; and

(c)

the representee suffered loss as a result of the negligent misrepresentation.

We will examine this area of law in depth in Chapter 14.

Duress [7.420]  Duress is actual or threatened violence to, or the deprivation of liberty of, a person or their immediate family or near relatives to pressure or coerce such person into entering into a contract. A person who 1 The Australian Consumer Law is Sch 2 to the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 13.

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has been coerced into entering into a contract under duress has been deprived of their free will to act and thus there is no true consent to the agreement. A contract made under duress is voidable at the option of the party coerced, that is, he or she can elect not to be bound by the contract. It has been held that the duress need not be the sole reason for the party subjected to the duress to enter into the contract; it is sufficient if it was one of the reasons for doing so.

Barton v Armstrong [7.430]  Barton v Armstrong [1976] AC 104. The plaintiff claimed that he had executed a deed for the purchase of the defendant’s shares in a company because of the defendant’s threats against his life. At trial, it was held that the plaintiff had also been motivated to execute the deed for business reasons. The Privy Council held that:

  

“[T]‌hough it may be that [the plaintiff] would have executed the documents even if [the defendant] had made no threats and exerted no unlawful pressure to induce him to do so, the threats and unlawful pressure in fact contributed to his decision to sign the documents.”

Economic duress [7.440]  The courts have also recognised a category of duress known as “economic duress”. That expression refers to a situation where one party is induced to enter into a contract because of threats to that party’s economic interests. It has been said that in determining whether there has been economic duress, the proper approach is to ask: (a)

whether any applied pressure induced the party to enter into the contract; and

(b)

whether that pressure went beyond what the law is prepared to countenance as legitimate, for example, unlawful threats or unconscionable conduct.

Where economic duress is established, the contract will be voidable at the option of the person threatened.

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [7.450]  North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] 1 QB 705. A shipbuilding company threatened to terminate a contract for the building of a tanker unless the shipowner paid increased payments following a currency devaluation (payments which were not required under the contract). The shipowner agreed because it required the vessel for a lucrative charter it was negotiating. Sometimes, after delivery of the vessel, the shipowners sought to recover the increased payments they had been compelled to make.

  

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It was held that the shipbuilder’s threat to break the contract without any legal justification unless the owners agreed to the increased payments amounted to economic duress. The contract for the increased payments was therefore voidable and the moneys prima facie recoverable. However, it was held that because of their delay in seeking recovery of the excess payments, the owners had affirmed the contract and could not recover the payments.

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Alternative actions under the Australian Consumer Law [7.460]  It is more likely that allegations of duress, particularly economic duress, will be dealt with under s 21 (which prohibits unconscionable conduct in relation to goods and services) or s 50 of the Australian Consumer Law (which prohibits the use of physical force, or undue harassment or coercion in connection with the supply of or payment for goods, services or land). The Australian Competition and Consumer Commission (ACCC) has indicated a preference for using s 21 when businesses allege unfair pressure/​ duress by large corporations in relation to the buying and selling of goods and services.

ACCC v Coles [7.465]  Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405. The proceedings related to Coles’ Active Retail Collaboration (ARC) program which was designed to improve Coles’ earnings. The ACCC alleged that Coles pursued some suppliers for a variety of payments, including payments for “profit gaps”, waste and fines, or penalties for alleged short or late deliveries by suppliers. The ACCC alleged that Coles engaged in unconscionable conduct by making threats when certain suppliers declined to participate in the ARC program. The threats included threats that Coles would: ▶▶

cease giving support to the supplier from Coles’ replenishers;

▶▶

not acquire new products from the supplier;

▶▶

not meet with the supplier about its business; and

▶▶

not continue contractual negotiations then on foot with the supplier in circumstances where: ▷▷ ▷▷

Coles had a greater bargaining position relative to the supplier; and suppliers were not being provided with adequate information, and were being pressured to consider or assess the value, if any, of the purported benefits of the ARC program to their business within a short period of time.

By consent (ie Coles did not contest the allegations), the Federal Court ordered Coles pay penalties of $10 million and costs. Coles also entered a court-​enforceable undertaking to the ACCC to establish a formal process to provide options for the redress of over 200 suppliers referred to in the proceedings. In her judgment, Gordon J said: “Coles’ misconduct was serious, deliberate and repeated. Coles misused its bargaining power. Its conduct was ‘not done in good conscience’. It was contrary to conscience. Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings. Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand. Coles withheld money from suppliers it had no right to withhold. Coles’ practices, demands and threats were deliberate, orchestrated and relentless.” ACCC v Woolworths [2016] FCA 1472. In a similar strategy to Coles, Woolworths’ “Mind The Gap” scheme sought retrospective payments from a large number of suppliers to make up the shortfall in Woolworths’ expected and actual profit for the December 2014 half year. As a result of the scheme, Woolworths obtained $18.1 million in payments. The ACCC prosecuted Woolworths arguing its conduct was unconscionable because:

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▶▶

▶▶

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the conduct was not of a standard of accepted behaviour of businesses generally operating in any industry; the conduct was an abuse of Woolworths’ substantially stronger bargaining position relative to its suppliers; and engaging in those types of negotiations was not a right that was included in the contract

The Court concluded that the conduct was within the ordinary course of business in the supermarket industry and was not unconscionable as it met the “norms of society” (or at least the norms of “supermarket society”). The Court found (i) from the perspective of any individual supplier, the Mind The Gap scheme was no different to any ordinary negotiation that the supplier might have had with Woolworths (ii) Woolworths was not in a substantially stronger bargaining position than all its relevant suppliers, particularly its large multinational suppliers whose products customers expect to be available in supermarkets (although, it noted, being in a superior bargaining position alone does not constitute unconscionable conduct); and (iii) Woolworths was not acting outside of its contractual rights to enter into those negotiations so there was nothing illegitimate about its actions.

  

Undue influence [7.470]  Undue influence is the improper use of the ascendancy acquired by one person over another for the benefit of the ascendant person themselves or someone else, so that the acts of the person influenced are not, in the fullest sense of the word, their free voluntary acts. Undue influence usually arises in transfers of property for no or inadequate consideration. The granting of relief on account of undue influence is founded on the principle of correcting abuses of confidence and is applied where two persons are so situated that one may obtain considerable influence over the other. Where the following special relationships exist, undue influence is presumed in dealings and the onus of proving that it was not exercised is on the party denying it: (a)

parent and child, until the child has withdrawn from the influence of the parent;

(b)

guardian and ward;

(c)

trustee and beneficiary;

(d)

solicitor and client;

(e)

religious adviser and devotee; or

(f)

doctor and patient.

However, the list of relationships that may give rise to a presumption of undue influence is not closed. Thus, it is open to a person to establish that a special relationship of trust and confidence has arisen such as to give rise to a presumption of undue influence against the person in the dominant position. Where a special relationship of confidence exists between the parties to a contract such as to raise a presumption of undue influence, the onus is on the person in whom the confidence is reposed to establish that the transaction in question was the “pure voluntary and well-​understood” act of the person reposing the confidence, that is, that the latter’s mind or intention was not subject to any undue influence. The relationship of husband and wife does not give rise to a presumption of undue influence.

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However, in an appropriate case, a special relationship of control and dominance may be established giving rise to such presumption:

Johnson v Buttress [7.480]  Johnson v Buttress (1936) 56 CLR 113. Three years before he died, John Buttress gave his land and cottage to a woman, Mary Johnson, he had known for 20 years, who had been very good to his wife and who had helped him out in various ways. After his death, the administrator of his estate challenged the gift on the basis that the relationship was one of trust and confidence so as to give rise to the presumption of undue influence. In the view of the administrator, Buttress was illiterate, ignorant of commercial matters and did not understand the irrevocable nature of what he had done. The finding of the trial judge was more colourful  –​the deceased was “highly excitable, very stupid and mentally unstable”. The High Court agreed with the administrator. Having established that a relationship of trust existed, the onus then shifted on to Johnson to prove that she had not exercised undue influence on Buttress. In the words of Latham CJ:

  

“The learned judge found that a relation of trust and confidence obtained between the deceased and the defendant of such a character that he relied upon her for advice on any matter of business … This being so, I agree with the learned judge that, in order to maintain the transaction, it was necessary for the defendant to show affirmatively that the deceased knew what he was doing when he made the transfer, in the sense that he understood its effect and significance in relation to himself, and further to show that the transfer was the result of his own will … (T)hough it has not been affirmatively proved against the defendant that she exercised undue influence, yet she has not displaced the presumption of undue influence which arises in the circumstances of this case ….”

[7.490]  In the absence of establishing a special relationship giving rise to a presumption of undue influence, the onus is on the person seeking to avoid a transaction to prove that it was the result of undue influence exerted on her or him by another. The following case is an instance of intra-​family elder abuse.

Spong v Spong

  

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[7.500]  Spong v Spong (1914) 18 CLR 544. A father brought an action against his son for rescission of a voluntary transfer of land by the father to the son on the ground that the father, when he executed the transfer, was, as his son knew, incapable of knowing or understanding the contents or effect of the transfer. The trial judge agreed and the High Court dismissed the appeal, holding that the evidence established the existence of a fiduciary relationship between the father and son and that, in the absence of independent advice to the father, the transfer should be set aside.

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Lloyd’s Bank Ltd v Bundy [7.510]  Lloyd’s Bank Ltd v Bundy [1975] QB 326. The defendant, an elderly farmer, and his only son had been customers of the plaintiff bank for many years. The son formed a company that banked at the same branch of the bank as the defendant. The defendant guaranteed the company’s overdraft and charged the whole of his farm, his sole remaining asset, to secure the amount under the guarantee.

  

It was held that there was such a relationship of confidentiality between the bank and the defendant that the court could intervene to prevent the relationship being abused. Since the effect of the guarantee and charge could have resulted in the defendant being left penniless in old age and the defendant had had no independent advice as to the wisdom of what he was doing, there was a breach by the bank of its fiduciary duty of care and the guarantee and charge should be set aside for undue influence.

Effect of undue influence [7.520]  Undue influence renders a contract voidable at the option of the “weaker” party. If an unreasonable length of time is allowed to elapse after the entire cessation of the influence, the right of a person to have a transaction set aside on the ground of undue influence may be lost.

Unconscionable conduct [7.530]  The general rule is that the court will not grant relief to a party merely because the contract they have entered into contains harsh terms. However, as the decision in the following case indicates, the courts are prepared to act where one of the parties is suffering from a disadvantage and the consent of that party is affected by the unconscionable conduct of the other party. In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, the High Court had the opportunity of clarifying the principles to be applied in determining whether a contract should be set aside on the ground that it was unconscionable.

Commercial Bank of Australia Ltd v Amadio [7.540]  In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, the plaintiffs, Mr and Mrs Amadio, were an elderly Italian couple of little formal education and limited knowledge of the English language. They signed a mortgage to the defendant bank over a block of shops as security for payment of its debts by one of their son’s building companies. The mortgage included a guarantee under which the plaintiffs became liable for the total present and future indebtedness of the company. At the time of signing the mortgage/​guarantee, the plaintiffs believed the company to be prosperous. However, it was in fact in serious financial difficulty (and, in fact, was being kept afloat by the bank which had inadequate security to cover its indebtedness). Earlier on the day of their signing the mortgage/​guarantee, the plaintiffs’ son had led them to believe that their liability was limited to $50,000 and was to run for no longer than six months. Later on the same day, the manager of the son’s bank (who was aware of the son’s

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financial difficulties) called on the plaintiffs at their home with the mortgage/​guarantee contract. There was little discussion. The plaintiffs did not try to read the document, nor did the manager purport to explain its meaning or effect, except to correct Mr Amadio’s apparent misunderstanding that the mortgage/​guarantee was only for six months. Having obtained the plaintiffs’ signatures, the manager left without leaving them a copy of the agreement. The son’s company ultimately went into liquidation and the bank claimed nearly $240,000 from the plaintiffs under the terms of the mortgage/​guarantee. The plaintiffs sought to have the contract set aside. It was held by a majority of the High Court that the mortgage/​guarantee should be set aside on the ground of unconscionable dealing. The plaintiffs were in a position of special disadvantage in that they were mistaken as to the extent of their liability under the agreement and as to the financial circumstances of their son’s company. In consequence, the plaintiffs were ill-​ informed as to the seriousness of their position in signing the mortgage/​guarantee which spelt financial ruin for them but ameliorated the position of the bank. Their age and background and reliance on their son’s misleading advice contributed to their position of special disadvantage. Although the bank may not have had full and actual knowledge of the plaintiffs’ disability, it knew enough to be put on inquiry as to whether Mr and Mrs Amadio appreciated the nature of the contract they were being asked to sign and the bank’s failure to make further inquiry as to whether the transaction had been properly explained to them amounted to wilful ignorance. The Court said that the general principle to be applied in such cases is this: “[I]‌f A, having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.”

  

[7.550]  The High Court in Amadio’s case recognised that it was impossible to definitively describe all circumstances which would give rise to a situation of special disadvantage which, if unfairly taken advantage of, may lead to relief being granted by the court on the ground of unconscionable dealing. The following case is a further example of relief being granted for unconscionable conduct.

Louth v Diprose [7.560]  Louth v Diprose (1992) 175 CLR 621. Louis Diprose was “utterly infatuated” with Carol Louth. She, on the other hand, was indifferent to him and never changed. In 1984, Louth was in financial difficulties and was living in a house owned by her sister’s husband. Louth told Diprose she was going to be asked to leave the house and that if this happened she would commit suicide. This was untrue. She was under no immediate pressure to vacate the house. In this atmosphere of crisis in May 1985, Diprose agreed to buy the house for Louth for $58,000 and, at her insistence, put it in her name. For the next three years, Diprose’s infatuation continued but was not reciprocated. For various reasons, Diprose moved into the home he had bought for

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her, but their relationship deteriorated. Diprose told Louth he wanted the house transferred to him. She refused, and Diprose sued to recover the gift. Deane J said:

  

“[T]‌he relationship between the respondent and the appellant at the time of the impugned gift was plainly such that the respondent was under a special disability in dealing with the appellant. That special disability arose not merely from the respondent’s infatuation. It extended to the extraordinary vulnerability of the respondent in the false ‘atmosphere of crisis’ in which he believed that the woman with whom he was ‘completely in love’ and upon whom he was emotionally dependent was facing eviction from her home and suicide unless he provided the money for the purchase of the house. The appellant was aware of that special disability. Indeed, to a significant extent, she had deliberately created it. She manipulated it to her advantage … the appellant deliberately used that love or infatuation and her own deceit to create a situation in which she could unconscientiously manipulate the respondent to part with a large proportion of his property. The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimisation….”

Kakavas v Crown Melbourne Ltd [7.570]  Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392. Kakavas lost over $20 million while gambling at a Victorian casino over a 14-​month period. He had a compulsion to gamble, though he was able to control that compulsion. The High Court rejected his unconscionability claim against the casino. Gambling is a rare commercial activity in which each party inherently seeks to cause financial damage to the other party. Equity did not characterise as victimisation the ordinary operation of a lawful commercial activity. If a casino encouraged a pensioner to cash their pension cheque for gambling purposes, that would constitute victimisation. If a gambler was drunk or under an incapacity, that could also constitute victimisation.

  

By contrast, Kakavas was a wealthy “high roller”. He did not suffer a constant compulsion that would have prevented him from staying away from the casino. He was able to stay away from the casino when he so wished. He had gone to great lengths to persuade the casino that his previous gambling problems were now past. Equitable intervention required “proof of a predatory state of mind”, which had not been established here. Indifference to the welfare of the other party to an arm’s length commercial transaction was not enough. Victimisation or exploitation was required.

Guarantees by married women of their husbands’ debts [7.580]  A special principle of equity was applied to a guarantee given by a married woman to secure her husband’s business debts. If a married woman’s consent to become a guarantor for her husband’s debt was procured by her husband without her understanding its essential effect and the creditor accepted the guarantee without taking steps to inform the wife of her obligations, the guarantee could be set aside. In the following case, the High Court essentially affirmed this principle of equity.

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Garcia v National Australia Bank Ltd [7.590]  Garcia v National Australia Bank Ltd (1998) 194 CLR 395 In November 1987, the appellant wife had signed a guarantee in favour of the respondent bank guaranteeing repayment to the bank of loans made to her husband’s gold trading company. The guarantee was secured by an “all moneys” mortgage over the family home. The husband and wife had given the mortgage to the bank some eight years prior to the wife signing the guarantee in dispute. In June 1990, the appellant wife commenced proceedings to have the guarantee and mortgage set aside. The respondent bank claimed $327,189.69 under the guarantee and sought possession of the mortgaged home. In the meantime, the husband’s company had been wound up and the couple divorced. The High Court held that the guarantee and mortgage should be set aside. The Court said that the rationale of this principle was “not to be found in notions based on the subservience or inferior economic position of women” nor on their “vulnerability to exploitation because of their emotional involvement” but rather on the “trust and confidence” between marriage partners. In a marriage relationship, one partner, often the wife, may well leave business judgments to the other partner. Accordingly, business decisions “may be made with little consultation” between the partners and the “explanation of a particular transaction” given by one spouse to the other may be “imperfect, incomplete” or “simply wrong”. The majority considered that it would be unconscionable to allow a bank to enforce a guarantee in the following combination of circumstances:

  

(a)

the wife did not understand the effect of the transaction;

(b)

the wife gained no financial benefit from the contract, the performance of which she agreed to guarantee;

(c)

the lender understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and may not fully and accurately explain the effect of the transaction to her; and

(d)

the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.

Under the Australian Consumer Law [7.600] The Australian Consumer Law2 contains important provisions prohibiting persons from engaging in “unconscionable conduct” (ss 20–​22). These provisions are discussed in Chapter 13.

Under the National Credit Code [7.610] The National Credit Code (set out in Sch  1 of the National Consumer Credit Protection Act 2009 (Cth)) provides for the reopening of a credit transaction where the court is satisfied that in the

2 The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 13.

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circumstances relating to the credit contract, mortgage or guarantee at the time it was entered into, it was unjust: National Credit Code, s 76(1). “Unjust” includes “unconscionable, harsh or oppressive”: National Credit Code, s 7(8). The provisions apply to all personal (ie non-​business) credit.

Further reading See contract texts listed at the end of Chapter 2.

Tutorial activities 1.

In what ways can consent be vitiated by the conduct of another person?

2.

Where consent is affected by one of the vitiating factors, the remedy of rescission may be available. What is rescission and in what circumstances is it possible to rescind a contract?

3.

“Mistakes generally don’t matter in the law of contract.” Review the examples of mistakes in [7.20] and discuss the reasons why “mistakes generally don’t matter”.

4.

The mistake in Taylor v Johnson (1983) mattered (ie the contract could be rescinded); the mistake in Leaf v International Galleries did not matter (ie the contract could not be rescinded). Can you explain the difference between the two cases?

5.

Explain when a person can seek rescission of a contract because they made a mistake about the document that they signed? Use Petelin v Cullin (1975) to illustrate your answer.

6.

What is the definition of a misrepresentation? How is a representation different from a term? How is an innocent misrepresentation different from a fraudulent misrepresentation?

7.

What remedies are available to a plaintiff who has entered into a contract because of an innocent misrepresentation?

8.

The common thread in duress, undue influence and unconscionable conduct actions is the imbalance in power between the plaintiff and the defendant. Explain using cases to illustrate.

9.

Where one (commercially weaker) party is being pushed in the negotiations to a place where it has no real alternative but to agree to the terms proposed by the other (commercially dominant) party, there is a risk of the agreement being rescinded for economic duress. When does “rough and tumble of commercial bargaining” cross the line and become “economic duress”. In your answer, please refer to ACCC v Coles (2014) and ACCC v Woolworths (2016) and explain why the decisions differed.

10.

What are the elements that must exist before a contract may be rescinded for unconscionable conduct. Please refer to Commercial Bank v Amadio (1983).

11.

Imogen sells her unit to Clare. It overlooks a beautiful park. In their conversations about the unit and the environment, Clare is obviously very attracted by the park and by the fact that she could walk her three dogs there. She does not ask whether any changes to the park were planned, so Imogen does not mention the fact that the Council has approved a 12-storey multi-unit dwelling that includes a car park and skateboarding rink that will reduce the size of the park by half and alter the ambience dramatically. Shortly after Clare moves in, so do the bulldozers. She is very upset and seeks your advice as to whether she can rescind the contract for misrepresentation.

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12.

Eddie purchases a Persian carpet from Khali the Rug Dealer in High St, Prahran. On the back of the rug is an authentication certificate that says the rug is from Baluchistan in Iran, a region noted for its fine carpets. Khali assures Eddie that this is true, and Khali believes it to be so. On the basis of Khali’s assurances, Eddie pays $25,000 for the carpet. Three years later when Eddie tries to sell the carpet, a prospective buyer brings Ali Khan, a rug valuer, to inspect it. Ali says it is not a Baluchistan carpet – “the knots are tight but the silk is not of the finest quality. This one is from a small village near Herat in Afghanistan – it’s nice but worth only $4,000”. Eddie packs it up and heads off to see Khali.



Please advise Eddie on whether he has any rights under the law of mistake or misrepresentation.

13.

W and V are parties to a Gas Sale Agreement (GSA) under which W is required to supply it with gas up to a maximum daily quantity. Due to an explosion at a gas production facility owned by A (the other main supplier of gas in the market), available supply dropped and the market price spiked. W informed V that it would no longer supply it with the additional gas under the GSA but would supply an equivalent quantity of gas under short-term GSAs at a much higher price. This constitutes a breach of the GSA. V agreed but later argued that the short-term GSAs were voidable under the doctrine of economic duress because the pressure was illegitimate. Advise the parties of the likely outcome.

14.

A priest in the Anglican Church formed a close friendship with one of his parishioners. When he learned she intended to sell her rural retreat in the Yarra Valley, he offered to buy it at a price that the parishioner believed it to be a fair price. In fact, it was well below the market price. Advise the (disillusioned) practitioner.

15.

Mr and Mrs Sarnath migrated to Australia from Sri Lanka in 2005. They are dependent on their only son, Jayantha, for advice and support. They have limited education, no business acumen, poor language skills and their only income is the aged pension. They own their own home, which is valued at around $400,000. Jayantha is a charming but feckless businessman, who is always on the verge of something great. In June 2012, he needs $150,000 to pursue a dotcom opportunity that will make him rich. He is able to borrow money from the West Bank but only after he persuades his parents to act as guarantors. He misleads his parents as to the extent and purpose of the loan. The bank is unaware of this. After investigating their financial position, the bank manager meets with Mr and Mrs Sarnath and goes over the guarantee contract. He asks whether they have any questions, and, when they do not, they sign the documents as required.



Jayantha uses the money to invest in an internet company. The company is worthless, and Jayantha loses his entire investment. When he is unable to repay the loan, West Bank looks to the parents to honour their obligations as guarantors.



Advise Mr and Mrs Sarnath.

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chapter 8

Legality of Object [8.20] Illegality under statute law ......................................................................................................................  127 [8.180] Illegality at common law ...........................................................................................................................  131 [8.530] Consequences of illegal contracts and void contracts ..............................................................  140

Introduction [8.10]  A further essential element for a valid contract is the legality of its objective. That is, the transaction must not be unlawful or illegal. The illegality of a contract may arise from (a)  the statute or (b) the common law. Contracts that are broadly referred to as “illegal” are generally recognised as falling into two categories: (a) those which are so serious as to be regarded as illegal in the strict or narrow sense (eg a contract to commit a crime) and (b) those which are less reprehensible and are regarded as void (eg a contract in restraint of trade). Whether a contract is categorised as illegal in the strict sense, or simply void, it is unenforceable. The topic of illegality and contracts is considered under the following headings: 1.

Illegality under statute law.

2.

Illegality at common law.

3.

Consequences of illegal contracts and void contracts.

Illegality under statute law Contracts illegal by statute [8.20]  Many business activities are regulated by statutory provision requiring, for example, a licence to be obtained before engaging in a particular activity. Often, non-​compliance with such provisions is made an offence under the particular statute. The question which may then arise is the effect of such non-​ compliance on a contract entered into with another party, that is, is such contract prohibited by the statute in question? If it is, then “the court will not enforce a contract which is expressly or impliedly prohibited by statute”: St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 at 283. In Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410, Gibbs ACJ outlined four different ways in which a statute may render a contract illegal: “(1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face

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may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits”. See also Burmic Pty Ltd v Goldview Pty Ltd [2003] 2 Qd R 477.

Express prohibition [8.30]  If a contract is expressly prohibited by a statute, then it is illegal and unenforceable.

Re Mahmoud & Ispahani [8.40]  Re Mahmoud & Ispahani [1921] 2 KB 716. A statutory order provided that a person was not to buy or sell or otherwise deal in linseed oil without a licence issued by a government official. The defendant told the plaintiff, untruthfully, that he had the necessary licence and contracted to purchase a quantity of linseed oil from the plaintiff. The defendant later refused to take delivery and the plaintiff sued him for damages for breach of contract. It was held that the plaintiff’s action failed. The order clearly prohibited the sale of linseed oil to an unlicensed purchaser and therefore expressly prohibited the contract in question. Accordingly, the contract was illegal and unenforceable:

  

“The contract was absolutely prohibited; and in my view, if an act is prohibited by statute for the public benefit, the Court must enforce the prohibition, even though the person breaking the law relies upon his own illegality”.

Implied prohibition [8.50]  It is common for a statute to require or proscribe certain conduct and provide a penalty for non-​ compliance. The problem is then to determine whether non-​compliance was also intended to affect a contract involving such conduct: if so, then the contract may be regarded as being impliedly prohibited by the statute and therefore illegal and unenforceable. On the other hand, the statute may be construed as limiting the sanction for non-​compliance to the penalty or fine specified in the statute but otherwise leaving the validity of a contract involving the conduct unimpaired. The issue arose for consideration by the High Court in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410:

Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [8.60]  Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410. The respondent company lent the first appellant $132,600, repayment of which was secured by a mortgage which incorporated a guarantee given by the other appellants. Default having been made in repayment of the loan, the respondent sued the appellants on the personal covenants in the mortgage. The appellants contended that the mortgage (including the guarantee) was

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illegal and void on the ground that the respondent had been carrying on the business of banking without authorisation under the Banking Act 1959 (Cth). The Act provided that a corporation was not to carry on a banking business unless it was authorised to do so and provided a penalty of $10,000 per day for contravention of this provision. It was agreed between the parties that the lender was carrying on the business of banking in contravention of the Act. The question to be determined was whether such offence rendered the contract between the parties illegal and unenforceable.

  

The High Court held that, having regard to the scope and object of the provision prohibiting the carrying on of any banking business without authority, and in particular to the heavy penalty provided for its contravention, the provision did not, upon its proper construction, either expressly or impliedly prohibit such a loan on mortgage. Accordingly, the respondent lender was entitled to enforce the mortgage.

[8.70]  The validity of the contract is determined by statutory interpretation: Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101. In determining the effect on a contract of conduct proscribed by statute, the courts have regard to the intention of the legislation, that is, what it was intended to achieve. This is particularly so where it is apparent that the statute was aimed at protecting the public or furthering some public policy objective.

Buckland v Massey

  

[8.80]  Buckland v Massey [1985] 1 Qd R 502. A  Queensland statute provided that it was an offence to sell a second-​hand motor vehicle without a certificate of roadworthiness. It was agreed between the seller of a second-​hand vehicle and the buyer that the seller need not obtain the requisite certificate but that the buyer would do so. The seller sought to recover the balance of the purchase price. The court said that the whole of the statute was concerned to ensure that motor vehicles for use on the road are roadworthy. The clear implication of the Act was to prohibit contracts for the sale of second-​hand vehicles where a roadworthiness certificate had not been obtained. Accordingly, it was held that the contract was impliedly prohibited by the Act and therefore unenforceable.

Gaffney v Ryan

  

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[8.90]  Gaffney v Ryan [1995] 1 Qd R 19. Another statute provided that it was an offence for a registered builder to perform general building construction when not registered as a general builder, and a monetary penalty was prescribed for non-​compliance. A registered builder performed work in breach of this provision. It was held that non-​compliance with the statutory provision by the builder did not render void and unenforceable his contractual liability for the loss caused by his defective workmanship. The builder was liable for damages for his faulty workmanship. To have decided otherwise would not have been consistent with the statutory purpose of protecting those for whom building work is performed.

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[8.100]  It was held that representations that constituted misleading or deceptive conduct in contravention of s 52 of the former Trade Practices Act 1974 (Cth) did not render a contract entered into as a result of such conduct illegal and unenforceable. The reason was that the Act itself provided a wide range of remedies for contravention of s 52, particularly s 87, which empowered the court to declare a contract which had come into existence as a result of such conduct to be void: Bank of America Australia Ltd v Ceda Jon International Pty Ltd (1988) 17 NSWLR 290. It is likely that the court will give a similar construction to the corresponding provisions in the Australian Consumer Law, ss 18 and 243 respectively.

Gnych v Polish Club Ltd [8.110]  Gnych v Polish Club Ltd (2015) 255 CLR 414. The State liquor legislation provided that a licensee must not lease any part of licensed premises except with the approval of the liquor authority. Violation of this provision was punishable by a fine. A licensee leased part of its premises to a restaurant without obtaining the approval of the authority.

  

The High Court held that this provision of the liquor legislation was directed at the licensee’s conduct in granting a lease, not the rights under the contract between the licensee and the restaurant. The “adverse consequences” for the innocent party (the restaurant) was a factor weighing against attributing to the legislature an intention to render the contract void. The offence under the liquor legislation occurred when the licensee granted the lease. Carrying out the lease was not prohibited. The punishment for the transgression was a fine. While the authority had power to cancel a liquor licence, it could leave the existing situation unchanged. If the violation of the statute “automatically” voided the lease, that would “pre-​empt” the authority’s power of supervision of licensees.

Contracts illegal as formed or performed [8.120]  A statutory prohibition may make a contract: (a)

illegal as formed; or

(b)

illegal as performed.

Contracts illegal as formed [8.130]  A contract will be illegal as formed where it was prohibited, either expressly or impliedly, from its inception. An example of a contract illegal as formed is Re Mahmoud & Ispahani [1921] 2 KB 716.

Contracts illegal as performed [8.140]  A contract may be legal at the time it was formed, that is, when it was made but become illegal because of the way in which it is performed. Thus, a contract will be illegal as performed where one or both of the parties intend to perform it in an illegal manner or for an illegal purpose.

Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [8.150]  Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828. The plaintiff manufacturers contracted with the defendant hauliers for the transportation of a large piece

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of engineering equipment. Subsequently, the lorry on which the equipment was being carried toppled over and the equipment was damaged. The plaintiffs sued the defendants for their loss. The relevant motor vehicle legislation provided that it was unlawful to use on the road a motor vehicle weighing more than 30 tons when loaded. Both the plaintiffs and the defendants were aware that the load exceeded the legal limit.

  

It was held that the plaintiffs could not recover. Although the contract for the carriage of the equipment may have been lawful when it was made, it was illegal as performed and therefore unenforceable by either party.

[8.160]  If the illegal conduct is only incidental to the way in which the contract is performed, it will not have the effect of making the contract unenforceable: Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215; St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267.

Contracts void by statute [8.170]  A contract which is illegal as a result of an express or implied statutory prohibition is void and unenforceable. However, a statute may not make a particular contract illegal but simply declare it void. Legislation in most Australian States provides that contracts or agreements by way of gaming or wagering are void and such contracts cannot be enforced in the courts.1 Exception is made in respect of lawful forms of gambling such as a bet or wager made on a licensed racecourse with a bookmaker.2 A contract will be void if it undermines a statutory purpose under which statutory rights are conferred in the public interest. The High Court has thus indicated that: “contractual arrangements will not be enforced where they operate to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, rather than for the benefit of an individual alone. The courts will treat such arrangements as ineffective or void, even in the absence of a breach of a norm of conduct or other requirement expressed or necessarily implicit in the statutory text”: Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129.

Illegality at common law [8.180]  The courts refuse to enforce agreements that are “contrary to public policy”. These contracts fall into two basic categories: 1.

contracts described as illegal because of their more reprehensible character; and

2.

those simply described as void, rather than illegal, because of their less serious nature.

1  Unlawful Gambling Act 1998 (NSW), s 56 (“has no effect”); Gambling Regulation Act 2003 (Vic), s 2.4.1; Racing Act 2002 (Qld), s 341; Lottery and Gaming Act 1936 (SA), ss 50 and 50A; Racing Regulation Act 2004 (Tas), s 103; Unlawful Gambling Act 2009 (ACT), s 47; Racing and Betting Act (NT), s 135; Gaming and Betting (Contracts and Securities) Act 1985 (WA), s 4. 2  Unlawful Gambling Act 1998 (NSW), s 56(2); Gambling Regulation Act 2003 (Vic), s 2.4.2; Racing Act 2002 (Qld), s 342; Lottery and Gaming Act 1936 (SA), s 50; Racing Regulation Act 2004 (Tas), s 103(2); Unlawful Gambling Act 2009 (ACT), s 47; Racing and Betting Act (NT), s 135(1); Gaming and Betting (Contracts and Securities) Act 1985 (WA), s 5; Betting Control Act 1954 (WA).

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A contract which is illegal will also be void and unenforceable in the courts. The rationale for the distinction between contracts which are illegal, and those which are simply void, on grounds of public policy is said to be justified because of the more severe consequences which may ensue where the contract is illegal.

Contracts illegal at common law [8.190]  Contracts that are illegal at common law on grounds of public policy are as follows: (a)

contracts to commit a crime, a tort or a fraud on a third party;

(b)

contracts promoting sexual immorality;

(c)

contracts prejudicial to the administration of justice;

(d)

contracts tending to promote corruption in public life;

(e)

contracts prejudicial to the public safety; and

(f)

contracts to defraud the revenue.

Contracts to commit a crime, a tort or a fraud on a third party [8.200]  A contract involving the commission of a crime, a tort or a fraud on third parties is illegal at common law and will not be enforced.

Contracts promoting sexual immorality [8.210] A contract which promotes, either directly or indirectly, the promotion of sexual immorality is illegal and unenforceable. This includes agreements for the letting of premises or the hire of vehicles for an immoral purpose. On the other hand, the contract of employment of a receptionist at a brothel was not void for illegality and she was entitled to recover workers’ compensation for a broken arm sustained on her way to work: Barac (t/​as Exotic Studios) v Farnell (1994) 53 FCR 193. Community standards of “immorality” are susceptible to change: Andrews v Parker [1973] Qd R 93.

Seidler v Schallhofer [8.220]  Seidler v Schallhofer [1982] 2 NSWLR 80. An agreement provided for the continuation of a de facto relationship for six months and for marriage or separation thereafter. In the event of separation, the plaintiff was to get a refund of her payments towards the purchase of a house in return for the transfer to the defendant of her half share as joint tenant in the property. It was held that the agreement was not void as being contrary to public policy.

  

Contracts prejudicial to the administration of justice [8.230]  Agreements which are regarded as hindering the administration of justice are illegal at common law on grounds of public policy. This includes agreements to conceal offences, compromise prosecutions or prevent or impede the justice system. Two categories of agreement require further consideration in this context: 1.

agreements to stifle a prosecution; and

2.

agreements for the maintenance of a suit and champerty.

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Agreements to stifle a prosecution [8.240]  An example of such an agreement is the following:

Public Service Employees Credit Union Co-​operative Ltd v Campion

  

[8.250]  Public Service Employees Credit Union Co-​operative Ltd v Campion (1984) 56 ACTR 39. The defendant guaranteed repayment of a loan advanced by the plaintiff credit union to his son on the understanding that the credit union would not report his son to police for misappropriation of moneys from the credit union. It was held that the guarantee was void for illegality as an agreement to stifle prosecution for an indictable public offence.

[8.260]  To be contrasted with that case is the decision of the Supreme Court of Western Australia in Scolio Pty Ltd v Cote (1992) 6 WAR 475.

Scolio Pty Ltd v Cote

  

[8.270]  Scolio Pty Ltd v Cote (1992) 6 WAR 475. An auditor’s report disclosed evidence of misappropriation of moneys by the respondent, a manager of the appellant company. The manager signed a deed to repay the moneys by instalments, being given to understand that if he did not do so, the auditor’s report would be referred to the police. The court held that it was not established that the manager had signed the deed under duress and there was no evidence of an implicit agreement to stifle a prosecution. Accordingly, judgment was entered against the respondent manager for the amount of the deed.

Contracts tending to promote corruption in public life [8.280]  A contract with a person to use their official position to obtain a benefit for another is illegal. For example, a contract to procure a title of honour for reward is illegal.

Parkinson v College of Ambulance Ltd

  

[8.290]  Parkinson v College of Ambulance Ltd [1925] 2 KB 1. The secretary of a charity made an arrangement with the plaintiff that if he would make a donation to its funds it would take steps on his behalf and procure him at least a knighthood. He paid £3,000 and undertook to pay more when the knighthood was forthcoming. However, he did not receive a knighthood and sued for the return of the money. It was held that he was unable to recover because the contract was illegal as being contrary to public policy.

Wilkinson v Osborne [8.300]  Wilkinson v Osborne (1915) 21 CLR 89. A, the agent for the owners of land, who was negotiating on their behalf for its sale to the Crown, entered into an agreement with B

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and C, who were members of the State Parliament and carried on business in partnership as land agents. Under the agreement, B and C, for pecuniary consideration, undertook to put pressure upon the government, of which they were supporters, to agree to purchase the land. The completion of the purchase and the earning of the reward were contingent upon the approval of the House of which they were members, so that the completion was or might be dependent upon their votes. It was held that the agreement was illegal as being contrary to public policy.

Contracts prejudicial to the public safety [8.310] Agreements in this category are of two types: first, trading agreements between a national and an enemy alien in wartime; second, agreements which might rupture the existing friendly relationships between one country and another: Regazzoni v KC Sethia (1944) Ltd [1958] AC 301. Such agreements are illegal and unenforceable.

Contracts to defraud the revenue [8.320]  A contract which is designed to defraud the revenue, whether national or local, is illegal as being contrary to public policy: Alexander v Rayson [1936] 1 KB 169.

Contracts void at common law [8.330]  There are three categories of contract usually regarded as being void (rather than illegal) at common law as being contrary to public policy. These are as follows: 1.

contracts to oust the jurisdiction of the courts;

2.

contracts prejudicial to the status of marriage; and

3.

contracts in restraint of trade.

Contracts to oust the jurisdiction of the courts [8.340]  A provision in a contract which purports to prevent recourse to the courts in the event of dispute between the parties is void as being contrary to public policy. It has been stated in the High Court that: “No contractual provision which attempts to disable a party from resorting to the Courts of law was ever recognized as valid. It is not possible for a contract to create rights and at the same time to deny to the other party in whom they vest the right to invoke the jurisdiction of the Courts to enforce them”: Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643.

Contracts prejudicial to the status of marriage [8.350]  A contract or a term of a contract which prejudices the status of marriage will be void as contrary to public policy, for example, a pre-​marriage agreement not to live together after marriage: Scott v Scott (1904) 25 ALT 174. One type of contract invalidated is that known as “marriage brokerage”, that is, an agreement to procure a marriage for a consideration:  Hermann v Charlesworth [1905] 2 KB 123.

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Contracts in restraint of trade [8.360]  A contract in restraint of trade is one which restricts a person from freely exercising their trade, business or profession. The most widely accepted definition of “restraint of trade” is that enunciated in Petrofina (Great Britain) Ltd v Martin [1966] 1 Ch 146: “A contract in restraint of trade is one in which a party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in future to carry on trade with other persons not parties to the contract in such manner as he chooses”. A contract which is in restraint of trade is prima facie void as being contrary to public policy but will be binding on the parties if the court is satisfied that it is reasonable in the circumstances. The main points in considering whether at common law a contract in restraint of trade is void or binding are as follows: (a)

the restraint must be reasonable as between the parties, that is, must be no wider than is reasonably necessary to protect the person for whose benefit it is imposed; and

(b)

the restraint must be reasonable in the interest of the public, that is, it must be in no way injurious to the public.

In applying these tests, the duration and extent of the area of the restraint are of particular importance. Contracts in restraint of trade at common law can conveniently be divided for the purposes of discussion into the following categories: (a)

those made when a business is sold to protect the purchaser’s goodwill in the business against undue competition by the vendor;

(b)

those made with an employee to restrain the employee after the termination of their employment from exercising their occupation in a certain area or for a certain time; and

(c)

other restrictive trading agreements, such as price maintenance agreements.

Each of these types of contractual restraint is considered separately below.

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd

  

[8.370]  Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535. The vendor of a business is frequently restrained from competing with the purchaser for a specified period and, usually, within a defined area. Such a restraint is enforceable if it is reasonable in the circumstances for the protection of the purchaser’s goodwill in the business.

Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd

  

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[8.380]  Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505. Where a contract for the sale of a shipbuilding business, specialising in the construction of luxury motor vessels, contained a restraint of trade clause, restraining the vendors from engaging in “the business of shipbuilding of any description or any other business of a similar nature”, it was held that the clause constituted an unreasonable restraint of trade as not being reasonably necessary to protect the interests of the purchaser.

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Positive Endeavour Pty Ltd v Madigan

  

[8.390]  Positive Endeavour Pty Ltd v Madigan (2009) 105 SASR 109. A contract for the sale of a finance broking business provided that the vendor must not “solicit, canvass or secure the custom of a person who is at completion, or was within 12  months before completion, a customer”. The Court held that this clause went beyond what was reasonably necessary to protect the value of the purchased business. The clause applied in perpetuity to any loan for any purpose to any existing customer. Sufficient protection would have been given by a clause with a suitable time limitation or which applied to a limited class of customers or type of loan.

Contracts of employment [8.400]  Contracts of employment sometimes contain covenants restraining the employee from exercising their profession or trade in a certain area or for a certain time after the termination of their employment. Covenants in restraint of trade contained in contracts of employment will only be enforced so far as they are necessary to prevent the employee using the knowledge, trade secrets or connections of their past employer in competition with that employer and not to prevent the employee from using their own skill and knowledge in their trade or profession, even if acquired in the previous employer’s service: Attwood v Lamont [1920] 3 KB 571. The law does not readily allow a person to contract out of their means of livelihood. A certain number of restraints rest on the employee, however, quite independently of any express covenant. For example, a person can be restrained from disclosing a secret process belonging to their employer which they have memorised: Amber Size Chemical Co v Menzel [1913] 2 Ch 239. A person can be prevented from using a list of their employer’s customers for the purpose of soliciting business for themselves: Robb v Green [1895] 2 QB 315. A person acquiring special skills with access to their employer’s secrets can be restrained from working for a competitor in their spare time:  Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169. Such covenants will be construed more strictly in the case of an employer (vis-​a-​vis an employee) than in the case of a vendor (vis-​a-​vis a purchaser of a business).These points are demonstrated by the leading case of Herbert Morris Ltd v Saxelby [1916] 1 AC 688:

Herbert Morris Ltd v Saxelby [8.410]  Herbert Morris Ltd v Saxelby [1916] 1 AC 688. Saxelby had been employed by the appellant company for 12 years. He had made a covenant with the company that he would not, for seven years after the termination of his employment with the company, either in the United Kingdom or Ireland, carry on or engage in by himself or with others any business of a like nature to that of the appellant company: at 690. He left the company and joined the staff of competitors of the company.

  

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The House of Lords held that the covenant was void as a person should not be restrained from using their own skill in any particular trade. A person has a right to engage in competition with others engaged in that trade and the law will not enforce a covenant in restraint of employment if it is imposed on the former employee only to protect the employer against competition per se.

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[8.420]  A restraint which is imposed simply for the purpose of preventing an ex-​employee from using their own skill and knowledge in competition with their former employer will not be enforceable. However, reasonable restraint designed to protect trade connections, confidential information or trade secrets acquired by the employee in the course of their employment will be enforceable: Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472.

Jardin v Metcash Ltd [8.430]  Jardin v Metcash Ltd (2011) 285 ALR 677. Jardin was the CEO of a subsidiary of Metcash, IGA Distribution, which distributed groceries to independent retailers. Jardin’s contract of employment provided that he must not accept any other employment without the company’s permission, compete with the company, or hold investments of more than 5% of the issued investments of any class of another company. Metcash decided to terminate his employment. Jardin sought to take a majority shareholding in a competitor of Metcash. The New South Wales Court of Appeal held that these contractual restraints were valid. Metcash was entitled to protect itself from the risk that Jardin would use his connections with its customers to seek to entice them away to a competitor. The evidence showed that over the 10 years of his employment Jardin had acquired knowledge and influence over customers that was sufficient to justify a restraint.

  

Confidential information about the terms of trade between IGA Distribution and its customers could be used to compete against IGA. The 5% investment limit was justified because of the risk that Jardin would use his knowledge as CEO for the advantage of a competitor of IGA. The deed releasing Jardin from his employment included a restraint for 12 months while he continued to be employed by Metcash. This restraint was also reasonable.

Seven Network (Operations) Ltd v Warburton [8.440]  Seven Network (Operations) Ltd v Warburton [2011] NSWSC 386. James Warburton was the Chief Sales and Digital Officer at Network Seven and was seen as its next Chief Executive Officer. However, on 2 March 2011, he defected to Network 10, taking up a position as its CEO, commencing on 14 July 2011. After Warburton informed Seven, they asked him to take leave immediately and sought to enforce a restraint of trade clause in his contract. Under the clause, he could not work for Network 10 for a period of 12 months from the date he left Seven.

  

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The Court first decided that the restraint, if valid, would start from March 2.  The Court then held that the restraint was necessary for the reasonable protection of the employer’s legitimate interests including the need to reduce the risk of devaluation of the business caused by the departure of any executives to competitors and to reduce the risk of the misuse of confidential information by competitors. The Court decided that 12 months was not an unreasonable restraint period because it was tied to the advertising contract cycle –​beyond that period Warburton’s knowledge of the advertising rates etc would be past its use-​by date. However, the judge, underscoring the principle that a restraint will only be enforced to the extent necessary to protect the employer’s legitimate interests, then decided that the restraint would expire on 1 January 2012 because by 31 December 2011, Seven would have finalised its major advertising contracts.

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Pearson v HRX Holdings Pty Ltd

  

[8.450]  Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187. Pearson was employed in a senior role in a human resources firm, marketing the firm to possible clients. His contract provided that he could not be employed by a business “similar to or competitive with” the firm for two years after ceasing employment with the firm. The contract also contained confidentiality and non-​solicitation obligations. The Full Federal Court upheld the restraint. The firm’s customer connections were a legitimate interest which could validly be protected by a restraint. Pearson’s role had been to market the firm to potential customers. The confidentiality and non-​solicitation provisions were not sufficient to protect the firm’s customer connections. The firm also had a legitimate interest in securing the full benefit of its bargain with Pearson during his employment through preservation of the goodwill and expansion of the business he generated. The restraint was reasonably necessary to protect these interests. This reasonableness was demonstrated by the allocation of shares in the company and the payment of his salary for 21 months of the two-​year restraint period.

Birdanco Nominees Pty Ltd v Money [8.460]  Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341. Money was employed by a firm of accountants. His employment contract provided that for a period of three years after leaving employment with the firm he may not provide accounting services to any client of the firm for whom he had worked within the three years before leaving the firm’s employment. The contract further provided that if this restraint was breached, the ex-​employee was liable to pay damages set at three quarters of the fees payable by the client in the year before he ceased employment with the firm.

  

The Victorian Court of Appeal upheld the restraint. The firm had a legitimate interest in guarding the goodwill of clients in relation to the ex-​employee’s previous services to those clients. The ex-​employee’s knowledge of the client’s affairs encouraged the continued patronage of the firm. The firm introduced the ex-​employee to the client, and it was through the firm’s facilities and supervision that the ex-​employee had been able to create goodwill with the client. That goodwill was the property of the firm. The duration of the restraint was reasonable. The damages clause was a genuine pre-​estimate of loss and did not constitute a penalty.

NE Perry Pty Ltd v Judge [8.470]  NE Perry Pty Ltd v Judge (2002) 84 SASR 86. A chiropractor was appointed to work at a chiropractic practice. The chiropractor agreed that for two years after the termination of a contract, he would not practise within the town or induce any client of the practice to become his own client. This was not a contract of employment. It was held that the covenant not to practise within the town for two years was unenforceable. To be reasonable, the time period would have to be that reasonably required to break the connection between the chiropractor and the patients of the clinic. On the facts, a two-​year

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period was unreasonable. A one-​year restraint upon practice would have been reasonable. One judge stated that “the longer the gaps between [chiropractic] treatments, the longer the justifiable period of restraint”.

  

The covenant not to induce clients of the practice to become his own clients was upheld. A lengthier period was reasonable in the case of inducement than in the case of setting up as a competitor, since inducement “strike[s]‌more directly” at the clinic’s goodwill.

[8.480]  The principles governing the operation of the restraint of trade doctrine have also been applied to provisions which seek to unduly limit the circumstances in which an employee may be relieved from the employment contract, as the following case demonstrates.

Buckley v Tutty [8.490]  Buckley v Tutty (1971) 125 CLR 353. T, a professional footballer, contracted to play with the Balmain Rugby League Club. Under his contract, T could not transfer to any other club except with the consent of the Balmain Club, which had refused to give its consent. Further, even if the Balmain Club agreed to put T on a transfer list, the amount of transfer fee which it could fix was within its own discretion. The High Court held that the rules relating to the retention and transfer of players were in restraint of trade and that appropriate orders could be granted to prevent the club from continuing to observe them. The Court stated:

  

“[T]‌he rules … go beyond what is reasonable in two main respects. In the first place, they enable a club to prevent any professional who has played in one of its teams from playing with another club, notwithstanding that he has ceased to play for the club which retains him and no longer receives any remuneration from that club. There is no time limited for the exercise of this power … A second objection to the rules … is in relation to the question of transfer fees. Although a club does not wish to retain a player, and is prepared to see him go to another club, it may fix a transfer fee, most of which goes to the club itself, although it may be quite unrelated to any benefit which the player has received from his membership of … the club … The transfer fee may not only prevent a player from reaping the financial rewards of his own skill but it may impede him in obtaining new employment”.

[8.500]  In determining whether a restraint is reasonable, the court may also have regard to the relative bargaining positions of the parties. That is to say, where there is an inequality of bargaining power, the court will have regard to the fairness of the bargain in determining whether the restraint in question is reasonable in the circumstances.

A Schroeder Music Publishing Co Ltd v Macaulay [8.510]  A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308. A young songwriter entered into an agreement with a music publishing company on one of the company’s

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standard forms. Under the contract, the company engaged his exclusive services as a songwriter for a period of five years, with provision for automatic extension for another five years if royalties exceeded £5,000. Copyright in all compositions created by the songwriter during the term of the contract was to be assigned to the company. The songwriter received no payment (apart from an initial £50) unless his work was published but the company was under no obligation to publish or promote his work. If the company did not publish, the songwriter had no right to terminate the agreement or to have copyright in his compositions reassigned to him. The company could terminate the agreement by giving one month’s notice but there was no corresponding provision for the benefit of the songwriter. The company also had complete power to assign its rights under the contract but the songwriter could not do so without the publisher’s written consent. The House of Lords held that the contract was an unreasonable restraint of trade and void as being contrary to public policy. In determining whether the court would relieve the songwriter of his legal duty to fulfil his obligations, it was necessary to “assess the relative bargaining power of the publisher and the songwriter at the time the contract was made and to decide whether the publisher had used his superior bargaining power to extract from the songwriter promises that were unfairly onerous to him”. The relevant question to be answered is: “ ‘Was the bargain fair?’ The test of fairness, is … whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract”.   

On the facts, the contract did not satisfy this “test of fairness”.

[8.520]  The validity of a restraint is determined as at the time of entry into the contract. The covenantor’s subsequent unlawful conduct does not confer validity upon an invalid clause. Such a clause remains of no effect.

Consequences of illegal contracts and void contracts [8.530]  A distinction has been drawn between those contracts which are categorised as illegal in the strict or narrow sense and those which are regarded as simply void (rather than illegal). This distinction is maintained in the following discussion, which considers the consequences of illegal and void contracts.

Consequences of illegal contracts [8.540]  The consequences of illegality under either statute law or common law are basically the same. The general position is as follows.

The contract is totally void [8.550]  The general effect of illegality in the formation of a contract is that the contract is void and neither party can sue on it.

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Money paid cannot generally be recovered [8.560]  Money paid or property transferred under an illegal contract is not generally recoverable. Should one of the parties seek to recover money paid under the contract, the defendant is in the stronger position where there is equal culpability. This means that a party cannot recover moneys paid under the illegal contract to the other if they are equally blameworthy. For example, in Parkinson v College of Ambulance Ltd [1925] 2 KB 1 (discussed at [8.290]), the plaintiff was unable to recover the £3,000 donation he had paid to a charity for a knighthood which did not eventuate.

Exceptions [8.570]  A party can recover money paid or property transferred if that party was not “in pari delicto”, that is, not equally to blame. This will apply where, under a contract prohibited by statute, money is paid by the person whom the statute was designed to protect: Kiriri Cotton Co Ltd v Dewani [1960] AC 192. The parties are not “in pari delicto”, and accordingly recovery is allowed, where a person is induced to enter into the illegal contract by the exercise of fraudulent misrepresentation, duress or oppression.

Shelley v Paddock [8.580]  Shelley v Paddock [1980] QB 348. The plaintiff, an English resident, agreed to purchase a house in Spain from the defendants who were English nationals resident in Spain. The defendants said that they were selling the house as agents for the owner. In fact, they had no authority to sell the house. The plaintiff paid the defendants the purchase price. On discovering the true situation, the plaintiff sued the defendants. However, the defendants contended that the moneys paid by the plaintiff were irrecoverable on the ground that the transaction was illegal since it contravened the Exchange Control Act 1947 (UK).

  

It was held the plaintiff could recover since the parties were not in pari delicto. The defendants “were guilty of a swindle. It is only fair and just that they should not be allowed to keep the benefit of their fraud”: at 357.

[8.590]  It has also been held that where a fiduciary relationship exists between the contracting parties, as in the case of a solicitor or articled clerk entering into a contract with a client, the solicitor or articled clerk cannot raise the defence of illegality in an action by the client on the contract since the parties in such a case are not in pari delicto: Abdurahman v Field (1987) 8 NSWLR 158. A further exception is where a party who has paid money under an illegal contract repents of the illegal purpose before there has been any substantial performance of the contract; in such a case, he or she can recover the money paid.

Related transactions void [8.600]  The effect of an illegal contract may spread beyond the contract itself and affect related or collateral transactions, which in turn become illegal. For example, a contract for the loan of money is illegal if it is made to enable the borrower to perform an illegal contract or to pay a debt contracted under an illegal contract.

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Severance and void contracts Extent of invalidity [8.610]  Where a contract is void (but not illegal), the position is similar whether it is void under statute or at common law. The contract will be unenforceable only to the extent that its terms contravene the statutory or common law constraint. Accordingly, if the void part of the contract can be severed (separated from the rest), the remainder of the contract can still be enforced. Void words or parts of a clause may also be severed from the remainder of the clause: Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd (2009) 253 ALR 364. However, the court will not sever promises or terms of a contract if to do so would alter the whole nature of the contract. Where severance is not possible, then the whole contract will be void. The general test for determining whether terms that are void are severable was stated by Jordan CJ in McFarlane v Daniell (1938) 38 SR (NSW) 337: “When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature. … If the elimination of the invalid promises changes the extent only but not the kind of contract, the valid promises are severable”: at 345. A common situation in which the question of severance has arisen is in relation to restraint of trade clauses. This led to the inclusion of clauses imposing harsh restraints but also providing that if that restraint was unenforceable, some lesser restraint should be adopted. The object was to ensure that if the court struck down the more onerous clause, it could be severed from the contract and the remaining restraints enforced.

Severance and illegal contracts [8.620] The courts have held that severance also applies to contracts which are illegal in the strict sense: Carney v Herbert [1985] 1 AC 301 at 317. In practice, the scope of severance in the case of illegal contracts tends to be limited, since the usual effect of failure to comply with a statutory prohibition is to make the whole contract illegal and void.

Money paid recoverable [8.630]  Money paid under a contract which is merely void (rather than illegal) is generally recoverable. It appears that this is so whether or not the party who has paid it can prove a total failure of consideration. This is illustrated by the case of a marriage brokerage contract.

Hermann v Charlesworth

  

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[8.640]  Hermann v Charlesworth [1905] 2 KB 123. The defendant agreed that he would introduce certain gentlemen to the plaintiff (an unmarried woman) with a view to matrimony for an initial fee of £52 and a later payment of £250 should a marriage take place. He introduced certain gentlemen to her but no marriage resulted. It was held that the plaintiff was entitled to the return of her £52 since the payment had been made under a void contract and was recoverable.

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Further reading See contract texts listed at the end of Chapter 2.

Tutorial activities 1.

Review Yango Pastoral v First Chicago Australia Ltd (1978) at [8.20] and [8.60]. What are the four ways in which a contract can be illegal?

2.

In Yango Pastoral v First Chicago Australia Ltd (1978), why was the bank able to enforce its contractual rights even though the contract was illegal?

3.

In what circumstances is a contract void under a statute? What is the effect of such a contract on the parties? For instance, can the punter recover his money if a wagering contract (say, involving the Australian cricket team) is void

4.

What is an example of a contract that is void and voidable for mistake? Andrew is a currency trader with Grabbit and Run Partners. He has a friend, Jessica, who is on the Board of the Reserve Bank. Andrew hands $40,000 to Jessica for information about Reserve Bank decisions on interest rates when it meets on the first Tuesday of November. She agrees to provide the information. This is, of course, illegal under the Reserve Bank charter. Jessica takes the money but never provides information. Please advise Andrew whether he can recover the money from Jessica.

5.

Padmapalasaki and Chandrakantha purchase an Indian restaurant from Priya. It is located in Glen Waverly, south-east of Melbourne. In order to ensure she does not establish a similar restaurant in the same vicinity, they include a term in the contract that prohibits Priya “owning or managing” a restaurant within a 20-km radius of the restaurant for five years. Advise them whether this term would be an illegal restraint.

6.

Elders Ltd lent $2 million to Tongo Ltd, repayment of which was secured by a mortgage and personal covenants. Tongo defaulted, so Elders sued on the personal covenants in the mortgage. Tongo contended that the mortgage (including the guarantee) was illegal and void on the ground that Elders had been carrying on the business of banking without authorisation under the Banking Act 1959 (Cth), which provides that “a corporation is not to carry on a banking business unless it is authorised to do so” and provided a penalty of $10,000 per day for contravention of this provision. It was clear that the lender had in fact been carrying on the business of banking in contravention of the Act. Elders seeks your advice as to whether the contract between the parties is illegal and unenforceable.

7.

A Victorian statute provides that “a person was not to buy or sell or otherwise deal in genetically modified canola oil without a licence”. George Mahout informs GM Oils that he has the necessary licence and contracts to purchase a quantity of canola oil from GM. He does not in fact have the necessary licence. George later refuses to take delivery, and GM Oils sues him for damages for breach of contract. Advise GM Oils of its position in relation to the contract.

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Contents and Interpretation of the Contract [9.20] [9.230] [9.400] [9.470] [9.530]

Express terms ................................................................................................................................................  146 Exemption or exclusion clauses ...........................................................................................................  152 Interpreting terms – including exclusion clauses – in commercial contracts ...............  158 Online contracting ........................................................................................................................................  161 Implied terms ..................................................................................................................................................  164

Introduction [9.10]  In the previous chapters we focused on how a legally enforceable agreement is made. In this chapter we consider what the rights and obligations of the parties to that agreement are. To do this, we need to consider, first, how the courts identify what the terms of the agreement – both express and implied – are; and, second, how the courts interpret those terms. In relation to the first issue, we need to appreciate the way in which courts identify the express terms of a contract (and the type of term that it is) and the way in which a term may be incorporated into a contract. As to the second issue, we examine the process of interpretation of the terms: the way the courts, in the event of a dispute, give meaning to the terms of a contract. We often turn to cases involving exclusion clauses to illustrate the rules in relation to incorporation and interpretation but those rules apply equally to all contractual terms. Finally, we consider the importance of implied terms and consider the circumstances under which a term is implied.

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Figure 9.1: The contents of a contract

Terms

Express

Implied

Condition

Warranty

Innominate term

If breach, termination/ damages

If breach, damages

If breach, consider seriousness of consequences

Common law

Statute

Custom

Express terms [9.20]  Express terms are terms that the parties –​in writing and/​or orally –​have actually articulated and agreed to. Determining what constitutes the express terms of a contract is relatively straightforward when the contract is entirely in writing and signed by the parties. This is not uncommon: many commercial contracts (eg sale of land contracts, mortgages, credit contracts, leases, partnership agreements, professional employment contracts, purchase and supply contracts) are in writing and signed by the parties. Nonetheless, even where the parties appear to have reduced their agreement to writing, there may be a dispute about the significance of what was said or written during the pre-​contractual negotiations. The position is less certain, where the contract is partly written and partly oral or is entirely oral because the parties may have made many statements during the negotiations and it may not be clear what was intended to be part of the final agreement. Where a contract is made orally, the express terms of the contract will be ascertained by determining the words actually used by the parties when the contract was made. If the contract has been reduced to writing, the general rule – the parol evidence rule – is that the terms of the contract are to be found in the writing and nowhere else.

Parol evidence rule in relation to written contracts [9.30]  Where the contract is entirely in writing, the parol evidence rule states that evidence of other terms (oral or written) will not be admissible to add to vary or contradict the written agreement. In other words, where there is an inconsistency between a written document that looks to be a final and complete record of the agreement and an oral promise or representation, the courts regard the written document as definitive. So, for example, where a sales agreement appears, on its face, to be a complete record of the agreement, the buyer will not be allowed to introduce other (parol) evidence that the seller orally agreed to a lower price or to waive an exclusion clause or to vary the repayments. There are numerous exceptions or qualifications to the parol evidence rule that have evolved in order that it is not used to protect parties who have behaved badly (which would be ironical, as the parol evidence rule was created by the courts to protect weaker or vulnerable parties from unfounded allegations

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that they had made (oral) promises that altered the written agreement and that the stronger party wishes to enforce. For this reason, the court will allow parol evidence that establishes: ▶▶ ▶▶ ▶▶

the written contract is illegal, invalid or unenforceable; one or more of the terms has a trade or technical meaning or usage; or that the oral statement constitutes a collateral contract or warranty that is enforceable (in other words, establishing that the written contract was not the entire agreement and therefore the rule does not apply).

Identifying the contents of a contract: distinguishing representations and terms [9.40]  When determining what the rights and obligations of the parties are it is often important to distinguish between statements that are representations that induced or persuaded or influenced a person to enter into the contract and statements that are regarded as terms of the contract itself. Prior to the introduction of the Australian Consumer Law (and its antecedents) it was an important distinction to make because the remedies that a plaintiff could receive were superior where the breach was of a term rather than a misrepresentation. The question of whether a statement is a term or a representation depends on the intention of the parties as determined objectively from all the circumstances of the case. The more important the statement in the context of the contract, the more likely it is to be a term of the contract.

Oscar Chess Ltd v Williams [9.50]  Oscar Chess Ltd v Williams [1957] 1 WLR 370. Williams traded in his old second-​hand car to the plaintiff dealers in part payment for a new one. He had described his car as a 1948 Morris, this being the date of the first registration of the vehicle shown in its registration papers. On this basis, the dealers allowed him £290 trade-​in. However, eight months later, the dealers discovered that the vehicle was a 1939 model and not a 1948 model, the appearance of the models having remained the same in the intervening years. A previous owner of the vehicle must have fraudulently altered the date in the logbook. The dealers sought to recover £115 as damages, being the difference in value between a 1939 and a 1948 model, on the ground that the defendant’s representation constituted a term of the contract. However, the claim failed. Williams did not promise that the car was a 1948 model; it was an innocent misrepresentation for which damages could not be awarded. Denning  LJ said that much depends on the precise words used:

  

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“If the seller says, ‘I believe it is a 1948 Morris. Here is the registration book to prove it’, it is a statement of belief, not a contractual promise. But if the seller says ‘I guarantee that it is a 1948 Morris …’ there is clearly a warranty (promise). The seller is making himself contractually responsible, even though the registration book is wrong … What is the proper inference from the known facts? It must have been obvious to both that the seller had himself no personal knowledge of the year when the car was made … It is unlikely that such a person would warrant the year of manufacture. The most he could do was state his belief”.

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Dick Bentley Productions Limited v Harold Smith (Motors) Ltd

  

[9.60]  Dick Bentley Productions Limited v Harold Smith (Motors) Ltd [1965] 1 WLR 623. The purchaser of a motor car was told by the vendor during negotiations that the car had travelled only 20,000 miles since being fitted with a replacement engine and gearbox. In fact, it had done approximately 100,000 miles. If the statement were a term of the contract, the purchaser could get damages for breach of contract, whereas if it were a representation, he could only rescind the agreement (and a right of rescission is easily lost: see [7.380]). The court held that the statement was a term of the contract. The court was influenced by the fact that the vendor was a car dealer who was possessed of superior knowledge and expertise.

Ross v Allis-​Chalmers Australia Pty Ltd

  

[9.70]  Ross v Allis-​Chalmers Australia Pty Ltd (1980) 32 ALR 561. Ross was negotiating to buy a harvester for commercial use. To be successful, he needed to be able to harvest around 120 to 130 acres per day. He was looking at a harvester and asked the salesman what its capacity was. The salesman, who was experienced in this kind of work, said, “In my experience the best this one could do is 90 acres per day”. Ross bought the machine but found it could not even do 90 acres per day. He sued for breach of contract, arguing the salesman’s statement was a term of the contract. The court held that the salesman’s statement was merely a statement of opinion, based on his own experience, and was not intended to be promissory. Therefore Ross could not get a remedy (either damages and/​or termination) for breach of a contractual term.

Collateral contracts [9.80]  A further possibility is that a statement, although not an actual term of the contract, may be treated by the court as a collateral contract, that is, collateral to the main contract, and damages may be recovered for breach of that collateral contract. This device has been used particularly where the main contract has been reduced to writing. In such a case, it may not be possible for an oral statement to take effect as an actual term of the contract because of the parol evidence rule. However, where it can be shown that: (a)

the statement is promissory and intended to have contractual effect;

(b)

is not inconsistent with the main contract; and

(c)

the promisee has provided consideration for the collateral contract (usually by entering into the main contract).

the courts may treat the statement as a collateral contract or collateral warranty.

Van Den Esschert v Chappell [9.90]  Van Den Esschert v Chappell [1960] WAR 114. A purchaser, before signing a contract for the purchase of a house, asked the vendor whether there were any termites in the house. On receiving an assurance that there were none, the purchaser signed the contract. The contract contained no reference to the vendor’s statement about the termites. Some months after taking possession, the purchaser discovered termites in the house and the premises had to be treated

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to eradicate them. The court decided that the parol evidence rule did not apply because there in fact two parts to the contract –​a written contract and a collateral warranty that consisted of one term only –​a promise that the house was free of termites. The three criteria for a collateral contract were satisfied: the statement was promissory; it was not inconsistent with the main contract and consideration was present (the promisee entering into the main contract).

[9.100]  It needs to be emphasised that a court will only treat a statement as a collateral warranty, where it is satisfied that the statement was promissory and intended to have contractual effect. It was this requirement that was crucial to the decision in the following High Court case.

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [9.110]  Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26. Crown is the owner of the Melbourne Casino and Entertainment Complex. Cosmopolitan held two leases limited to a term of 5 years. The leases required Cosmopolitan to undertake extensive refurbishments. Crown did not renew the leases following a tender process and gave notice requiring Cosmopolitan to vacate the premises on the expiration of the leases. Cosmopolitan, subsequently, became insolvent due to write-​downs of more than $2 million in the value of the refurbishments. Cosmopolitan alleged that, in order to induce them to enter into the leases that were for a relatively short period of time (5 years), Crown promised, in an oral statement, that Cosmopolitan would be “looked after at renewal time”. Cosmopolitan argued that this amounted to a collateral contract that Crown would renew the leases for a further 5 years if they undertook the extensive refurbishments. In the alternative, Cosmopolitan argued that Crown was estopped from denying the existence of the collateral contract. (See [5.320] for a discussion of the estoppel issue.)

  

The trial judge and the Court of Appeal of the Supreme Court of Victoria held that the statement did not give rise to a collateral contract. On this issue, the High Court upheld the Court of Appeal’s finding that the statement was no more than “vaguely encouraging” and did not amount to a collateral contract. A reasonable person in the position of the parties could not have understood the statement to amount to a binding contractual promise to renew the leases.

[9.120] A merger clause provides that the written agreement constitutes the entire agreement between the parties. Such a clause leaves “no room for a submission that the terms of the contract were not fully embraced within its four walls”: Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd (2012) 37 VR 486. A merger clause excludes evidence of other terms but it does not exclude evidence of a collateral contract, unless the merger clause is clearly worded to exclude proof of a collateral agreement: McMahon v National Foods Milk Ltd (2009) 25 VR 251.

Classifying terms: conditions, warranties and innominate terms [9.130]  A distinction is made between conditions (terms that are of fundamental importance to the contract) and warranties (terms that are of lesser importance). The reason for the distinction is that a breach of a condition entitles the innocent party to terminate the contract and/​or claim damages, whereas a breach

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of warranty only entitles the innocent party to damages for the loss they have suffered; there is no right to terminate. It is open to the parties to agree that, as regards a particular obligation, any breach shall entitle the innocent party to terminate the contract. Although the courts have traditionally been reluctant to interpret contractual clauses as conditions requiring precise compliance, in suitable cases, if the parties’ intentions indicate that a particular term is to be regarded as a condition, then it will be so regarded by the courts. However, the mere fact that the parties have used the word “condition” in their contract does not necessarily mean that they have used it in the strict technical sense. The court may find that the parties have used the word “condition” in a non-​technical sense as simply meaning a term of the contract and did not intend that breach of the term would have the effect of entitling one party to treat the contract as at an end.

L Schuler AG v Wickman Machine Tool Sales Ltd

  

[9.140]  L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235. Wickman was the exclusive selling agent for Schuler’s goods. The agency agreement provided that it was a “condition” that the distributor should visit six named customers once a week to seek orders (approximately 1,500 visits during the length of the four-​year contract). Wickman committed some minor breaches of this term and Schuler terminated the agreement, arguing that they were entitled to do so because the breach was of a condition. The House of Lords held that the parties could not have intended that Schuler should have the right to terminate the agreement if Wickman failed to make one of the required number of visits. The House had regard to the fact that the relevant clause was the only one referred to as a condition. The use of such a word is a strong indication of intention but it is not conclusive.

[9.150]  A condition is a term which “goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract … a thing different in substance from what the defendant has stipulated for”: Bettini v Gye (1876) 1 QBD 183. It is sometimes described as a term without which the party would not have entered the agreement.

Associated Newspapers Ltd v Bancks [9.160]  Associated Newspapers Ltd v Bancks (1951) 83 CLR 322. Bancks contracted to prepare a weekly drawing relating to a cartoon character, “Ginger Meggs”, for the plaintiff newspaper company which in turn undertook to present the drawing each week as a full page feature on the front page of the comic section of its Sunday newspaper. As a result of problems arising from a newsprint shortage, Bancks’ “Ginger Meggs” cartoon appeared on page three of the comic section of the newspaper instead of on page one as provided by the contract between the parties. This occurred on three consecutive Sundays, whereupon Bancks wrote to the plaintiff company to the effect that he no longer regarded himself as bound by the contract because of the plaintiff’s breach. In other words, Bancks terminated the contract for breach of a condition. The plaintiff company argued that Bancks, in wrongfully terminating the contract, had, himself, repudiated the agreement. The High Court held that the plaintiff company’s promise to publish Bancks’ cartoon on the front page of the comic section was a condition of the contract, breach of which entitled him to terminate. The Court said:

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“He was employed as a comic artist and his true work was to produce this weekly drawing … It was what he was really engaged to do … Obviously it was of prime importance to the defendant that there should be continuity of publication so that his work should be kept continuously before the public … and that it should be published on the most conspicuous page … (T)he undertaking … formed a condition a substantial failure in the performance of which would enable the defendant to treat the contract as at an end … [S]‌uch a failure to perform the condition went to the root of the contract and gave the defendant … the right immediately to treat the contract as at an end”.

[9.170]  A warranty is a term of lesser significance and, therefore, the breach has less significant consequences.

Bettini v Gye [9.180]  Bettini v Gye (1876) 1 QBD 183. Gye, the director of an opera company, contracted for the exclusive services of Bettini as an opera singer for a period of three months. The contract contained a provision (clause 7) that Bettini would be in London at least six days before the commencement of his engagement for rehearsals. Bettini, through illness, only arrived two days earlier, whereupon Gye refused to accept his services and treated the contract as at an end. It was held that in the circumstances the term was not a condition but a warranty and, accordingly, although Gye was entitled to damages for loss (if any) he had suffered as a result of Bettini’s breach, he was not entitled to treat the contract as terminated. The court said that clause 7 did not go to the root of the contract. Blackburn J said:

  

“… the failure to attend at rehearsals during the six days immediately before 30 March could only affect the theatrical performances and, perhaps, the singing in duets or concert pieces during the first week or fortnight of this engagement, which is to sing in theatres, halls, and drawing rooms for fifteen weeks”.

[9.190]  The High Court of Australia has now approved of a third category of term –​the innominate term. After some uncertainty, the innominate term was declared part of Australian law in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115. Whether a term of a contract is a condition or warranty depends on determining the intention of the parties to the contract. Ascertaining that intention, and thus deciding whether the term is to be treated as a condition or warranty, is often no easy matter as the above cases demonstrate. In some cases, it may be more appropriate to look at the nature and effect of the breach in deciding what remedy should be available to the innocent party, rather than simply asking whether the term is a condition or warranty.

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [9.200]  Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1952] 2 QB 26. The plaintiffs chartered a ship for a period of two years. A term of the contract required the shipowners to provide a seaworthy ship that was “in every way fitted for ordinary service”. They

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also promised to “maintain her in a thoroughly efficient state in hull and machinery during service”. There was a 57 day delay in delivering the ship in seaworthy condition because of the incompetence of the engine room personnel. A further 91 days were likely to be lost because of the need to repair the vessel’s engines. In all, it would be 20 weeks before the charterers could sail the ship. They terminated the contract, arguing that this was a breach of the “seaworthiness” condition. The plaintiffs argued that the defendants’ actions were a repudiation of the contract (ie a wrongful termination) and sued for damages. The court decided that not all contractual undertakings were easy to classify. The breach of some undertakings would always deprive the innocent party of substantially the whole benefit of the contract, enabling the innocent party to terminate. The breach of others would never deprive the innocent party of substantially the whole benefit of the contract, allowing the innocent party to sue for damages only. However, in the words of Diplock LJ: “There are … many contractual undertakings … which cannot be categorised as being ‘conditions’ or ‘warranties’ (at the start) … all that can be predicted is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit (of the contract) … (the undertaking to deliver a seaworthy ship) is one of that large class of contractual undertakings (that could be either a condition or a warranty)”.

  

The court decided that, although the plaintiffs were obviously in breach of their promise to provide a seaworthy ship, this was not a condition because the delays caused by the breach, in the context of a two-​year charter, were not so great as to deprive the defendant charterers of the substantial part of the benefit of the contract.

Time clauses in commercial contracts [9.210]  In commercial contracts, the general rule is that stipulations as to time, except as to time of payment, are essential conditions. Thus, broadly speaking, time will be considered “of the essence” in commercial contracts and the court will require precise compliance wherever the circumstances of the case indicate that this would fulfil the intention of the parties.

Bunge v Tradax

  

[9.220]  Bunge v Tradax [1981] 1 WLR 711. A buyer contracted to purchase 15,000 tons of soya bean meal, in three shipments. A clause in the contract stipulated that, in respect of the first shipment, the last day for the buyers to give notice of the readiness of the ships was 12 June. The buyers provided notice on 17 June. At this point, the sellers terminated the contract and claimed damages. The Court held that, in a written commercial contract, a time clause should be regarded as a condition requiring precise compliance. The buyers had a right to terminate.

Exemption or exclusion clauses [9.230]  An exclusion or exemption clause is a term of the contract that limits or excludes a liability that one party to the contract might otherwise have. They are found in all types of contracts but their operation

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in consumer contracts is significantly now impacted by legislation. Where the contract is not regulated by legislation, a two-step approach to determining whether an exclusion clause operates to limit or exclude the liability of one party for a breach of the contract is used. First, consider whether the exclusion clause has been properly incorporated into the contract. Second, determine whether, as a matter of interpretation, the clause excludes or limits the liability of the party in breach. Figure 9.2: How to determine if a clause is incorporated into a contract

Exclusion clause in signed document

Yes. Clause incorporated (subject to qualifications)

No. Was there reasonable notice?

Yes. Clause incorportated (subject to qualifications)

No. Is clause incorporated by prior dealings?

Yes. Clause incorporated

Clause not incorporated

[9.240]  1. The person seeking to rely on an exemption clause must show that it has been incorporated into the contract. They can do this in one of the following ways: [9.245]  (a) The contract is in writing and signed by the parties. The traditional position is that a party is bound to the terms – including an exclusion clause – that is contained in a document that he or she has signed, regardless of whether the party has read or understood the term.

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [9.250]  Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52. Alphapharm Pty Ltd, entered into a freight and storage agreement with Toll, a transport company with a fleet of refrigerated vans. Alphapharm had purchased a large quantity of flu vaccine and planned to sell and distribute it throughout Australia. The vaccine was perishable unless stored at a temperature between 2–​8 degrees centigrade. The transport and storage agreement was formed by

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a series of written communications. An employee of Alphapharm signed the contract but was unaware of a term that excluded Toll’s liability for “any loss, injury or damage suffered by the Customer in respect of any goods being carried or stored on its behalf”. Toll did not maintain the consignments within the specified temperature range during the transport. As a result, the laboratories rejected them. Alphapharm submitted that in order for those terms and conditions to be made part of the contract, Toll had to establish that it had done what was reasonable to give Alphapharm notice of the terms and conditions (and it had not, in fact, done so). The High Court held that the employee’s signature was binding. It said:

  

“… to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, … whatever they might be. That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it … It was reasonable of Toll to treat (the employee’s) signature as a manifestation of assent to the conditions he had been invited to read before signing”.

[9.260]  In modern commercial practice, many, perhaps most, standard form printed documents (and online equivalents) are signed (or clicked) without being read or understood and the party seeking to rely upon the terms of the contract knows (or ought to know) that the signature (or click) of the other party is unaware of the terms (that may be harsh or onerous) that the standard form contains. In these circumstances, the question is whether the party seeking to rely on such terms should be able to do so (relying on the principle in Toll) without having taken reasonable measures to draw such terms to the attention of the other party, and, in the absence of such reasonable measures, whether it is necessary for the party denying knowledge of such terms to prove either fraud, misrepresentation or non est factum. In Australia, it is probably the case that, in the absence of misrepresentation etc the rule in Toll prevails, and that knowledge of the written contents of a document will be presumed if a party signs it. It is only where a contractual document has not been signed that the party relying on it must establish that reasonable notice of those terms was given to the other party. In the following case, the issue was whether the document that the plaintiff signed was a contractual one. As the Court decided it was not, the question of whether the exclusion clause operated to protect the defendant was not relevant.

Le Mans Grand Prix Circuits Pty Ltd v Illiadis [9.270]  Le Mans Grand Prix Circuits Pty Ltd v Illiadis [1998] VSC 331. Le Mans carried on the business of providing for hire to the public “go-​karts and a go-​kart racing track”. A local radio station had booked the track for a corporate promotion night. Illiadis attended the promotion night. When he arrived at the track he was told “… to sign a particular form so you can register your name to be able to do a lap of the go-​kart race and once I did that I was qualified to drive the faster vehicle”. He signed the form but was not given time to read it and treated it as a marketing or registration type of form (the document had a highlighted section (“to help with our advertising”) and there was a lack of explanation from the defendant’s employees regarding the document). He qualified to race and in the course of a race his vehicle overturned, and he

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fractured his arm. Le Mans argued that Illiadis was bound by his signature on the document (that contained a broad exclusion clause, excluding Le Mans from liability for negligence).

  

The Court decided that there was no contractual relationship between the parties in this case. “The [plaintiff’s] attendance at the [defendant’s] track, and his participation in go-​kart racing were not obviously in pursuance or in the course of a commercial dealing or relationship with the [plaintiff].” There was no evidence that, before participants were asked to sign the form, they were given any notice or other indication that any contract was to exist between them and the appellant, save for a licence to drive. As there was no contractual relationship, the exclusion clause was irrelevant.

[9.280]  (b) Incorporation by reasonable notice. By showing, in the absence of a signed document, that the exemption clause was brought to the notice of the other party before or at the time the contract was made. Often an exemption clause may be contained either in a notice on the premises where the contract is made, or in a ticket, voucher or receipt. The exemption clause will form part of the contract if the party seeking to rely on it can show that they had taken steps which were reasonably sufficient in the circumstances to give notice of the exemption clause to the other contracting party.

Baltic Shipping Co v Dillon

  

[9.290]  Baltic Shipping Co v Dillon (1993) 176 CLR 344. The plaintiff booked a cruise on the defendants’ cruise ship. It was stipulated on the “Booking Form” that the “Contract of carriage … will be made only at the time of the issuing of tickets and will be subject to the conditions … printed on the tickets. These conditions … are available to all passengers at any CTC Cruises offices”. The ticket was issued to the plaintiff six weeks after full payment and two weeks before departure. It contained an exemption clause. It was held that the defendants could not rely on the exemption clause on the ticket since they had not been sufficiently brought to the plaintiff’s attention so did not form part of the contract.

Causer v Browne [9.300]  Causer v Browne [1952] VLR 1. Causer took a dress for dry cleaning to Browne and received at the time of deposit a docket on the face of which appeared printed conditions purporting to exempt the firm from liability for loss including loss caused by negligence. When the dress was returned, it had been damaged by the negligence of the company.

  

The Court decided that it was reasonable for Causer to have thought that the docket was simply a voucher to produce when collecting the dress, and not one that would contain an exclusion clause exempting the defendant from liability for negligence.

[9.310]  In order for a term to be incorporated by reasonable notice, it must be brought to the notice of the contracting party before or at the time the contract is made. If notice is given after the contract has been made, it will have no contractual effect. This was the issue in the following three cases.

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Olley v Marlborough Court Ltd

  

[9.320]  Olley v Marlborough Court Ltd [1949] 1 KB 532. The plaintiff and her husband booked into the defendant’s hotel. They went up to their room where on one of the walls a notice was displayed stating that: “The proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody”. The plaintiff’s fur coats were stolen from the room as a result of negligence on the part of the hotel staff. The Court decided that reasonable notice of the clause had not been given because the contract had been made in the hotel lobby before the plaintiff had had an opportunity to see the clause in her room.

Alameddine v Glenworth Valley Horse Riding Pty Ltd [9.330]  Alameddine v Glenworth Valley Horse Riding Pty Ltd [2015] NSWCA 219. The plaintiff, Alissa Alameddine, was a 12-​year-​old girl injured while participating in a quad bike trail ride at the Glenworth’s premises. On 20 May 2011, the plaintiff’s mother reviewed Glenworth’s website and telephoned to book the quad biking activity for herself and seven children. The following day the plaintiff, together with her mother and other family members, attended the facility to participate. After the family arrived at the facility, the plaintiff’s older sister completed an application form that included an exclusion clause that, inter alia, excluded the defendant from liability for negligence. On the return trip, the infant plaintiff was in a group of four. The group ahead were moving further away. The instructor accelerated to catch up and the plaintiff increased her speed to keep up with him. Whilst travelling at a faster speed, the plaintiff lost control of the quad bike causing her to fall off and injure herself. Glenworth sought to rely on the exclusion clause.

  

The Court decided that Glenworth could not rely on the clause because the contract between the plaintiff’s mother and Glenworth was concluded when the plaintiff’s mother rang and booked the visit. As a consequence, the clause contained in the application form that was completed on the day of the activity did not form part of the contract.

Thornton v Shoe Lane Parking Ltd [9.340]  Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163. Thornton was attending an engagement at the BBC. He drove to the defendants’ new automatic car park. At the entrance was a notice that read “All Cars Parked at Owner’s Risk”. He drove in, was stopped by a red traffic light and took the ticket issued by the machine. When he took the ticket, the light turned green allowing him to proceed into the garage where his car was parked by mechanical means. The ticket contained in small print on the bottom left-​hand corner the words “issued subject to conditions … displayed on the premises”. A set of printed conditions displayed in a panel on a pillar opposite the machine included a provision exempting the defendants from liability for injury to a customer. Thornton was run down and severely injured when he returned to collect his car. In an action for damages, the defendants sought to rely on the exclusion clause. It was held that the clause did not exempt the defendants from liability since they had not done what was reasonably sufficient to bring the clause to Thornton’s notice. Denning LJ analysed contractual formation in the following way:

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“... In the present case the offer was contained in the notice at the entrance giving the charges for garaging and saying ‘at owner’s risk’, that is risk of the owner so far as damage to the car was concerned. The offer was accepted when Mr Thornton drove up to the entrance, and, by the movement of his car, turned the light from red to green and the ticket was thrust at him. The contract was then concluded, and it could not be altered so as to exempt the company from liability for personal injury due to their negligence … this customer is (only) bound by the exempting condition if he knows that the ticket is issued subject to it; or if the company did what was reasonably sufficient to give him notice of it”.

[9.350]  If the nature of an exemption clause is misrepresented to the other party who does not read it, the party seeking to rely on the exemption clause will not be permitted to do that.

Curtis v Chemical Cleaning & Dyeing Co Ltd

  

[9.360]  Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805. B took a dress to be cleaned and was asked to sign a receipt which contained a clause that the article “is accepted on condition that the company is not liable for any damage howsoever arising”. B asked why she had to sign and was told that the cleaner would not accept liability for damage to beads or sequins. B then signed. The dress was returned stained. It was held that the cleaner could not rely on the clause because B’s signature was obtained by misrepresentation as to the effect of the document.

[9.370]  (c) Incorporation by a previous course of dealing. A party may seek to rely on a term (again, often an exclusion clause) that has been incorporated in previous dealings between the parties and it can be shown that the parties intended to contract on the same basis. However, that will require proof that reasonable notice of the clause was provided in those previous dealings. So, for instance, although an invoice containing an exemption clause was sent after each previous contract had been performed, the clauses on the invoice were not incorporated into a subsequent contract between the parties because the invoice was regarded as a claim for payment rather than a contractual document: La Rosa v Nudrill Pty Ltd [2013] WASCA 18. [9.380]  2. The interpretation issue: what does the clause mean? Interpreting terms – including exclusion clauses in – consumer contracts. The High Court has consistently said that the meaning and effect of an exclusion clause is to be determined by the ‘ordinary rules of construction or interpretation’. The High Court has also said that, where appropriate, and particularly where the parties are not an equal footing, in cases of ambiguity, the courts interpret such clauses “contra proferentum” (against the party relying on it). For example, exclusion of liability for breach of warranty will not exclude liability for breach of condition: Wallis, Son & Wells v Pratt & Haynes [1911] AC 394. Furthermore, exclusion from liability for breach of implied conditions and warranties will not protect a party from breach of an express term of the contract: Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17. Thus, a party drafting an exclusion clause should be careful to ensure that the clause is carefully and precisely drafted –​and complies with various consumer protection statutes that prevent or limit the use of exclusion clauses.1 The following case is an excellent example of the way in which the

1

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For example, see the Australian Consumer Law, s 64(1) that declares void any clause that seeks to exclude or limit the effect of the consumer guarantees if included in consumer contracts (see Chapter 13 at [13.1500]).

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courts approach the task of interpreting an exclusion clause so as to give the words their ‘natural and ordinary meaning’ and, at the same time, construe the term contra proferentum.

Insight Vacations Pty Ltd v Young [9.390]  Insight Vacations Pty Ltd v Young (2011) 243 CLR 149. Stephanie Young was on a tour bus in Europe, travelling from Prague to Budapest. When she got out of her seat to get something from her bag, the coach driver braked suddenly causing the plaintiff to fall backwards and suffer injury. The bus company attempted to rely on the following exclusion clause: “Where the passenger occupies a motorcoach seat fitted with a safety belt, neither the Operators nor their agents or co-​operating organisations will be liable for any injury, illness or death or for any damages or claims whatsoever arising from any accident or incident, if the safety belt is not being worn at the time of such accident or incident.”

  

The High Court decided that as a matter of interpretation the clause did not protect the defendant. Relying on the ordinary meaning of the words in the clause, the clause only applied “where the passenger occupies a motor coach seat fitted with a safety belt”. In the unanimous opinion of the High Court, the purported exclusion clause should, therefore, be read as referring only to times when the passenger was seated, and not to times when the passenger stands up to move around the coach or to retrieve some item from an overhead shelf as occurred on this occasion.

Interpreting terms – including exclusion clauses – in commercial contracts [9.400]  Where exclusion clauses are included in commercial contracts, the courts generally take the view that the parties are capable of looking after their own interests and that the exclusion clause is a valid and efficient way to allocate risk. For this reason, in the event of a dispute about the meaning of the words used, they will be given their ‘natural and ordinary’ meaning, with an emphasis on the need to arrive at an interpretation that is practical and commercially sensible. In Persimmon Homes Ltd v Ove Arup and Partners Ltd [2017] EWCA Civ 373, Lord Justice Jackson said, in the context of a large commercial dispute, where one of the parties argued that the contra proferentum rule should be used to limit the scope of the exclusion clause that the parties had included in the contract: “In recent years … the courts have softened their approach to … exemption clauses … In major construction contracts the parties commonly agree how they will allocate risks between themselves and who will insure against what. Exemption clauses are part of the contractual apparatus for distributing risk. There is no need to approach such clauses with horror or with a mindset determined to cut them down … .” [9.410] Where the parties have negotiated an arms-​length commercial contract, exclusion or limitation clauses are regarded as a valid and efficient way to allocate risk. Thus, in Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827, Lord Diplock said:

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“In commercial contracts negotiated between businessmen capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be most economically borne (generally by insurance) it is, in my view, wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only”. In Persimmon Homes Ltd v Ove Arup and Partners Ltd [2017] EWCA Civ 373, Lord Justice Jackson said, in the context of a large commercial dispute, where one of the parties argued that the contra proferentum rule should be used to limit the scope of the exclusion clause that the parties had included in the contract: “In recent years … the courts have softened their approach to … exemption clauses … In major construction contracts the parties commonly agree how they will allocate risks between themselves and who will insure against what. Exemption clauses are part of the contractual apparatus for distributing risk. There is no need to approach such clauses with horror or with a mindset determined to cut them down … .”

An appropriately worded exclusion clause can exclude a party from liability for negligence [9.420]  Exclusion clauses may limit or exempt liability for negligence:  Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642. A properly worded exclusion clause need not expressly mention liability in negligence in order to exclude such liability. For example, a clause that excluded liability for “all claims and demands whatsoever in respect of the contract” was held to exclude liability for negligence: MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575. In Alameddine v Glenworth Valley Horse Riding Pty Ltd [2015] NSWCA 219 (see [9.330]), the exclusion clause (so far as is relevant to Glenworth’s attempt to exclude liability for negligence) said: “As a potential participant, you acknowledge and accept that recreational activities including … quad biking … constitute a dangerous recreational activity pursuant to the Civil Liability Act 2002 and that participation in the activity involves a significant risk of physical harm or personal injury … Any such injury may result not only from your actions including physical assertion but also from the action, omission or negligence of others.” The court decided that even if the exclusion clause had formed part of the contract between the parties, it was not broad enough to extend to Glenworth’s negligence. The exclusion clause made reference to the “negligence of others”, which the court interpreted to include the negligence of other participants, not the negligence of Glenworth or its staff.

Exclusion clauses will not normally be construed as limiting or excluding liability for acts done outside the scope of the contract [9.430] In Council of the City of Sydney v West (1965) 114 CLR 481, the High Court said that it is a question of interpretation of the contract as a whole whether or not a particular exclusion clause is wide enough to exclude liability for the alleged breach of contract.

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Council of the City of Sydney v West [9.440]  Council of the City of Sydney v West (1965) 114 CLR 481. The plaintiff parked his car at a parking station and received a ticket, which contained the following clause: “The council does not accept any responsibility for the loss or damage to any vehicle … however such loss, damage … may arise or be caused” together with a statement that the “ticket must be presented before taking delivery of the vehicle”. He put it in his pocket without reading it and parked the car where directed. What happened next is very unusual. A person who during the day had entered the parking station and claimed to have lost his parking ticket stole West’s vehicle. He did it in this way. He gave his name to an attendant as “Paul Robinson” and said that he had parked his car in the station and having given what proved to be a fictitious address obtained the issue of a duplicate parking ticket for a vehicle (that was not West’s). Having armed himself with the duplicate ticket which, on its face, related to another car, Robinson got into West’s vehicle and proceeded to drive it to one of the exits of the parking station where he was permitted to drive it away without any further inquiry. It was held that the clause did not protect the Council as the release of the car was not merely a negligent act but was a delivery not authorised by the contract. The Court said: “[T]‌he act of the attendant in permitting ‘Robinson’ to proceed after handing over the duplicate ticket which he had obtained constituted an unauthorized delivery of possession by him to ‘Robinson’ and not a mere act of negligence in relation to some act authorised by the contract of bailment. The fact that the attendant at the exit through which the car was driven was negligent is of no consequence in the case; the act of delivery was one which was neither authorised nor permitted by the contract and in our view the appellant was not entitled to be exonerated by the exempting clause.”

  

In other words, whilst the clause may have protected the car park from the consequences of the employee’s careless actions (eg if he had accidentally damaged the car whilst parking it), it did not protect it where the act was “unauthorised”, in the sense that the parties would not have contemplated it (eg giving a rogue the means to simply drive the car away).

[9.450] In Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827, the exclusion clause was properly incorporated into a commercial contract –​it was the interpretation of that clause that was the issue.

Photo Production Ltd v Securicor Transport Pty Ltd [9.460]  Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827. Securicor contracted to provide a night patrol service to the plaintiff’s factory. While one of Securicor’s employees was on patrol at the factory one night, he deliberately started a small fire by throwing a match onto some cartons. The fire got out of control and ultimately destroyed a large part of the factory. The plaintiff sued Securicor for damages on the ground that they were liable for the act of their employee. Securicor relied on an exclusion clause in the contract which provided that “under no circumstances” were they to be:

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“responsible for any injurious act … by any employee of the company unless such act … could have been foreseen and avoided by the exercise of due diligence … nor … any loss suffered by the customer through … fire … except … as … solely attributable to the negligence of the company’s employees acting within the course of their employment.”

  

The House of Lords held that the question whether an exclusion clause applied when there was a “fundamental breach” or any other breach turned on the construction of the whole contract including any exclusion clause. Although Securicor was in breach of their implied obligation to operate their service with due and proper regard to the safety and security of the plaintiff’s factory, the exclusion clause was clear and unambiguous and protected Securicor from liability.

Online contracting [9.470] As with any “normal” contract the terms on which the parties are contracting online must be agreed to by both parties and incorporated into the contract before or at the time of contracting. In view of the exponential growth of online contracting and the way we blithely click our lives away, the following recent decision of the NSW Supreme Court is a salutary reminder that clicking ‘I Accept’ has the same effect as the signature on a written contract.

Gonzalez v Agoda Pty Ltd [9.480]  Gonzalez v Agoda Pty Ltd [2017] NSWSC 1133. Agoda Pty Ltd is a company based in Singapore that provides an online booking portal for booking accommodation at hotels around the world. Ms Gonzalez used her home computer in Sydney to book accommodation in Paris through the Agoda portal. The “Payment details page” included a link to Agoda’s standard terms of booking and the words “I agree with the booking conditions and general terms by booking this room …” appeared above the “Book Now” button that Mrs Gonzalez needed to click in order to proceed. The Agoda booking portal did not require Mrs Gonzalez to check a box or click on a link to explicitly accept the Terms. The Terms included an exclusive jurisdiction clause that provided for any dispute to be decided by the Singapore courts. During her trip, Ms Gonzalez suffered injury which she claimed occurred because the shower screen in the bathroom of her hotel room was not correctly fitted. Despite the exclusive jurisdiction clause, Ms Gonzalez brought proceedings claiming damages against Agoda in the New South Wales Supreme Court.

  

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The Court held that the terms, including the dispute resolution term, were incorporated into the contract by “signature” (i.e. Mrs Gonzalez clicking “Book Now”) by virtue of s 9(1) of the Electronic Transaction Act and by reference via the location of the link to the terms above the “Book Now” button. The Court placed the onus on Ms Gonzalez to actively seek out the terms and read them.

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Online agreements [9.490]  In chapter 3 we considered issues concerning the formation of online agreement (see [3.520]). A related concern is determining what terms have actually been incorporated into the agreement. In order to consider this issue it is helpful to consider two common types of online agreements: “click-​wrap” and “browse-​wrap” agreements. Click-​wrap agreements generally present the terms of contract that are offered (almost always by the website provider, a supplier of goods, services or information) and ask the website user to indicate that they acknowledge and agree to the website provider’s terms by clicking an online “button”, usually with words such as “I agree” on the button. The website user clicks on the acceptance button immediately following the terms and this would usually indicate that the website user has seen the terms, or at least has clear notice of them, and has accepted those terms. Extending the principle in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 clicking on the acceptance button operates in the same way as a signature and indicates that the person accepts the terms, whether they have read or understood them. Browse-​wrap agreements are similar except that the terms of contract are not on the page where the website user indicates their agreement –​the terms of the contract are on another webpage or website and the website user is able to access those terms through visiting, or linking, to that other page or site. These agreements are more difficult to enforce because there are often questions about whether or not the website user has agreed to the terms and the terms are incorporated into the contract. In contrast to click-​wrap agreements, in browse-​wrap agreements there is often no evidence that the website user is aware of the terms as the terms are located on another webpage or site. In these circumstances, the question revolves around whether reasonable notice was given of the terms such that the website user can be said to have agreed to the terms. Again, the common law principle established in Olley v Marlborough Court Ltd [1949] 1 KB 532 should apply, requiring the court to consider whether the website provider has taken reasonable steps to draw the terms to the notice of the website user. This will require the court to review the facts as to how and when the notice of the terms located on another webpage or site was drawn to the web user’s attention.

Specht v Netscape Communications [9.500]  Specht v Netscape Communications Corp 306 F 3d 17 (2d Cir 2002). Specht downloaded Netscape’s SmartDownload software. To download the software, users simply clicked the button marked “Download”. The only reference to the terms and conditions could be seen if the user scrolled down the page. The user would then have seen the words “please review and agree to the terms of the Netscape SmartDownload license agreement before downloading and using the software”. Next to this statement was a link to a web page containing the terms and conditions.

  

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The Court held that Specht was not bound by these terms and conditions. The court stated that “a reasonably prudent Internet user in circumstances such as these would not have known or learned of the existence of the license terms before responding to defendants’ invitation to download the free software, and … defendants therefore did not provide reasonable notice of the license terms”, so that “down-​loading the software did not unambiguously manifest assent to the arbitration provision contained in the license terms”.

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Meyer v Kalanick [9.510]  Meyer v Kalanick No 15 Civ 9796. In July 2016, a US District Court in New York refused to enforce the online terms of service of Uber, an online transportation network company that allows users to locate, request and pay for car services from their smartphones using the Uber app. Interestingly, the particular term that Uber was attempting to rely on was not a typical exclusion clause –​it was a dispute resolution clause that compelled the parties to arbitrate any dispute: Dispute Resolution You and Company agree that any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof … will be settled by binding arbitration … You acknowledge and agree that you and Company are each waiving the right to a trial by jury. The court, after engaging in a detailed analysis of Uber’s complex contract formation process, concluded that Uber had not provided reasonable notice of the term. First, users had to register using either Google or Facebook and they had to enter their name and password. They then had to click “Next” before they were directed to another screen to make a payment and register to use the service. The registration and payment fields were prominent at the top of the screen, but, in contrast, a smaller button accompanied by the critical words of acceptance —​“By creating an Uber account, you agree to the terms of service” –​was in “considerably smaller font” and “barely legible”. From a contract formation perspective, it was important that a user could click on the “register” button without clicking on the hyperlink to the terms and conditions and users were not required to click “I accept”.

  

From the court’s point of view, Uber’s problems did not stop there. Even if a user did click on the hyperlink to the terms and conditions, they were taken to a screen containing a further button that provided access to the terms. Finally, when users eventually found the terms, they found “nine pages of highly legalistic language that no ordinary consumer could be expected to understand” and, in relation to the term in question, users were only given notice of the arbitration term in question after they had scrolled down several pages of text.

[9.520]  The decisions in Meyer and Specht and other similar cases do not call into question the enforceability of online contracts. Rather, they indicate that courts are prepared to closely examine the precise contract formation process to ensure that the consumer receives reasonable notice of the agreement. The court in Meyer said that “electronic agreements fall along a spectrum in the degree to which they provide notice, and it is difficult to draw bright line rules because each interface differs from [another] in distinctive ways”. Each case, in other words, will turn on its own particular facts. The expressions “click-​wrap” and “browse-​wrap” have not been used in any Australian case to date. However, in eBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450, the Federal Court accepted the position that contracts are binding when the user clicks the appropriate icon. In this case, users entered into contracts by clicking a series of icons to purchase tickets for a concert.

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The position in Australia with respect to browse-​wrap agreements is yet to be determined. Until the position is clarified, it would be prudent for websites to expressly indicate that terms and conditions will apply. The user should not be able to proceed without reading or being given the clear opportunity to read the terms and conditions. It would be prudent to include a mechanism which requires the user to actually scroll through the terms before giving assent.

Implied terms [9.530]  In addition to the express terms agreed upon by the parties, other terms may be implied in the contract. In appropriate circumstances, terms may be implied by: (a)

the  court;

(b)

custom or trade usage; or

(c)

statute.

Terms implied by the court [9.540]  Terms which may be implied by the court can be subdivided into two categories: (a) those implied to give “business efficacy” to the contract and (b) those implied in specific kinds of contract.

Terms implied to give “business efficacy” to the contract [9.550]  The courts will “readily imply” a term that the parties must cooperate to “ensure the performance of their bargain”: Famestock Pty Ltd v Body Corporate for No 9 Port Douglas Road Community Title Scheme 24368 [2013] QCA 354. Occasionally, the parties, through inadvertence or poor drafting, may have failed to incorporate terms to cover a situation which, had they thought about it, they would certainly have provided for. In such a case, the court may imply appropriate terms so as to give “business efficacy” to the contract in accordance with the presumed intention of the parties. This principle was recognised in the case of The Moorcock (1889) 14 PD 64.

The Moorcock [9.560]  The Moorcock (1889) 14 PD 64. The defendant wharfies contracted to allow the plaintiff to use their jetty to unload his ship. The ship was damaged at low tide by settling on a ridge of hard ground which lay beneath the river mud. It was held that the defendants were liable for the damage since the parties must have intended to contract on the basis that the berth would be safe for the plaintiff’s ship at low tide. The defendants were thus in breach of an implied term that they would take reasonable care to see that the berth was safe for the vessel. In the words of Bowen LJ: “[I]‌n business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen”. The most frequently cited test for determining whether a term should be implied in a contract is as follows: “Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that if, while the parties were making their bargain,

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an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common, ‘Oh, of course’: Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206.” The power to imply terms in a contract is used sparingly by the courts. In BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 180 CLR 266, the Privy Council said that the term implied must be: (a)

reasonable and equitable;

(b)

necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(c)

so obvious that “it goes without saying”;

(d)

capable of clear expression; and

(e)

must not contradict any express term of the contract.

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [9.570]  BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 180 CLR 266. A wholly owned subsidiary of BP Australia Ltd had entered into an agreement with the State of Victoria to build and maintain an oil refinery on a site within the municipal district of the respondent council. The appellant was empowered under the agreement to dispose of its rights under the agreement to a company in which BP Australia Ltd held at least 30% of the issued capital. The appellant company was granted preferential rate concessions by the respondent council under the provisions of the Local Government (Decentralised Industries) Act 1963 (Vic). The preferential rating agreement was expressed to cover a period of 40  years but contained no express provision enabling the appellant to assign the benefit of the agreement to any other company. Some five years later, following a decision to reorganise the corporate structure of BP Australia Ltd, the appellant company went into a members’ voluntary liquidation. The appellant’s liquidator transferred the refinery site and plant to BP Australia Ltd. The respondent council contended that the preferential rating agreement with the appellant lapsed on such reorganisation and assessed normal rates on the site on the basis that the preferential rating agreement did not apply to BP Australia Ltd. The liquidator of the appellant company subsequently obtained a court order for the winding-​ up of the appellant to be stayed. BP Australia Ltd then leased the refinery to the appellant for three years at no rent, the appellant agreeing as lessee to carry out such refinery processes on the site as would be directed by BP Australia Ltd as lessor. The appellant company then claimed the benefit of the preferential rate agreement with the council which refused the claim and levied rates at the normal level. The appellant brought an action claiming it was entitled to the preferential rate concessions in accordance with the original agreement with the respondent council. The Privy Council held that no term could be implied in the rating agreement that it was to remain in force only so long as the refinery site remained in the appellant’s occupation.

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On the contrary, the Privy Council held that a term should be implied, making the rating agreement accord with the refinery agreement and thus provide that the rights of the appellant company under the rating agreement could be assigned or otherwise disposed of to a company in which BP Australia Ltd held 30% or more of the issued capital. Such an implied term would be:

  

“[B]‌oth reasonable and equitable. It is capable of clear expression. It does not contradict any express term of a contract, but adds to it; and it gives business efficacy to the contract. In the light of the provisions of the refinery agreement it was something so obvious that it went without saying, and if an officious bystander had asked whether that was the common intention of the parties the answer would have been ‘Of course’ ”.

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [9.580]  Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. Codelfa Constructions contracted with the State Rail Authority to build tunnels for a new railway. Under the agreement, Codelfa had to complete the contract in 130 weeks. The parties contracted on the common assumption that the company would be able to work three eight-​hour shifts per day, six days a week. This in fact occurred until an injunction was obtained by a resident restraining the company from working from 10 pm to 6 am (with no work to occur at all on Sundays). As a result, Codelfa asked the court to imply a term in the agreement granting a reasonable extension of time. Held: The High Court declined to imply such a term. Codelfa had to prove that the term was necessary to make the contract work (and not just rescue Codelfa from a difficult position) and was “so obvious that it goes without saying” (ie if the parties had known what was to happen when making the contract, they would have agreed to the term now sought to be implied). Codelfa could not establish this. Mason J said: “[T]‌here remains an insurmountable problem in saying that ‘it goes without saying’ that had the parties contemplated the possibility that their legal advice was incorrect and that an injunction might be granted to restrain noise or other nuisance, they would have settled upon the term implied by the Court of Appeal … This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances, negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution”.

  

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However, the High Court found that the changed circumstances were such as to frustrate the contract: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 (on the latter point, see Chapter 11 at [11.380]).

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[9.590]  The High Court later reaffirmed the view that where it is contended that a term should be implied to give business efficacy to a contract, it must be shown that “the term sought to be implied must be necessary to make the contract work and must be so obvious that it goes without saying”: Con-​Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226.

Terms implied in specific kinds of contract [9.600]  Certain terms are implied in various types of contract at common law. For example, in a contract for the hire of goods, there is an implied condition that the goods will be reasonably fit for the purpose for which they are hired: Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633. Similarly, in a contract for skill and labour and the supply of materials, as in the case of a contractor who carries out repairs, there are implied terms that reasonable care and skill will be exercised in the performance of the work and that the materials used will be reasonably fit for the purpose intended: Helicopter Sales (Aust) Pty Ltd v Rotor-​Work Pty Ltd (1974) 132 CLR 1. The Australian Consumer Law2 implies similar terms in such contracts. In cases not falling within the scope of the latter legislation, the terms implied at common law remain important. The terms implied in a contract at common law can be excluded by the parties.

Terms implied by custom or trade usage [9.610]  Where parties have contracted in a particular trade, the customs or usages of that trade may be implied into the contract. However, in order for this to occur, the custom or usage must be notorious, certain and reasonable and not contrary to the express terms of the contract. The relevant principles have been stated by the High Court as follows: 1.

The existence of a custom or usage that will justify the implication of a term is a question of fact.

2.

There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract.

3.

A term will not be implied into a contract on the basis of custom, where it is contrary to the express terms of the agreement.

4.

A person may be bound by a custom notwithstanding the fact that they had no knowledge of it.

Terms implied by statute [9.620] In certain classes of contract, terms are implied by statutory provision. For example, the Australian Consumer Law provides for statutory guarantees in contracts for the supply of goods and services to consumers. These include guarantees as to title, correspondence with description, acceptable quality and fitness for purpose. Conditions as to title, quality and fitness of the goods are implied into contracts for the sale of goods by the State and Territory Sale of Goods Acts. These will be considered in Chapter 13.

2 The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly, the Trade Practices Act 1974 (Cth)): see Chapter 13 at [13.10].

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Implied term to act in good faith/​use best endeavours [9.630]  Although there is no High Court authority, there is considerable case law that establishes that a duty of good faith will, in certain limited circumstances, be implied into commercial contracts. Although it generally affects the circumstances in which one party can exercise its rights to terminate a contract, it may be a more general obligation.

Renard Constructions (ME) Pty Ltd v Minister for Public Works [9.640]  Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. A clause in a building contract empowered the principal to take over the work or cancel the contract upon the contractor’s default, if the contractor failed to show cause as to why the contract should not be terminated. When the contractor defaulted the principal purported to terminate the contract and take over the construction even though the contractor indicated that it was willing and able to complete the contract within a reasonable time. The contractor sued, arguing that the Minister’s decision to terminate was unreasonable and lacking in good faith. The NSW Court of Appeal agreed. It concluded that the contract included an implied term that the principal would give reasonable consideration to the question of whether the contractor had failed to show cause and, if it had failed, to the question of whether its power to terminate should be exercised. The power to terminate was not absolute: it implied a duty to act reasonably. In the event that it did not, the principal’s decision was “an invalid exercise of the power (to terminate)”.

  

[9.650] The requirements of the implied obligation of good faith that can be extracted from Renard Constructions are as follows: ▶▶ ▶▶

▶▶

obligations to act honestly and with a fidelity to the bargain; obligation not to undermine the bargain entered or the substance of the contractual benefit bargained for; an obligation to act reasonably and with fair dealing having regard to the interests of the parties and to the aims and purposes of the contract.

There have been other decisions that clearly point to the existence of a duty of good faith. However, as the following cases indicate, the contract itself is paramount. If the existence of a duty of good faith would be inconsistent with terms in the contract itself, no duty of good faith will be implied.

Vodafone Pacific Ltd v Mobile Innovations Ltd

  

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[9.660]  Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15. The contract provided that Vodafone had the “sole discretion” to determine the number of new subscribers it would provide to Mobile Innovations to manage. In determining that there was no implied duty to act in good faith or reasonably, the Court was influenced by the fact that Vodafone had “sole discretion” and could exercise this power in accordance with its own interests rather than those of Mobile Innovations.

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Solution 1 Pty Limited v Optus Networks Pty Ltd [9.670]  Solution 1 Pty Limited v Optus Networks Pty Ltd [2010] NSWSC 1060. A contract gave Optus the right to terminate for any reason and at any time in its absolute discretion by giving 120 days’ notice. To imply a duty to act in good faith in these circumstances would be inconsistent with this “absolute discretion” and with a clause in the contract that expressly excluded any implied terms.

  

Further reading SA Christenson and WD Duncan, Commercial Contracts –​Principles and Construction (Federation Press, Sydney, 2014). K Lewison and D Hughes, The Interpretation of Contracts in Australia (Thomson Reuters, Sydney, 2012). J Thomson, K Martin and L Warnick, Commercial Contract Clauses: Principles and Interpretation (Thomson Reuters, Sydney, 2012). See also contract texts listed at the end of Chapter 2.

Tutorial activities 1.

“In order to determine the rights and obligations of the parties to a contract, it may be necessary to consider both incorporation and interpretation issues.” Explain, in broad terms, what is meant by “incorporation” and “interpretation”.

2.

Explain the difference between the express and implied terms of a contract. Refer to the sale of goods contract at Figure 9.2 and find an example of an express and an implied term.

3.

A term may be a condition or a warranty. Define each, referring to the sale of goods contract at Figure 9.2.

4.

In Associated Newspapers v Bancks, the term in issue (concerning where his cartoon strip was published) was characterised as a condition. If it had been characterised as a warranty, what would the consequence have been for Bancks?

5.

What is the parol evidence rule? Why do you think the rule was developed? Who was it designed to protect?

6.

What is a collateral contract? Why do you think the concept developed? In , why did the court decide that there was no collateral promise made by Crown?

7.

What is an exclusion or limitation clause? What is the attitude of the court towards an exclusion clause that is contained in a (i) commercial contract and (ii) a consumer contract?

8.

In relation to incorporation, what is the effect of a signature on a contract that contains an exclusion clause? Use Toll v Alphapharm as an example? How does Le Mans v Illiadis qualify the general rule?

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9.

In the absence of a signature, what is required before a term may be incorporated into a contract? Use Thornton v Shoe Lane, and Olley v Marlborough Court to illustrate your argument.

10.

What is the general approach of the courts to interpretation of contracts?

11.

An exclusion clause cannot operate to protect a person who has acted outside the “four corners” of the contract. Explain with reference to Sydney City Council v West and Photo Productions v Securicor.

12.

David and his wife Hillary want to buy a house in the country. They receive a brochure from a property developer, Dolphin Estates Pty Ltd, advertising a housing development called “Lake View Retreat” at Red Hills. The brochure contains a number of statements, including the following: 

“a little piece of paradise – you’ll think you’ve died and woken up in heaven”;



“all the appliances throughout the house, in the lounge, kitchen and laundry, will be European brands”.



David and Hillary read the brochure quickly. Hillary says, “It’ll be nice having European appliances – beats what we’ve got now!”. David replies, in the time-honoured way of a certain kind of man, “couldn’t care less – as long as the fridge and tele work, I’ll be in heaven!”.



Purchasers are often keen to buy “off the plan” (ie to sign a contract to purchase before the house is built) because of the significant savings on stamp duty. Daniel and Hannah negotiate further with Max, the managing director of Dolphin Estates Pty Ltd who confirms the statements about the appliances. The contract contains no reference to the European appliances.



The house is completed in January 2018, and David and Hillary conduct the final inspection before moving in. They are generally very happy but are disappointed to discover the appliances are cheap imports. (a)

Is the statement in the brochure a term or a representation?

(b)

Assuming for the purposes of part (a)  only, that the statement in the brochure is a representation only, what advice would you give David and Hillary in relation to any contractual rights they may have?



Do not refer to the Australian Consumer Law.

13.

Pedro bought a holiday house with an ocean view. During his meeting with the vendor, Maria, prior to sale, Pedro asked if there was any serious rust affecting the steel frames in the house as a result of the salt air. Maria assured him that she had had the property inspected by engineers before she listed it on the market, and it did not report any structural rust. Pedro noticed that the contract of sale did not mention an engineer’s report, but was happy with Maria’s verbal assurance. After living in the house for six months, Pedro discovers significant rust to the steel frame, caused by the salt air. Advise Pedro whether he could seek damages for breach of contract.

14.

Sophia operates a large transport business. Drillers Ltd is a large oil and gas rig operator in Western Australia. Drillers Ltd has used Sophia many times in the past. This time, Drillers Ltd asks her whether she would transport some very expensive rigging equipment from Perth to Broome. Sophia agrees to do the job for an agreed price. She is aware of the value of the equipment she is carrying. When Sophia arrives to pick up the goods, she provides an employee (as usual) with an invoice that he signs. On the reverse side of the invoice, there is the following exclusion clause:

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“All goods are handled, lifted or carried at the owner’s risk. The Contractor (Sophia) shall not be liable for any loss or damage of property and/or goods of the Client (Drillers Ltd) whether such damage was caused by any act, default or negligence on the part of the Contractor, and/or his servants”.

Although Drillers Ltd has used Sophia many times, the company is unaware of the existence of the exclusion clause. All goes well on the long drive until Sophia decides to spend a couple of hours swimming with the dolphins at Monkey Mia. Unfortunately, she leaves the truck unattended and, during her swim, some of the equipment is stolen. Advise Drillers Ltd of any contractual rights it may have.

15.

Jill is off to the opera at the State Theatre. She drives her Mercedes to the underground car park owned and operated by Bilsons Ltd. Outside the car park is a large sign that says “Take ticket from machine. Ticket contains terms. Pay when leaving. No liability accepted”. Jill does not read the sign. As she approaches the boom gate, an automatic ticket machine issues her with a ticket with these words printed on it: CONDITIONS OF PARKING



“It is a condition of the issue of this ticket that vehicles are parked on these premises at the car owner’s risk. The car park proprietors accept no responsibility for loss or damage to vehicles in the parking area whether caused by negligence or in any way whatsoever”.

When she returns to get her car, it is missing. An hour later, it is found in the Yarra River. The police confirm that an employee of the car park broke into the car, somehow managed to start the engine and drove off. When he had had enough, he abandoned it in the river. Not only is the car beyond repair but Jill’s laptop, valued at $5,000, is also destroyed. Jill seeks your advice as to whether the exclusion clause will prevent her from claiming damages from Bilsons Ltd.

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chapter 10

Operation of the Contract [10.20] Privity of contract .....................................................................................................................................  173 [10.110] Liability for inducing a breach of contract ...................................................................................  176 [10.130] Assignment of contracts ......................................................................................................................  177

Introduction [10.10]  We proceed next to a consideration of the operation of a contract, that is, the rights and liabilities under a contract. In particular, the following topics are considered: 1.

privity of contract;

2.

liability for inducing a breach of contract; and

3.

assignment of contracts.

Privity of contract General principle [10.20]  The doctrine of privity of contract means that a contract cannot confer rights or impose obligations on any person except the parties to the contract. In other words, the general rule is that only the parties to a contract: (a)

acquire rights under it; and

(b)

incur liabilities under it.

In certain circumstances, rights and liabilities may pass to persons other than the original parties either by their own act (ie by assignment) or by operation of law: see [10.130]. The basic principle, then, is that “a person not a party to a contract may not himself sue upon it so as directly to enforce its obligations”: Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460. Thus, if A agrees with B to do something for the benefit of X, X cannot sue A if A fails to fulfil his promise.1

1

This is no longer the position in Queensland where by virtue of the Property Law Act 1974 (Qld), s 55, a promise by A to B for valuable consideration to do something for the benefit of a third-​party beneficiary X is, on acceptance by X, enforceable by X against A. There is a similar provision in Western Australia (Property Law Act 1969 (WA), s 11(2), (3)) and the Northern Territory (Law of Property Act 2000 (NT), s 56(6)).

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Tweddle v Atkinson [10.30]  Tweddle v Atkinson (1861) 1 B & S 393. The plaintiff was engaged to the daughter of William Guy. Guy promised the plaintiff’s father that he, Guy, would pay the plaintiff a sum of money upon the marriage. Guy did not do so and when he died Tweddle sued the executor. Held:  Tweddle failed because of the doctrine of privity:  he was not entitled to enforce a promise which had not been made to him. Wrightman J said:

  

… it is now established that no stranger to the consideration can take advantage of a contract, although made for his benefit…

[10.40]  However, although a third person, X, cannot sue A on her or his promise to B, B may have a remedy against A for breach of contract. The application of these principles can be seen in the leading case of Beswick v Beswick [1968] AC 58.

Beswick v Beswick [10.50]  Beswick v Beswick [1968] AC 58. B transferred his coal merchant business to his nephew who promised in return to pay B an annuity during B’s lifetime and after B’s death to pay a slightly smaller annuity to B’s widow. Following B’s death, the nephew failed to make the promised payments to B’s widow. The widow brought an action against the nephew both in her personal capacity and as administratrix of B’s estate.

  

The House of Lords held that the widow could not succeed in her personal capacity, as she was not a party to the contract between B and his nephew. However, it was further held that she could succeed in her capacity as B’s administratrix, that is, as the legal representative of B who would have been entitled to sue the nephew for breach of contract. Accordingly, in her capacity as administratrix of B’s estate, B’s widow obtained an order for specific performance of the nephew’s promise to B to pay her the annuity.

The agency and trust “exceptions” to the doctrine of privity [10.60]  There is an exception to the doctrine of privity of contract where it can be established that a contracting party entered into the contract as an agent of a third-​party principal. Once the contract is made, the agent acting within his or her authority drops out and the contract is in fact between the principal and the third party with the agent having no rights or obligation under the contract. This is not a true exception to the privity doctrine because the agent has, at all times, when acting within his or authority, been acting for the third-​party principal:  Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1980) 144 CLR 300. A further exception is where a contracting party is a trustee for a third-​party beneficiary of the rights given by the contract: Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70 (PC).

The insurance exception to the doctrine of privity: the Trident case [10.70]  In the absence of an agency or trust relationship, the doctrine of privity of contract is capable of working hardship by preventing a third party from enforcing a benefit to which they appear to be entitled

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under the contract. In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, a majority of the High Court held that the doctrine of privity of contract does not apply to contracts of insurance.2 However, the real importance of the case lies in its potential application to other kinds of contract. The facts were as follows:

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [10.80]  Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. T Ltd entered into an insurance contract with B Ltd, to provide cover against liability in respect of alterations being carried out at the latter’s limestone crushing plant. The public liability policy was expressed as extending not only to B Ltd and all its related companies but also to all contractors, subcontractors and suppliers. M Ltd, the principal contractor at the plant, was held liable for injuries sustained by a crane driver employed by one of its subcontractors. M Ltd sought an indemnity under the insurance policy between T Ltd and B Ltd. T Ltd refused the claim on the ground that M Ltd was not a party to the contract and had given no consideration.

  

It was held by a majority of the High Court, affirming the decision of the New South Wales Court of Appeal, that T Ltd was bound to indemnify M Ltd under the insurance policy with B Ltd.

[10.90]  The majority of the court was critical of the general operation of the doctrine of privity of contract, as well as its particular application to insurance contracts. Mason  CJ and Wilson  J commented that: “There is much substance in the criticisms directed at the traditional common law rules as questions debated in the cases reveal”: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. Toohey J recognised that it would be “unreal” to think that the decision “would not have implications for privity of contract in other situations”. Gaudron J went further than the other members of the court in saying that in her view: “[A]‌promisor who has accepted an agreed consideration for a promise to benefit a third party comes under an obligation to the third party to fulfil that promise and the third party acquires a right to bring an action to secure the benefit of that promise”. On the other hand, the dissenting minority were firmly of the view that the “settled and fundamental” doctrine of privity was too entrenched to be overturned by the court. The exception to the privity doctrine in relation to insurance has been incorporated into the Insurance Contracts Act 1984 (Cth). Section 48(1) provides: Where a person who is not a party to a contract of general insurance 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, that person has a right to recover the amount of his loss from the insurer in accordance with the contract notwithstanding that he is not a party to the contract.

2 The Insurance Contracts Act 1984 (Cth), s 48 effectively abrogated the common law doctrine of privity of contract in its application to insurance contracts to which the Act applies. However, the facts of Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 occurred before the coming into operation of the Act, and hence the Act did not apply to the facts of the case.

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Property law exception to the doctrine of privity: land covenants [10.100]  Another exception to the doctrine of privity exists in the law of property. Benefits and liabilities attached to the land by way of restrictive covenants “run with the land” and may benefit or bind successors in title to that land. Thus A may sell land to B who covenants not to develop a high-​rise building on the land. Provided the covenant is properly registered, anyone who subsequently purchases the land will be bound by the covenant, even though he or she was not a party to the original contract.

Liability for inducing a breach of contract [10.110]  Although no right of action in contract generally exists against a person who is not a party to a contract, the law, on principles of tort liability, will make such third person liable to an action if, without sufficient justification, they induce a party to a contract to commit a breach of existing obligations.3 Inducing a party to lawfully terminate a contract does not constitute inducing a breach of contract: Sanders v Snell (1998) 196 CLR 329. Intentionally, and without justification, inducing a person to break a contract with another is a tort. It must be proved that the breach was knowingly and intentionally procured: Woolley v Dunford (1972) 3 SASR 43; Australian Development Corporation Pty Ltd v White (2001) 189 ALR 266. “Wilful blindness” or “reckless indifference” will satisfy the knowledge requirement: LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204. Interference with contractual rights may be justified where there is just cause for the interference. However, it is generally difficult to establish such justification. An illustration of a case where justification was held not to exist is Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530.

Zhu v Treasurer of the State of New South Wales [10.120]  Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530. Z had entered into an agency agreement with TOC. Under the agreement, Z was required to sell memberships in an “Olympic Club”. The Organising Committee for the Sydney Olympics (SOCOG) induced TOC to terminate its contract with Z.  SOCOG sought to justify its inducement of the termination on the ground that it was required by contract to protect intellectual property rights relating to the Olympics. Z had used that intellectual property without authorisation. The High Court held that to justify inducement of a breach of contract the defendant must show that they were protecting a “superior legal right”. That superior right must be of a proprietary nature (such as real or personal property) or be conferred by statute. A right to contractual performance is not a superior legal right but is merely an equal right. An equal right will not provide justification. An inducement is only justified where the defendant’s actions go

3

See P Edmundson, “Sidestepping Limited Liability in Corporate Groups Using the Tort of Interference with Contract” (2006) 30 Melbourne University Law Review 62; JJW Pembroke-​Birss, “The Defence of Justification to the Tort of Inducing Breach of Contract: An Australian Perspective” (December 2010-​February 2011) 24 Commercial Law Quarterly 3; C Bailey, “Facilitation or Manipulation: What Conduct Gives Rise to Liability for Inducing or Procuring a Breach of Contract?” (2014) 22 Tort Law Review 22.

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no further than is reasonably necessary to protect its rights. On the facts, SOCOG’s actions in inducing the breach went further than would have been reasonably necessary, since less drastic alternative courses of action had been available.

  

Assignment of contracts [10.130]  In order to enforce rights or to incur liabilities under a contract, a person must be one of the parties to such contract. However, in certain circumstances, the original contracting parties may assign their rights and liabilities to assignees who may then enforce, or be bound by, the terms of the agreement.4

Relevant definitions [10.140]  The relevant definitions are: ▶▶

Assignor: An assignor is the one who assigns or transfers to another.

▶▶

Assignee: An assignee is the one to whom an assignment is made.

▶▶

Assignment: An assignment of a contract is the act by which one party to a contract substitutes another person for themselves as a party to that contract either for some or all the purposes of the contract.

Assignment of liabilities [10.150]  A person liable under a contract may not transfer their liability to another person without the consent of the other party to the contract and the consent of the “transferee”. Other than this manner of assignment of liabilities, there exists the method of “novation”, whereby obligations under a contract may be assigned by a party to the contract to another person not a party, so that “a new contract takes the place of the old”: ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (2012) 245 CLR 338: “Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made; it involves the extinguishment of one obligation and the creation of a substituted obligation in its place…intention is crucial to show a novation, although intention may be express or implied from the circumstances”: Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170.5

Assignment of rights [10.160]  Although at one time at common law debts and other choses in action were not assignable in the true legal sense (unless they were represented by negotiable instruments), they are now made assignable by 4

5

See generally, GJ Tolhurst, “The Efficacy of Contractual Provisions Prohibiting Assignment” (2004) 26 Sydney Law Review 161; GJ Tolhurst, “Assignment of Contractual Rights: The Apparent Reformulation of the Personal Rights Rule” (2007) 29 Australian Bar Review 4; GJ Tolhurst and JW Carter, “Prohibitions on Assignment: A Choice to Be Made” (2014) 73 Cambridge Law Journal 405. See J Bailey, “Novation” (1999) 14 Journal of Contract Law 189.

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virtue of special statutory provisions in force in each State. A cause of action may be assigned where the assignee has a genuine commercial interest in enforcing the assignor’s claim: Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd (2013) 101 IPR 484.

Assignments by statute [10.170]  These provisions6 allow an assignee of a debt or other legal chose in action to take action against the debtor in the assignee’s own name provided that: (a)

the assignment is absolute and not merely by way of charge;

(b)

the assignment is in writing; or

(c)

express notice of the assignment is given in writing to the debtor.

In order for notice of an assignment to be effective, it is necessary that the debtor actually receive such notice. Accordingly, where notice of an assignment of a margin loan was sent by post by a bank but not received by the debtor, there was no effective notice of the assignment. Further, a generalised message on the bank’s website that the majority of its margin loans were transferred was not effective notice to the debtor of assignment of his loan to a third party: Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170. The assignee takes their rights “subject to equities” and cannot obtain a better title than that of the transferor. Provision is also made whereby a person liable can, if there is a dispute between the assignor and assignee, pay the money into court.

Assignments in equity [10.180]  Courts of equity apply different rules from those of the common law relating to assignment and, accordingly, assignments of choses in action are recognised and enforced by them. This applies not only to equitable but also to legal choses in action.

Legal chose in action [10.190]  A legal chose in action is a right of action that can be enforced in a court of law, for example, action on a bill of exchange or to recover a debt due under a contract.

Equitable chose in action [10.200]  An equitable chose in action is a right of action that can only be enforced in a court of equity, for example, an interest in a trust fund or legacy. An equitable assignment of a chose in action (which may be itself either a legal chose or an equitable chose) may be effected without writing, no particular form of words being necessary, so long as the intention is shown that the chose in action is to be transferred or appropriated to the use of the assignee. The following points concerning an equitable assignment should be noted: 1.

6

Notice is not necessary to complete the assignee’s equitable right as against the original creditor or the latter’s representatives, including assignees in bankruptcy, but the claims of competing assignees rank as between themselves not according to the order in date of the assignments, but Conveyancing Act 1919 (NSW), s 12; Property Law Act 1958 (Vic), s 134; Property Law Act 1974 (Qld), s 199; Law of Property Act 1936 (SA), s 15; Property Law Act 1969 (WA), s 20; Conveyancing and Law of Property Act 1884 (Tas), s 86; Civil Law (Property) Act 2006 (ACT), s 205; Law of Property Act 2000 (NT), s 182.

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according to the dates at which they have respectively given notice to the debtor: Dearle v Hall (1828) 3 Russ 1; 38 ER 475. This rule applies to give priority over the assignee in bankruptcy of the assignor even though the bankruptcy of the assignor occurred before the date of the assignment: Australian Mutual Provident Society v Gregory (1908) 5 CLR 615. It applies even though an assignee knew of the earlier assignment when he or she gave notice but not if he or she knew of the earlier assignment when he took his assignment. Verbal notice is sufficient but it is advisable for it to be in writing. 2.

The assignee takes “subject to equities”, that is, subject to such defences that the debtor might have raised against the assignor. In other words, the assignee can only receive such title as the assignor is able to give and cannot be in a better position.

Assignment by operation of law [10.210]  Another form of assignment occurs in the transfer of the rights under a contract by operation of law. The most common examples are as follows:

Death [10.220]  The estate of a deceased person passes to their executor or administrator on a grant of probate or letters of administration and with it rights under contracts. The liabilities of a deceased person under contracts made by her or him also devolve on the executors or administrators, but the extent of the liability is limited to the assets that come into their hands as such executors or administrators. There is an exception to the rule that the rights and liabilities of a person under contract devolve on their personal representative in the case of contracts requiring the personal skill or services of the deceased. On the death of one of the persons by whom a joint promise has been made, the liability devolves on the survivors, the representatives of the deceased being under no liability. In the case of a promise by partners, equity construes the promise as joint and several. On the death of one of the several joint promisees, the right of action on the promise vests in the survivors.

Bankruptcy [10.230]  The estate of a bankrupt passes to the Official Trustee in Bankruptcy, unless and until a registered trustee is appointed in which event the bankrupt’s estate will vest in the registered trustee.

Contracts for personal services not assignable [10.240]  A contract with a person having special qualification is of a personal nature and probably would not be able to be performed by another person to the satisfaction of the other original party and for this reason it is not assignable; for example, a contract between publisher and author is not assignable.

Further reading A Guest, Guest on the Law of Assignment (Sweet & Maxwell, London, 2012). M Smith and N Leslie, The Law of Assignment (2nd ed, Oxford University Press, Oxford, 2013). G Tolhurst, The Assignment of Contractual Rights (Hart, Oxford, 2006). See also contract texts listed at the end of Chapter 2.

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Tutorial activities 1.

Under the doctrine of privity, a contract only binds, or confers benefits upon, those persons who are parties to the contract. In what sense does Trident General Insurance v McNeice allow a third party to enforce a benefit from a contract to which they are not privy?

2.

Explain the connection between the bargain theory of contract, the need for consideration and the doctrine of privity.

3.

A Ltd, an insurance company, and B Ltd, an insured, agree that the insurance policy taken out by B Ltd will cover B’s employees/agents/contractors. C, a contractor of B, is injured and makes a claim under the policy. Advise C whether the doctrine of privity will prevent him or her from making a claim under the policy. Harry assigns to Kerry his right to receive $1,000 from Bruce. For this to be a valid assignment, is it necessary for him to notify Bruce? What if Kerry has not provided consideration?

4.

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chapter 11

Termination and Breach of a Contract [11.20] [11.100] [11.130] [11.250] [11.490]

Termination by performance ..............................................................................................................  181 Termination by agreement ..................................................................................................................  184 Termination by breach ...........................................................................................................................  185 Termination by frustration ..................................................................................................................  189 Termination by operation of law .......................................................................................................  195

Introduction [11.10]  In this chapter, we consider how a contract may be terminated and, in the next chapter, conclude our study of the law of contract by examining the remedies that are available for a breach of contract. A contract may be terminated in the following ways: by performance of the parties’ obligations under the contract; by an agreement between the parties that they no longer wish to continue with the contract and release each other from their obligations; by breach of a condition or a repudiatory breach of the contract that gives the innocent party the right to terminate; by frustration because an unforeseen event has made performance of the contract radically different from what it was before the event and by operation of law where the contract is terminated independently of the wishes of the parties by operation of law.

Termination by performance Figure 11.1: Ways a contract may be terminated

A contract may be terminated

By performance

Actual

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Attempted

By agreement

By express or implied term

By subsequent agreement

By operation of law

By contingent conditions

By breach

In performance

Repudiation

By frustration

Impossibility of performance/contract radically different

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[11.20] The most desirable (and common) form of termination of a contract is when the parties perform their obligations to one another exactly as promised. Indeed, this is what is required –​anything less than exact performance is technically a breach. However, the exact performance requirement is subject to important qualifications. Figure 11.2: Termination by performance

Termination by performance

Exact performance required: Cutter v Powell. Subject to:

Substantial performance rule: Hoenig v lsaacs

Entire and divisible contracts: Steele v Tardiani

Acceptance of partial performance/ quantum meruit: Sumpter v Hedges

Where the contract is entire or divisible [11.30]  Where the contract is divisible, the party in breach can enforce the payment for any stages that have been performed. Under an “entire” contract, exact performance of the whole contract is required before the other party’s obligations are triggered. For example, if Y is contracted to paint X’s house for $5,000 and is being paid a lump sum at the end of the job, it is an “entire” contract. Y would not be entitled to sue for the contract price ($5,000) until he had completed the job exactly as required. Similarly, a contract for the supply of goods that provides for a lump sum payment at the completion of the contract would be an entire contract and no payment could be demanded until all goods are delivered. Where the contract is a “divisible” contract, performance by one party (eg payment of the price) is due after the other has performed particular stages of the contract. Most construction contracts are structured in this way. For example, if A’s obligation is to build B’s house, the contract may be divided into stages –​ footings, frame, lock-​up and completion –​with progress payments being made at the completion of each stage. Similarly, a contract for the sale of 10,000 tonnes of uranium to Russia over 10 years would be a divisible contract. In both instances, if there is a breach, the builder or supplier would have a right to be paid for each stage or instalment that has been performed. As a general rule, the courts do not regard contracts as divisible. As was said in Re Hall & Barker [1878] 9 Ch D 538, “if a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe and ask you to pay one half the price”. However, it is a question of fact in each case.

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Where there has been substantial performance [11.40]  Unless exact performance is a condition of the contract, contracting parties who “substantially” perform their obligations will be able to claim the contract price, subject to the right of the innocent party to deduct the amount required for exact performance against the full contract price. The question of what may be regarded as “substantial performance” is one of the facts, depending upon all the circumstances, including the nature of the contract, the nature of the defects and the relative cost involved in rectifying or completing the contract. Compare the outcome in the following two cases.

Hoenig v Isaacs [11.50]  Hoenig v Isaacs [1952] 2 All ER 176. The plaintiff, an interior decorator, agreed to decorate and furnish the defendant’s flat for £750. The terms of payment were “net cash as the work proceeds, and balance on completion”. Hoenig made two payments of ₤150. Some time later, Isaacs advised that the work had been completed and claimed the balance of ₤450. Hoenig paid ₤100 but refused to pay the balance alleging faulty design and workmanship. He argued this was an entire contract that had not been exactly or substantially performed and therefore Isaacs was not entitled to recover any money. It would have cost £55 to bring the work up to the exact performance level.

  

The Court accepted this was an entire contract but, as there had been substantial performance, Isaacs was entitled to recover the contract price less the amount required to finish it exactly.

Bolton v Mahadeva [11.60]  Bolton v Mahadeva [1972] 2 All ER 1322. The plaintiff agreed to install central heating and to perform certain other work in the defendant’s house. The contract price for the installation and work was a lump sum of £560. The central heating was installed but there were defects and the cost of remedying the defects was £174.

  

The Court of Appeal decided that the plaintiff was not entitled to recover anything. The Court said that the main question was whether the defects in workmanship were of such a character and amount that the plaintiff could not be said to have substantially performed his contract. In other words, the governing considerations were the nature of the defects and the proportion between the cost of rectifying them and the contract price.

Where the innocent party has accepted partial performance [11.70]  A person who voluntarily accepts a benefit under contract (eg in the above example, B accepts the 900 litres or the delivery on Saturday) must pay on a quantum meruit (not the contract price but “the amount he deserves”). The conceptual basis of a quantum meruit claim is that the innocent party would be “unjustly enriched” if they were able to retain the benefit without compensating the party in breach.

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The following case demonstrates that a party in breach cannot claim payment on a quantum meruit if they have abandoned the contract.

Sumpter v Hedges [11.80]  Sumpter v Hedges [1898] 1 QB 673. Sumpter agreed to build two houses for Hedges for a lump sum of £565. It was an entire contract (though some progress payments had been made for work completed). However, when Sumpter ran out of money, he abandoned the contract leaving Hedges to finish the project. Hedges used materials left by Sumpter. Sumpter claimed payment on a quantum meruit basis (ie he wanted compensation for the value of the work he had carried out and materials used).

  

The Court decided that Sumpter was not entitled to a quantum meruit payment because he had abandoned the project. Hedges therefore retained the benefit of the work done (though, as noted above, he had made some progress payments).

[11.90]  Time for performance. As a general rule, performance should take place within the time specified in the contract (eg “within 60 days from the contract date” or “on 1 January 2013”) or, if none is specified, within a reasonable time, taking into account the particular circumstances. If the parties have stipulated a time for performance, the rule is that if the time clause is not precisely kept, damages will be the usual remedy (not termination for breach of condition). If, however, it is expressly or impliedly agreed by the parties that “time should be of the essence” or notice is given by the innocent party that “time is of the essence”, the breach would be a breach of condition allowing the innocent party to terminate the contract. For further discussion of the distinction between conditions and warranties, see [9.130].

Termination by agreement [11.100]  Parties are free to terminate their contract by agreement. This might take the form of a termination provision in the contract itself or through a new and separate contract.

Termination under the original contract [11.110]  A contract may be terminated through the happening of an event as provided for in the original agreement itself. For example, a contract of loan with a bank may provide that the bank can terminate its contractual arrangements with the borrower in the “Event of Default” by the borrower and declare that the moneys lent are immediately due and payable. When the CEO of the ABC was sacked in September 2018, it was widely reported (see The Age, September 25) that under her contract, the Board could terminate the contract “at any time and without cause”. A further common illustration is a stipulation in the contract that it will terminate at the expiration of a specified period, for example, a contract for a lease for a specified number of years. At the end of the time stipulated, the lease will automatically come to an end. Where a contract does not contain a provision as to its duration, the court may imply a right to terminate on giving reasonable notice to the other party. For example, where a distributorship agreement was silent as to its duration, the New South Wales Court of Appeal held that a period of six months’ notice prior to terminating the contract was appropriate. The contract would otherwise have been of indefinite duration:  Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438.

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Termination by subsequent agreement [11.120]  A contract is the result of agreement and by means of a further agreement, the contract may be terminated. A subsequent agreement must be valid in order to modify a prior contract.

Termination by breach Figure 11.3: Termination by breach

Termination by breach

Breach in performance

Repudiation

Anticipatory breach

Repudiation for non-performance

Condition

Innocent party’s options

Conduct amounting to repudiation

Termination Damages Equitable remedies

Warranty

Innominate term

Damages

Remedies depend on the classification of the term (ex post facto)

[11.130]  A breach of contract by one party may entitle the other party to terminate the contract. However, a right to terminate the contract is by no means an invariable consequence of breach. Some breaches of contract do not give the innocent party the right to terminate the contract but merely entitle them to sue for damages. There are two basic situations to consider: (a)

where one party repudiates the whole contract by act or deed; and

(b)

where one party breaks a term of the contract.

Repudiation of the contract [11.140]  An innocent party has the right to terminate the contract where the other party repudiates their obligations under the contract, that is, demonstrates an absence of willingness or ability to perform their obligations under the contract.

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Repudiation before the contract is due for performance: anticipatory breach of contract [11.150]  Where a contract is entirely unperformed on both sides, for example, where the time for performance has not yet arrived and one party repudiates the contract, the other can treat the contract as terminated and sue immediately for damages for such breach. This is known as anticipatory breach of contract. It should be noted that the contract must be entirely repudiated. For example, on 1 August 2018, Jack signs a contract of employment with IT Pty Ltd and is due to begin on 1 January 2019. If he were to inform them on 1 November 2018 that he no longer intends to work for them, this is an anticipatory breach (because the breach anticipates the time for commencement of the contract). The innocent party may either elect to accept the breach and terminate the contract or elect to keep the contract “on foot”. If the innocent party elects to terminate, he or she is able to sue for damages immediately (rather than wait for the date of performance to fall due). If the anticipatory breach is not accepted by the innocent party, it may, in time, become an actual breach. In the example above, IT may accept the repudiation by Jack and immediately sue for any losses it can show were caused by his breach. On the other hand, it can wait for the contract date and, when Jack fails to perform, sue for actual losses sustained.

Conduct amounting to repudiation [11.160] The most obvious case of repudiation is for non-​performance, where a party to a contract expressly states that they are unwilling or unable to perform the contract. In the absence of an express statement, a party’s words or conduct may indicate that they are repudiating the contract. Furthermore, a party may repudiate a contract by putting it out of their power to perform the contract, for example, where the seller of an antique car sells the car to a third person. In such a case, the original buyer can treat the seller as having repudiated the contract for the sale of the vehicle. Renunciation may not be express but may be implied from fragmentary acts and omissions so that the party shows an intention to fulfil the contract in a manner substantially inconsistent with its obligations. In such a case, the innocent party is entitled to accept the repudiation and sue for damages.

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [11.170]  Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623. In October 1985, Capalaba agreed to lease a shop in a shopping mall to Laurinda for six years. Under the contract, Capalaba agreed to do what was necessary to put the lease into registrable form and then register it (or forward to Laurinda for registration) by the time Laurinda went into possession “or so soon thereafter as is practicable”. Laurinda went into possession in December 1985. In March and again in August of 1986, Laurinda sought the lease but did not receive it. Finally, in September, Laurinda terminated the lease, arguing that the inordinate delay in registration amounted to a repudiation of the lease.

  

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The High Court agreed that Capalaba’s conduct was repudiatory because it showed an intention to perform the contract in a manner that was substantially inconsistent with its obligations. Laurinda therefore had the right to terminate.

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Progressive Mailing House Pty Ltd v Tabali Pty Ltd

  

[11.180]  Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17. The High Court considered whether a lessee’s conduct amounted to a repudiation of the lease. The lessee had committed a number of breaches of the lease including the failure to pay rent. The Court held that although the failure to pay the rent would not, on its own, “evince an intention not to be bound by the contract”, the cumulative effect of the breaches amounted to a repudiation of the lease, thus allowing the lessor to terminate.

[11.190]  It is irrelevant that the party repudiating the contract believed that their action was justified under the contract.

Effect of repudiation [11.200]  Repudiation gives to the other party to the contract an option either to ignore the breach and to insist upon performance when due, or to accept the repudiation and treat themselves as discharged from any further obligation under the contract. If the innocent party elects to treat themselves as discharged, he or she can immediately sue the defaulting party for damages whether or not the time for performance is due. On the other hand, if the innocent party does not elect to treat themselves as discharged, then the contract remains and continues for the benefit of both parties. The innocent party remains subject to all their own obligations and liabilities under the contract. The defaulting party has an opportunity not only to complete the contract but also, notwithstanding their previous repudiation of it, to take advantage of any intervening circumstance which would entitle her or him to decline to complete it.

Breach in fulfilling terms of contract [11.210]  A breach in performance usually involves not a complete and conscious repudiation of the whole contract but rather a breach of certain obligations under the contract. A breach in actual performance by one party entitles the other party to terminate the contract in two situations: (a)

if the acts or omissions by the defaulting party are such as to show an intention to repudiate the whole contract or to carry it out only in a manner inconsistent with their obligations under it; or

(b)

if there has been a breach of some essential obligation under the contract.

With the first rule, the renunciation is not express but has to be implied from fragmentary acts and omissions. In Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625, Gibbs CJ stated that: “[A]‌contract may be repudiated if one party … evinces an intention no longer to be bound by the contract … or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way … In such a case the innocent party is entitled to accept the repudiation, thereby discharging himself from further performance, and sue for damages”. While multiple breaches of contract may not amount to repudiation when considered individually, they may constitute repudiation when considered as a whole.

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Progressive Mailing House Pty Ltd v Tabali Pty Ltd

  

[11.220]  Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17. Where the lessee had committed a number of breaches of a lease including causing physical damage to the premises and failing to repair the damage, subletting the premises without the consent of the lessor and failure to pay rent, the High Court held that while the failure to pay rent may not have been sufficient on its own, this together with the other breaches amounted to a repudiation which justified termination of the lease by the lessor.

Breach of an essential obligation: conditions, warranties and innominate terms [11.230]  As we have seen at [9.130]–[9.190], a condition is a term of a contract that is of such basic importance that breach of it gives rise to a right to treat the contract as at an end. A warranty is subsidiary to the main purpose of the contract so that its breach confers merely a right to sue for damages. If there is a breach of condition and the other party does not treat the contract as terminated, the condition sinks to the level of a warranty only. In Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, it was said that not all contractual undertakings fell into one of the two categories of “condition” and “warranty”. The more basic test was whether the breach had given rise to a situation where the party not in default had been deprived of substantially the whole benefit which they were entitled to expect from the contract. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, the High Court described the Hong Kong Fir Shipping doctrine as being part of the “mainstream law of contract” in Australia.

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [11.240]  Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115. Koompahtoo Local Aboriginal Land Council (Koompahtoo) and Sanpine entered into a joint venture agreement for the commercial development of land. Koompahtoo contributed the land and Sanpine was the manager of the development. Sanpine breached a number of non-​essential terms. In 2003, an Administrator was appointed. In December 2003, on behalf of Koompahtoo, he terminated the Agreement. Sanpine sought a declaration that the termination was invalid. The trial judge dismissed the application finding “gross and repeated” departures by Sanpine from its contractual obligations under the Agreement. The High Court held that the breaches by Sanpine “went to the root of the contract” and “as a matter of construction of the contract … deprived Koompahtoo of a substantial part of the benefit for which it contracted”. The Court summarised the law as follows:

  

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“For present purposes, there are two relevant circumstances in which a breach of contract by one party may entitle the other to terminate. The first is where the obligation with which there has been failure to comply has been agreed by the contracting parties to be essential. Such an obligation is sometimes described as a condition ….The second relevant circumstance is where there has been a sufficiently serious breach of a non-​essential term …. we rest our decision in the appeal not upon the ground of breach of an essential obligation, but upon application of the doctrine respecting intermediate terms”.

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Termination by frustration Figure 11.4: Termination by frustration

Termination by frustration

Test: is contract “radically different” as a result of the frustrating event?

If so, the contract is automatically terminated and court has discretion to do what is fair: Frustrated Contracts Act 1978

Application of doctrine

Subsequent change of the law

Destruction of subject matter

Death, serious injury etc

Circumstances cause radical change in contract

Common objective no longer possible

[11.250]  The common law has been reluctant to excuse the parties to a contract from performing their obligations under the contract because circumstances have changed from the time the contract was formed. For this reason, the doctrine of frustration that provides a lawful excuse for breach of contract has been conservatively applied. The parties may trigger the doctrine only where some unforeseen event occurs which results in a fundamentally different situation from that contemplated at the time of entering into the contract. For the unforeseen event to have this effect, it must have been of such a serious nature as to make further performance of the contract illegal, impossible or radically different. Increased hardship, inconvenience or cost is not sufficient. In essence, frustration will only occur where the following conditions are met: ▶▶ ▶▶

there must be an event that occurs after the contract has been made that causes a fundamental change to the nature of the contract and the obligations of the parties under the contract

▶▶

the event was not the fault of either party

▶▶

the event was not foreseeable by either party, so that

▶▶

it would be unfair to enforce the contract under the changed circumstances.

Application of the doctrine [11.260]  The following are examples of circumstances that have been held to frustrate a contract:

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Supervening illegality [11.270]  Where a subsequent change in the law renders further performance illegal, the contract will be terminated:  Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC 260.

Death or illness [11.280]  Where the contract is one of personal service and the party to perform the service dies or suffers from some serious disability or illness making performance of the contract impossible, the contract will be terminated:  Robinson v Davison (1871) LR 6 Ex 269.

Destruction of subject matter [11.290] Where performance of the contract is rendered impossible by the physical destruction of the subject matter before performance falls due, the contract is terminated. In the following case, a contract for the hire of a music hall for a concert at a future date was held to be frustrated when the music hall burnt to the ground.

Taylor v Caldwell [11.300]  Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309. Caldwell agreed to hire Surrey Gardens and Music Hall to Taylor for five days for a series of concerts. However, six days before the first concert, fire destroyed the hall through no fault of either party. Taylor sued Caldwell for breach of contract because Caldwell had not done what he promised –​provided a hall for the concerts. The issue was whether Caldwell’s breach was excused by frustration. Held: The contract was frustrated by the event that occurred through no fault of either party. In a classic statement, Blackburn J said:

  

“There seems no doubt that where there is a positive contract to do a thing … the contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burdensome or even impossible … But where from the nature of the contract it appears that the parties must have known that it could not be fulfilled unless when the time for fulfilment of the contract arrived some particular specified thing continued to exist the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor”.

Common objective no longer attainable [11.310]  When the happening of some particular event can be regarded as the real basis of the contract, then, if that event fails to eventuate, without the fault of either party, the parties are discharged. Contrast the decisions in the following two cases.

Krell v Henry [11.320]  Krell v Henry [1903] 2 KB 740. Henry booked Krell’s apartment in London for two days on £25 deposit. Henry intended to use the apartment to watch the coronation of Edward

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VII. That was the sole reason for Henry booking the room. Although this objective did not appear in the agreement itself, both parties were aware that many other flats in the area had been rented for the same purpose. The coronation had originally been scheduled for 26 June, but two days before on 24 June, the future King Edward was diagnosed with appendicitis. Surgeons performed a then-​radical operation of draining the infected abscess through a small incision. The next day, Edward was sitting up in bed, smoking a cigar. Two weeks later, it was announced that the King was out of danger and he was crowned at Westminster Abbey on 9 August 1902. Krell sued for £50, the balance of the rent.

  

The Court held that performance will be excused when (a)  the purpose of a contract is frustrated by an unforeseeable supervening event and (b) the purpose was within the contemplation of both parties when the contract was made. A contract’s purpose may be inferred from surrounding circumstances. The parties understood that the sole purpose of the contract was to allow Henry to view the coronation. When it was cancelled, the contract, although possible to be performed, became futile and, as a consequence, was frustrated.

Herne Bay Steamboat Co v Hutton [11.330]  Herne Bay Steamboat Co v Hutton [1903] 2 KB 683. The HB Company agreed to hire a boat to Hutton to view the naval review at the coronation and to cruise around the fleet. Owing to the King’s illness, the naval review was cancelled but the fleet was assembled and the boat might have been used for the intended cruise. It was held that Hutton was not discharged from performance as the naval review was not the sole basis of the contract.

  

It was also held that the contract was not frustrated (so Hutton was not discharged from performance) because the naval review was not the sole reason for him entering into the contract.

Governmental intervention [11.340]  Where government interference is such that it would make the subsequent carrying out of the remainder of the contract radically different from that envisaged by the parties, then they are absolved from further performance:

Metropolitan Water Board v Dick, Kerr & Co Ltd

  

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[11.350]  Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119. Dick, Kerr contracted with the Metropolitan Water Board to construct a dam within six years, subject to a proviso that if the contractors should be delayed or impeded in the completion of the contract, it would be lawful for the engineer to grant an extension of time. The Ministry of Munitions, exercising wartime powers, appropriated the machinery of the company and work on the dam ceased. It was held that the interruption suffered was of such duration and character as to alter the contract on resumption, and therefore the contract had ceased to be operative.

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Other supervening circumstances resulting in radical difference in performance [11.360]  The basis of the doctrine of frustration is that performance of the contract is, as a result of an unforeseen event that occurred after the contract was made, radically different from what the parties intended when they entered into the contract. On this point, the Courts came to different conclusions in the following two cases

Davis Contractors Ltd v Fareham Urban District Council [11.370]  Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696. Davis Contractors tendered for a contract with the council to build 78 houses within a period of eight months. The tender was accompanied by a letter, which stated that the tender was “subject to adequate supplies of material and labour being available as and when required to carry out the work within the time specified”. The contract was to build the houses at a fixed price subject to certain adjustments. For various reasons, mainly the lack of skilled labour, the work took 22 months (instead of the agreed eight months) to complete. The appellants contended that the contract price was not binding as the contract had been frustrated. Held: The lack of material and labour was not enough to frustrate the contract. The classic statement from Lord Radcliffe reflects the general disinclination of the courts to broaden the scope to the operation of the doctrine of frustration:

  

“[F]‌rustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. (It was not this that I promised to do) ... it is not hardship or inconvenience or material loss itself which calls the principle into play. There must be as well such a change in the significance of the obligation that the thing undertaken would if performed be a thing different from that contracted for”.

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [11.380]  Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. Codelfa contracted to excavate tunnels and do concrete work in connection with a railway. Various stages of the work were to be completed by certain dates. The whole of the work was to be completed within 130 weeks of the date of notice to proceed. Time was made of the essence of the contract. The work generated such noise and vibration that a resident obtained an injunction to restrain Codelfa from performing construction work between 10 pm and 6 am and preventing any work on Sunday. It was a common assumption of the parties when the contract was made that no such injunction could be granted. It was assumed that Codelfa could work three shifts a day, seven days a week. Codelfa was released from further work on the project. As the contract was now terminated, Codelfa was not able to recover any further payments under the contract. However, Codelfa argued that the contract

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was frustrated when the injunction was granted, allowing it to recover monies for the work it had completed. The dispute was referred to arbitration under the terms of the contract. The arbitrator found that the work could not be carried out as agreed except on the basis of three shifts per day and that neither party foresaw the possibility of the restrictions that were imposed on the hours of work as a result of the injunction.

  

A majority of the High Court held that the situation produced by the grant of the injunction was such as to make it impossible lawfully to perform the contract in a manner that would have complied with its requirements. Accordingly, performance had become a thing radically or fundamentally different from that undertaken by the contract resulting in frustration of the contract.

Changes in circumstances not amounting to frustration [11.390]  There have been many cases in which the courts have held that the change in circumstances did not give rise to frustration of the contract.

Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd [11.400]  Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd (1976) 133 CLR 671. An environmentally concerned building union imposed a “work ban” (ie where a union prevents its members from working on a particular site) on land owned by the defendants. This meant that the purchaser of the land could not develop the land in the way envisaged as workers were banned from working on the site. The ban was placed on the site after it had been sold but before settlement. The purchaser claimed the contract was frustrated.

  

The Court held that the fact that the work bans had been placed on the site was not, without more, a frustrating event –​at the time the contract was entered into, the court held that the risk of such bans being placed on the site had shifted to the purchaser.

Scanlon’s New Neon Ltd v Tooheys Ltd [11.410]  Scanlon’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169. The appellants entered into a number of contracts with the respondents for the installation of neon advertising signs on the respondent’s hotels and the respondent agreed to hire the signs for a period and to pay the rentals whether or not the signs were used or operated. The signs were conspicuous even when not illuminated. During the currency of the contract and after the signs had been operated for a substantial period, the use of lighted signs outside any building was prohibited by State order because of the outbreak of war with Japan. The High Court held that the making of the State order did not frustrate the contracts and that the respondent remained liable for the rental payments. In the court’s view, there was no ground for concluding that the lighting of the signs was the basis on which the parties had

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contracted. The court also rejected the contention that a term should be implied providing for the termination of the contract in the events which had happened.

[11.420]  An interesting example of the occurrence of an event that in the particular circumstances was held not to frustrate the contract arose in consequence of the closing of the Suez Canal as a result of hostilities in 1956.

Tsakiroglou & Co Ltd v Noblee Thorl GmbH [11.430]  Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93. On 4 October 1956, the appellants agreed to sell to the respondents Sudanese groundnuts for shipment from Port Sudan to Hamburg during November–​December 1956. On 2 November, the Suez Canal was closed. The alternative route via the Cape of Good Hope would have increased the length of the voyage by four weeks and also increased the appellants’ costs of shipment. No delivery date in Hamburg and no particular route had been specified in the contract.

  

It was held that although the route via the Cape would have involved a change in the method of performance of the contract than that originally contemplated by the parties, it was not such a fundamental change as to entitle the appellant sellers to say that the contract was frustrated.

Limitations on the doctrine of frustration [11.440]  . 1

The contract itself covers the event the parties make specific provision for the event in the contract –​by, for instance, agreeing that the obligation to perform is “absolute” or by inserting a force majeure clause that covers the event –​this will prevent the contract being frustrated.

Claude Neon Ltd v Hardie [11.450]  Claude Neon Ltd v Hardie [1970] Qd R 93. The parties signed a five-​year contract that contained a clause that said that if Hardie’s leasehold interest in the property was “extinguished or transferred”, Neon would become immediately entitled to the remaining rent. Two years later, the owner of the premises took possession of the premises and demolished them. Neon claimed the rent to which it was entitled under its contract with Hardie. Hardie argued that the owner’s action in going back into possession of the property had frustrated the contract.   

The Court decided the contract was not frustrated because the parties had foreseen the event (the owner re-​taking possession) and had made provision for it in the contract.

[11.460]  . 2

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The frustrating event must not have been one that the parties could reasonably have foreseen A frustrating event must not have been foreseen or must not have been reasonably foreseeable by the parties. If it were foreseeable, the courts presume that the parties have allocated the risk of the

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event occurring in the contract. This limitation is not as easy as it may appear. For instance, it is not clear how foreseeable the event needs to be, nor is it clear how foreseeable the effects of the event need to be. It is not, for example, difficult to say that hurricanes are a foreseeable event in the Gulf of Mexico. It is another matter to say that the particular damage wrought on the north-​east coast of the USA by Hurricane Sandy in 2012 was foreseeable. . 3

Fault or self-​induced frustration The frustrating event (or its effect) must not have been caused by the acts or omissions of the party seeking to rely on the frustration. The reason for this limitation is that a party should not be able to plead frustration in respect of an event that he or she could have prevented. For example, a contract for the carriage of goods may not be frustrated by the sinking of the vessel if the sinking was caused by the negligence of the shipper of the goods:  J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyds Rep 1. Again, the eruption of hostilities in and around a port may not allow the captain of a cruise liner to plead frustration if he or she deliberately allowed the vessel to sail into the port knowing that the likelihood of hostilities erupting was high.

Effect of frustration [11.470]  At common law, the effects of frustration were the following: 1.

When frustration of a contract occurs, it automatically terminates the contract and brings the whole contract to an end and not just some part of it.

2.

The future obligations of the parties are discharged, but rights and liabilities that have already accrued (such as payments due and payable at the time the contract was frustrated) remain.

Legislation has been passed which provides for a fairer distribution of loss than that was the case under common law. The Victorian legislation (the Australian Consumer Law and Fair Trading Act 2012 (Vic)) is replicated in all jurisdictions. The key provisions are referred to below.

Victoria [11.480]  The Victorian Australian Consumer Law and Fair Trading Act 2012 provides that all sums paid to any person before the time of the discharge through frustration are recoverable: s 36(1). However, if the payee incurred expenses for the purposes of the contract before the time of discharge, the court hearing the case may allow the payee to retain the whole or part of the money paid, up to the amount of the expenses incurred: s 37. If one party to the contract has, by reason of anything done by the other party, obtained a valuable benefit (other than a payment of money) before the time of discharge, the other party may recover such sum as the court considers just (up to the value of the benefit): s 38(1)–​(2). The court may have regard to the amount of expenses incurred before discharge by the benefited party in performance of the contract and the effect, in relation to such benefit, of the circumstances giving rise to frustration of the contract: s 38(3). If the contract contains a provision that is intended to continue to have effect in the event of frustration of the contract, the court must give effect to that provision. The court may give effect to the frustrated contracts provisions of the Act only to the extent that is consistent with the provisions of the contract: s 41.

Termination by operation of law [11.490]  A contract may be terminated independently of the wishes of the parties by operation of law.

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Bankruptcy [11.500]  If a party liable under a contract becomes bankrupt, they are personally relieved of the contract and the other party may prove in the bankrupt’s estate. There are also other provisions in the Bankruptcy Act 1966 (Cth) under which a trustee in bankruptcy may adopt or rescind certain contracts into which the bankrupt has entered. When the affairs of the bankrupt have been wound up, the bankrupt is given a certificate of discharge by the court, which releases the bankrupt from all debts provable in bankruptcy, but the bankrupt is not released from liability in respect of certain types of debts, such as liability for fraud.

Merger [11.510]  A deed may, in certain cases, displace a simple contract (which is then terminated), and the relations and rights of the parties are governed by the deed. When that happens, the simple contract becomes merged in, and is extinguished by, the deed. The first agreement is terminated because the rights in the lesser contract merge by the operation of law into the greater. In order that merger of a simple contract in a deed may take place, the following conditions must be fulfilled: (a)

the parties to the two agreements must be the same;

(b)

the subject matter must be the same; and

(c)

the second security must be of a higher value than the first.

Another but different type of merger is that which takes place when a party recovers judgment upon a cause of action for breach of contract. Here, the cause of action merges in the judgment.

Further reading See contract texts listed at the end of Chapter 2.

Tutorial activities 1.

In what ways may a contract be terminated?

2.

Is a party who has substantially performed a contract entitled to sue for the full contract price?

3.

Explain the difference between a contract that has been repudiated and one where there has been a breach in performance.

4.

Explain why the courts have taken a narrow view of the doctrine of frustration.

5.

Eunice has a successful printing and copying business. She goes through a lot of paper each day and relies heavily on the prompt, daily delivery of quality paper from her supplier, Alex. A term of the contract of delivery states that delivery of paper to Eunice must occur each day at 7.00 am. On Wednesday, Alex telephones Eunice to inform her that he is changing his delivery route and will be delivering paper to her premises every second day at 4.00 pm. This does not suit Eunice at all, and she would like to change suppliers. Discuss her rights.

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197

Priyantha enters into a contract with Jay for Jay to build him a house. Unfortunately, things do not go according to plan: (a)

Jay contacts Priyantha a month before the building is to commence and says he is too busy to build the house.

(b)

Jay eventually agrees to build Priyantha’s house. The contract provides for the house to be built out of mudbrick. When Priyantha visits the house after a couple of months, he sees that Jay has used weatherboards.

Advise Priyantha of his rights in respect of each of these breaches (at the time when they occurred). 7.

Charles Clayton-Moggs is an ardent monarchist. He lives south of the Yarra River and has a post code to die for. He was looking forward to the visit of His Royal Highness the Duke of Sussex and Her Royal Highness the Duchess of Sussex (hereafter, H & M) and made sure he booked an exclusive Riverview Suite in the Crown Hotel – at $5,000 a night – so that he could sit with a glass of champagne on the balcony, as the sun set, and get an uninterrupted view of the main event of the Melbourne leg of the tour – the Royal Barge floating down the river to Docklands with H & M in full view. Unfortunately, however, M, who had recently announced that they were pregnant, had a bad dose of morning sickness and had to cancel the event. A  shattered Charles cancels the booking and demands his money back. Crown refuses to comply. Please advise Charles of his legal rights.

8.

George, a logger, and Andrew, a farmer, entered into a logging contract on 1 January 2018. Under the contract, George would pay Andrew a fee of $10,000 on signing the contract for the sole rights to log a specified amount of Australian old-growth hardwood for a three-year period. George paid the fee and commenced logging. In March 2018, the Government prohibited the logging of old-growth timber completely. Advise George.

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chapter 12

Remedies [12.20] Remedies depend on the nature of the breach ........................................................................  200 [12.40] The remedy of damages .......................................................................................................................  201 [12.310] Penalties and liquidated damages ..................................................................................................  210 [12.350] Equitable remedies: specific performance ..................................................................................  211 [12.410] Injunction ......................................................................................................................................................  212 [12.420] Restitution ...................................................................................................................................................  213 [12.430] The basis of restitution .........................................................................................................................  213

Introduction [12.10]  The contractual story ends with an analysis of the remedies that may be available where the contract is not performed in the way the parties expected. This chapter is divided into two main parts. The first part is concerned with the remedies available to an innocent party where there has been a breach of contract that does not permit the innocent party to terminate. In the previous chapter, we considered the circumstances in which a breach –​either by repudiation or breach of a term –​allowed the innocent party to terminate the contract. We will briefly touch on this remedy but will not repeat that discussion in detail. In this chapter, we focus on (a) the usual common law remedy for a breach of contract –​an award of damages; and (b) the equitable remedies of specific performance and injunction. The second part of this chapter examines the doctrine of restitution. An action in restitution is usually brought either because there is no express contract between the parties or such contract is void or unenforceable. Accordingly, an action in restitution may provide a remedy where otherwise there would be none. Before beginning an analysis of the common law and equitable remedies for breach of contract, it is worth remembering that the statutory remedies contained in the Australian Consumer Law (discussed in Chapter 13) and the remedies for mistake and misrepresentation (discussed in Chapter 7) may also be relevant. Finally, and most importantly for business people, it must be acknowledged that litigation is an expensive, time-​consuming and uncertain business. Even victory may not be sweet –​there are significant costs that are not met by the losing party and, perhaps more importantly, in a commercial dispute, there is the risk that litigation may adversely affect the business (who wants to do business with someone who sues them?). Litigation also involves airing all the evidence relevant to the dispute (and much commercial information) in public, something that a business may not want to do. The fact is that the great majority of contractual disputes are settled out of court –​the

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parties themselves find a solution or they seek the assistance of negotiators, conciliators or, more formally, arbitrators. However, even though the parties may not seek legal remedies, the fact that each party knows what remedies might be awarded is often enough to concentrate the minds of the parties (or at least one of them) and will provide the context for the settlement negotiations.

Remedies depend on the nature of the breach Remedies where the contract is terminated for breach Figure 12.1: Remedies for breach

Remedies for breach

Common law

Equity

Damages

Termination

All breaches

Repudiation Condition Innominate term with serious consequences

Specific performance

Restitution

Injunction

[12.20]  As we saw in the previous chapter, there are three situations that provide a right to terminate a contract: 1.

repudiation –​either anticipatory or when the contract is being performed;

2.

breach, in performance, of a condition; or

3.

breach of an innominate or non-​essential term that has the effect of denying the innocent party a substantial part of the benefit of the contract.

If the innocent party does elect to terminate the contract for the breach, then the contract comes to an end and the parties are released from further performance of their obligations under the contract. In such a case, the innocent party can also seek damages for the losses that were caused by the breach.

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Remedies where the contract is not terminated for breach [12.30]  There are two situations in which the contract remains valid and enforceable despite a breach having occurred. The first is where the breach is of a warranty or of an innominate term that does not deprive the other party of a substantial part of the benefit of the contract and the second is where the breach is of a condition but the innocent party has opted not to terminate the contract. In both situations, whilst the contract remains on foot and the parties remain liable to perform their obligations under the contract, the innocent party is entitled to sue for damages for the breach of contract. In other words, at common law, any breach of an obligation under a contract by one party entitles the innocent party to seek compensation by way of an award of damages for the loss or damage caused by the breach.

The remedy of damages   Figure 12.2: The principles of damages

The Principles of Damages

Measure

Expectation losses (Robinson v Harman)

Causation “but for” test

Reliance losses (Amann Aviation)

Losses naturally arising

Remoteness – two limbs of Hadley v Baxendale

Duty to mitigate

Within contemplation of the parties

Particular rules regarding forseeablility

Liquidated damages or penalties

[12.40]  Damages for breach of contract are awarded to compensate the innocent party for loss caused by the breach provided it: (a)

is measurable;

(b)

was caused by the breach;

(c)

is not too remote; and

(d)

could not have been avoided or reduced by reasonable actions of the innocent party.

The measure of damages [12.50]  The object of an award of damages is to place the innocent party in the position he or she would have been in if the breach had not occurred and the contract had been performed (these are often referred to as expectation losses):  Robinson v Harman (1848) 154 ER 363 and Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. The law attempts to measure the difference between the position the innocent party would have been in if the contract had been performed and the position he or she is in as a result of the breach. For example,

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Alexandra, a chef, signs a one-​year contract with Spiros, a Greek restaurant owner. She is paid $100,000 per annum. After nine months, Spiros repudiates the contract. Alexandra is entitled to be put in the position she would have been in if the contract had been performed. That is, subject to the principle of mitigation, she is entitled to be paid the equivalent of three months’ salary. The measure of damages is not always as clear cut. For example, Bob agrees to sell his Mercedes SUV to Chris for $50,000. In breach of contract, Chris refuses to complete the sale. Bob’s loss is the difference between the contract price and the market price (the price he can sell his SUV for at the time of the breach). Thus, if he can sell the SUV for more than the contract price, there is no loss and therefore no damages would be awarded. In other words, the innocent party is not entitled to be put in a better position than he or she would have been in if the contract had been performed. The two cases below demonstrate that the principle of compensation for expectation losses only is not always appropriate. First, in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 where Amann could not demonstrate whether, or to what extent, the performance of the contract would have resulted in a profit, it recovered the expenses it reasonably incurred in reliance on the defendant’s promise to perform its obligations under the contract (such damages are referred to as “reliance damages”).

Commonwealth v Amann Aviation Pty Ltd [12.60]  Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. Amann entered into a three-​year contract with the Commonwealth to conduct aerial coastal surveillance. To enable it to perform the contract, it spent a substantial amount of money acquiring and fitting out specially equipped aircraft. However, on the day performance was due to begin, only seven of the 11 planes were ready to fly. As a result of this (admitted) failure to have all 11 planes ready on time, the Commonwealth terminated the contract for what it considered to be a repudiatory breach. However, because the Commonwealth did not terminate the contract according to the procedure set out in the agreement, it, in fact, repudiated the agreement. Amann then terminated and sued for damages. The trial judge awarded only $410,000 damages because the plaintiff’s expectation of profits on the three-​year contract was low. On appeal, the Full Federal Court awarded damages of approximately $6 million based on Amann’s reliance loss –​in effect, its wasted expenditure –​that included pre-​operational expenditure, the difference between the price it paid for the aircraft and their value in Amann’s hands and the value of the chance that Amann would win a new contract. The High Court affirmed that decision. It agreed that Amann assumed it would either make a loss or just recover its expenditure on the first three-​year contract (given its significant start-​up costs) and that its prospects of making a substantial profit rested on its prospect of securing a renewal of the contract. The prospect of this occurring was strong (and should be taken into account) because it would be fully equipped with the cost of its aircraft written down. It would be very difficult for a competitor to match this advantage. The contract with the Commonwealth enabled Amann to recoup part, if not all, of its expenditure and placed it in a favourable position to secure a renewal and earn substantial profits under any renewed contract.   [12.70]  In the following case, where a breach of contract has caused damage, the question was whether the proper measure of loss is the cost of reinstatement rather than the diminution in the value of the property that has been caused by the breach?

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Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [12.80]  Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272. A tenant of an office building carried out substantial renovations to the foyer without the consent of the landlord as required under the lease. The High Court held that the landlord had a contractual right to the preservation of the building against alterations to which it had not given its consent. The issue was what damages the landlord was entitled to. The tenant argued that the landlord was only entitled to be compensated for the depreciation in the value of the premises (assessed at approximately $33,000), not the amount that it would take to put the landlord in the position it would have been in had the terms of the lease been honoured (reinstatement damages –​ $1.34 million). The High Court reaffirmed the basic principle that contractual promises must be performed: the landlord was entitled to the cost of restoring the foyer to the state it would have been in had the tenant not breached the lease.  

The damage must have been caused by and must not be too remote from the breach [12.90]  Causation. The innocent party must establish that the damages it seeks were “caused” by the breach of contract. The courts use the “but for” test: “but for” the breach would the loss have occurred. In other words, can a particular act or omission that constitutes a breach of contract fairly and properly be considered the cause of the accident. Note that where multiple causes contribute to the loss it is sufficient that the breach be the decisive or dominant cause.

Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd [1968] 120 CLR 516

  

[12.95]  Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd. Reg Glass, seeking to protect its premises against burglary, engaged a company, Rivers Locking, that carried on the business of providing burglar-proof protection, to supply security installations including the supplying, fitting and hanging of a steel-sheeted back door fitted with a superior locking system. Burglars broke into the shop in a comparatively short time by splintering and removing a door frame and the lintel, cutting into the brickwork, and levering the door open. The Court decided that in installing the door as it did there was a breach of an implied term that the defendant, whose business was to provide burglar-proof protection and upon whose skill and ability the plaintiff relied, would supply, fit and hang a door which would provide reasonable protection against a person seeking to break in when the locking devices were in operation. The question, then, is whether the breach caused the loss. The Court held that ‘but for’ the breach, the loss would not have occurred.

[12.98]  Remoteness. The common law considered that it would be neither just nor practicable for the party in breach to be liable for every loss that might have been caused by the breach. Therefore, a fundamental principle is that damages are not recoverable for losses that are too remote –​that is, not reasonably foreseeable.

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What is a reasonably foreseeable loss? The classic test for remoteness has been well established since Hadley v Baxendale (1854) 9 Exch 341. Reasonably foreseeable losses are (a) those that arise naturally from the breach or (b) those that are in the reasonable contemplation of the parties at the time the contract is made as the probable result of the breach.

Hadley v Baxendale [12.100]  Hadley v Baxendale (1854) 9 Exch 341. The plaintiffs were millers in Gloucester. They worked the mills with a steam engine. The crankshaft of the engine broke, preventing the steam engine from working. They contracted with a firm called Joyce and Co to make a new shaft. Before they could make the new shaft, the firm required the broken one to be sent to them, to be used as a template. So the plaintiffs contracted with the defendants to deliver the broken shaft to Joyce. However, the defendants took seven days to deliver it instead of the expected two days, which prevented the plaintiffs working their steam-​mills for five days, which prevented them from running their milling business and thereby causing them to lose profits. The court held that in this case the rule should be that the damages were those fairly and reasonably considered to have arisen naturally from the breach itself or such as may be reasonably supposed to have been in the contemplation of both parties at the time the contract was made. The court held the loss of profits did not arise naturally from the delay in delivering the shaft (first limb): “[F]‌or such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances …”. The court said that the fact of sending a shaft for repair did not mean that the mill would probably not be able to operate until that shaft was returned (allowing for the possibility of spare parts).

  

The court held that if there were special circumstances and these circumstances were known to both parties at the time they entered into the contract, then any breach of the contract would result in damages that would naturally flow from those special circumstances (second limb). However, in this case, Baxendale did not know that the mill was shut down and would remain closed until the new shaft arrived. Unless Hadley communicated the special circumstances to Baxendale, the loss of profits could not fairly or reasonably have been contemplated by both parties if a breach such as this occurred. The court ruled that the jury should not have taken the loss of profits into consideration.

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [12.110]  Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528. The plaintiff operated a laundry. It contracted to buy a boiler from Newman Industries, which knew of the plaintiff’s desire to expand the business quickly and that it was “most anxious” to have the boiler installed on time. However, Newman Industries did not know that Victoria Laundry had negotiated lucrative dyeing contracts with the government. The boiler was damaged during manufacture and as a result was installed 20 weeks late. The issue was whether the launderers could recover their loss of “ordinary business” and, in addition, the loss of the “special lucrative dyeing contracts”. The Court decided that the plaintiff was entitled to recover the profits that would have been made in the ordinary course of business but not on the special contracts. Newman should have

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foreseen the likelihood that the ordinary business would be lost but it could not have foreseen the government dyeing contract as a serious possibility as this work was not a normal work. Asquith LJ summarised the approach to the issue of remoteness as follows: ▶▶

▶▶ ▶▶

▶▶ ▶▶

▶▶   

the governing purpose of damages is to put the innocent party in the same position as if his or her rights had not been violated; it is too harsh to completely indemnify for all his or her losses; the plaintiff is therefore only compensated if the loss is “reasonably foreseeable as liable to result” from the breach; this depends on “the knowledge then possessed by the parties” or at least the defendant; this knowledge is of two types: imputed (because a reasonable person would understand that this particular loss would occur naturally in the usual course of things) and actual (because the defendant has been given notice of the particular loss that might be suffered in the event of a breach); and there is no need to have actually considered the issue but if a reasonable person had considered the issue he or she would have thought it “liable to result” or “not unlikely”.

[12.120] The effect of these rules on the question of the remoteness of damage was explained by the House of Lords in Koufos v Czarnikow Ltd [1969] 1 AC 350. In that case, it was held that damage in the reasonable contemplation of the parties must be “a serious possibility”, “a real danger”, “liable to result” or “not unlikely” to occur.

H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [12.130]  H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] 1 QB 791: The plaintiffs ordered a bulk food storage hopper from the defendants for the purpose of storing pignuts for feeding their pig herd. When the defendants installed the hopper, they failed to ensure that the ventilator at the top of the hopper was open. The result was that the pignuts became mouldy and caused the outbreak of an intestinal infection in the pigs and 254 of them died. The plaintiffs brought an action for substantial damages. The court held that the plaintiffs were entitled to recover their loss. The court said that damages for breach of contract were recoverable in respect of injury or loss where the parties, at the time of the contract, would have contemplated as a serious possibility the type of consequence (although not necessarily the specific consequence) that would ensue in the event of a breach of the contract. On the particular facts, it must have been within the contemplation of the parties that injury to the pigs was a serious possibility if, in breach of the contract, the hopper was unfit for storing nuts suitable to be fed to the plaintiffs’ pigs.

Day v O’Leary [12.140]  Day v O’Leary (1992) 57 SASR 206. The appellant flooring contractors were engaged by the respondents to resurface a parquetry floor in a house they were renovating. The appellants’ work was so defective that the floor had to be replaced. There had also been considerable

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delays in completion of the work. It was held that the respondents were entitled to damages for the cost of replacing the floor. However, the respondents’ claim for loss of rent was rejected since the appellants had never been informed of the respondents’ intention to let the house; such loss neither flowed naturally from the breach nor was one which should have been reasonably contemplated by the appellants.

The duty to mitigate the loss [12.150]  The law imposes a duty upon a person claiming damages to take all reasonable steps to mitigate, that is minimise, the loss caused by the breach of contract. A person who fails to mitigate his or her loss cannot recover any part of the loss that is attributable to their failure to do so. The question whether a person claiming damages has failed to take reasonable steps to mitigate their loss is one of fact dependent upon the particular circumstances. The burden of proving that there has been a failure to mitigate the loss rests upon the person from whom the damages are claimed.

Payzu Ltd v Saunders [12.160]  Payzu Ltd v Saunders [1919] 2 KB 581. Under a contract to deliver goods by instalments, payment to be made within one month of each delivery, less 2.5% discount, the buyers failed to make a punctual payment of the first instalment. The seller wrongly treated this as sufficient to repudiate the contract but offered to continue deliveries at the contract price if the buyers would pay cash at the time of each order. This offer was rejected. The price of the goods having risen, the buyers sued for breach of contract.

  

It was held that the seller was liable for damages since the failure to make a punctual payment in respect of the first instalment did not amount to a breach on the part of the buyers sufficient to entitle the seller to treat the contract as repudiated. On the other hand, it was held that the buyers should have mitigated their loss by accepting the seller’s offer and that the damages recoverable were not to be measured by the difference between the contract and market price but by the loss that would have been suffered had the offer been accepted.

[12.170]  A person suing for damages for breach of contract is only required to act reasonably in mitigating their loss and is not required to take undue steps, expose himself or herself to risk or spend money which they cannot afford simply to reduce the amount of their loss.

Castle Constructions Pty Ltd v Fekala Pty Ltd [12.180]  Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648. A purchaser of land terminated the contract for breach of a contractual provision regarding time for completion. The vendor offered to complete the contract under judicial supervision. The New South Wales Court of Appeal held that the purchaser had failed to mitigate its loss by accepting the vendor’s offer. An innocent party who was entitled to terminate may act unreasonably by not mitigating its loss by completing the contract.

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Difficulty of quantifying damages no bar to recovery [12.190] In certain circumstances, it may be difficult to quantify or assess the loss in monetary terms resulting from the breach of contract, particularly where the loss is of a speculative nature. However, mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can. For instance, damages may be awarded for the loss of a chance or an opportunity to secure a benefit where there is a legal obligation to provide the chance or opportunity.

Howe v Teefy [12.200]  Howe v Teefy (1927) 27 SR (NSW) 301. The defendant leased a racehorse to the plaintiff trainer for three years. Three months later, in breach of the contract, the defendant retook possession of the horse. The plaintiff brought an action claiming damages for the loss of profits he would have made from his own bets on the horse and supplying information for reward to other persons. The jury awarded the plaintiff £250 damages. The defendant appealed on the grounds that the prospective winnings of the plaintiff from bets and stable commissions were too remote to be recovered as damages and that there was no evidence on which the jury could have assessed such winnings.

  

The court dismissed the defendant’s appeal. In the court’s view, the plaintiff had been deprived of his right to make what profit he could from the use of the horse and that right was capable of assessment in monetary terms. Street CJ said: “[I]‌f a plaintiff has been deprived of something which has a monetary value, a jury is not relieved from assessing the loss merely because the calculation is a difficult one or because the circumstances do not admit of the damages being assessed with certainty”.

Damages not usually recoverable for disappointment or distress [12.210]  The general rule is that damages are not recoverable for disappointment, distress, injured feelings or mere inconvenience arising from a breach of contract.

Falko v James McEwan & Co Ltd [12.220]  Falko v James McEwan & Co Ltd [1977] VR 447. The defendant retail merchant contracted with the plaintiff, a householder, to supply and install an oil heater in the plaintiff’s home. The defendant installed the heater and engaged an electrician to connect it. The electrician informed the plaintiff that a new power point was necessary and that it would cost an extra $5. The plaintiff refused to pay and so the electrician did not complete the wiring. A few months later, the plaintiff ran a temporary lead from a power point in the kitchen to provide electricity to the heater. The plaintiff sued the defendant claiming damages for the cost of the electrical installation and for the inconvenience he had suffered.

  

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It was held that the contract was an ordinary commercial contract for breach of which the plaintiff was not entitled to recover damages for inconvenience and mental distress. The measure of damages was limited to the cost involved in remedying the breach by the defendant to fully install the heater (by then, $11).

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[12.230]  An exception to the general rule is that damages are recoverable for distress or disappointment arising from breach of an express or implied term that the promisor will provide the promisee with pleasure, enjoyment or personal protection or where the distress or disappointment is consequent upon the suffering of physical injury or physical inconvenience.

Jarvis v Swans Tours Ltd [12.240]  Jarvis v Swans Tours Ltd [1973] 1 QB 233. Jarvis booked a holiday in Switzerland through the defendant, Swans Tours. The brochures were tantalising, leading Jarvis to believe that he would be part of a large house party that would have excellent skiing and lots of social activities. However, as Denning LJ said in his judgment: [H]‌e found there were only 13 (guests) there in the first week. In the second week … he was the only person there … He was very disappointed, too, with the skiing. It was some distance away … There were only mini-​skis … In the second week he did get longer skis for a couple of days, but then, because of the boots, his feet got rubbed and he could not continue even with the long skis. There were many other matters, too … He did not have the nice Swiss cakes, which he was hoping for. The only cakes for tea were potato crisps and little dry nut cakes. The yodeller evening consisted of one man from the locality who came in his working clothes for a little while, and sang four or five songs very quickly. The court awarded damages, a part of which was calculated to compensate Jarvis for the disappointment he suffered.

Baltic Shipping Co v Dillon [12.250]  Baltic Shipping Co v Dillon (1993) 176 CLR 344. The respondent paid $2,205 in advance for a 14-​day cruise in the South Pacific. The object of the contract was to provide an enjoyable and relaxing holiday experience and there was an implied term to this effect. However, after eight days, the ship struck a rock and sank. In an action against the appellant owners and operators of the vessel, the respondent was awarded $5,000 for disappointment and distress in addition to compensatory damages for loss of belongings and personal injuries including the trauma she suffered in the shipwreck.

  

The High Court affirmed the $5,000 damages awarded for the respondent’s disappointment and distress. The High Court further held that the respondent was not entitled to recover the whole of the cruise fare since there had not been a total failure of consideration, the respondent having enjoyed the benefits of the first eight days of the cruise. In the court’s opinion, to award full restitution of the fare in addition to damages for breach of contract would have been to give the respondent excessive compensation.

Boncristiano v Lohmann [12.260]  Boncristiano v Lohmann [1998] 4 VR 82. The parties were involved in a building dispute. After reviewing a number of cases, the court concluded that it appears now to be accepted

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in England and Australia that awards of general damages can be made to building owners who have suffered physical inconvenience, anxiety and distress as a result of a builder’s breach of contract, “but only for the physical inconveniences and mental distress directly related to those inconveniences which have been caused by the breach of contract”.

Damages and contributory negligence [12.270]  Under the apportionment legislation of the various States, the damages awarded to a successful plaintiff suing in tort are reduced by the extent of any contributory negligence on the part of the plaintiff. However, in Astley v Austrust Ltd (1999) 197 CLR 1, the High Court held that the apportionment legislation of South Australia required apportionment for contributory negligence only in a tort action not in an action for breach of contract. The court held that the South Australian apportionment legislation was directed only to claims in tort and not to claims in contract. The apportionment legislation of the other States was in similar terms. Consequently, the case would have been of application throughout Australia. However, all jurisdictions have now amended their apportionment legislation to permit the apportionment of damages for breach of contractual duty of care in cases of contributory negligence.1

Ordinary, nominal and exemplary damages Ordinary damages [12.280] The damages we have so far considered in this chapter are variously referred to as ordinary, actual or compensatory damages, that is, the damages flowing from the breach of contract to compensate the innocent party for the actual loss suffered. These are by far the most important kind of damages. To be distinguished from such damages are two other kinds of damages, namely, nominal damages and exemplary damages.

Nominal damages [12.290] Where there has been an infringement of a legal right, for example, a breach of contract, but the plaintiff is unable to establish that they have suffered any actual loss, only nominal damages will be awarded, that is, a token sum of, say, $1.

Exemplary damages [12.300]  Exemplary damages are not only awarded as a means of compensation but to punish the party in default in view of the intentional or flagrant nature of the breach. They are only awarded in exceptional circumstances.

1 See Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9; Wrongs Act 1958 (Vic), s 26; Law Reform Act 1995 (Qld), s 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA); Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Amendment Act 1947 (WA), s 4; Wrongs Act 1954 (Tas), s 4; Civil Law (Wrongs) Act 2002 (ACT), s 102; Law Reform (Miscellaneous Provisions) Act (NT), s 16.

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Penalties and liquidated damages [12.310]  Normally, in a breach of contract case, damages are “unliquidated”, that is, no amount is specified in the contract –​the matter is left for the court to determine, according to accepted principles. It is possible, however, for the contracting parties to insert a clause in the contract that specifies the amount of damages that will be paid to the innocent party in the event of a breach. For example, in a house building contract, the parties may agree that in the event the builder does not finish the house on or before the date in the contract, the builder will pay the home owners $1,000 per week. In such a case, damages are said to be “liquidated” provided that the amount fixed in the contract, to be paid in the event of a breach, is a genuine pre-​estimate of the damages that the victim would suffer as a consequence of the breach. If it is not a genuine pre-​estimate, it will be construed as a penalty, that is, to say a sum inserted in order to punish and/​or deter the other party from a possible breach and which bears little or no relationship to the loss actually suffered by the plaintiff as a result of the breach by the defendant. If the amount stated is held to be a penalty, then only the actual loss sustained can be recovered. If the sum named is held to be liquidated damages, then that sum is recoverable, whether it exceeds or is less than the actual loss. Before the High Court’s decision in the following case, the accepted position was that the penalties doctrine was limited to situations where the relevant liability for the payment was triggered by a breach of the contract. On this approach, the doctrine would not apply to a fee imposed by a bank that was triggered by an event (eg an overdue payment on a credit card) that was not technically a breach of contract. However, in the wake of the following case, it will be necessary to re-​evaluate this approach.

Andrews v Australia and New Zealand Banking Group Ltd [12.320]  Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205. The High Court considered the enforceability of various fees and charges imposed by the ANZ bank, including charges for exceeding overdrafts. The action is part of a broader class action brought by 170,000 customers of eight banks. The customers contend that fees amounting to a total of AUD$223 million imposed by the banks were penalties and should be refunded. At first instance, the Federal Court found that these fees could not be treated as penalties, as ANZ’s customers were not under a contractual obligation to avoid overdrawing their accounts –​as the fees were not triggered by a breach of contract they could not be characterised as penalties.

  

The High Court decided that relief against penalties is potentially available even if a fee is not payable on breach of contract. According to the court, the proper approach in determining whether a fee is a penalty is to consider whether the substantive purpose of the fee is to secure performance of a contractual obligation. The matter was referred back to the Federal Court to determine whether, in fact, the fees charged by ANZ should be treated as penalties on this basis.

[12.330]  The High Court recently decided that substantial fees charged by banks for late payment of minimum repayment amounts on credit card debts are not penalties.

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Paciocco v Australia and New Zealand Banking Group Ltd [12.340]  Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525. A bank charged a substantial fee for late payment of the minimum monthly amount required under a customer’s credit card. The High Court held that this late payment fee was not a penalty. The bank had three legitimate interests that were protected by the fee. The first interest was the operational costs of seeking payment by customers. The second interest was provisioning costs, since the risk of default by customers increased with late payment. The third interest was increased regulatory capital costs, since an increase in the risk of default by customers increased the amount of regulatory capital that the bank was required to maintain. When these interests were taken into account, the late payment fee was not “grossly disproportionate” to the bank’s costs arising from a breach. The court decided that the interests that may be protected by a contractually required sum payable upon breach were not restricted to the amount that would be recoverable in an action for breach of contract. In this instance, recovery of such losses did not have a punitive purpose.

Equitable remedies: specific performance [12.350]  A decree of specific performance is an order of the court directing a party to perform the obligations under the contract as originally agreed to by the parties. As we have seen, the common law is primarily interested in compensation for losses caused by a breach: an order for specific performance is the only remedy where the plaintiff actually gets what was promised. The remedy is equitable, issued at the discretion of the court, and only where it is fair to be granted. An order for specific performance will not be granted in the following situations:

(a) Where damages are an adequate remedy [12.360]  An award of damages is usually regarded as a sufficient remedy to compensate for the breach of contract. For example, in the event of a breach by a supplier, a buyer is expected to go out into the market and buy equivalent goods and, if he or she has to pay more for the goods, sue for losses sustained. Only in exceptional circumstances, for example, where the contract is for where the goods are rare or unique or involved a sale of land (always regarded as unique), an order for specific performance of the contract may be granted.

(b) Where the contract is for personal services [12.370]  As it is regarded as undesirable (and probably futile and self-​defeating) to order a person such as a professional footballer, a painter or an architect to complete a contract that involves their personal services (playing football, painting a portrait or designing a town square), an order for specific performance will not be ordered in such circumstances (although in some contracts of employment, particularly involving large commercial organisations, an order may be appropriate, particularly where breach of unfair dismissal laws are involved). However, as we shall see, there are circumstances where a court may issue an injunction preventing a person from, for example, playing for another football side.

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(c) Where the contract would require constant supervision by the court [12.380]  Specific performance will not be ordered where constant supervision by the court would be necessary to ensure compliance with the order.

Ryan v Mutual Tontine Westminster Chambers Assoc [12.390]  Ryan v Mutual Tontine Westminster Chambers Assoc [1893] 1 Ch 116. The lessor of a block of flats agreed to provide a porter who was to be “constantly in attendance” and perform specified duties. The porter appointed by the lessor was also employed as a chef in a nearby club and during his absence for several hours each day, his duties were performed by other persons. One of the tenants sought an order for specific performance of the obligation.

  

It was held that specific performance could not be ordered since the court could not guarantee by its order that the porter would remain in constant attendance without constantly supervising such attendance.

(d) Where the order is not mutually available [12.400]  Specific performance will not generally be granted unless it is available to both parties. Where the circumstances do not fall within one of the above exceptions, specific performance may be ordered. However, since it is an equitable remedy, the court has discretion whether or not to grant an application for the remedy. Accordingly, specific performance will be refused if its effect would be to cause unfairness or undue hardship to the defendant. Such circumstances include where there has been a mistake on the part of the defendant, undue delay in seeking the remedy or breach by the plaintiff of her or his contractual obligations in circumstances where the grant of specific performance would be unjust to the defendant.

Injunction [12.410]  An injunction is an order of a court restraining a person from doing a wrongful act. In the present context, an injunction is an order restraining (prohibiting) a party from breaching their contractual obligations. It is usually granted to prevent a party from doing something that he or she has promised not to do. An injunction will not be granted where its effect would be to compel a person to do something that he or she would not have been ordered to do by a decree of specific performance. An injunction will not be granted where its effect would be to require a contract for personal services to be specifically performed. On the other hand, if the injunction sought would not necessarily have the effect of forcing the defendant to perform their contract for personal services, then an injunction may be granted if it is necessary to protect the plaintiff from negative consequences flowing from the defendant’s conduct in breaching the contract, for example, where the defendant proposes to work with a competitor of the plaintiff.

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Like a decree of specific performance, an injunction is a discretionary remedy and accordingly is likely to be refused where, for example, the plaintiff has been guilty of delay or is in breach of their obligations under the contract. Furthermore, again like an order of specific performance, an injunction will not usually be granted if in the particular circumstances, damages would be an adequate remedy.

Restitution [12.420]  As we have seen in Chapter 11, a person is not entitled to any contractual remedy unless he or she has (at least) substantially performed the contract. However, the courts are prepared to order restitution if the part performance of the contract-​breaker enriched the innocent party unjustly. In this context, the term restitution refers to the remedies provided by the law to compel the payment of money by the innocent party to the contract-​breaker where it would be unjust to allow the former to retain the benefit of money, goods or services which he or she has received. An action in restitution is usually brought either because there is no express contract between the parties or such contract is void or unenforceable.

The basis of restitution [12.430] A person is not entitled to any contractual remedy unless he or she has at least substantially performed the contract. However, the courts may be prepared to order restitution to avoid the other party being unjustly enriched. The remedy of restitution as based on unjust enrichment: unless the defendant is ordered to pay for the benefit received from the plaintiff, the defendant would be unjustly enriched at the plaintiff’s expense.

Pavey & Matthews Pty Ltd v Paul

  

[12.440]  Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221. Pavey & Matthews were builders who were licensed under the Builders Licensing Act 1971 (NSW). They carried out building work for Paul pursuant to an oral contract. Under s  45, a building contract was unenforceable unless it was in writing and signed by each of the parties. When the work was completed, a dispute arose and Paul refused to pay the balance of the contract price. Although the contract was unenforceable, the High Court decided that the plaintiff was entitled to “reasonable remuneration” the basis of which was in “restitution or unjust enrichment”. Paul had accepted the benefit and therefore had to pay a reasonable price.

[12.450]  In the following case, the Victoria Supreme Court of Appeal has confirmed that a builder may sue on a quantum meruit where there has been a wrongful termination of the contract.

Mann v Paterson Constructions Pty Ltd [12.460]  Mann v Paterson Constructions Pty Ltd [2018] VSC 119. Peter and Angela Mann (owners) and Paterson Constructions Pty Ltd (builder) entered into a contract to build two town houses on the owners’ property for $971,000. The builder carried out a significant number of variations as the works proceeded, and a dispute arose in relation to payment for the variations. The owners paid the builder $945,787.00 and, after the dispute arose, purported to terminate the contract. The builder denied it was in breach, accepted the purported termination

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as repudiation and sued the owners for the value of the variations on a quantum meruit basis. In quantifying its claim, the builder relied exclusively on the evidence of a quantity surveyor as to the reasonable value of the works. The builder then brought a claim against the owners seeking relief and was awarded damages of $660,526.41 on a quantum meruit basis (ie an amount representing the fair and reasonable value of the work, rather than the amount due under the contract (ie the contract price)). The owners ultimately appealed to the Court of Appeal on a number of grounds. The key question was whether a builder can receive damages on the basis of the fair and reasonable value of the work after terminating a contract following an owner’s repudiation? The Court of Appeal dismissed the appeal and confirmed that a builder is able to make a claim based on a quantum meruit for the fair and reasonable value of the work under a contract after a wrongful termination. [12.470]  Restitution will usually be awarded only where: (a)

the defendant has received some form of benefit (ie has been “enriched”);

(b)

that benefit or “enrichment” was at the plaintiff’s expense;

(c)

it would be “unjust” to permit the defendant to retain the benefit; and

(d)

there are no defences available to the defendant, for example, change of position, estoppel, incapacity or illegality.

Further reading See the contract texts list provided in Chapter 2.

Tutorial activities 1.

What is the objective of an award of damages for breach of contract?

2.

Explain the so-called two limbs of Hadley v Baxendale and provide an example of a claim under each limb (referring to both Hadley v Baxendale (1854), and Parsons v Uttley Ingham).

3.

Referring to ANZ v Paciocco (2012), explain the difference between a liquidated damages claim and a penalty. Explain why the ANZ succeeded.

4.

What is the essential difference between an order for specific performance and an award of damages? Why would a person seek such an order?

5.

Nancy is in her final year at university. In order to graduate in November, she must submit her final folio of work to her supervisor by October. Nancy takes her work to Casey to be professionally bound. She explains to Casey the importance of having the work completed by 1 October, and Casey assures her that this can be done. The binding process is delayed due to technical issues and the bound folio is not delivered to Nancy until late October. As a result, she is unable to graduate until February. Her parents then have to cancel their flight from Perth to Melbourne and lose a deposit of $500. Advise Casey of his liabilities.

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6.

Green Organic Farmers (GOF) is a group of organic farmers. They have been producing organic green leaves (kale, spinach and silver beet) since early 2000. Due to the expansion of the organic sector, GOF decides to cultivate two new organic crops – canola and potatoes.



After some negotiations, GOF and Monsaint Ltd (M)  enter into a four-year contract under which M promises to supply organic seeds in March each year for $500,000, payable on delivery.



In March 2018, the first consignment of seeds is received and is planted out by the farmers. In June, the Association of Sustainable Agriculture (ASA) visits the farm as part of the routine organic certification inspection and finds that at least 30% of the seeds are genetically modified (GM) seeds. The use of GM seeds is prohibited in organic products, and therefore, GOF’s organic certification is cancelled. The cancellation causes GOF to suffer a loss of profit of $4 million. In respect of that loss, please note (a) part of that loss (approximately $1 million) results from the cancellation of a lucrative contract that GOF had recently signed with a group of five-star hotels and (b) GOF could have reduced its losses by 25% if it had sold its crop to Worthless Supermarkets. However, they decide to let the crop rot in the ground. GOF seeks your advice as to whether:

7.

8.

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(a)

it can terminate the contract; and

(b)

it is entitled to compensation for any or all of its financial losses;

(c)

the stress surrounding the conduct by M took its toll on the health of GOF’s CEO, John Wayne, and he has to resign. Advise him whether he is entitled to any compensation from M.

215

Jerry opens a delicatessen specialising in selling sandwiches and rolls to health-conscious university students. He signs a one-year contract with Vogel Breads to supply him with bread made from organic wheat. On 1 April 2016, an outbreak of a virus contaminates much of the organic wheat crop. Supplies cannot resume for a month. Jerry tries to find another supplier but unable to do so. As a result, Jerry has to close the business for the month, losing $25,000 in profit. He is also unable to fulfil a contract to supply the bread at a national scout jamboree that coincidentally is scheduled for that week. Jerry loses $120,000 on that contract. Jerry wishes to terminate the contract with Vogel Breads and sue for damages. (a)

Advise the parties whether Vogel has committed a breach of the contract, allowing Jerry to terminate and sue for damages, and

(b)

assuming for the purposes of (b)  only that there is a breach, what damages would Jerry be entitled to?

Jiang and Li are on their honeymoon, cruising in the South Pacific. On the third night, the ship collides with another boat because the captain was on Facebook. The cruise company offers compensation for the cost of the trip, but they seek your advice as to whether they can seek damages: (a)

for the loss of enjoyment and pleasure that resulted from the breach; and

(b)

punitive damages to punish the cruise company for the gross negligence of its captain.

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PART 3: CONSUMER PROTECTION

Chapter 13: Consumer Protection

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chapter 13

Consumer Protection [13.20] [13.70] [13.390] [13.570] [13.760] [13.1060] [13.1190] [13.1280] [13.1520]

Overview of the ACL ..........................................................................................................................  220 Prohibition of misleading or deceptive conduct ...................................................................  222 Specific false or misleading representation provisions ..................................................  234 Prohibition of other unfair practices ..........................................................................................  241 Enforcement and remedies for unfair practices .................................................................  245 Prohibition of unconscionable conduct ....................................................................................  253 Prohibition of unfair contract terms ..........................................................................................  261 Consumer guarantees ......................................................................................................................  266 Manufacturers’ liability for defective goods ..........................................................................  277

Introduction [13.10]  By the mid-​1970s in Australia, consumer protection law was a confusing mess. The common law and a multitude of statutes in States and Territories were failing to cope with the demands of the modern national marketplace. The passing of the Federal Trade Practices Act 1974 (Cth) (TPA) in 1974 marked a turning point as it introduced a new and more modern set of values, more efficient enforcement and better remedies. However, for Constitutional reasons, the consumer protection provisions of the TPA were generally directed towards conduct engaged in by corporations and required complementary legislation in the States and Territories to ensure national coverage. For this and other reasons, on 1 January 2011, the Competition and Consumer Act 2010 (Cth) (CCA) replace the TPA. The consumer protection provisions of the CCA are contained in the Australian Consumer Law (ACL), which is located in Schedule 2 of the CCA. The ACL replaced the consumer laws in earlier Commonwealth, State and Territories legislation. The justification for the change is found in the Minister’s Second Reading speech when the Australian Consumer Bill was being debated in the Federal Parliament on 17 March 2010: “Australian consumers deserve laws which make their rights clear and consistent, and which protect them equally wherever they live. At the same time, Australian businesses deserve simple, national consumer laws that make compliance easier. A  single national consumer law is the best means of achieving these results. Rather than relying on nine parliaments making piecemeal changes, the Australian Consumer Law will ensure responsive consumer laws with a truly national reach”.1

1

Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010, Second reading.

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Overview of the ACL Objectives [13.20]  The main reforms introduced in the ACL were the following: ▶▶

a new single set of definitions and interpretive provisions;

▶▶

a new, national law on unfair contract terms;

▶▶

a new single set of provisions about unfair practices and fair trading;

▶▶

a new set of national consumer guarantees provisions;

▶▶

a new national regime for unsolicited consumer agreements;

▶▶

a simple national set of rules for lay-​by agreements;

▶▶

a new national product safety legislative regime; and

▶▶

national provisions on information standards.

Legislative framework [13.30]  The ACL is a law of the Commonwealth.2 As just noted, it replaced the consumer protection provisions of the former TPA and State and Territory consumer protection legislation, such as the Fair Trading Acts and the door-​to-​door sales legislation. It is administered by the Australian Competition and Consumer Commission (ACCC) and the State and Territory consumer law agencies3 and enforced by all Federal, State and Territory courts and tribunals.4 It has very broad application: it applies to conduct engaged in and outside Australia by Australian citizens or persons who are ordinarily resident in Australia,5 to natural persons engaged in conduct involving postal, telegraphic or telephonic service, including the internet6 and to corporations.7 Recently, the Full Court of the Federal Court decided that it applies to foreign corporations that have no physical presence in Australia but do have online customers in Australia.

2

3

4 5 6 7

Competition and Consumer Act 2010 (Cth), s 131. The section is in Part XI –​Application of the Australian Consumer Law as a law of the Commonwealth. Pursuant to an intergovernmental agreement, each State and Territory applies the Australian Consumer Law as the law of its jurisdiction. Competition and Consumer Act 2010 (Cth), ss 140–​140K; Fair Trading Act 1987 (NSW), s 28(1); Australian Consumer Law and Fair Trading Act 2012 (Vic), s 11(1); Fair Trading Act 1989 (Qld), s 16(1); Fair Trading Act 1987 (SA), s 14(1); Fair Trading Act 2010 (WA), s 19(2); Australian Consumer Law (Tasmania) Act 2010 (Tas), s 6(1); Fair Trading (Australian Consumer Law) Act 1992 (ACT), s 7(1); Consumer Affairs and Fair Trading Act 1990 (NT), s 27(1). NSW: Fair Trading; Victoria: Consumer Affairs Victoria; Queensland: Office of Fair Trading; Western Australia: Department of Commerce –​Consumer Protection; South Australia: Office of Consumer and Business Affairs; Tasmania: Consumer Affairs and Fair Trading Tasmania; ACT: Office of Regulatory Services; Northern Territory: Consumer Affairs. Competition and Consumer Act 2010 (Cth), ss 138–​138B. The sections are in Part XI –​Application of the Australian Consumer Law as a law of the Commonwealth. Competition and Consumer Act 2010 (Cth), ss 138–​138B. The sections are in Part XI –​Application of the Australian Consumer Law as a law of the Commonwealth. Competition and Consumer Act 2010 (Cth), s 6(3). Competition and Consumer Act 2010 (Cth), s 131(1).

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Valve Corporation v Australian Competition and Consumer Commission [13.40]  Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224. Valve is one of the world’s largest online video game retailers and operates the Steam distribution platform. Although it is based in the US, the Full Court of the Federal Court held that it had engaged in conduct in Australia –​there are 2.2 million Australian subscriber accounts on its Steam platform and it has personal property in Australia (namely, servers) on which the Stream content is deposited –​and therefore had to comply with the ACL. It was held to have made false or misleading representations about the existence or exclusion of a guarantee or remedy in breach of s 29(1)(m) and, in addition, engaged in misleading or deceptive conduct in breach of s 18 when it informed customers that they were not entitled to refunds under any circumstances. The Full Court held the ACL applied to Valve despite its lack of physical presence in the Australia. The fact that the parties had agreed that the contractual relationship between Valve and its customers was governed by Washington State law did not protect the corporation. The Full Court affirmed a $3  million penalty against Valve Corporation for its contraventions of the ACL.

  

Organisation of the ACL [13.50]  The ACL is organised into the following chapters: ▶▶

▶▶

▶▶

Chapter 1 –​contains a single set of definitions and interpretive provisions about consumer law concepts. Chapter 2 –​contains the general protections that create standards of business conduct in the market. These include a general prohibition on misleading and deceptive conduct and unconscionable conduct and specific prohibitions on unconscionable conduct in consumer and some business transactions; and a provision that makes unfair contract terms in consumer contracts void. Chapter 3 –​contains specific protections which address identified forms of business conduct, including specific unfair practices; consumer transactions for goods or services; product safety; the making and enforcement of information standards; and the liability of manufacturers for goods with safety defects.

▶▶

Chapter 4 –​contains the criminal offences that relate to some of the matters covered in Chapter 3.

▶▶

Chapter 5 –​contains additional remedies –​both civil pecuniary penalties and private remedies.

For the purposes of this text, we have not followed the order in the ACL (where c­ hapters 2 and 3 contain the general and specific protections, respectively). We have instead decided to discuss the general prohibition on misleading conduct (s 18) followed immediately with the specific protections (ss 29–​50) that are frequently linked with an action for breach of s 18.

The role of the ACCC [13.60]  The ACCC is an independent Commonwealth statutory body that administers the CCA, including the ACL. The ACCC promotes compliance with these laws and, where appropriate, takes enforcement action against businesses that breach the law. The ACCC’s role complements that of other ACL regulators,

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including State and Territory consumer affairs agencies who also share responsibility for enforcing these laws.

Prohibition of misleading or deceptive conduct Figure 13.1: The prohibition of misleading or deceptive conduct

Has a person The prohibition of misleading or deceptive conduct: s18

Includes natural and legal persons

In trade or commerce Business-related conduct – not private

Engaged in conduct Includes words, actions and, sometimes, silence or non-action

That is misleading or deceptive or likely to mislead or deceive? “lead into error”

Misleading or deceptive conduct [13.70]  The ACL prohibits misleading or deceptive conduct by a corporation. Section 18(1) provides: “A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”. A person (legal or natural) who suffers loss or damage as a result of the misleading conduct may sue for damages or a number of other remedies. Alternatively, as we shall see, the regulator (the ACCC) may initiate action on behalf of the consumer. There are three criteria that must be met in order to prove a breach of s 18.

The conduct must be “in trade or commerce” [13.80] The consumer protection provisions of the ACL prohibit conduct that takes place “in trade or commerce”. The High Court held that the words “trade” and “commerce” are not terms of art but are terms of common knowledge of the widest import. The Court said that “the conduct of a corporation towards persons (must) bear a trading or commercial character”. Thus, a private one-​off transaction such as the sale of a private residence will not be caught by s 18 because such a sale is not “in” trade or commerce:  O’Brien v Smolonogov (1983) 53 ALR 107. In the same way, the New South Wales Court of Appeal held that representations made by a homeowner while selling their home were not made in trade

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or commerce. The fact that the homeowner had renovated their house with the intention of reselling the house at a profit did not affect this conclusion: Williams v Pisano (2015) 90 NSWLR 342. And, similarly, in the following case, the Court in deciding that the conduct was not “in trade or commerce” neatly side-​stepped the controversial debate about the merits of creationist theory.

Plimer v Roberts [13.90]  Plimer v Roberts (1997) 150 ALR 235. Dr Roberts was an ordained Christian minister with academic qualifications in the field of education. As an historical researcher, he believed that a boat-​shaped formation near Mt Ararat in Turkey could be the remains of Noah’s Ark and he gave lectures to that effect. Professor Plimer was a Professor of Geology at the University of Melbourne and a member of the organisation known as Australian Sceptics. He sued Roberts for misleading conduct in respect of a number of representations made by Dr Roberts in the course of the lectures.

  

The Court decided that Dr Roberts did not make the relevant false misleading or deceptive representations “in trade or commerce” because (a)  he was not paid to deliver the lectures; (b) the subject matter of Dr Roberts’ lectures was of a non-​commercial nature; (c) the relevant misrepresentations related to the content of the lectures themselves rather than the sale of admission tickets or recordings; and (d) Roberts’ primary goal in delivering the lectures was to encourage interest in the archaeological site and a creationist view of history rather than for personal profit.

The person must have “engaged” in conduct [13.100] A person “engages” in conduct when it makes a statement, a claim or a promise or performs some action (or refuses to). In the following case, the court considered whether Google had “engaged” in conduct by including sponsored search results.

Google Inc v Australian Competition and Consumer Commission

  

[13.110]  Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435. Google displayed sponsored search results separately from its other search results. Sponsored results were labelled as such and the advertiser chose the search terms that gave rise to sponsored results. Advertisers paid Google an amount each time a user clicked on the sponsored link. Some of these results contained misleading or deceptive representations and the question arose as to whether Google could be held to account. In the circumstances, the High Court decided Google was not responsible for the misleading and deceptive content of sponsored links. The content of misleading and deceptive links had clearly been attributed to the advertisers.

[13.120]  A person is not liable if it acts as a “mere conduit”, passing on information that it received from another, in circumstances where it is clear that the corporation is not the source of the information. In Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661 at 666 (see [13.910]), the High Court affirmed that a corporation could contravene what is now s 18 of the ACL even though it acted honestly and reasonably:

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“That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive”. In the following case, the purchaser sued the vendor’s agent for misleading or deceptive conduct concerning the availability of car parking at the property. One of the issues was whether the agent had “engaged” or was a “mere conduit”?

Hyder v McGrath Sales Pty Ltd [13.130]  Hyder v McGrath Sales Pty Ltd [2018] NSWCA 223. In February 2015, the Amy Hyder completed the purchase of a large residential property in Sydney for $9.4 million. She acquired the property with her husband as a new home for their family. The property was shown in all the advertising material (including the websites and the brochure) as having four bedrooms, three bathrooms and two car parking spaces. The parking area was described as “private parking” and when the property was purchased, both Mr and Mrs Hyder believed that the “private parking” area was exclusively for their use. This was an impression which was conveyed by the written material as well as by the oral statements made by McGrath. In reality, the entire parking area was affected by a right of way or easement so that the owners were only entitled to use the “private parking” area to the extent that this did not present an unreasonable interference with the rights of carriageway of the other two lots over that area. In April 2016, she sued the vendor’s real estate agent, McGrath, claiming damages for misleading and deceptive conduct in relation to alleged pre-​sale misrepresentations concerning the parking at the property. In relation to the “mere conduit” argument, the New South Wales Court of Appeal decided  that: ▶▶

▶▶

▶▶

▶▶

  

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the Hyders are apparently wealthy and intelligent people. Mr Hyder had had considerable experience and success in property development whereas McGrath is a suburban real estate agent which did not profess any legal or valuation expertise; the nature of the transaction was a purchase of an expensive residential property in relation to which a reasonable person would expect considerable care to be taken by the purchasers in verifying matters concerning the property that they considered to be of importance; the nature of the information in question (ie the entitlement to exclusive parking on the “private parking” strip) was not such as would be expected to be within the real estate agent’s own knowledge or expertise but, rather, was something that it was likely to have obtained from the vendor; and all of the relevant marketing material contained a disclaimer (comparable to that in Butcher).

In essence, they would have understood that McGrath was merely passing on information from the vendor. As a result, McGrath did not engage in misleading or deceptive conduct.

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The person must have engaged in “conduct” [13.140]  In relation to the meaning of “conduct”, it applies to the doing or the refusing to do any act: s 2(2) (a) of the ACL. In most instances, the “act” referred to in s 2(2)(a) will consist of some oral or written statement or representation. However, s 2(2)(c) states that “refusing to do any act” includes “(i) refraining (otherwise than inadvertently) from doing the act”. It is clear from the way the courts have interpreted this sub-​section that a party’s silence or non-​disclosure may constitute “conduct”. Generally, in commercial dealings between parties, the law does not impose any obligation upon one party to inform the other party of matters that might be important for the other party to know before that party enters into some agreement or embarks upon some transaction with the first party. However there are situations where silence or non-​disclosure may be misleading: (a)

Where the information provided is incomplete. This could involve either a half-​truth, where a statement is literally true but is misleading when the full story is told (eg “the shopping centre is fully let” –​but in fact more than half had given notice of intention to leave); or where something has changed so that what was once true is no longer true (eg if a vendor had a permit for a subdivision of property and the council subsequently revoked the permit), and

(b)

Where the applicant has a “reasonable expectation” that, in all the circumstances, disclosure will be made. The circumstances in which a “reasonable expectation” of disclosure might arise were addressed in the following two cases:

Henjo Investments Pty Ltd v Collins Marrickville [13.150]  Henjo Investments Pty Ltd v Collins Marrickville (1988) 79 ALR 83. Henjo Investments owned a licensed restaurant. During negotiations for its sale to Collins Marrickville, its agent led the purchaser to believe that that restaurant seated 128 people and, indeed, the restaurant was set up to seat 128. In fact, the terms of the licence restricted the seating capacity to 84. The reduced seating capacity had an impact on the profitability of the restaurant. The Full Court of the Federal Court decided that the vendor, in remaining silent as to the true position with respect to seating, had engaged in misleading conduct:

  

“[T]‌he vendor sold a business knowing that it was subject to serious limitations upon its lawful seating capacity … which vitally affected the business, its goodwill, takings and profitability and knowing that in fact the restaurant was being conducted contrary to law … (T)hese circumstances gave rise to a duty on the part of Henjo as vendor to reveal the position … before any contract was signed”.

Demagogue Pty Ltd v Ramensky [13.160]  Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. Ramensky contracted to purchase land from Demagogue in a proposed development of several units. The plan, annexed to the contract, referred to a “driveway” that was, in fact, a public road. Demagogue had been negotiating with the relevant authority for the right to use the road as a driveway but to that point had not been successful. He did not inform Ramensky of this issue. When Ramensky discovered the problem, he sought to rescind the contract. The Court held that Demagogue’s

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silence constituted misleading or deceptive conduct because there was a reasonable expectation that there should have been disclosure of the unusual circumstances surrounding access to the property. Black CJ said: “Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive … ‘there is in truth no such thing as “mere silence” because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case that if particular matters exist they will be disclosed’ ”.

  

The conduct must be “misleading or deceptive” or “likely to mislead or deceive” [13.170]  Section 18(1) proscribes conduct that is “misleading or deceptive” or is “likely to” mislead or deceive. Although there is no legislative definition of “misleading or deceptive”, conduct is likely to mislead or deceive where there is a “real and not remote” chance that it will “lead a person into error”. When the conduct in question is directed towards the public at large, the relevant reaction is that of the “ordinary or reasonable members of the class of prospective purchaser”. If the conduct is directed at specific individuals, the conduct as a whole is relevant, considering the nature of the parties and transaction. Some examples provided by the ACCC of business behaviour that is misleading are the following: ▶▶

▶▶

▶▶

▶▶

▶▶

▶▶

a mobile phone provider signs a consumer up to a contract without informing the consumer that there is no coverage in your region; a real estate agent misinforms you about the characteristics of a property by advertising “beachfront lots” that are not on the beach; a jewellery store advertises that a watch “was” $200 and is “now” $100 when the store never sold the watch for $200; a business predicts the health benefits of a therapeutic device or health product but has no evidence that such benefits can be attained; a transport company uses a picture of aeroplanes to give you the impression that it takes freight by air, when it actually sends it by road; and a company misrepresents the possible profits of a work-​at-​home scheme, or other business opportunity.

Section 18 in context [13.180] We will now examine in more detail a number of s 18 cases that can be put in one of three categories: (a)

s 18 and the world of advertising and marketing;

(b)

s 18 and business competitors; and

(c)

s 18 and pre-​contractual negotiations.

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It is important to note that in many of these cases, s 18 is relied upon in conjunction with other sections of the ACL that prohibit specific false representations and various unfair practices. This is because the significant pecuniary penalties and fines that the court can impose on a defendant who has made specific false representations or engaged in various unfair practices are not available for a breach of s 18.

Section 18 and its impact on marketing and advertising [13.190]  Advertising is a key marketing strategy designed to bring goods and services to the attention of consumers and persuade them to purchase, lease or otherwise acquire them. One of the central tasks of the misleading or deceptive provisions of the ACL has been to make it clear to those who are in the business of advertising or marketing their goods and services that they cannot make statements that are misleading or likely to mislead. With the proliferation of online marketing, modern businesses must now consider how their message will be understood and processed by consumers on a wide variety of platforms. As the form and distribution of consumer messages continue to evolve and the ability to control the general impression of a message becomes more and more difficult, there is likely to be an increase in misleading advertising claims in the future. The following cases illustrate the way the courts have interpreted s 18 in relation to the advertising and marketing of common consumer goods and services such as internet plans, bread, eggs, painkillers and toddler food. Before looking at the cases, it is important to note that in relation to the mass marketing of consumer goods, the key question is whether the “ordinary” and “reasonable” member of the class of prospective purchasers (the “target audience”) would be misled by the conduct of the defendant. It is also important to note that that conduct must be viewed as a whole, taking into account all the acts and words and whether the representations contain a “dominant message” that was intended to be conveyed to those consumers.

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [13.200]  Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640. TPG Internet Pty Ltd (TPG) ran an advertising campaign. The advertisements involved a number of media to promote TPG’s new “$29.99 per month” unlimited ADSL2+ broadband internet plan. In much smaller print, the advertisements stated that the customer was required to bundle the service with a landline rental for an additional $30 per month (for a minimum of six months) and pay an overall minimum of $509.89 including a set-​up fee and deposit. The advertisement was aimed at a wide audience that included first-​time users of ADSL2+ services who would not have any starting assumption as to whether TPG’s offering was of a separate or bundled service and would rely on the advertisement for information as to the service offered. The High Court found that the advertisements conveyed a representation that the internet service was available without bundling and, at least in the first phase of the advertisement campaign, a representation that there would be no set-​up fee or deposit. The Court held there were breaches of what is now s 18 and s 48 of the ACL. On the question of the target audience, the High Court decided it did not consist of potential purchasers focused on the subject matter of their purchase in the calm of the showroom to which they had come with a substantial purchase in mind. The advertisement was an intrusion on the consciousness of the target audience. As such they may have only paid perfunctory attention. The dominant message to the audience

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was the statement that TPG would provide “unlimited ADSL2+ for $29.99 per month”. The qualifying information in the small print did not do enough to correct the false impression created by the “dominant message”. A pecuniary penalty of $2 m was imposed on TPG for the breach of s 48

Australian Competition and Consumer Commission v Turi Foods Pty Ltd

  

[13.210]  Australian Competition and Consumer Commission v Turi Foods Pty Ltd [2013] FCA 665. Poultry advertising and packaging claimed that their chickens were “free to roam around in large barns”. That was true at some stages of the chickens’ lives, but as the chickens grew their size and number made free roaming impossible. The Federal Court considered the natural meaning of “free to roam” when applied to chickens and agreed with the ACCC’s assessment that it means the “largely uninhibited ability of the chickens to move around at will in an aimless manner”. It also considered that this phrase would be so understood by a significant number of hypothetical consumers to whom the labels, advertising or websites were directed (ie the “target audience”). The Federal Court recognised that consumers pay a premium for “free-​range” eggs so producers must not falsely represent that their eggs are from “happy, aimless” chooks. It held that this claim constituted a breach of s 18 (and a breach of s 29(1)(a) (false representation about the history of the goods) in respect of which the court imposed a penalty of $400,000).

Australian Competition and Consumer Commission v Reckitt Benckiser [13.220]  Australian Competition and Consumer Commission v Reckitt Benckiser [2016] FCA 424. Reckitt Benckiser made representations on the packaging of each Nurofen Specific Pain product (Nurofen Back Pain, Nurofen Period Pain, Nurofen Migraine Pain and Nurofen Tension Headache) and on its website that each product was formulated to treat a particular type of pain; and solely or specifically treated a particular type of pain. In fact, each product contained the same active ingredient and is no more effective at treating the type of pain described on its packaging than any of the other Nurofen Specific Pain products. Reckitt Benckiser admitted that it had breached s 18 and s 33 (which prohibits conduct that is likely to mislead the public regarding the nature of goods, their characteristics, manufacturing process or suitability for a specific purpose). For the breach of s 33, the Federal Court ordered Reckitt Benckiser to pay penalties totalling $1.7 million. The ACCC appealed to the Full Court of the Federal Court arguing that a penalty of at least $6 million was appropriate taking into account the longstanding and widespread nature of the conduct, and the substantial sales and profit that was made by selling the product. Its appeal was upheld by the Full Court of the Federal Court and a fine of $6 million was imposed: Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181. Special leave to appeal to the High Court was denied:  Reckitt Benckiser (Australia) Pty Limited v Australian Competition and Consumer Commission [2017] HCASL 86.

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In considering an appropriate penalty in a case such as this, the Court made some interesting observations. Given there were 5.9  million products sold with the misleading packaging, the Court said the maximum penalty was theoretically 5.9  million times the $1.1 million (the maximum penalty at time). However, it held that the assessment of the penalty is best assessed by reference to other factors, as there is no meaningful overall maximum penalty given the very large number of contraventions over such a long period of time. Overall, in the particular circumstances of the case, the Court considered that one useful guide to the appropriate penalty range is “loss to consumers”. In this case, loss may be assessed by reference to the extra amount paid by consumers as against a product that did not have the misrepresentations. The Court also considered the need for deterrence and the conduct was towards the high end of the range for s 33 contraventions.

Telstra Corporation Ltd v Singtel Optus Pty Ltd (No 2) [13.230]  Telstra Corporation Ltd v Singtel Optus Pty Ltd (No 2)  [2018] VSC 280. The Victorian Supreme Court decided that the advertisements showing a distinctive orange and blue telephone box sinking into the desert with a tagline stating, “Empires end. That’s what they do” were not misleading. Telstra argued that the advertisements indicate a “significant and permanent change in the relationship between the Telstra and Optus mobile networks”. However, the Court held that the phone box advertisements did not mislead consumers and were instead “humorous”. “The distinctive shape, and blue-​and-​orange colour scheme made it easily recognisable as a Telstra phone box of the type that was once commonplace on Australian streets… It would be fanciful to imagine that the humorous image of a Telstra phone box in a desert landscape would persuade a reasonable person that Telstra’s strong position in the market has been permanently destroyed”.

  

Clearly, in the Court’s view, comparative advertising is less likely to be found misleading if humour is incorporated.

[13.240]  Online platforms now make it easier (almost compulsory) for people to express their opinions with the whole world about all kinds of products and services. Algorithms have been developed to rank businesses based on these reviews and consumers have come to rely on these reviews when making almost every consumer purchase. It is obviously vital to a consumer that the reviews are genuine. As the following case illustrates, businesses should not attempt to manipulate the review process.

Australian Competition and Consumer Commission v Meriton Property Services Pty Ltd [13.250]  ACCC v Meriton Property Services Pty Ltd [2017] FCA 1305. Meriton is a very large builder and operator of serviced apartments and hotels. It subscribed to TripAdvisor’s “Express Review” service that involved it in providing TripAdvisor with their guests’ emails. TripAdvisor would then contact the guests, asking them to post a review through their Facebook or TripAdvisor account. According to TripAdvisor, the “Express Review” service increased the number of reviews

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the platform received by 33% which was enough to alter a service provider’s ranking if they consistently interfered with the information provided to TripAdvisor. The ACCC argued that what Meriton did when it directed staff to engage in “masking” (inserting additional letters (“MSA”) in front of certain (complaining) guests’ email addresses) to stop potentially negative reviews from appearing on TripAdvisor. The Court found that Meriton had breached s 18 and also found that Meriton’s conduct had breached s 34 (misleading conduct as to the nature, characteristics or suitability of any services) and ordered it to pay penalties of $3 million.

[13.260]  In an action involving Trivago NV, a well-​known company that, inter alia, runs an online hotel search engine that aggregates deals offered by online travel sites (like Expedia) and hotels for available rooms at a hotel and then highlights one price out of all their advertisers. The ACCC alleges Trivago ran TV advertisements presenting its website as an impartial and objective price comparison service that would help consumers identify the cheapest prices for hotel rooms. In fact, its website prioritised advertisers who were willing to pay the highest cost per click fee to Trivago meaning that, in many cases, the highlighted price was not the cheapest available at that hotel. The ACCC alleges that consumers may have formed the incorrect impression that Trivago’s highlighted deals were the best price they could get and, in fact, the ACCC investigation uncovered data that shows consumers who visited Trivago’s website overwhelmingly clicked on the most prominently displayed offers for each hotel.

Section 18 and its use by business competitors [13.270]  In the following three cases, one competitor sues another alleging conduct that misleads or is likely to mislead consumers. They demonstrate that although s 18 is a consumer protection section, it can be used by one company to ensure consumers are not misled by the conduct of a competitor. In the first two cases, the actions failed because the Courts decided that consumers would not be misled by the conduct but in the third the claim was successful.

McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd [13.280]  McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394. McDonald’s (the fast food retailer) extensively advertised their “Big Mac” hamburgers. McWilliam’s, a well-​known wine company, started to advertise its wines using the words “Big Mac” prominently displayed in the advertisements. McDonald’s sought an injunction to restrain McWilliam’s from using the words “Big Mac”, alleging that their use by McWilliam’s constituted engaging in conduct that was misleading or deceptive or likely to mislead or deceive.

  

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However, the Full Federal Court was of the view that a case had not been made out that the use of the words “Big Mac” by McWilliam’s was likely to deceive or mislead persons by causing them to think that the wines were a product of McDonald’s. Even though the advertisements might cause confusion or wonder in the mind of a person as to whether or not there was a business connection between McWilliam’s and McDonald’s, such a person was not misled by the advertisement into believing that there was such a connection and accordingly there was no contravention of what is now s 18(1) of the ACL. Thus, conduct which merely tends to cause confusion will not ordinarily be sufficient to constitute misleading or deceptive conduct.

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Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [13.290]  Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191. Puxu manufactured and sold various items of furniture under the name “Post & Rail”, including lounge suites and chairs in its so-​called “Contour” range. Parkdale also manufactured and sold various items of furniture, including lounge suites and chairs called the “Rawhide” range. The latter furniture was very similar, indeed “almost identical” in shape, design and general appearance to the plaintiff’s Contour range, although on close inspection various differences could be observed. Parkdale always labelled its furniture stating that it was the manufacturer.

  

The High Court held that Parkdale had not contravened what is now s 18(1) of the ACL. The case was determined on the basis that potential purchasers of furniture costing substantial sums of money were able to inspect the furniture that was on display in the retailer’s showroom. The majority of the Court took the view that purchasers would, acting reasonably, pay attention to the label, brand or mark of the suite they were minded to buy and, as a result, would not be misled by similarities in the getup of rival products. Evidence that some members of the public had been misled because Parkdale’s label was missing, apparently removed by the retailer, was not relevant since it was not responsible for such conduct.

Apand Pty Ltd v The Kettle Chip Co Pty Ltd [13.300]  Apand Pty Ltd v The Kettle Chip Co Pty Ltd (1994) 52 FCR 474. In 1989, the respondent began to market potato chips made by the batch-​cooking method under the name “The Kettle Chip”. In 1992, the appellant (“Smith’s Crisps”), to counter loss of market share because of the success of the respondent’s product, began marketing a new line of potato chips under the name “Country Kettle”.

  

The Full Federal Court held that at the time the appellant’s chips came onto the market, the name “Kettle” had obtained a secondary meaning distinctive of the respondent’s product. Accordingly, the court upheld the trial judge’s findings that the appellant had engaged in passing-​off and had contravened what is now s 18(1) of the ACL.

Section 18 and representations made during contractual negotiations [13.310] Section  18 of the ACL is now frequently used by those who have been induced to enter into a contract as a result of misrepresentations made during the course of negotiations, in order to obtain damages or other appropriate relief on the ground that the misrepresentations constituted misleading or deceptive conduct. This is particularly true where the pre-​contractual misrepresentation is innocent because as we noted earlier at [7.350], the remedies under the common law for an innocent misrepresentation did not include damages and the equitable remedy of rescission was frequently not available.

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Byers v Dorotea Pty Ltd

  

[13.320]  Byers v Dorotea Pty Ltd (1986) 69 ALR 715. Representations were made to Byers by the respondents as to the proposed features and quality of home units which were not yet built. They were told that the new units would be “bigger and better” and the brochure contained a photo of a swimming pool. The applicants agreed to buy the units but the representations proved to be untrue. It was held that the applicants were induced to enter into the contracts by misleading statements in contravention of what is now s 18 of the ACL and the court ordered the refund of their deposits.

The issue of fault and intention [13.330]  Section 18 of the ACL imposes a form of strict liability. A plaintiff must prove that the conduct was misleading and that there is a causal link between the misleading conduct and the loss or damage. However, there is no need to prove the defendant was at fault or intended to mislead or deceive.

Limiting liability for breach of section 18 [13.340]  An exemption clause cannot be successfully relied upon as a defence to an action for contravention of s 18. Section 18 cannot be directly excluded by the presence of a term in a contract or by notice. In other words, a notice on a wall of an accountant’s practice or the insertion of a clause in a written contract stating very clearly that “Section 18 of the ACL does not apply” is of course void. However, an exclusion clause might be one factor that the court considers in deciding whether the misleading conduct was relied upon by the applicant. In the following High Court case, the presence of the disclaimer was an important element in the decision.

Butcher v Lachlan Elder Realty Pty Ltd [13.350]  Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592. In 1996, Mr Butcher and his wife made enquiries with a small suburban real estate agent, Lachlan Elder Realty, about the forthcoming auction of a waterfront property on the northern beaches of Sydney. The agent gave them a one-​page double-​sided colour brochure, telling them that it contained all the information they would need to know about the property. As well as photographs and a sales pitch, the brochure contained a reproduction of a 1980 survey diagram, which showed that a swimming pool between the house and the water was above the mean high-​water mark, which was the boundary between the land and the sea. The brochure contained two disclaimers on it, printed in a small font on the bottom of both sides of the brochure. The disclaimers were similar: “Lachlan Elder Realty Pty Ltd ACN 002 332 247. All information contained herein is gathered from sources we believe to be reliable. However, we cannot guarantee its accuracy and interested persons should rely on their own enquiries”. Mr  Butcher advised the agent that he wished to relocate the pool to the western boundary. A  builder who visited the property with Mr  Butcher said that this would be possible, basing his opinion on the survey diagram. Mr Butcher subsequently purchased the property for

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$1.36  million. Soon after, it emerged that the mean high-​water mark had changed and now went through the middle of the pool, which meant that part of the pool was on Government land. When the Government refused to allow Mr Butcher to relocate the pool, Mr Butcher sued the agent, alleging that the agent had engaged in misleading and deceptive conduct when it gave the brochure to him. The trial judge and the New South Wales Court of Appeal dismissed the claim. The purchasers appealed to the High Court.

  

The High Court dismissed the appeal. The Court affirmed that although s  18 imposed a regime of strict liability (in the sense that a plaintiff need not prove fault) the disclaimer put the purchasers on notice not to rely on the representations in the brochure. It was significant that the purchasers were intelligent and shrewd investors who had had the benefit of advice from experts, compared with the agent who ran a small suburban office and did not represent that he had expertise in verifying title details of a property.

[13.360]  The attempt to indirectly exclude liability under s 18 was unsuccessful in the following case.

Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd

  

[13.370]  Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246. Brighton, a subcontractor, made claims against Multiplex relating to the construction of the NAB headquarters in Docklands, Melbourne. Among other things, Brighton pleaded that it had entered into the relevant subcontracts with Multiplex in reliance on representations made by Multiplex that were in breach of s 18 of the ACL. The special referee appointed by the Court found that the ACL claim should fail on various grounds, including that the claim had not been made in accordance with the subcontracts that contained a clause requiring notice of any claim, including a claim for breach of the ACL, to be given within seven days of the event occurring. However, the Supreme Court held that the attempt to rely on the time bar was an indirect method of excluding liability under the ACL and was therefore “an unacceptable interference with the public policy underpinning” the ACL.

Exemption of news media in respect of news and information [13.380]  The ACL exempts certain “information providers”, most notably the news media, from the general prohibition of misleading or deceptive conduct: s 19. This is a vital protection because it allows the media certain protection from the threat of litigation in the event that statements are misleading. However, Australia’s defamation laws are comparatively strict (compared to the US, UK and Europe) and, themselves, act as a brake on the media. However, the exemption does not extend to statements that information providers might make in an advertising context (s 19(2)), which remain subject to the prohibition of misleading or deceptive conduct in s 18.

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Specific false or misleading representation provisions [13.390]  Chapter 3 of the ACL contains provisions designed to protect consumers against specific false representations made by a person in connection with the promotion and supply of goods, services and land. Contravention of these provisions gives rise not only to civil remedies, for example, the recovery of damages for the loss suffered, but also to pecuniary penalties and criminal fines.

Goods and services [13.400]  Section 29(1) prohibits a wide range of specific forms of false or misleading representations, in trade or commerce, in connection with the supply8 of goods9 or services.10 It is not uncommon that conduct that breaches of s 18 also breach s 29(1) or other sections in Part 3-​1 of the ACL. Contravention of s 29(1) may occur whether the false representation is contained in an advertisement or is made orally by the salespeople of a company negotiating the sale of goods to a prospective purchaser or by representations on the goods themselves. As was the case with s 18, s 29 (and other offences in Division 1 of Part 3-​1) is a strict liability regime –​no intention or fault is required. The section provides that a person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services make a false or misleading representation: (a)

that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use;

(b)

that services are of a particular standard, quality, value or grade;

(c)

that goods are new;

(d)

that a particular person has agreed to acquire goods or services;

(e)

that purports to be a testimonial by any person relating to goods or services;

(f)

concerning:



(i)

a testimonial by any person; or



(ii)

a representation that purports to be such a testimonial; relating to goods or services;

(g)

that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits;

8 9

10

Supply is defined as follows: “(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”: Australian Consumer Law, s 2(1). Goods are defined as including: “(a) ships, aircraft and other vehicles; and (b) animals, including fish; and (c) minerals, trees and crops, whether on, under or attached to land or not; and (d) gas and electricity; and (e) computer software; and (f) second-​hand goods; and (g) any component part of, or accessory to, goods”: Australian Consumer Law, s 2(1). Services are defined as including: “(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 paragraph (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; or (ii) a contract for or in relation to the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction; or (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; or (iv) a contract of insurance; or (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”: Australian Consumer Law, s 2(1).

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(h)

that the person making the representation has a sponsorship, approval or affiliation;

(i)

with respect to the price of goods or services;

(j)

concerning the availability of facilities for the repair of goods or of spare parts for goods;

(k)

concerning the place of origin of goods;

(l)

concerning the need for any goods or services;

(m)

concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-​2);

(n)

concerning a requirement to pay for a contractual right that:



(i)

is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy; and



(ii)

a person has under a law of the Commonwealth, a State or a Territory (other than an unwritten law).

235

The following cases provide examples of the conduct that is prohibited by s 29 (and other sections in Part 3-​1 of the ACL).

Australian Competition and Consumer Commission v Thermomix in Australia Pty Ltd [13.410]  Australian Competition and Consumer Commission v Thermomix in Australia Pty Ltd [2018] FCA 556. A number of consumers suffered very serious burns caused by the lid lifting and hot food or liquid escaping from the mixing bowl of Thermomix’s TM31 model. Thermomix was aware that the mixing bowl lid in some TM31 models might move and lift during use and therefore knew that there was a potential risk of injury to users caused by the lid lifting and hot food and/​or liquid escaping from the mixing bowl before that food and/​or liquid had settled. By continuing to supply and promote the TM31 and not disclosing the safety issue to consumers, Thermomix impliedly represented to consumers who purchased a TM31 during the relevant period that it was not aware of any safety risk with the TM31 that had the potential to cause injury (other than the risks disclosed in its instruction manuals, product labelling and safety videos). The Court held that Thermomix: ▶▶ ▶▶

  

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engaged in conduct that was misleading or deceptive in breach of s 18; made false or misleading representations in breach of s 29(1)(a) that the TM31 was of a particular standard or quality, s 29(1)(m) (misrepresenting the existence or effect of the rights or remedies available under the ACL for non-​compliance with the consumer guarantees) and s 33 (misrepresenting the nature, characteristics and suitability for purpose of the TM31).

Thermomix was ordered to pay a penalty of $4,608,500. In addition, the Court ordered Thermomix to establish a Consumer Compliance program and maintain that program for a period of three years and to publish information about the judgment on its homepage for 90 days.

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Australian Competition and Consumer Commission v Turi Foods Pty Ltd

  

[13.420]  Australian Competition and Consumer Commission v Turi Foods Pty Ltd [2013] FCA 665. Please see the facts at [13.210]. The Federal Court held that in addition to constituting a breach of s 18, the advertisement breached s 29(1)(a) (false representation about the history of the goods –​the eggs were not from “uninhibited, aimless” chooks) and imposed a penalty of $400,000.

Optus Mobile Pty Ltd v Telstra Corporation Limited

  

[13.430]  Optus Mobile Pty Ltd v Telstra Corporation Limited [2018] FCA 745. Telstra advertised its mobile network plan with the tagline “One word for Australia’s best mobile network Unlimited”. The Court decided that the advertisements were misleading or deceptive because, in fact, the “unlimited” plans provided 40GB at usual speeds, after which all usage was slowed to 1.5Mbps and slowed further during busy periods. Although the headline claims were, in most cases, qualified with disclaimers, the Court held that these disclaimers were not sufficiently prominent or clear to explain to consumers the existence and impact of the limitations. The Court also found the advertisements contravened s 29(1)(b) (services provided under that plan are of a particular quality) and s 34 (liable to mislead the public as to the nature or the characteristics of the services) in that they falsely conveyed to consumers that Telstra provided plans offering unlimited usage of its mobile network when in fact its services, including mobile data services, were always subject to use limitations and exclusions.

Australian Competition and Consumer Commission v Heinz

  

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[13.440]  Australian Competition and Consumer Commission v Heinz [2018] FCA 360. Heinz marketed a product called “Shredz” that was part of Heinz’s “Little Kids” range, targeted to young children. This product consisted of a chewy fruit-​flavoured “stick” that was sold in a packet of five sticks in three fruit flavours. The packaging featured a picture of a smiling boy climbing a tree. At the base of the tree were various pieces of fruit and four sticks of Shredz. On the front of the box were the words “99% fruit and veg”, “No preservatives” and “No artificial colours or flavours”. Although the back of the box featured an ingredients list that revealed that over two-​thirds of the product consisted of sugar, the Court found that the packaging, including both statements and pictures, would convey to the “ordinary” and “reasonable” consumer in the target group (ie a parent of a toddler) that the product was beneficial to the health of toddlers. This was misleading because the Court said that the consumption of such a large amount of sugar in a single snack could not be regarded as “beneficial”. The Court found Heinz had breached s 18 and s 29(1)(g) (goods or services have…uses or benefits) and ordered it to pay a penalty of $2.25 million.

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Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [13.450]  Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [2015] FCA 1263. An airline’s website prominently advertised flights for a price that did not include the booking fee that applied to payment by most credit and debit cards. The booking fee was not disclosed until the customer reached the payment page of the website, although there was a prior indication that such a fee might be payable.

  

The Court held that the airline had contravened s 18 and s 29(1)(i) (false or misleading representations with respect to the price of services). Disclosure on the payment page was insufficient to avoid these contraventions of the Act.

Australian Competition and Consumer Commission v Apple Inc [13.460]  Australian Competition and Consumer Commission v Apple Inc (No 4) [2018] FCA 953. An error disabled some iPhones and iPads after owners downloaded an update to Apple’s “iOS” operating system. Apple represented to at least 275 Australian customers affected by “error 53” that they were no longer eligible for a remedy if their device had been repaired by a third party. Apple admitted it engaged in misleading conduct and breached s 29(1)(m) (misrepresentation because the fact that a component of a consumer’s iPhone device had been serviced, repaired or replaced by someone other than an Apple-​authorised service provider cannot result in the consumer guarantees provided under the ACL ceasing to have any operation). Apple admitted that it engaged in misleading and deceptive conduct in contravention of s 18 of the ACL and s 29(1)(m) (misrepresentation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy of the ACL). A pecuniary penalty of $9 million was imposed on Apple Inc for the breach of s 29(1)(m). The penalty was ordered by consent, following a settlement reached between the ACCC and Apple. In considering the appropriateness of the pecuniary penalty on a company of Apple’s size, Lee J understood the tension between the principles that: ▶▶

▶▶

  

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the size of a corporation does not itself justify a higher penalty than might otherwise be imposed; and the fact that if a penalty does not impose a ‘sting’, it is less likely to achieve its intended deterrent effect.

In an interesting observation on the deterrent value of a fine of $9 million on the world’s first trillion dollar corporation, Lee J agreed that this was “loose change” for a “behemoth” such as Apple but observed that he was “constrained by authority” in that the “leviathan nature of Apple Inc [could not] dominate the analysis” nor “justify a higher penalty than otherwise would be imposed”. Lee J referred to the Apple case to be “a paradigm example of the difficulties that can arise when a penalty regime fixes maximum penalties as to body corporates, without reference to size of the contravener”.

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Australian Competition and Consumer Commission v LG Electronics Australia Pty Ltd [13.470]  Australian Competition and Consumer Commission v LG Electronics Australia Pty Ltd [2018] FCAFC 96. Representations were made by LG Electronics Australia Pty Ltd (LG) about the redress that LG (as manufacturer) would provide to consumers in relation to televisions in circumstances where the manufacturer’s warranty had expired.

  

The Full Court held that statements were in breach of s 29(1)(m) (concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy under the ACL) because they went beyond a mere statement of what LG was willing to offer and suggested, directly or indirectly, that no rights other than those under LG’s manufacturer’s warranty existed, operated or had potential effect.

Country of origin representations [13.480] The s 29(1)(k) prohibition of false or misleading representations about the place of origin of goods is developed in more detail in Part 5-​3 (ss 255–​257) of the ACL. Pursuant to s 255, a representation as to the country of origin of goods (eg that goods are, for example, “Made in Australia”) can only be made if the goods have been “substantially transformed” in Australia and at least 50 per cent of the cost of producing or manufacturing the goods has occurred in Australia. The requirement that the goods must have been “substantially transformed” means that the goods must have undergone a fundamental change in their form, appearance or nature, such as the sewing of cloth into a shirt or the moulding of sheet metal into a panel: s 255(3). There are detailed provisions regarding the method for calculating production or manufacturing costs for the purposes of the sections: ss 256–​257. The same applies to representations as to the country of origin of imported goods. Further, a representation that goods are a “Product of Australia” or “Produce of Australia” can be made provided that all the significant ingredients or components of the goods come from Australia, and virtually all of the production or manufacturing processes associated with the goods occur within Australia. Again, the same applies to representations as to the country of origin of imported goods.

Australian Competition and Consumer Commission v Marksun Australia Pty Ltd

  

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[13.490]  Australian Competition and Consumer Commission v Marksun Australia Pty Ltd [2011] FCA 695. A  series of websites operated by the respondent claimed that Ugg boots were Australian-​made when they were actually made in China. The websites also used the “Australian Made” logo without authorisation. The Federal Court held that these claims constituted misleading or deceptive conduct (s 18) and false representations of the place of origin of the goods (s 29(1)(k)). The respondent had obtained an unfair market advantage over suppliers of products that were genuinely made in Australia. The misuse of the “Australian made” logo had the potential to undermine trust in that logo. The court imposed separate pecuniary penalties in relation to the misrepresentation of the place of origin ($330,000) and the use of the “Australian Made” logo ($100,000).

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Land [13.500] The ACL proscribes the making of false or misleading representations in connection with the sale or grant of an interest in land. Section 30(1) provides that a person must not, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land make a false or misleading representation concerning: (a)

sponsorship, approval or affiliation;

(b)

the nature of the interest in the land;

(c)

the price payable for the land;

(d)

the location of the land;

(e)

the characteristics of the land;

(f)

the use to which the land is capable of being put or may lawfully be put; or

(g)

the existence or availability of facilities associated with the land.

An example of the application of this provision can be seen in the following case.

Given v Pryor [13.510]  Given v Pryor (1980) 30 ALR 189. In the audio part of a television advertisement for land being offered for sale, it was stated, inter alia: “150 quarter acre lots at a sensational price. … A wonderful place to live”. The visual part included the words “watch it grow” and contained various pictures of parts of the land including some showing several houses. The court found that having regard to the advertisement as a whole (including the various pictorial representations), there had been a representation that houses could be built on the land advertised for sale. In reality, however, the land was subject to a planning scheme under which houses could not be built on the land without the special approval of the responsible authority and by satisfying its onerous conditions.   

Accordingly, it was held that there had been a misleading representation concerning the use to which the land could be lawfully put in contravention of what is now s 30(1)(f) of the ACL.

[13.520]  For a misleading representation to be made “in connection with the promotion of the sale” in contravention of s 30 of the ACL, there is no necessity to establish that a sale resulted from or was the likely result of the making of the statement. The fact that a brochure containing the representation was available to the public is sufficient: Videon v Barry Burroughs Pty Ltd (1981) 37 ALR 365.

Profitability of certain business activities [13.530]  The ACL provides that a person must not make a representation that is false or misleading in a material particular concerning the profitability risk or any other material aspect of any business activity that the person has represented as one that can be, or can be to a considerable extent, carried on at or from a person’s place of residence: s 37(1).

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It is further provided that where a person, whether by advertisement or otherwise, invites persons to engage or participate in a business activity requiring the performance of work, or the investment of moneys and the performance of work associated with the investment, the person must not make a representation that is false or misleading in a material particular with respect to the profitability or risk or any other material aspect of the business activity: s 37(2). This provision is designed to counter, for example, extravagant claims as to earnings which can be made from investment in dubious “franchise” schemes.

Ducret v Colourshot Pty Ltd

  

[13.540]  Ducret v Colourshot Pty Ltd (1981) 35 ALR 503. A company, which carried on the business of processing and developing film, set up a network of “franchise” couriers to collect exposed films left at various retail outlets, forward the film to the company’s office and redeliver the developed film and photographs. The franchisees had been induced to part with $7,500 each for their franchises by a false statement in advertisements claiming that they could earn up to $300 a week. In reality, the return on their investment was minimal and in some cases virtually nothing, since the only substantive income of the company was derived from the sale of the franchises. The company was convicted of a number of offences arising out of contravention of what is now s 37 of the ACL and fined $95,000.

Representations and predictions about future outcomes [13.550]  Section 4(1) of the ACL provides that where a person makes a representation as to any future matter, and they do not have reasonable grounds for making the representation, the representation is taken to be misleading. Thus it is an implication from the words of s 4(1) that a representation will not be misleading if the defendant can show that they had reasonable grounds for making the representation.

Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [13.560]  Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [2014] FCA 487. Taxsmart made representations that it was offering a graduate program and 12 months of employment to accounting graduates with no previous work experience in tax accounting that would enable such graduates to satisfy the requirements for registration as a tax agent and commence as franchisees. The ACCC took action against Taxsmart and its executives. The Federal Court ordered by consent that Taxsmart repay $260,400 in franchise fees to five former Taxsmart franchisees following proceedings brought by the ACCC.

  

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The court declared that Taxsmart engaged in misleading or deceptive conduct because (a) it had not made proper enquiries or adequately considered whether the graduate program would enable graduates, with no prior experience in tax accounting, to satisfy the legal requirements for registration as a tax agent; and (b) the graduate program was not capable of enabling graduates, without any previous work experience in tax accounting, to satisfy the legal requirements for tax agent registration.

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Prohibition of other unfair practices [13.570]  The ACL also prohibits certain other kinds of business conduct in relation to the supply of goods and services. These are as follows:

Misleading conduct as to employment [13.580] A person must not engage in conduct that is liable to mislead persons as to the availability, nature, terms or conditions, or any other matter relating to employment offered by the person or another person: ACL, s 31.

Offering rebates, gifts, prizes or other free items with the intention of not providing them as offered [13.590]  A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or an interest in land or in connection with the promotion by any means of such activities, offer rebates, gifts, prizes or other free items with the intention of not providing them or of not providing them as offered: s 32(1). For example, to offer a “free” gift with goods and at the same time increase the price of the goods to cover the cost of the gift would contravene this provision.

Misleading conduct as to the nature or manufacturing process of goods [13.600]  A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods: ACL, s 33. See Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4) [2015] FCA 1408 (at [13.220]).

Misleading conduct in relation to services [13.610]  A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services: ACL, s 34.

Dawson v World Travel Headquarters Pty Ltd [13.620]  Dawson v World Travel Headquarters Pty Ltd (1981) 53 FLR 455. The defendant company conducted a travel business. It published a brochure which advertised a “Swingaway Asia Group Holiday” as being of 16 days’ duration, when in fact it was only 15 days. In earlier proceedings, the defendant had been convicted of accepting payment without intending to supply services as offered in the brochure and fined $3,200. The brochure was subsequently reprinted without the information being corrected. Brochures containing the incorrect information were still on display and available for the public at the defendant’s premises.

  

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In the Federal Court, Fisher J said that the crucial feature of the contravention was the defendant’s failure to take any steps to withdraw or correct the misleading statement. Furthermore, the defendant had been guilty of considerable carelessness in permitting the brochures to remain on public display.

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Bait advertising [13.630]  This type of advertising essentially takes the form of attracting customers by the offer of goods at “special” prices, only for the customer to be told on following up the advertisement that the “special” price goods have all been sold but that another product at a higher price is available for sale.

Reardon v Morley Ford Pty Ltd [13.640]  Reardon v Morley Ford Pty Ltd (1980) 33 ALR 417. The defendant corporation carried on business as a dealer in Ford cars. It advertised for sale in newspaper advertisements a particular Ford model at the special price of “$6,600 plus on-​road costs and delivery fees”. A prospective purchaser visited the defendant’s showrooms where he was informed that there was only one vehicle available at the relevant price but that it had already been sold.

  

The defendant was held to have breached what is now s 35 of the ACL. The circumstantial evidence led to the conclusion that the managing director of the defendant corporation did not intend to offer the particular model of vehicle for sale in accordance with the advertisement.

Accepting payment without intending or being able to supply as ordered [13.650]  A person must not accept payment or other consideration for goods or services where: (a)

the person intends



(i)

not to supply the goods or services; or



(ii)

to supply goods or services materially different from the goods or services in respect of which the payment or other consideration is accepted; or

(b)

there are reasonable grounds, of which the person is aware or ought reasonably to be aware, for believing that it will not be able to supply the goods or services within the period specified or, if no period is specified, within a reasonable time: ACL, s 36.

Sending unsolicited credit or debit cards [13.660]  A person must not send a credit card, debit card or any article that may be used as a credit or debit card to a person except either: (a)

at her or his written request; or

(b)

in renewal or replacement of a card of the same kind previously sent to and used by her or him: ACL, s 39(1).

This provision is intended to prohibit the unsolicited issue of credit or debit cards.

Assertion of right to payment for unsolicited goods or services [13.670]  A person must not, in trade or commerce, assert a right to payment from a person for unsolicited goods or services (ie goods sent or services supplied to a person without any request being made for them)

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unless the person has reasonable cause to believe that there is a right to payment, the burden of proof of which lies on the person: ACL, s 40(1)–​(2), (4). A person is taken to have asserted a right to payment if the person: (a)

makes a demand for the payment or asserts a present or prospective right to the payment;

(b)

threatens to bring legal proceedings with a view to obtaining the payment;

(c)

places or causes to be placed the name of the 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 stating the amount of the payment or setting out the price of the goods or services and not stating that no claim is made to the payment that complies with any requirement prescribed by the regulations: s 10(1).

Recipient not liable to pay for unsolicited goods or services [13.680]  The recipient of unsolicited goods is not liable to pay for them, nor for the loss of or damage to the goods other than loss or damage resulting from some wilful and unlawful act by the recipient: ACL, s 41(1). Furthermore, the recipient of unsolicited goods becomes the owner of them either: (a)

one month after notifying the sender in writing of the receipt of the goods, or

(b)

in the absence of such notice, after three months of receiving the goods, subject to the following exceptions: s 41(2), (4).

The recipient will not become the owner of the unsolicited goods if, during the one-​or three-​month periods just mentioned: (a)

the recipient unreasonably refused to permit the sender or owner of the goods to take possession of them; or

(b)

the sender or owner took possession of the goods during the relevant period; or

(c)

the goods were received in circumstances in which the recipient knew, or might reasonably be expected to have known, that the goods were not intended for her or him: s 41(3).

The recipient of unsolicited services is not liable to pay for them, nor for any loss or damage as a result of the supply of the services: s 42.

Assertion of right to payment for unauthorised entries or advertisements [13.690] The ACL makes it an offence for a person to assert a right to payment from any person of a charge for making an entry or advertisement in a publication relating to the person or to their profession, business, trade or occupation unless the person knows or has reasonable cause to believe that the other person has authorised the making of the entry or advertisement: s 43(1). In the absence of authorisation, a person is not liable to make payment for and is entitled to recover any payment made for such entry or advertisement: s 43(4).

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Pyramid selling [13.700]  In general terms, a pyramid selling scheme is one in which the participants are offered both the right to sell a particular company’s product and to receive payment or other benefit for introducing other persons into the scheme. The problem experienced with such schemes in the past has been that although those at the top of the pyramid (usually the persons who promoted the scheme) may receive considerable benefit derived largely from the contribution of each new participant, those at the base of the pyramid who rely on sales of the product, and the introduction of new participants to recoup their initial investment, find that the market becomes rapidly saturated and the product almost impossible to sell. Such schemes are prohibited by the ACL, ss 44–​46.

Australian Competition and Consumer Commission v Jutsen (No 3) [13.710]  Australian Competition and Consumer Commission v Jutsen (No 3) (2011) 206 FCR 264. A pyramid scheme claimed to offer accommodation and travel discounts and the chance to earn substantial money. Members had to pay $250 to join. The accommodation or travel discounts arising from membership were difficult or impossible to realise so were of little or no value. Members were told that they could earn money by recruiting new members.

  

Nicholas J observed that a pyramid scheme has two essential characteristics. First, new participants make a payment to participate in the scheme. Secondly, new participants are induced to make such payments by the prospect of receiving payments for introducing new participants to the scheme. The scheme in this case possessed both characteristics.

Pricing [13.720]  A person must not supply goods if (a) the goods have more than one displayed price and (b) the supply takes place for a price that is not the lowest of the displayed prices: ACL, s 47(1). This is commonly referred to as multiple pricing. Further, a person must not in connection with (a) the supply of goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption or (b) the promotion of the supply of goods or services of that kind; make a representation concerning an amount that would constitute a part of the consideration unless they also prominently specify a single price for the goods or services: s 48(1). The regulations may exclude specific classes of representations from the operation of this provision: s 48(4A).

Australian Competition and Consumer Commission v AirAsia Berhad Co

  

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[13.730]  Australian Competition and Consumer Commission v AirAsia Berhad Co [2012] FCA 1413. An airline website flight search results page advertised fare prices that did not include various taxes and charges. The displayed prices on this page were thus only part of the price payable. The correct prices were displayed on subsequent pages. The airline admitted the contravention of s 48.

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Referral selling [13.740]  This is a method of selling whereby a person persuades a consumer to buy its goods or services by representing that after the consumer has paid over money, he or she will receive a rebate, commission or some other benefit in return for giving the person names of other customers or otherwise assisting the person in selling their goods or services. The practice has been proscribed because consumers who paid in the expectation that they would receive some future benefit and recoup what they paid received nothing, either because they found it almost impossible to obtain referrals or the companies did not honour their promises to pay. A person must not, in trade or commerce, induce a consumer to acquire goods or services by representing that the consumer will, after the contract for the acquisition of the goods or services is made, receive a rebate, commission or other benefit in return for giving the person the names of prospective customers or otherwise assisting the person to supply goods or services to other consumers, if receipt of the rebate, commission or other benefit is contingent on an event occurring after the contract is made: s 49.

Harassment and coercion [13.750]  A person must not use physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer or the payment for goods or services by a consumer: ACL, s 50(1). In Australian Competition and Consumer Commission v McCaskey (2000) 104 FCR 8, French J held that when a creditor makes repeated demands for payment and points out that legal proceedings may be brought to recover the debt, such conduct will not constitute undue harassment. However, a creditor will engage in undue harassment where the “frequency, nature or content” of the creditor’s demands “is such that they are calculated to intimidate or demoralise, tire out or exhaust a debtor”.

Enforcement and remedies for unfair practices [13.760]  Contravention of the “unfair practices” provisions of the ACL may give rise to an action for: (a)

a criminal penalty: ss 151–​168;

(b)

a pecuniary penalty: s 224(1);

(c)

an injunction: s 232;

(d)

damages: s 236;  and

(e)

other orders (eg rescission or variation of contracts): ss 237, 243.

Criminal penalties [13.770] Contravention of the unfair practices provisions of the ACL is an offence. Sections  151–​168 repeat the unfair practices provisions and set down the penalty for breach of each provision. The maximum penalty stipulated for contravention of each unfair practice provision by a corporation is a penalty of $1,100,000. The maximum penalty for an individual is a penalty of $220,000. Prosecutions must be commenced within three years of the commission of the offence: s 212. The criminal standard of proof (proof beyond reasonable doubt) applies. Criminal proceedings may not be brought for contravention of the general prohibition of misleading or deceptive conduct (s 18), the prohibition on unconscionable conduct (ss 20–​22) or the provisions concerning unfair contract terms (ss 23–​27): s 217.

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Pecuniary penalties Individuals: $220.000 Before 1 September 2018 Corporations: $1.1 million Penalties for breaches of ACL

Individuals: $500,000

After 1 September 2018

Corporations: the greater of: $10 million; 3x the value of the benefit; or if the benefit cannot be determined, 10% of annual turnover in the relevant 12mths.

[13.780]  The court may order the payment of a pecuniary penalty determined by the court: ACL, s 224(1). A pecuniary penalty may be imposed for contravention of the unconscionable conduct provisions (ss 20–​ 22): s 224(1)(a)(i). The general prohibition of misleading or deceptive conduct (s 18) is not subject to a pecuniary penalty. From 1 September 2018, the CCA was amended to increase the maximum civil pecuniary penalties that a court may impose for breaches of the ACL. For a corporation, the maximum penalty will increase from $1.1 million to: ▶▶

the greater of $10 million;

▶▶

three times the value of the benefit obtained from the offence, if that benefit can be determined; or

▶▶

10% of the annual turnover, if the value of the benefit cannot be determined in that instance.

For persons other than corporations, the maximum penalty will increase from $220,000 to $500,000.

Which provisions of the ACL are affected by the increased maximum penalties? [13.790]  ▶▶

Unconscionable conduct (Pt 2-​2);

▶▶

Unfair practices (Pt 3-​1, other than s 47(1));

▶▶

Supplying etc consumer goods that do not comply with safety standards (s 106(1), (2), (3) or (5));

▶▶

Supplying etc product-​related services that do not comply with safety standards (s 107(1) or (2));

▶▶

False or misleading representations about goods or services (s 151);

▶▶

False or misleading representations about sale etc of land (s 152);

▶▶

Misleading conduct relating to employment (s 153);

▶▶

Offering rebates, gifts, prizes etc (s 154);

▶▶

Misleading conduct as to the nature etc of goods (s 155);

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Misleading conduct as to the nature etc of services (s 156);

▶▶

Bait advertising (s 157);

▶▶

Wrongly accepting payment (s 158);

▶▶

Misleading representations about certain business activities (s 159);

▶▶

Referral selling (s 167);

▶▶

Harassment and coercion (s 168).

247

Australian Competition and Consumer Commission v Apple Pty Ltd [13.800]  Australian Competition and Consumer Commission v Apple Pty Ltd [2012] FCA 646. Apple advertised a 4G iPad that was unable to connect to the only Australian 4G network available to consumers. Apple continued to run the advertisements after the ACCC had informed Apple of its concerns about their misleading nature. Apple admitted that its advertisements contravened s 33 of the ACL (misleading conduct as to the characteristics of goods). The Federal Court agreed that the penalty of $2.25 million that the parties had negotiated was appropriate. Apple’s conduct was deliberate (it continued to use its worldwide advertising campaign even after the ACCC had informed it of its concerns about the advertisements, placing greater importance upon “global uniformity” in marketing than upon compliance with the ACL) but it had not previously engaged in similar contraventions and its admission of liability was also taken into account.

  

Liability of a corporation for the conduct of its employees [13.810] A corporation can only act through its officers, employees and agents. Accordingly, the CCA makes a corporation responsible for the conduct of such persons. Section 139B(2) of the Act11 provides that: “Any conduct engaged in on behalf of a body corporate  –​is taken, for the purposes of … the Australian Consumer Law, to have been engaged in also by the body corporate.” Where an employee is acting only in their own interest, and hence not “on behalf of” the company, the latter will not be liable for the employee’s misconduct.

Defences [13.820]  Certain defences are available to a defendant prosecuted for contravention of the unfair practices provisions. It is a defence if the defendant establishes “that the contravention was caused by a reasonable mistake of fact, including a mistake of fact caused by reasonable reliance on information supplied by another person”: s 207(1). The defence does not apply in relation to information supplied by an employee or agent of the defendant, or if the defendant is a corporation, to information supplied by a director, employee or agent of the corporation: s 207(2).

11

Section 139B(2) is contained in the Competition and Consumer Act 2010 (Cth), Part XI –​Application of the Australian Consumer Law as a law of the Commonwealth.

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It is also a defence if the defendant establishes that “(a) the contravention was due to the act or default of another person, to an accident or to some other cause beyond the defendant’s control, and (b)  the defendant took reasonable precautions and exercised due diligence to avoid the contravention”: s 208(1). The defences in ss 207 and 208 are limited to where a prosecution is brought for an offence which will render the defendant liable to a fine if convicted. They may not be relied on as a defence to a claim for civil relief, for example, an action for damages for loss suffered as a result of the defendant’s contravention. A defence is provided for those innocently publishing offending advertisements. Thus, in proceedings for contravention of the offence provisions committed by the publication of an advertisement, it is a defence if the defendant establishes that he or she: (a)

is a person whose business it is to publish or arrange for the publication of advertisements;

(b)

received the advertisement for publication in the ordinary course of business; and

(c)

did not know and had no reason to suspect that its publication would amount to a contravention of an offence provision: ss 209, 251.

Injunction [13.830]  An injunction is an order by the court directed to a person requiring her or him to refrain from conduct of the type specified in the order. The court is empowered to grant an injunction restraining a person from engaging in conduct that constitutes a contravention of the ACL: s 232. An injunction may also be granted in respect of a proposed contravention and to restrain ancillary acts such as attempting to contravene, or being directly or indirectly knowingly concerned in a contravention. The court may grant an injunction by consent of all the parties to the proceedings without the court first having to satisfy itself that a person has engaged or is proposing to engage, in conduct which contravenes the ACL: s 233.

Who may apply [13.840]  Application for an injunction may be made by the ACCC or “any other person”: ACL, s 232(2). By enabling “any other person” to apply for an injunction, access to the court is made available to private persons and organisations to restrain misleading or deceptive practices which contravene the provisions of the ACL: Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591.

Damages [13.850]  Section 236 provides that if a person suffers loss or damage because of the conduct of another person and the conduct contravened a provision of Chapter  2 (the general protections  –​misleading or deceptive conduct and unconscionable conduct and unfair contract terms) and Chapter 3 (the specific protections including specific unfair practices and consumer guarantees), the person may recover the amount of the loss or damage. In the following case, the New South Wales Court of Appeal decided that the purchaser’s loss or damage was not caused by the conduct of the vendor’s agent (even if he had “engaged in conduct” and was not a “mere conduit”: see [13.130]).

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Hyder v McGrath Sales Pty Ltd [13.860]  Hyder v McGrath Sales Pty Ltd [2018] NSWCA 223. In February 2015, Hyder purchased of a large residential property in Sydney for $9.4 million. The property was shown in all the advertising material (including the websites and the brochure) as having four bedrooms, three bathrooms and two car parking spaces. The parking area was described as “private parking” and when the property was purchased, Hyder believed that the “private parking” area was exclusively for their use. This was an impression which was conveyed by the written material as well as by the oral statements made by McGrath, the vendor’s real estate agent. In reality, the entire parking area was affected by a right of way or easement so that the owners are only entitled to use the “private parking” area to the extent that this does not present an unreasonable interference with the rights of carriageway of the other two lots over that area. In April 2016, Hyder sued McGrath, claiming damages for misleading and deceptive conduct in relation to alleged pre-​sale misrepresentations concerning the parking at the property. The Court held that the conduct was, in fact, misleading or deceptive but, in relation to causation –​did the conduct cause the loss? –​the question is whether, had they understood the parking position correctly, Hyder would still have purchased the property. The Court decided that they would have:

  

“The exclusive right to park in the area may have been perceived as an advantage, but I am not satisfied that it was perceived as a sufficiently great advantage to make a difference to the purchase. It seems to me to be at least equally, if not more, likely that had the Hyders correctly appreciated the position they would still have gone ahead because of other features of the property which they found attractive …the real reason why Mr Hyder bought the property is because of Mrs Hyder’s emotional reaction to it. That emotional reaction would have derived from features such as its aspect and its potential as a family home, rather than the number of parking spaces”.

Assessment of damages [13.870]  The measure of damages in tort, rather than contract, is appropriate in most actions under s 236 of the ACL, especially those involving misleading or deceptive conduct and the making of false statements. However, once a causal connection is identified between the loss and the infringing conduct, the amount recoverable under s 236 is not limited by analogy with the law of tort, contract or equitable remedies.

Wakefield Trucks Pty Ltd v Lach Transport Pty Ltd

  

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[13.880]  Wakefield Trucks Pty Ltd v Lach Transport Pty Ltd (2001) 79 SASR 517. The appellant sold the respondent a vehicle. During the negotiations, the appellant made representations as to the vehicle’s fuel consumption that was considerably lower than its actual fuel consumption. The Full Court of the South Australian Supreme Court held that under what is now s 236 of the ACL the respondent was “entitled to all consequential loss directly flowing from its reliance upon the representation”. In this case, the respondent’s consequential losses were the difference between the representations made by the appellant regarding fuel consumption and the vehicle’s actual fuel consumption. The Court also permitted recovery of the interest incurred in respect of the extra fuel costs.

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[13.890]  The High Court has held that loss of an opportunity to obtain a commercial advantage or benefit is “loss or damage” within s 236 (1) for which damages are recoverable for misleading or deceptive conduct in contravention of s 18. Diminution of an opportunity to exploit a commercial advantage or benefit is also “loss or damage” under s 236(1). The value of a lost commercial opportunity is assessed by reference to possibilities and probabilities, so this value generally cannot be assessed with precision. Exemplary (ie punitive) damages are not recoverable under s 236 since the section only allows for the recovery of the amount of the loss or damage suffered by the conduct of another in contravention of the Act.

Liability of persons involved in contravention [13.900] The ACL makes natural persons such as employees liable in damages for a contravention by a corporation where, in effect, they have been closely involved in the contravention. The definition of “involved” in s 2(1) provides that a reference to a person involved in a contravention (as in s 236(1) above) is to be read as a reference to a person who: (a)

has aided, abetted, counselled or procured the contravention; or

(b)

has induced, whether by threats or promises or otherwise, the contravention; or

(c)

has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or

(d)

has conspired with others to effect the contravention.

To establish that a person has “aided or abetted” a contravention of the Act under s 2(1) of the ACL, it must be shown that he or she intentionally did so. Accordingly, if the defendant merely passes on information given to them by another without knowing that such information is false, the defendant lacks the knowledge to form the required intent and hence such action will not render them personally liable: Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661.

Yorke v Ross Lucas Pty Ltd [13.910]  Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661. Mr and Mrs  Yorke bought a record business from Treasureway Stores Pty Ltd for $44,500. They raised the amount by way of mortgage on their home and loans at high rates of interest. They were assured by Treasureway’s selling agent (R, of Ross Lucas Pty Ltd, who had obtained the figures from M, a director of Treasureway) that the average weekly turnover of the business was $3,500. However, the Yorkes found on running the business that the average weekly turnover was only $1,800. The Court decided that Treasureway Stores Pty Ltd had engaged in misleading or deceptive conduct by falsely representing the weekly turnover of the business, which had induced the Yorkes to purchase it. Furthermore, by acting as agent for Treasureway, Ross Lucas Pty Ltd had unwittingly contravened what is now s 18 of the ACL. M, the director of Treasureway, was held to have aided or abetted or been knowingly concerned in the contravention under what is now s 2(1) of the ACL.

  

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However, it was further held that the agent was not personally liable under s 75B since he had simply passed on the information provided by M, the director of Treasureway. The judge’s decision on this point was upheld by the High Court, which said that R lacked the necessary knowledge to form the required intent to be personally liable under s 2(1).

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[13.920]  The definition of “involved” requires actual knowledge by the accessory of the essential elements of the contravention of the Act. In the case of a misrepresentation, the accessory must have actual knowledge that the representation is false. Liability under s 2(1) of the ACL is based upon a criminal standard of liability. By contrast, as we have seen, a person may be liable under s 18 even though he or she acted honestly and without intent to deceive.

Limitation of actions [13.930]  An action for damages must be commenced within six years of the date when the cause of action accrued: ACL, s 236(2). A cause of action does not accrue until actual loss or damage has been sustained, which might not be until some time after the agreement was entered into. Where the loss is a contingent loss or liability, the time does not begin to run until the contingency is fulfilled, that is, when the loss or damage is actually sustained.

Other orders [13.940]  In addition to its power to grant injunctive relief and award damages, the court is empowered to make further orders to compensate for the damage suffered or likely to be suffered by a person as a result of another’s contravention of the ACL.

Compensation orders [13.950]  On the application of a person who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that contravened the provisions of the ACL or relied on an unfair term, the court may make such orders as it thinks appropriate against the person who engaged in the conduct to compensate the applicant in whole or in part for their loss or damage: s 237. The ACCC may make an application on behalf of those who have suffered or are likely to suffer loss or damage. An application for such an order must be made within six years of the date when the cause of action arose: s 237(3).

Orders for non-​party consumers [13.960]  Orders may be made in respect of non-​party consumers on the application of the ACCC. If a person contravened the consumer protection provisions or was advantaged by an unfair contract term, causing loss or damage to a class of persons, the court may make such orders as it thinks appropriate against that person (excepting an award of damages): ACL, s 239(1). The order must redress the loss or damage in whole or part or prevent or reduce the loss or damage: s 239(3). An application for such an order must be made within six years of the date when the cause of action arose or the contract term was declared to be unfair: s 239(4).

Kinds of orders that may be made [13.970]  The orders which can be made against the person who has contravened the ACL under a compensation order (s 237) or an order for non-​party consumers (s 239) referred to above include: (a)

declaring the whole or any part of a contract void;

(b)

varying the terms of a contract;

(c)

refusing to enforce any or all of the terms of a contract;

(d)

directing the refund of money or return of property;

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(e)

directing the payment of the amount of loss or damage suffered;

(f)

directing the person who contravened or was involved in the contravention, at their own expense, to repair or provide parts for goods supplied, or to render specific services to the person who suffered or is likely to suffer loss or damage caused by their contravention; and

(g)

directing the person who contravened or was involved in the contravention to execute an instrument that varies or terminates a transaction involving land: s 243.

An application for such an order must be made within six years of the date when the cause of action arose: s 237(3). [13.980] While s  243 of the ACL empowers a court to declare a contract void ab initio in appropriate circumstances, this is only one of a number of remedies provided by the section: the court may take into account the defendant’s as well as the plaintiff’s interests in moulding a fair and just response to a proven contravention of the consumer protection provisions.

Other enforcement provisions [13.990]  In addition to the criminal penalties and pecuniary penalties discussed earlier in this chapter, the ACL provides for a number of other enforcement measures to secure compliance with the consumer protection provisions.

Enforceable undertakings [13.1000] The ACCC may accept a written undertaking by a person in respect of a breach of the provisions of the ACL. If the court is satisfied that there has been a breach of the undertaking, it may make orders directing compliance with the terms of the undertaking; the payment of any financial benefit reasonably attributable to the breach; the payment of compensation to any person who has suffered loss or damage as a result of the breach or any other order the court considers appropriate: s 218.

Substantiation notice [13.1010]  The ACCC may issue a notice requiring a person to substantiate a claim promoting the supply of goods or services, the sale of land or employment opportunities: ACL, s 219. Non-​compliance with a substantiation notice is an offence punishable by a penalty of $16,500 for a corporation or $3,300 for another party: s 205(1).

Public warning notice [13.1020]  The ACCC may issue a public warning notice about the conduct of a person if it has reasonable grounds to suspect that their conduct contravenes the consumer protection provisions; is satisfied that persons are likely to suffer detriment as a result of the conduct; and that it is in the public interest to issue the notice: ACL, s 223.

Non-​punitive  orders [13.1030]  On application by the ACCC, the court has the power to make a number of non-​punitive orders for contravention of the consumer protection provisions. These include a community service order, a probation order for a period up to three years, a disclosure order and an order requiring publication of an advertisement in specified terms: ACL, s 246(2).

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A community service order is an order requiring a person to perform for the benefit of the community a service that relates to the contravening conduct. A probation order seeks to ensure that a person does not engage in the contravening conduct or similar conduct during the period of the order. The order may direct the person to establish a compliance, education or training program for employees or to revise the internal operations of the person’s business that led to the contravening conduct.

Adverse publicity order [13.1040]  On application by the ACCC, the court may make an adverse publicity order in relation to a person who has contravened provisions of the ACL (excluding the general prohibition on misleading and deceptive conduct in s 18). An adverse publicity order requires the person to disclose specified information and requires the person to publish, at their own expense, an advertisement in the terms specified in the order: s 247. See, for example, Australian Competition and Consumer Commission v Turi Foods Pty Ltd [2012] FCA 19 at [13.210].

Order disqualifying a person from managing corporations [13.1050]  If a person has contravened the consumer protection provisions (excluding the general prohibition on misleading and deceptive conduct in s 18 of the ACL), the court may disqualify that person from managing corporations for a period of time the court considers appropriate: s 248(1).12 The court considers the seriousness of the contravention, the likelihood that the person will act in a similar manner in the future, the potential for harm to the public and the person’s potential for reformation.

Prohibition of unconscionable conduct Introduction [13.1060]  Unconscionable conduct does not have a precise legal definition. It is a concept that has evolved on a case-​by-​case basis, usually as part of the law of contract:  see Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (discussed at [7.530]–​[7.540]). Nevertheless, it can be said that it generally refers to conduct that is more than simply unfair or harsh –​it must have an element of “bad conscience”. For example, the courts, in cases such as those cited above, have found business transactions or dealings to be “unconscionable” when they involve conduct that is particularly harsh or oppressive and which is so unfair or unreasonable that it goes beyond hard commercial bargaining. It also includes conduct that may be described as “sharp practice”. Since Amadio, there have been a number of legislative initiatives responding to pressure from both consumers and small business. The focus in this chapter is on ss 20–​22 of the ACL. Section 20 deals with unconscionable conduct within the meaning of the common law. This incorporates the principles in the cases such as those cited above and entrenches into legislation the equitable doctrine of unconscionable conduct (as discussed in cases such as Amadio) and thereby extending the range of remedies available to parties affected by unconscionable conduct. Section 21 is a broad prohibition on unconscionable conduct in connection with the selling/​supply or acquisition/​purchase of goods or services. Section 20 is a safety net provision, designed to “catch” situations that may not be caught by s 21.

12

Corporations Act 2001 (Cth), s 206B(3).

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Figure 13.2: Statutory unconscionable conduct

Section 20 Restates common law principle of Amadio et al. Fills gap where s 21 does not apply.

Section 21 Applies to business-consumer and business-to-business transactions Statutory unconscionable conduct Section 22 Non-exhaustive list of factors indicating unconscionable conduct

Remedies under ACL

Damages–s 236 Injunction–s 232 Ancillary orders–ss 237–238 Civil pecuniary fines–s 224(1) and (3) (NB defence–s 226) Management disqualification

It is important to recognise that the unconscionability provisions of the ACL protect small businesses from unconscionable conduct by other businesses. Conduct may be unconscionable if it is particularly harsh or oppressive and more than just hard commercial bargaining. It can occur between businesses or between businesses and consumers.13

Unconscionable conduct within the meaning of the unwritten law [13.1070]  Section 20(1) of the ACL provides: “A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time”. Section 20 refers to conduct that is unconscionable within the meaning of the unwritten law. The “unwritten law” referred to in s  20 is the common law and equity:  Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at [38]. The general effect of this provision is to extend the remedies available under the ACL to conduct regarded as unconscionable by the courts in accordance with common law or equitable principles: see [7.530].

13

Unconscionable conduct in the supply of goods and services to consumers and unconscionable conduct in business transactions were formerly the subject of separate provisions in the Australian Consumer Law, ss 21 and 22, respectively. The Competition and Consumer Legislation Amendment Act 2011 (Cth) repealed these separate provisions and replaced them with ss 21 and 22 that apply to both types of transactions.

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ACCC v CG Berbatis Holdings Pty Ltd [13.1080]  Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51. A shopping centre tenant was engaged in litigation with the centre owners. The tenant wished to assign their lease as part of the sale of their business. The prospective buyer was willing to buy the tenant’s business provided a new lease could be negotiated by the tenant. However, the lease was about to expire and did not contain an option to renew. The centre owners were willing to agree to a new lease provided the tenant withdrew from the litigation. The tenant agreed to this condition for the new lease. What the ACCC considered to be unconscionable was the exploitation of the weaker bargaining position in which the lessees found themselves.

  

The High Court held that the centre owner’s conduct did not constitute unconscionable conduct under what is now s 20 of the ACL. A person is not in a position of special disadvantage simply because of inequality of bargaining power: many contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages or neglect their own interests. The lessees were not at any “special” disadvantage, in that they did not lack an ability to judge their interests and they acted in accordance with their best interests. Thus, there were no grounds for setting the contract aside for unconscionable conduct.

ACCC v Samton Holdings [13.1090]  Australian Competition and Consumer Commission v Samton Holdings (2002) 117 FCR 301. The ACCC took action against the lessors, Samton Holdings, alleging that they engaged in unconscionable conduct contrary to what is now s 20 of the ACL. The purchasers took an assignment of a lease over the premises but failed to exercise an option to renew the lease within the time permitted. The lessors demanded a payment of $70,000 from the purchasers for the privilege to renew the lease.

  

The Full Federal Court decided that the purchasers were not at a “special” disadvantage. The court said that unconscionable conduct always had to be “at the extreme end of the scale of unreasonable conduct”. The conduct of the lessors, although avaricious and opportunistic, was not at the extreme end of the scale.

[13.1100]  The application of s 20 of the ACL involves consideration of the unconscionable dealings doctrine. “Put in short form, that doctrine involves the knowing exploitation by one party of the special disadvantage of another in a dealing between them …”: Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292. Where both parties are labouring under the same mistake in good faith, unconscionable conduct has not been established: Spira v Commonwealth Bank of Australia (2003) 57 NSWLR 544. Section  20 does not apply where the conduct in question falls within the more specific provisions of s 21.

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Unconscionable conduct in connection with goods or services [13.1110]  Section  21(1) of the ACL prohibits a person from engaging in “unconscionable” conduct in connection with goods or services. It provides: (1) A person must not, in trade or commerce in connection with: (a) the supply or possible supply of goods or services to a person (other than a listed public company);14 or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (3) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law relating to unconscionable conduct;  and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract.





The term “unconscionable” is not defined. Section 22(1) provides that in determining whether there has been unconscionable conduct by a supplier of goods and services in connection with the supply of goods or services to a customer, the court may have regard to the matters listed in s 22(1). The list includes the following: (a)

the relative strengths of the bargaining positions of the parties;

(b)

whether conditions imposed upon a customer were not reasonably necessary for the protection of the legitimate interests of the supplier;

(c)

whether the customer was able to understand any documents relating to the supply of the goods or services;

(d)

whether any undue influence or pressure was exerted upon the customer or any unfair tactics used against the customer;

(e)

the amount and terms for which the customer could have acquired equivalent goods or services from another supplier;

(j)

the extent to which the supplier was willing to negotiate with the customer the terms and conditions of the contract;

14

Amendments to the ACL that came into force on October 26 2018 amended s 21(a) and (b) of the ACL to extend statutory unconscionable conduct protections to publicly-​listed companies.

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whether the supplier had a contractual right to vary unilaterally a term or condition of a contract with the customer for the supply of the goods or services.

A similar list of considerations applies in determining whether an acquirer of goods or services has engaged in unconscionable conduct in connection with an acquisition of goods or services from a supplier: s 22(2). In considering whether conduct is unconscionable, the court may consider the terms of the contract, the manner in which the contract is carried out and the extent to which the contract is carried out. The court is not limited to considering the circumstances in which the contract was formed: s 21(4)(c). Unlike s 20, s 21 does not limit unconscionable conduct to conduct that is unconscionable within the meaning of the unwritten law: s 21(4)(a). This provision can apply to a system of conduct or pattern or behaviour even where an individual is not identified as being disadvantaged by that conduct or behaviour: s 21(4)(b). Furthermore, in determining whether conduct is unconscionable, the court may consider not only the s 22 factors but also the terms of the contract and the manner in which the contract is carried out: s 21(4)(c).

Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [13.1120]  Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90. The Full Court upheld the appeal by the ACCC, deciding that the seller’s deception about their purpose in entering the homes of the women constituted unconscionable conduct. The Court took the opportunity to describe the societal values that underpin conscionable conduct: “The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. In some contexts, such values are contestable. Here, however, they can be seen to be honesty and fairness in the dealing with consumers. The content of those values is not solely governed by the legislature, but the legislature may illuminate, elaborate and develop those norms and values by the act of legislating, and thus standard setting … These laws of the States and the operative provisions of the ACL reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct”.

  

The decision emphasises the importance of considering the nature of the respondent’s conduct, rather than the consumer’s response to that conduct, in determining whether the respondent has engaged in statutory unconscionable conduct. It also establishes that the court must take a holistic view of the conduct: the court should not examine the individual circumstances of the impugned conduct (which may not, of itself, amount to unconscionable conduct) but which may in combination with other circumstances create a situation that does amount to such conduct. It also makes clear that businesses that rely on door-​to-​door sales (and similar sales strategies) must act in a manner that is “honest and fair and free of deception”.

NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [13.1130]  NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98. The ACCC alleged that from 2008 to 2010, AMI (later NRM) engaged in

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unconscionable conduct. This included claims that doctors engaged by AMI were conducting consultations with patients in a manner that did not provide an appropriate diagnosis and medical treatment of male sexual dysfunction. The Federal Court held that NRM engaged in unconscionable conduct in the way it promoted or supplied male sexual dysfunction products. Justice North stated “It is immoral to seek to harness the fears and anxieties of men suffering from ED [erectile dysfunction] or PE [premature ejaculation] for the purpose of selling medical treatments. To target the patient’s vulnerability in this way is to use an unfair tactic and that is a possible marker of unconscionable conduct”.

  

In dismissing NRM’s appeal, the Full Court noted that the vulnerability related to the particularly sensitive and personal nature of the services supplied by NRM and the sales techniques employed by the salespeople and was well supported by the evidence. The Full Court upheld an order made permanently restraining NRM from making statements and representations to any patient or prospective patient as to the efficacy of NRM treatments unless they are made by a medical practitioner in a face-​to-​face or video consultation.

Australian Competition and Consumer Commission v Ford Motor Company of Australia Limited [13.1140]  ACCC v Ford Motor Company of Australia Limited [2018] FCA 703. For several months in 2015–​2016, Ford Australia put in place processes for dealing with and responding to complaints from customers about a faulty “PowerShift” transmission that: ▶▶

▶▶

▶▶

▶▶

failed to ensure that proper consideration was given to the individual circumstances and actual or potential legal rights of customers; resulted in many customers accepting offers made by Ford Australia because customers were told refunds or no-​cost replacements were not an option and had limited time to accept offers, which were conditional on customers entering into settlement agreements that included non-​disclosure provisions; and failed to ensure that customers who signed settlement agreements understood that they may be compromising their legal rights; and had inadequate processes which caused many customers to purchase new replacement vehicles at a significant additional cost to the customers.

The Court decided that in these circumstances, Ford Australia had engaged in conduct that was unconscionable in contravention of s 21 of the ACL. The Court provided a deep and nuanced explanation of the concept of unconscionability and its place in the commercial world. It: “... includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise … or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a

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business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.”

  

Unconscionable conduct and small business [13.1150]  Unconscionable conduct in the supply of goods and services to consumers and unconscionable conduct in business transactions was formerly the subject of separate provisions in the ACL, ss 21 and 22, respectively. The Competition and Consumer Legislation Amendment Act 2011 (Cth) repealed these separate provisions and replaced them with ss 21 and 22 that apply to both types of transactions. Thus, s 21 can also be used to protect small business from larger businesses engaging in unconscionable conduct. The court may have regard to the same factors listed in s 22(1) including factors which may be particularly relevant to business-​to-​business transactions such as: ▶▶

the relative bargaining strength of the parties;

▶▶

the use of undue influence, pressure or unfair tactics by the stronger party;

▶▶

the willingness of the stronger party to negotiate; and

▶▶

the extent to which the parties acted in good faith.

Furthermore, as with any unconscionable conduct action, in determining whether conduct is unconscionable, the court may consider not only the s 22 factors but also the terms of the contract and the manner in which the contract is carried out: s 21(4)(c). As the following two cases demonstrate, the ACCC has shown a willingness to use s 21 to protect small business from the allegedly unconscionable conduct of landlords in shopping centres towards lessees and in the case of large supermarket chains and their suppliers.

Australian Competition and Consumer Commission v Coles Supermarkets Ltd [13.1160]  Australian Competition and Consumer Commission v Coles Supermarkets Ltd [2014] FCA 1405. In October 2014, the ACCC prosecuted Coles alleging that, outside of its trading terms with the suppliers concerned, it: ▶▶

▶▶

▶▶

pursued agreements to pay the supermarket for “profit gaps” on a supplier’s goods, being the difference between the amount of profit the supermarket had wanted to make on those goods and the amount it had achieved; pursued agreements to pay the supermarket, both retrospectively and prospectively, for amounts the supermarket claimed as “waste” on a supplier’s goods, which occurred after the supermarket had accepted the goods, and price reductions, or “markdowns” implemented by it to clear goods; imposed fines or penalties on suppliers for short or late deliveries.

The Federal Court, by consent, made declarations in two proceedings instituted by the ACCC that Coles Supermarkets Australia Pty Ltd engaged in unconscionable conduct. The Court ordered Coles pay combined pecuniary penalties of $10 million and costs (Gordon J observed that the maximum penalties available were “arguably inadequate” for a company with annual revenue in excess of $22 billion).

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In her judgment, Justice Gordon said: “Coles’ misconduct was serious, deliberate and repeated. Coles misused its bargaining power. Its conduct was ‘not done in good conscience’. It was contrary to conscience. Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings. Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand. Coles withheld money from suppliers it had no right to withhold … Coles’ practices, demands and threats were deliberate, orchestrated and relentless…Coles’ conduct was of a kind which merits severe penalty. But for Coles making the admissions it has now made and acknowledging the gravity of its contravening conduct, the conduct and circumstances in which it was committed would have warranted imposing penalties at or close to the maximum the law permits”.

  

ACCC v Woolworths [13.1165]  ACCC v Woolworths [2016] FCA 1472. In a similar strategy to Coles, Woolworths’ “Mind The Gap” scheme sought retrospective payments from a large number of suppliers to make up the shortfall in Woolworths’ expected and actual profit for the December 2014 half year. As a result of the scheme, Woolworths obtained $18.1 million in payments. The ACCC prosecuted Woolworths arguing its conduct was unconscionable because: ▶▶

▶▶

▶▶

  

the conduct was not of a standard of accepted behaviour of businesses generally operating in any industry; the conduct was an abuse of Woolworths’ substantially stronger bargaining position relative to its suppliers; and engaging in those types of negotiations was not a right that was included in the contract.

The Court concluded that the conduct was within the ordinary course of business in the supermarket industry and was not unconscionable as it met the “norms of society” (or at least the norms of “supermarket society”). The Court found (i) from the perspective of any individual supplier, the Mind The Gap scheme was no different to any ordinary negotiation that the supplier might have had with Woolworths; (ii) Woolworths was not in a substantially stronger bargaining position than all its relevant suppliers, particularly its large multinational suppliers whose products customers expect to be available in supermarkets (although, it noted, being in a superior bargaining position alone does not constitute unconscionable conduct); and (iii) Woolworths was not acting outside of its contractual rights to enter into those negotiations so there was nothing illegitimate about its actions.

[13.1170]  An intentional breach of contract made between business parties is not necessarily unconscionable and some further “moral obloquy” must be shown. A party may take a commercial decision to breach a contract knowing that the other party is able to enforce its right to seek a legal remedy for the breach. Such a breach is sometimes referred to as an “efficient breach” because it puts the breaching party in a better position economically than if it performed the contract. Such a breach of contract is not inherently unconscionable.

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Remedies for contravention [13.1180]  Contravention of the unconscionable conduct provisions does not give rise to a criminal offence. However, a pecuniary penalty may be imposed (see [13.780]). Civil remedies, for example, an injunction, or damages for the loss suffered, discussed later in this chapter, may be sought for contravention of the unconscionable conduct provisions.

Prohibition of unfair contract terms Introduction [13.1190]  Section 23 of the ACL provides that a term of a consumer contract or a small business contract is void if the term is unfair and the contract is a standard form contract. The contract will continue to bind the parties if it is capable of operating without the unfair term. The provisions apply to business-​to-​consumer transactions and to certain business-​to-​business transactions. Although the law does not define what a “standard form” contract is, it does outline a number of factors that a court or tribunal must take into account in determining whether a contract is a standard form contract. In general terms, a standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms –​that is, it is effectively offered on a “take it or leave it” basis. It is assumed that an agreement is a standard form contract unless the party that prepared the contract is able to prove that it is not. A court can declare a term of a standard form consumer contract to be unfair. Once a term is declared to be unfair, it will be void and not enforceable. The remainder of the contract will continue to apply, provided that the contract makes sense without the term that has been declared void. Individuals or the ACCC may apply to a court to have a term of a standard form contract they entered into declared unfair. If it is so declared, the term will be void in that particular contract and in all standard form contracts entered into by the business that contain that term. No fines may be imposed on a business that includes or seeks to rely on an unfair contract but consumers and the ACCC can seek compensation for any loss that is incurred as a result of a term of a standard form contract that is declared to be unfair. Figure 13.3: Prohibition of unfair contract terms Prohibition of unfair contract terms

Business to consumer: s 23

Business to (small) business: s 23

Significant imbalance

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“Unfair” : s 24

Not reasonably necessary

Cause detriment

“Standard form” contract: s 23(1)(b)

Remedy – unfair term is void

Criteria in s 27(2)

Court can declare the term void: s 23(1)

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What is a “consumer” contract? [13.1200] A consumer contract is one for the supply of goods or services or the sale of land to an individual who acquires them wholly or predominantly for personal, domestic or household use or consumption: s 23(3). The contracts affected by the “small business” amendments are those where: ▶▶

at least one party is a business that employs fewer than 20 people;

▶▶

the upfront price payable under the contract is: –​  $300,000 or less; or –​  $1,000,000 or less, if the contract is for more than 12 months; and

▶▶

the contract is a standard form contract for the supply of goods or services or grant of an interest in land: s 23(4).

The “small business” amendments [13.1210]  Section 23 also protects small businesses from unfair terms in contracts. If a particular term in a standard form contract to which a small business is a signatory is found to be unfair by a court or tribunal, then that clause will be void and the small business will no longer be required to comply with it. In the lead-​up to the new law taking effect, the ACCC reviewed standard form contracts in the advertising, telecommunications, retail leasing, independent contracting, franchising, waste management and agriculture industries. However, any standard form contract must comply with the new law. The most common problems in standard form contracts were terms that gave one of the parties: (a)

a right to unilaterally or unreasonably vary all or some of the terms or terminate the agreement; and/​or

(b)

broad and unreasonable powers to protect themselves against loss or damage at the expense of the small business by imposing broad indemnities or excessive exclusions or limitations on that party’s liabilities.

(c)

an unreasonable ability to cancel or end an agreement as it suits them.

Such clauses are likely to go beyond what is reasonably necessary to protect a business’s legitimate interests and are likely to breach the unfair contract terms law. In the six-​month period prior to the selection of industries for the review, advertising services were the industry about which the ACCC received the most business-​to-​business unfair contract-​related complaints. A  majority of the advertising contracts reviewed contained terms which gave the publisher the ability to remove advertisements. While the ability to remove advertisements to protect a publisher’s legitimate interests (eg if the advertisement is defamatory or may breach consumer laws), a term that allowed publishers to remove advertisements for any reason is likely to breach the unfair contract term provisions.

Meaning of “unfair” [13.1220]  A term is unfair if it: (a)

would cause a significant imbalance in the parties’ rights and obligations;

(b)

is not reasonably necessary to protect the legitimate interests of the advantaged party; and

(c)

would cause detriment to a party if it was applied: ACL, s 24(1).

A term is presumed to be not reasonably necessary to protect the advantaged party’s legitimate interests unless that party proves the contrary:  s  24(4). In determining unfairness, the court may consider any

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matters it considers to be relevant. However, it must consider the transparency of the term and the contract as a whole: s 24(2). A term is “transparent” if it is expressed in reasonably plain language, legible, presented clearly and readily available to the affected party: s 24(3).

Meaning of “standard form contract” [13.1230]  For the provisions as to unfair terms in consumer contracts to apply, the contract must be a “standard form contract”: ACL, s 23(1)(b). Standard form contracts are used by businesses for common business transactions, for example, banks, electricity companies and phone companies use standard form contracts when contracting with consumers. In determining this issue, a court may take into account such matters as it thinks relevant but must consider whether: (a)

one of the parties has all or most of the bargaining power;

(b)

the contract was prepared by one party before any discussion relating to the transaction occurred;

(c)

another party was required, in effect, either to accept or reject the terms of the contract in the form in which they were presented;

(d)

another party was given an effective opportunity to negotiate the terms of the contract;

(e)

the terms of the contract take into account the specific characteristics of another party or the particular transaction; and

(f)

any other matter prescribed by the regulations: s 27(2).

The matters specified in (d), (e) and (f) do not apply to a term that defines the main subject matter of the contract, sets the upfront price payable or is required or permitted by federal, State or Territory law: s 26(1). On the application of a party to the contract or the ACCC, a court may declare that a contract term is unfair: s 250(1). The court may make such a declaration only if the contract is a standard form contract: s 250(3). The following cases illustrate the way in which the regulator and the courts are enforcing the unfair contract terms provisions, including the new business-​to-​business unfair contract laws that apply to standard form small business contracts entered into or renewed on or after 12 November 2016. These decisions also reveal that examining a single term in isolation may not reveal the true picture –​it is necessary to consider how they operate with other provisions of the contract as a whole.

ACCC v Chrisco Hampers Australia Pty Ltd [13.1240]  Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd [2015] FCA 1204. Chrisco sold Christmas hampers on an instalment payment plan. A term of the firm’s contract with customers provided that after the final instalment was paid, the customer’s bank account would continue to be debited in anticipation of a future order. These payments could be refunded if the customer so requested and the contract permitted the customer to opt out of this term.

  

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This automatic renewal term was found to be unfair. The terms establishing the plan were also found to suffer from defects in transparency which contributed to the Court’s finding that the term was an unfair term because it gave rise to a “significant imbalance” in the rights and obligations of the parties to the contract. The right to demand repayment of the money or opt out of the arrangement was not a substantial corresponding right. The term was declared void.

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ACCC v JJ Richards & Sons Pty Ltd [13.1250]  ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224. JJ Richards is one of the largest privately owned waste management companies in Australia and provides recycling, sanitary and green waste collection services. It entered into standard form contracts with a very large number of small businesses. The Federal Court declared that eight terms in these contracts contained unfair contract terms and were therefore void. The terms that were declared to be unfair had the effect of: ▶▶

▶▶ ▶▶

▶▶

▶▶ ▶▶

▶▶ ▶▶

automatic renewal clause, binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term; allowing JJ Richards to unilaterally increase its prices; removing any liability for JJ Richards where its performance is “prevented or hindered in any way”; allowing JJ Richards to charge customers for services not rendered even when caused by reasons beyond the customer’s control; granting JJ Richards exclusive rights to remove waste from a customer’s premises; allowing JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days; creating an unlimited indemnity in favour of JJ Richards; and preventing customers from terminating their contracts if they have payments outstanding and entitling JJ Richards to continue charging customers equipment rental after the termination of the contract.

The Court also found that the unfair terms in JJ Richards’ contracts were not transparent because they were not drafted in plain English. The terms were also not readily accessible to customers because they were, in the Court’s view, a “densely packed page of small print terms and conditions”. In finding that each of the terms was unfair, the Court found that they “…tend to exacerbate each other, increasing the overall imbalance between the parties and the risk of detriment to JJR customers”. In resolving these proceedings, JJ Richards consented to orders restraining it from relying on the unfair terms in existing small business contracts and from using the terms in future contracts with small businesses. JJ Richards also consented to orders that it publish a corrective notice and provide a copy of the Court’s orders to all its small business customers which are parties to an affected contract. In an interesting development, following JJ Richards and an ACCC investigation, the ACCC announced in December 2018 that three major players in the waste management industry – Visy Recycling, Cleanaway and Suez – have agreed to make changes to their standard form contract. The terms that were considered to be potentially unfair included: ▶▶

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a term that did not allow a customer the right to terminate the contract if they were dissatisfied with a price increase, and, in addition, imposed an early exit fee equal to the average monthly fee multiplied by the remaining months of the contract;

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a term requiring payment of 30% of the monthly amounts remaining for early termination that were unilaterally determined by the supplier and not aligned to actual loss (and therefore were more likely to be regarded as penalties rather than liquidated damages (see [12.310]).

[13.1260]  In a similar way, the contract used in the following case contained terms that were unfair.

ACCC v Servcorp Ltd [13.1270]  ACCC v Servcorp Ltd [2018] FCA 1044. Servcorp supplies serviced office space and virtual office services such as office suites, secretarial services, IT, communications and personal assistants to its clients, many of whom are Australian small businesses. The Federal Court has declared by consent that 12 terms in standard form contracts used by two Servcorp Ltd subsidiaries are unfair and therefore void. The terms declared unfair include those that had the effect of: ▶▶

▶▶ ▶▶

▶▶

automatically renewing a customer’s contract, unless the customer had opted out, and allowing Servcorp to then unilaterally increase the contract price; permitting Servcorp to unilaterally terminate contracts; unreasonably limiting Servcorp’s liability or imposing unreasonable liability on the customer; and permitting Servcorp to keep a customer’s security deposit if a customer failed to request its return.

As part of the resolution, Servcorp established an unfair contract terms compliance program for its Australian business and will pay the ACCC’s costs.

  

Figure 13.4: Consumer guarantees

Consumer guarantees

“Supply”: s 2(1)

“Consumer” : s 3(1)

The guarantees

Nine guarantees that apply to goods and services supplied to consumers: ss 51–59

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Limitation of liability: Competition and Consumer Act 2010, ss 64, 64A, 139A

Four guarantees that apply to manufacturers

Remedies

Not major failure: s 259

Major failure: s 259, definition: s 260

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Consumer guarantees An introduction [13.1280] The ACL, Pt  3-​2 provides for statutory guarantees in contracts for the supply of goods and services to consumers. In relation to the supply of goods to consumers, there are nine consumer guarantees. Depending on which consumer guarantee is breached, the consumer may have an action against the supplier or manufacturer.

The consumer guarantees re supply of goods [13.1290]  Sections 51–​59 of the ACL set out the following nine consumer guarantees that apply to goods supplied to a consumer: ▶▶

▶▶

▶▶

▶▶ ▶▶

▶▶

▶▶

▶▶

▶▶

Guarantee as to title: The supplier of the goods has the right to dispose of the property in the goods when the goods pass to the consumer (s 51). Guarantee as to undisturbed possession: The consumer has the right to undisturbed possession of the goods (s 52). Guarantee as to undisclosed securities: The goods are free of any undisclosed security, charge or encumbrance (s 53). Guarantee as to acceptable quality: The goods are of “acceptable quality” (s 54). Guarantee as to fitness for any disclosed purpose: The goods are reasonably fit for (i) a purpose for which the supplier represents they are fit; or (ii) a purpose the consumer makes known to the supplier or manufacturer that they will use the goods for (s 55). Guarantee relating to supply by description: If goods are sold by description, they correspond to that description (s 56). Guarantee relating to supply by sample or demonstration model: If goods are sold by sample or demonstration model, they correspond to that sample or model (s 57). Guarantee as to repairs and spare parts: The manufacturer of the goods will ensure that spare parts and facilities for repair of the goods are reasonably available (s 58). Guarantee as to express warranties: The manufacturer will comply with any express warranty given by the manufacturer in relation to the goods (s 59(1)) and the supplier will comply with any express warranty given by the supplier (s 59(2)). The manufacturer’s15 liability is as follows:

▶▶

15

Guarantee of acceptable quality of goods (s 54), except where the breach is caused by someone other than the manufacturer, or where the breach is caused by something beyond human control, which Section 7: A “manufacturer” 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 who imports goods into Australia if the person is not the manufacturer of the goods and at the time of the importation, the manufacturer of the goods does not have a place of business in Australia. (e) a person who imports goods 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.

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occurred after the goods left the control of the manufacturer, or where the breach is because the supplier charged more than the manufacturer’s recommended retail price (ss 54, 271(1)–​(2)). ▶▶

▶▶

▶▶

Guarantee that goods sold by description will comply with that description, except where the breach is caused by someone other than the manufacturer, or where the breach is caused by something beyond human control, which occurred after the goods left the control of the manufacturer (ss 56, 271(3)–​(4)). Guarantee that the manufacturer will take reasonable action to ensure facilities for repair of goods, and spare parts, are available (s 58, s 271(5)). Guarantee that the manufacturer will comply with any express warranty given (s 59 or s 271(5)), except where the person affected has relied on an express warranty to require the manufacturer to repair or replace the goods, and the manufacturer has not refused or failed to repair or replace it within a reasonable time (s 271(6)).

The consumer guarantees re supply of services [13.1300]  Sections 60–​64 of the ACL set out four consumer guarantees that apply to services supplied to a consumer: ▶▶ ▶▶

▶▶

▶▶

Guarantee as to due care and skill: the service must be rendered with due care and skill (s 60). Guarantee as to fit for a particular purpose: the service must be reasonably fit for a purpose that a consumer, expressly or impliedly, makes known to the supplier (where it is reasonable for the consumer to rely on the supplier). Services must also be of a nature, quality, state or condition that they can be expected to achieve the purpose that the consumer has made known (s 61). Guarantee as to reasonable time for supply: the service must be provided to consumers within a reasonable time if the time is not otherwise fixed in a contract or agreed to between the consumer and supplier (s 62). Guarantees not to be excluded by contract: a person may not exclude any of the guarantees set out in the ACL (s 64).

Before examining some of these guarantees in detail, some explanation is required of the terms “supply” and “consumer”.

Supply [13.1310]  The guarantees apply to contracts for the supply of goods, the expression “supply” being defined to include not only contracts of sale but also contracts for the “exchange, lease, hire or hire-​purchase” of goods: ACL, s 2(1).

Consumer [13.1320]  The guarantees apply to contracts for the supply of goods and services to a consumer. A person acquires goods as a consumer only if: (a)

the amount payable for the goods does not exceed $40,000; or

(b)

the goods are 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: ACL, s 3(1).

A person does not acquire goods as a consumer if they acquired them for the purpose of resupply or for the purpose of using them in the course of production or in the repair of other goods or fixtures on land: s 3(2).

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A farm worker who acquired a tyre for the purpose of using it on his tractor was held to be a consumer because the goods were not used up as part of a process of production or manufacture or of repairing or treating other goods or fixtures: Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53. A person acquires services as a consumer only if the amount payable for the services does not exceed $40,000 or the services were of a kind ordinarily acquired for personal, domestic or household use or consumption: s 3(3). The issue as to whether goods are ordinarily acquired for personal, domestic or household use or consumption is a difficult one to settle other than on a case by case basis. In the following cases, the Court attempted to lay down some general principles.

Bunnings Group Ltd v Laminex Group Ltd [13.1330]  Bunnings Group Ltd v Laminex Group Ltd (2006) 153 FCR 479. Bunnings purchased thermal insulation products for use in its warehouses. It alleged they were not fit for purpose and/​or were not of acceptable quality. Young J decided the threshold question (whether the goods were “ordinarily acquired for personal, domestic or household use or consumption”) in the affirmative arguing that “the statutory phrase should be construed broadly … so as to give the fullest relief which the fair meaning of its language will allow”. Young J then suggested several propositions that could provide guidance as to the way in which the phrase should be applied, including the following: ▶▶

▶▶

▶▶

the word “ordinarily” means “commonly” or “regularly”, not “principally”, “exclusively” or “predominately”; it might be relevant to conduct a broader inquiry into the evidence concerning the design, marketing, pricing and potential uses of the type of goods in question; and the question is ultimately a question of fact and degree.

Young J then referred to a number of cases to illustrate how courts have construed and applied the phrase. Interestingly in all but the final case, the courts decided that the goods or services were not of “a kind ordinarily acquired for personal, domestic or household use”. ▶▶

▶▶

▶▶

▶▶

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In Crago v Multiquip Pty Ltd (1998) ATPR 41-​620, the Court decided that an ostrich egg incubator and hatcher were not “ordinarily acquired for personal, domestic or household use”. Lehane J placed weight on evidence that the goods were used in the ostrich egg “industry” and that ostriches and their eggs were traded at high prices, and on the lack of evidence that the incubators were in fact acquired for personal, domestic or household use. In Minchello v Ford Motor Company [1995] 2 VR 594, the Court used a common sense approach deciding that, in the case of a prime mover, “it is hard to see that it would, in the ordinary understanding of those words, be ordinarily acquired for personal, domestic or household use”. In Jillawarra Grazing Co v John Shearer Ltd (1984) ATPR 40-​441 the Court rejected the applicant’s contention that goods of a kind acquired for a farmer’s personal, domestic and household purposes would encompass everything which is used on or in connexion with his farm, including an air seeder. In Westminster Properties Pty Ltd v Comco Constructions Pty Ltd (1991) 5 WAR 191 the Full Court held that building services provided by the respondent pursuant to a contract

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to erect a multi-​storey office block were not services of a kind ordinarily acquired for personal, domestic or household use or consumption. ▶▶

  

In Carpet Call v Chan (1987) ATPR (Digest) 46-​025 although it was unnecessary for Thomas J to discuss the point at length because he decided the case on other grounds, he observed that “carpet” is a commodity, or goods, ordinarily acquired for domestic consumption, and it does not lose that description by reason of a commercial rating, or some quality which makes it last longer than other carpet normally supplied for use in a domestic setting.

[13.1340]  The statutory guarantees applied by the ACL to “consumer” contracts for the supply of goods16 are as follows:

As to title [13.1350]  In every contract for the supply of goods by a person to a consumer, there is: (a)

a guarantee that the supplier has a right to dispose of the property in the goods (ACL, s 51(1));

(b)

a guarantee that the consumer has the right to undisturbed possession of the goods except so far as it may lawfully be disturbed by the supplier or by another person who is entitled to the benefit of any security, charge or encumbrance disclosed to the consumer before the contract is made (s 52); and

(c)

in the case of a contract for the supply of goods under which the property is to pass to the consumer, a guarantee that the goods are free and will remain free until the time when the property passes, from any security, charge or encumbrance not disclosed or known to the consumer before the contract is made (s 53(1)).

However, a supplier is not in breach of the guarantee in (c) above by reason only of the existence of a floating charge over assets of the supplier unless and until the charge becomes fixed and enforceable by the person to whom the charge is given:  s  53(2). Where the supplier supplies a limited title to goods, there is a guarantee that all encumbrances on the title known to the supplier have been disclosed to the consumer: s 53(3).

Acceptable quality [13.1360]  Where a person supplies goods to a consumer in trade or commerce (other than a sale by auction), there is a guarantee that the goods are of acceptable quality: ACL, s 54(1).17

Meaning of “acceptable quality” [13.1370]  Goods are of acceptable quality 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;

16

17

Goods are defined as including: “(a) ships, aircraft and other vehicles; and (b) animals, including fish; and (c) minerals, trees and crops, whether on, under or attached to land or not; and (d) gas and electricity; and (e) computer software; and (f) second-​hand goods; and (g) any component part of, or accessory to, goods”: Australian Consumer Law, s 2(1). Under the former Trade Practices Act 1974 (Cth), the implied condition was that the goods were of merchantable quality, the term used in the State and Territory Sale of Goods Acts.

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(d)

safe;  and

(e)

durable.

A reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods) would regard them as acceptable by having regard to the following matters (ACL, s 54(2)): (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; and

(e)

any other relevant circumstances relating to the supply of the goods: s 54(3).

Goods are taken to be of acceptable quality if the only reason why they were not so was specifically drawn to the consumer’s attention before they were supplied:  s  54(4). The reason why the goods were not of acceptable quality is taken to have been specifically drawn to a consumer’s attention if the goods were displayed for sale and the reason or reasons disclosed on a written notice displayed with the goods and that was transparent: s 54(5). Goods do not fail to be of acceptable quality if the consumer causes them to become of unacceptable quality or fails to take reasonable steps to prevent them from becoming so, and the goods are damaged by abnormal use: s 54(6). Further, goods do not fail to be of acceptable quality if the consumer examines them before agreeing to their supply and the examination ought reasonably to have revealed that the goods were not of acceptable quality: s 54(5). Section 54 provides a guarantee as to acceptable quality in contracts for the supply of goods: accordingly, the section will not apply if the contract is not one for the supply of goods but the supply of services.

Thomson v Excel Intelligent Pty Ltd [13.1380]  Thompson v Excel Intelligent Pty Ltd [2018] ACAT 4. Thompson purchased a shed on eBay. It was described in the online advertisements as a “large garden shed”, “garage or workshop”, and had photographs showing a car inside it and the packaging box describing the shed as “large heavy duty”. When Thompson’s builder began to unpack the shed, he realised that it was not suitable as a garage or workshop because (i) the shed components and frame were flimsy and would be structurally unsafe in a storm or high wind; (ii) the screws supplied were too thin and too short; (iii) there was a floor bar across the entrance that would be damaged if a car was driven across it; and (iv) the side door was only 1.6 metres high and insufficient as regular access to a garage or workshop. On the basis of his builder’s concerns, Thompson dismantled the shed and sought a refund on the basis of the noncompliance with s 54 (not acceptable quality) and s 56 (failure to match the description). The respondent rejected the request for a refund.

  

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The Tribunal held that Excel was in breach of s 54 and s 56: the product was not of acceptable quality because it was not fit for use as a garage, nor was it safe or durable. The applicant did not have to inform the respondent of her intended use for the product: the advertisement would lead a reasonable consumer to form the view that the shed would be fit for all the purposes of a garage shed. Excel was ordered to refund the price, including freight and delivery charges, and the cost of the builder.

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Fitness for disclosed purpose [13.1390]  If a person supplies goods to a consumer in trade or commerce (other than a sale by auction), there is a guarantee that the goods are reasonably fit for any disclosed purpose and for any purpose for which the supplier represents that they are reasonably fit: ACL, s 55(1).

Merck Sharp & Dohme (Australia) Pty Ltd v Peterson

  

[13.1400]  Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145. A pharmacist supplied a prescription drug to a patient. Use of the drug increased the risk of a heart attack in some patients. The Full Federal Court held that the increased risk did not show unfitness for the disclosed purpose of using the drug for managing arthritic pain without gastrointestinal side effects. The patient had not expressly or impliedly made known a purpose that the drug be absolutely safe or completely free from side effects. Numerous drugs have potential side effects and may be unsafe for certain types of patient.

Meaning of “disclosed purpose” [13.1410] A disclosed purpose is a particular purpose (whether or not that 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 the supplier, or a person with whom prior negotiations for the acquisition of the goods were conducted; or

(b)

the consumer makes known to the manufacturer of the goods either directly or through the supplier, or the person with whom prior negotiations were conducted: ACL, s 55(2).

There is no such guarantee where the circumstances show that the consumer did not rely or that it was unreasonable for the consumer to rely, on the skill or judgment of the supplier, the person with whom the prior negotiations were conducted, or the manufacturer, as the case may be: s 55(3).

Correspondence with description [13.1420]  If a person supplies goods by description to a consumer in trade or commerce (other than a sale by auction), there is a guarantee that the goods correspond with the description: ACL, s 56(1). A supply of goods is not prevented from being a supply by description only because, having been exposed for sale or hire, they are selected by the consumer: s 56(2). If the goods are supplied by description as well as by reference to a sample or demonstration model, the guarantees relating to correspondence with description and supply by sample or demonstration model will both apply: ss 56(3), 57.

Supply of goods by sample or demonstration model [13.1430]  If a person supplies goods to a consumer by reference to a sample or demonstration model in trade or commerce (other than a sale by auction), there are the following guarantees: (a)

that the goods correspond with the sample or demonstration model in quality, state or condition;

(b)

that if the goods are supplied by reference to a sample, the consumer will have a reasonable opportunity to compare the goods with the sample; and

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(c)

that the goods are free from any defect that would not be apparent on reasonable examination of the sample or demonstration model and would cause the goods not to be of acceptable quality: ACL, s 57(1).

Repairs and spare parts [13.1440]  If a person supplies goods to a consumer in trade or commerce (other than a sale by auction), there is a guarantee that the manufacturer will take reasonable action to ensure that repair facilities and spare parts are reasonably available for a reasonable period after the goods are supplied: ACL, s 58(1). There is no such guarantee where the manufacturer gave the consumer written notification that repair facilities or spare parts would not be available after a specified period: s 58(2).

Express warranties [13.1450]  If a person supplies goods to a consumer in trade or commerce (other than a sale by auction), there is a guarantee that the manufacturer will comply with any express warranty made in relation to the goods: s 59(1).

Exemption of auction sales [13.1460]  It will be observed that, with the exception of the guarantee as to title, undisclosed securities and undisturbed possession, the other guarantees outlined above do not apply in sales by auction.

Guarantees and the supply of services [13.1470]  The ACL provides for certain guarantees in relation to contracts for the provision of services. If a person supplies services to a consumer in trade or commerce, there is a guarantee that the services will be rendered with due care and skill: s 60.

Alameddine v Glenworth Valley Horse Riding Pty Ltd

  

[13.1480]  Alameddine v Glenworth Valley Horse Riding Pty Ltd [2015] NSWCA 219. See [9.330] for the facts of the case. In addition to the finding on negligence, the Court held the plaintiff was entitled to compensation under the ACL, as a result of Glenworth’s failure to comply with the s 60 guarantee given to the plaintiff, as a consumer, that the services would be performed with due care and skill. In relation to ss 60 and 61 of the ACL, the respondent accepted on appeal that the appellant was a consumer and that in circumstances where a finding of negligence had been made, the guarantee of service being supplied with due care and skill was not complied with.

[13.1490]  Furthermore, if a person supplies services to a consumer in trade or commerce and the consumer, expressly or by implication, makes known to the person any particular purpose for which the services are being acquired, there is a guarantee that the services and any product resulting from the services will be reasonably fit for that purpose: s 61(1). If a person supplies services to a consumer in trade or commerce and the consumer makes known, expressly or by implication, to the person, or a person by whom any prior negotiations were conducted,

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the result that the consumer wishes the services to achieve, there is a guarantee that the services, and any product resulting from the services, will be of such a nature and quality, state or condition that they might reasonably be expected to achieve that result: s 61(2). However, there are no such guarantees if the circumstances show that the consumer did not rely, or that it was unreasonable for the consumer to rely, on the supplier’s skill or judgment: s 61(3). Significantly, the section does not apply to a supply of services of a professional nature by a qualified architect or engineer. If a person supplies services to a consumer in trade or commerce and the time for the provision of the services is not fixed by the contract, there is a guarantee that the services will be supplied within a reasonable time: s 62. These guarantees apply in contracts for the provision of “services” as defined in s 2(1) of the ACL,18 with the exception of: (a)

a contract for the transportation or storage of goods for the purposes of a business, trade, profession or occupation carried on by the person for whom the goods are transported or stored; or

(b)

a contract of insurance: s 63.

Limitation of liability [13.1500]  The general rule is that the guarantees imposed by the ACL in contracts for the supply of goods and services cannot be excluded. A term of a contract is void to the extent that it purports to exclude, restrict or modify the application of the statutory guarantees discussed earlier: s 64(1). Importantly, that general rule is subject to the qualification that where the goods are not of a kind ordinarily acquired for personal, domestic or household use or consumption, a term of the contract will not be void merely because it limits the supplier’s liability for failure to comply with a statutory guarantee to one or more of the following:19 (a)

in the case of goods:  to the replacement or repair of the goods, or payment of the cost of such replacement or repair; and

(b)

in the case of services: supplying the services again, or payment of the cost of having them supplied again: s 64A(1)–​(2).

However, a term in the contract so limiting liability cannot be relied on where the person to whom the goods or services were supplied establishes that it is not “fair or reasonable” for the supplier to rely on such term: s 64A(3). In determining whether or not reliance on a term limiting the liability of the supplier

18

19

Services are defined as including: “(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 paragraph (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; or (ii) a contract for or in relation to the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction; or (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; or (iv) a contract of insurance; or (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”: Australian Consumer Law, s 2(1). This does not apply to the guarantees as to title (s 51), undisturbed possession (s 52) and undisclosed securities (s 53) (see [13.1280]–​[13.1350]).

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is fair or reasonable, a court is to have regard to all the circumstances of the case and, in particular, to the following: (a)

the relative strength of the bargaining positions between the supplier and the person to whom the goods or services were supplied (referred to as the “buyer”) taking into account, among other things, the availability of equivalent goods or services and suitable alternative sources of supply;

(b)

whether the buyer received an inducement to agree to the term or, in agreeing to the term, had an opportunity of acquiring the goods or services or equivalent goods or services from any source of supply under a contract that did not include that term;

(c)

whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); and

(d)

in the case of the supply of goods, whether the goods were manufactured, processed or adapted to the special order of the buyer: s 64A(4).

It needs to be emphasised that the limitation on the liability of a supplier permitted by the above provisions does not apply where the goods are of a kind ordinarily acquired for personal, domestic or household use or consumption: no exclusion of liability is permitted where the goods supplied are of such a kind. The purpose of the limited form of exclusion from liability permitted by the ACL is essentially to enable suppliers to exclude liability for consequential losses that may result from a defect in goods where the goods supplied are not of a kind ordinarily acquired for personal, domestic or household use or consumption (but to which the statutory guarantees may still apply because of the broad definition of “consumer” in s 3). There is a second qualification to the general rule that the consumer guarantees cannot be excluded or modified by agreement. A contractual term for the supply of recreational services is not void by reason only that it limits liability for death or personal injury in relation to those recreational services:  CCA, s 139A(1), (3).20 Recreational services are services that consist of participation in sporting activities, similar leisure-​time pursuits or other recreational activities that involve a significant degree of physical exertion or physical risk: s 139A(2).21

Remedies for non-​compliance with consumer guarantees [13.1510]  Part 5-​4 of the ACL sets out the remedies to which a consumer is entitled when a guarantee has been breached. In many cases, a consumer will have a choice of enforcing remedies against either the manufacturer of the goods (which includes the importer) or the retailer. The only guarantees that cannot be enforced against a retailer are the guarantee relating to the availability of a repair network and spare parts and the guarantee that the manufacturer will comply with its own express warranty. Retailers have a right of indemnification against manufacturers where the retailer has incurred loss honouring a consumer guarantee that could have been directly enforced against the manufacturer: s 274.

20 21

Section 139A(1), (3) is contained in the Competition and Consumer Act 2010 (Cth), Part XI –​Application of the Australian Consumer Law as a law of the Commonwealth. Section 139A(2) is contained in the Competition and Consumer Act 2010 (Cth), Part XI –​Application of the Australian Consumer Law as a law of the Commonwealth.

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Non-compliance not a major failure: consumer can require the business to remedy the failure within a reasonable time: s 259(1)

Under s 261 business can remedy non-compliance by:

Curing the defect in title (if any)

Repairing the goods

Replacing the goods

Providing a refund

Reject the goods (return or refund); or

Where non-compliance a major failure (or cannot be remedied by the business) a consumer can:

Require business to pay difference between value of goods and the price paid

Major failure: 5 ways in which non-compliance can be a major failure: s 260

Where the failure to comply with a consumer guarantee in a contract for the supply of goods is not a major failure, the consumer may require the supplier to remedy the failure within a reasonable time or (if the supplier refuses to do so) reject the goods or recover all reasonable costs incurred in remedying the failure: ACL, s 259(1)–​(2). A major failure is defined as a situation where: (a)

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the goods would not have been acquired by a reasonable consumer who was fully acquainted with the nature and extent of the failure;

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(b)

in the case of a supply by description, or reference to a sample or demonstration model, the goods depart in significant respects from their description, 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 be easily and within a reasonable time be remedied to make them fit for such a purpose;

(d)

the goods are unfit for a disclosed purpose and cannot be easily remedied to fit that purpose; or

(e)

the goods are not of acceptable quality because they are unsafe: s 260.

If the failure is a major failure or the failure cannot be remedied, the consumer may choose whether to reject the goods or recover compensation for any reduction in the value of the goods below the price paid: s 259(3). In addition, the consumer may recover damages for any reasonably foreseeable loss or damage caused by the failure to comply with the guarantee (s 259(4)), unless the failure occurred only due to a cause independent of human control that occurred after the goods left the control of the supplier: s 259(5). There are limitations upon the consumer’s right to reject the goods, for example, where the rejection period has ended or where the goods have been lost, destroyed or disposed of by the consumer or were damaged after being delivered to the consumer: s 262(1). The rejection period is the time within which it would be reasonable to expect that the failure would become apparent, having regard to factors such as the type of goods and the use to which it is likely that they would be put: s 262(2). A consumer who rejects the goods must return them to the supplier, unless doing so would impose significant cost, in which case the supplier must collect the goods: s 263(2)–​(3). The supplier must refund the money paid or replace the goods: s 263(4). If the failure to comply with the consumer guarantee is not “major”, the supplier can choose what remedy is provided. The remedy the supplier may choose depends on the type of failure, but for a defective product, the supplier can choose to repair, replace or refund the product. If the consumer gives the goods to another person as a gift, that person has the same rights and remedies that would have been available if he or she had acquired the goods from the supplier: s 266. Broadly, similar remedies apply in relation to failure to comply with guarantees in relation to the supply of services: ss 267–​268. Although s 260 lists five grounds for categorising a failure as “major”, the “reasonable consumer” test ((a) above), the “unfit for purpose” test ((c) above) and the “unsafe goods” test ((e) above) are likely to be the grounds most commonly relied on to establish a major failure. The “reasonable consumer” test –​s 260(a): The “reasonable consumer test” may often be used to determine whether a failure is “major”. Section 260(a) provides that a failure will be major if a reasonable consumer who knew of the failure in advance would not have acquired the goods. The fact that an individual consumer, whose sensitivities may differ from those of the reasonable consumer, may not have purchased a product does not necessarily mean that a defect is “major”. For example, imagine that a consumer is unhappy with defects in the paintwork on a boat she has purchased and she wishes to replace it. The expert evidence is that the defect is easy to remedy and covered by the manufacturer’s express warranty that came with the boat. In those circumstances, a reasonable consumer, having regard to the existence of the express warranty, would probably still have made the purchase. In this instance, the failure is not “major” and the consumer would not have the right to return the vehicle. Again, considering the cost of fixing the defect may provide an insight into whether it is “major”. Thus, if the consumer has to spend 20% of the value of the goods on repairs, this is more likely to suggest a major failure where spending 2% may not.

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Many consumer items are complex and reliant on sophisticated technology so a “reasonable consumer” may expect that things (such as a vehicle) may develop faults at one time or another over the several years that a vehicle is usually owned. Provided the fault will be remedied under the manufacturer’s warranty, faults of this nature are unlikely to cause a reasonable consumer “not to acquire” the goods. Therefore, it would not constitute a “major” failure. By contrast, most dishwashers can be expected to operate without fault for some years. Therefore, a reasonable consumer who knew that a dishwasher would experience faults requiring it to be taken away (or repaired on site) is likely to choose another brand. Thus, a fault that can be quite easily remedied may be a “major” failure and give rise to a right of refund if it causes considerable inconvenience to the consumer. Unsafe goods –​s 260(e): Section 260(e) of the ACL provides that goods have a major failure if they are “not of acceptable quality because they are unsafe”. This means that any failure of the guarantee of acceptable quality that arises as a result of a safety defect is automatically a major failure allowing the consumer to claim a refund. However, before a safety defect can be deemed to be a “major” failure, it must be serious enough to breach the guarantee of acceptable quality in the first place. In practice, this means that the defect must result in the product not being as free from defects or as safe as a reasonable consumer would regard as acceptable. A tractor that has a defect that results in an increased risk of brake failure or an electric kettle with a fault that creates a risk of electrocution will breach the guarantee of acceptable quality on the basis that these products would not be as safe as a reasonable consumer would regard as being acceptable. This has serious implications for manufacturers conducting safety recalls. Where products have a potential safety issue, the normal approach is for the manufacturer to issue a recall for a specified range (such as a serial number range), have each product inspected and take the necessary action (such as a repair or replacement) for products that are found to be affected by the fault. Unfit for purpose –​s 260(c) and (d): Section 260(c) and 260(d) provide that failure of a product to be fit for purpose will constitute a “major” failure if it cannot be remedied “easily and within a reasonable time”. On the other hand, if a product can be repaired or modified within a reasonable time, the initial failure to be fit for purpose will not be deemed under s 260(c) or (d) to be “major”.

Manufacturers’ liability for defective goods [13.1520] Where goods supplied to a consumer are defective then, generally speaking, the immediate supplier of the goods (eg the retailer) will be liable to the consumer for non-​compliance with the statutory guarantees of fitness for purpose or acceptable quality, as discussed earlier ([13.1390], [13.1360], respectively). Liability for non-​compliance with the guarantees does not depend on proof of negligence on the part of the supplier but simply on the existence of a contractual relationship between the parties. If the consumer suffers personal injury or property damage because of the defective nature of the goods, then the consumer may well have an alternative action for damages for negligence at common law against the manufacturer of the goods. However, an action for negligence requires proof of fault on the part of the defendant, which can give rise to difficult factual and legal questions: see Chapter 14. The ACL contains important provisions which impose liability upon manufacturers for defective goods without the need for the consumer to establish fault on the part of the manufacturer as required in an action for negligence.

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Figure 13.5: Manufacturers’ liability for goods

Manufacturers’ liability for defective goods

Liability of manufacturers for goods with safety defects: ss 138–150

Meaning of: “safety defect”: s 9(1)–(4) “goods”: s 2(1) “manufacturer”: s 7(1)

Liability of manufacturers for non-compliance with statutory guarantees: s 271

Liability of manufacturer to seller of defective goods: s 274

Defences: s 142

The provisions of the ACL imposing liability on manufacturers for defective goods are discussed under the following headings: 1.

Liability of manufacturer for goods with safety defects: Pt 3-​5 (ss 138–​150).

2.

Liability of manufacturer to consumer for non-​compliance with statutory guarantees: s 271.

3.

Liability of manufacturer to seller of defective goods: s 274.

This is followed by consideration of the product safety and information provisions of the ACL.

Liability of manufacturer for goods with safety defects Circumstances in which liability arises [13.1530]  The effect of the ACL is to make the manufacturer of goods containing a “safety defect” liable to compensate a person who is injured, or whose property is damaged, because of the safety defect. More specifically, it is provided that: (1)

A manufacturer is liable to compensate an individual if:



(a)

the manufacturer supplies the goods in trade or commerce; and



(b)

the goods have a safety defect; and



(c)

the individual suffers injuries because of the defect: s 138(1).

Where these conditions are satisfied, the individual may recover from the manufacturer the amount of the loss or damage suffered by them: s 138(2). The meaning of “safety defect” is considered separately at [13.1540]. It will be observed that liability in the section set out above is not restricted to where the person injured had, for example, bought or hired the defective goods but applies generally whenever a person is injured by goods having a safety defect.

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Furthermore, where, in effect, the dependants of an individual suffer loss as a result of the injuries sustained or the death of that individual because of a safety defect in the goods, such loss is recoverable from the manufacturer: s 139. Liability extends to loss resulting from other goods of a kind ordinarily acquired for personal, domestic or household use being destroyed or damaged because of the defective goods: s 140. A person who suffers loss or damage because land, buildings or fixtures (for private use) are destroyed or damaged because other goods of a kind ordinarily acquired for personal, domestic or household use or consumption are destroyed or damaged because of the safety defect is also covered: s 141. Damage to commercial property is outside the scope of the provisions. Basically, the provisions impose liability on a manufacturer for the loss or damage suffered as a result of the supply of goods that have a safety defect. The meaning of “safety defect”, “goods” and “manufacturer” in this context requires further explanation.

Meaning of “safety defect” [13.1540] Goods have a safety defect “if their safety is not such as persons generally are entitled to expect”: ACL, s 9(1). This is an objective standard based upon what the public at large, rather than any particular individual, is entitled to expect. In determining the extent of the safety of goods, regard is to be given to all relevant circumstances including: (a)

the manner in which, and the purposes for which, they have been marketed;

(b)

their packaging;

(c)

the use of any mark in relation to them;

(d)

any instructions for, or warnings with respect to, doing, or refraining from doing, anything with or in relation to the goods;

(e)

what might reasonably be expected to be done with or in relation to them; and

(f)

the time when they were supplied by their manufacturer: s 9(2).

An inference that goods have a safety defect is not to be made only because of the fact that, after they were supplied by their manufacturer, safer goods of the same kind were supplied: s 9(3). An inference that goods have a safety defect is not to be made only because: (a)

there was compliance with a Commonwealth mandatory standard for them; and

(b)

that standard was not the safest possible standard having regard to the latest state of scientific or technical knowledge when they were supplied by their manufacturer: s 9(4).

A pharmaceutical drug that increased the risk of a heart attack in some patients and carried no warning to that effect had a safety defect: Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145 284 ALR 1 at [201].

Meaning of “goods” [13.1550]  The term “goods” in the present context is not limited to goods of a kind ordinarily acquired for personal, domestic or household use or consumption. The wide meaning of “goods” as defined generally by the ACL applies.22 22

Goods are defined as including: “(a) ships, aircraft and other vehicles; and (b) animals, including fish; and (c) minerals, trees and crops, whether on, under or attached to land or not; and (d) gas and electricity; and (e) computer software; and (f) second-​hand goods; and (g) any component part of, or accessory to, goods”: Australian Consumer Law, s 2(1).

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Meaning of “manufacturer” [13.1560] A manufacturer includes a person who: (a)

grows, extracts, produces, processes or assembles goods;

(b)

hold themselves out to the public as the manufacturer of the goods;

(c)

causes or permits their name, business name or brand name to be applied to the goods;

(d)

causes or permits another person to hold them out to the public as the manufacturer of the goods; or

(e)

imports the goods and the actual manufacturer does not have a place of business in Australia: ACL, s 7(1).

Defences [13.1570]  It is a defence to an action for compensation for the loss suffered as a result of the supply of defective goods to establish that: (a)

the safety defect in the goods that is alleged to have caused the loss or damage did not exist at the time they were supplied by their actual manufacturer (or, in relation to electricity, at the time at which it was generated). In other words, the manufacturer is not liable for safety defects occurring later in the distribution chain;

(b)

the goods had the safety defect only because there was compliance with a mandatory standard;

(c)

the state of scientific or technical knowledge at the time the goods were supplied by their manufacturer was not such as to enable that safety defect to be discovered (this is a “state of the art” defence); or

(d)

if the goods were, in effect, component parts of other goods, the defect is attributable only to the design of the finished goods; the markings on or accompanying the finished goods; or the instructions or warnings given by the manufacturer of the finished goods: ACL, s 142.

If the court finds that the goods had a safety defect only because there was compliance with a Commonwealth mandatory standard for the goods, the Commonwealth is liable to pay the plaintiff for the amount of the loss or damage caused by the safety defect and not the manufacturer: s 148.

Contributory negligence [13.1580]  Where in proceedings to recover the loss or damage suffered in respect of goods with a safety defect, the loss was partly due to the contributory negligence of the individual who suffered injury, the damages recoverable are to be reduced to the extent to which the court thinks fit having regard to the individual’s share in the responsibility for the loss or damage: CCA, s 137A.23 In the following case (discussed earlier at [13.130] and [13.860]), the Court decided that the purchasers could not succeed in an action against the vendor’s agent for misleading or deceptive conduct. However, the Court commented on the issue of contributory negligence that had been raised by the primary judge.

23

Section 137A is contained in the Competition and Consumer Act 2010 (Cth), Part XI –​Application of the Australian Consumer Law as a law of the Commonwealth.

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Hyder v McGrath Sales Pty Ltd [13.1590]  Hyder v McGrath Sales Pty Ltd [2018] NSWCA 223. Please see the facts at [13.860]. After deciding the causation issue, the Court went on to consider what loss in value it might have compensated the purchasers for, had causation been established. It set an amount of $150,000 in terms of value, plus stamp duty payable on that amount. However the Court said that the failure by the Hyders to take reasonable care for their own interests was a more immediate cause of their loss than any misleading and deceptive conduct of the vendor’s agent and, for that reason, the damages would have been reduced by two-thirds.

  

“If the entitlements are assumed to have been of that level of importance, reasonable people in the Hyders’ position would have gone beyond what the real estate agents said to obtain the ‘specific advice’, to which the primary judge referred. The need for such advice was emphasised by the fact that the ‘private parking’ strip was outside the apparent boundaries of the subject property. As well, Mr Hyder knew that McGrath did not profess any legal or valuation expertise and would have been likely to have obtained the parking information from the vendor. Furthermore, Mr Hyder knew or should have known, first, of the existence of the disclaimer in the relevant marketing material, secondly, of the provisions of the purchase contract relieving the vendor of liability for McGrath’s statements, thirdly, of Mr Neville’s description of the access way as ‘a common driveway’, fourthly, of Mr Field’s and Mr Neville’s references in their advices to the driveway being subject to rights of way and, fifthly, of the inclusion in the purchase contract of copies of transfers creating rights of way. As the primary judge said ‘one does not have to be an expert to appreciate that a right of way can interfere with the use of land’ ”.

Limitation period [13.1600]  An action for compensation for the loss suffered in respect of the supply of defective goods must be brought within three years after the time the person became aware, or ought reasonably to have become aware, of the alleged loss or damage, the safety defect and the identity of the manufacturer of the goods. No action may be brought after 10 years of the supply of the goods by the manufacturer: ACL, s 143.

Non-​exclusion [13.1610]  The provisions concerning the right to recover from a manufacturer the loss or damage suffered in consequence of a safety defect in goods cannot be excluded, restricted or modified. Any term of a contract which purports to do so is void: ACL, s 150(1).

Work-​related injuries [13.1620]  The provisions do not apply to a loss recoverable under Commonwealth, State or Territory law relating to workers’ compensation, that is, loss caused by work-​related injuries is excluded: ACL, s 146.

Representative action [13.1630]  The ACCC and the State and Territory consumer protection agencies are empowered to commence a defective goods action on behalf of persons who have suffered loss or damage provided the written consent of each person has been obtained: ACL, s 149.

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Liability of manufacturer to consumer for non-​compliance with statutory guarantees [13.1640]  Under the ACL, a manufacturer incurs liability to a consumer for non-​compliance with certain of the guarantees imposed on a seller on the supply of goods to a consumer discussed earlier in this chapter: s 271. The broad effect of the latter section is to enable a consumer to recover damages from the manufacturer of goods which do not comply with the statutory guarantees for the following reasons: (a)

the goods are not of acceptable quality (ss 54, 271(1));

(b)

the goods do not correspond with a description which the manufacturer has applied, or allowed to be applied, to the goods (ss 56, 271(3));

(c)

there is a failure to ensure that facilities for the repair of the goods or spare parts are available (ss 58, 271(5)); or

(d)

there is a breach of express warranties, for example, in guarantees or advertising matter (ss 59, 271(5)).

In an action against the manufacturer, an “affected person” is entitled to recover damages for: (a)

any reduction in value of the goods below



(i)

the price paid for the goods; or



(ii)

their average retail price at the time of supply (whichever is the lower); and

(b)

any loss or damage that was reasonably foreseeable as a result of the failure to comply with the particular guarantee: s 272.

An “affected person” is defined broadly to mean: (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 the consumer: s 2(1).

An action for damages may be commenced within three years of the day when the affected person first became aware, or ought reasonably to have become aware, that the guarantee was not complied with: s 273.

Liability of manufacturer to seller of defective goods [13.1650]  As a result of the guarantees provided by the ACL in contracts for the supply of goods by a seller to a consumer (see [13.1280]) and the liability imposed on a manufacturer of the goods to a consumer for non-​compliance with the statutory guarantees (see [13.1640]), a consumer will often have a choice of whether to sue their immediate supplier (eg the seller) or sue the manufacturer directly where the goods supplied do not comply with the statutory guarantees. If in such a case the consumer elects to sue their immediate supplier (ie the “seller”), the ACL requires the manufacturer to indemnify the supplier in respect of the costs incurred by the supplier because of the failure of the goods to comply with certain of the statutory guarantees: s 274. The manufacturer’s liability is to indemnify the supplier for the costs incurred by the supplier because of the failure of the goods to comply with the guarantees as to acceptable quality (s 54); fitness for a disclosed purpose (s 55) and the description applied to the goods (s 56): s 274(2). The supplier may commence an action against the manufacturer at any time within three years after the earliest of the following: (a)

the day on which the supplier made a payment with respect to the supplier’s liability to the consumer; or

(b)

the day on which the consumer commenced legal proceedings against the supplier.

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Limitation of liability [13.1660] The general position is that the manufacturer’s liability to indemnify a supplier under these provisions cannot be excluded. A term of a contract is void to the extent that it purports to exclude, restrict or modify the supplier’s rights against the manufacturer: ACL, s 276. However, if the goods are not of a kind ordinarily acquired for personal, domestic or household use or consumption, the liability of the manufacturer to the supplier who supplied the goods to a consumer is limited to the cost of: (a) replacing the goods; (b) obtaining equivalent goods; or (c) having the goods repaired; whichever is the lowest amount: s 276A(1). Such limitation on the liability of the manufacturer does not apply if the supplier establishes that it is not “fair or reasonable” in the circumstances: s 276A(2). In determining whether or not it is “fair or reasonable” for the manufacturer’s liability to the seller to be so limited, the court is to have regard to all the circumstances of the case and, in particular, to: (a) the availability of suitable alternative sources of supply of the goods; (b) the availability of equivalent goods; and (c) whether the goods were manufactured, processed or adapted to the special order of the supplier: s 276A(3). Furthermore, these provisions are subject to any term of a contract between the manufacturer and seller imposing a greater liability on the manufacturer: s 276A(4). The following case demonstrates that there are a number of causes of action that may be brought against a manufacturer (and the importer/​retailer) by a consumer when the goods cause loss or injury to a person, his or her goods or property.

Fulcher & Ors v Knott Investments Pty Ltd & Ors [13.1670]  Fulcher & Ors v Knott Investments Pty Ltd & Ors [2012] QSC 232. Early in the morning of 9 February 2004, a fire broke out in a Winnebago motor home which the plaintiffs, Mr and Mrs Fulcher, had recently purchased and had parked in the packing shed on the property where they had a tomato growing and packing business. The shed and its contents were destroyed. The Court found that an electrical fault in the air-​conditioning unit of the motor home caused the fire. The plaintiffs sued the dealer, the manufacturer and the importer of the air-​conditioning unit in negligence, contract, and under provisions of the TPA (now the CCA). The negligence claim. The judge found that the manufacturer had not been negligent because the evidence established that the fault in the electrical system could not have been detected by exercising reasonable care. The unit was acquired fully assembled, the supplier of the unit was reputable and Winnebago had not had problems in the past. Breach of express warranty. The plaintiffs sued the manufacturers under s 74G (now s 59 of the ACL) for breach of an express warranty contained in the sales brochure that said, in part, under the heading “Safety & Warranty”: “You would expect that Australia’s largest manufacturer of motorhomes would have safety and quality as top priorities –​spot on. At Winnebago, all of our motorhomes are ‘built better and backed better’ ”.

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The judge found that the warranty had not been breached. The warranty did not convey the meaning that the manufacturer would detect hidden defects in a component like an air-​ conditioner. The evidence showed the manufacturer carried out regular safety checks.

  

Breach of statutory implied terms The judge found that the manufacturer was liable for breaches of ss 74B and 74D (now the “consumer guarantees” in ss 54, 55 and 271 of the ACL). The fact that there was a fault in the air-​conditioning unit meant that the Winnebago was not reasonably fit for its ordinary use as a motorhome (now “fitness for disclosed purpose”: see [13.1390]), nor was it of merchantable quality (now “acceptable quality”: see [13.1370]). The retailer and importer were also found to be liable.

Product safety and information [13.1680]  The ACL contains provisions concerning product safety, product recall and information requirements. The provisions are contained in Part 3-​3. It is only possible here to outline their general effect. A person must not supply consumer goods that do not comply with a prescribed safety standard: s 106(1). Doing so is an offence subject to a penalty of $1,100,000 for a corporation and $220,000 for any other party:  s  194(1). The Minister may impose an interim or permanent ban on consumer goods that may cause injury: ss 109(1), 114(1). Supplying banned consumer goods is an offence subject to the same penalties: s 197(1). A person must not supply consumer goods in relation to which an interim or permanent ban is in force: s 118(1). The Minister is also empowered to issue a recall notice for consumer goods in certain circumstances. Thus, where a person supplies consumer goods that: (a)

are of a kind which, in the opinion of the Minister, will or may cause injury to a person;

(b)

do not comply with a prescribed safety standard; or

(c)

are the subject of an interim or permanent ban;

and the Minister considers that the supplier of the goods has not taken satisfactory action to prevent the goods causing injury, the Minister may require the supplier to take action to recall the goods: ss 122(1), 123(1). The Minister may also require the supplier to advertise that the supplier undertakes to repair or replace the goods or refund the price: s 123(1)(c). The mandatory recall power is only intended to be exercised where the supplier has not already taken satisfactory remedial action. A  supplier must comply with the requirements of a recall notice and not supply goods in which a defect or dangerous characteristic has been identified in the notice: s 127(1), (2). Where a supplier contravenes the latter provision, and a person suffers loss or damage by reason of a defect in the goods, or as a result of not having information about the unsafe characteristics of the goods, the person is deemed to have suffered loss or damage as a result of the failure of the supplier to comply with the provision: s 127(3). Failure to comply with a recall notice is an offence: s 199(1). The Minister is empowered to publish a notice on the Internet warning of possible risks of using particular goods or alerting the public that certain goods are under investigation as to their safety:  s  129. Suppliers are required to report deaths, serious injuries or illnesses associated with the use or foreseeable misuse of consumer goods: s 131(1). Non-​compliance is an offence punishable by a penalty of $16,650 for a corporation and $3,330 for other parties: s 202(1).

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The Minister may make information standards related to goods or services of a particular kind: s 134. A person must not supply goods that do not comply with an information standard: s 136(1). The supply of goods or services that do not comply with an information standard is an offence subject to penalty of $1,100,000 for a corporation and $220,000 for another party: ss 203(1), 204(1). A defence is provided in relation to a contravention committed by the supplying of goods that did not comply with a safety or information standard. In such a case, it is a defence if the defendant (eg a retailer) establishes: (a)

that the goods were acquired by the defendant for the purpose of resupply and were so acquired from a person who carried on in Australia a business of supplying such goods otherwise than as the agent of a person outside Australia; and

(b)

that the defendant did not know, and could not with reasonable diligence have ascertained, that the goods did not comply with the standard, or the defendant relied in good faith on a representation by the person from whom the goods were acquired that no safety or information standard had been prescribed in respect of the goods: ss 210(1), 252.

Summary [13.1690]  The ACL provides that “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”. Whether an advertisement is misleading is to be assessed not by whether it would induce consumers to enter into contracts with the advertiser, but whether it would induce consumers to enter into negotiations with the advertiser. Persons are prohibited from engaging in unconscionable conduct within the meaning of the unwritten law, that is, the common law and equitable principles. Persons are also prohibited from engaging in unconscionable conduct in connection with the supply or acquisition of goods or services. In that context, the Act does not define the term “unconscionable” but provides that in determining whether there has been unconscionable conduct, the court may have regard to a set of non-​exhaustive factors. The ACL prohibits unfair terms in standard form consumer contracts and standard form small business contracts. The Act prohibits the making of false or misleading representations in connection with the promotion and supply of goods and services or in connection with the sale or grant of an interest in land. A person must not make a false or misleading representation concerning the profitability or risk of any business activity that the person has represented as one that can be carried on from a person’s home. Contravention of the unfair practices provisions is an offence. A  pecuniary penalty may be imposed for contravention of the unconscionable conduct provisions. Contravention of the general prohibition of misleading or deceptive conduct is not subject to a pecuniary penalty. The court may grant an injunction restraining a person from engaging in conduct that contravenes the ACL. A person who suffers loss or damage by the conduct of another person in contravention of the consumer protection provisions may recover damages. The ACL provides for statutory guarantees in contracts for the supply of goods and services to consumers. These include guarantees as to title, correspondence with description, acceptable quality and fitness for any disclosed purpose. The manufacturer of goods containing a “safety defect” is liable to compensate a person who is injured, or whose property is damaged, because of the safety defect. It is a defence that the goods had the safety defect only because there was compliance with a mandatory standard. It is also a defence that scientific knowledge available when the goods were supplied would not have enabled the safety defect to be discovered.

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Further reading Books A Bruce, Consumer Protection Law in Australia (2nd ed, LexisNexis Butterworths, Sydney, 2014). S Corones, The Australian Consumer Law (5th ed, Lawbook Co, Sydney, 2015). Journals Competition and Consumer Law Journal (formerly Trade Practices Law Journal). Internet sites Australian Competition and Consumer Commission http://​www.accc.gov.au/​consumers Australian Consumer Law http://​www.consumerlaw.gov.au SCAMwatch http://​www.scamwatch.gov.au Competition and Consumer Law Education Programs http://​www.ccaeducationprograms.org.

Tutorial activities 1.

The definition of a consumer is very important to understanding the extent to which consumers are protected under the ACL. What is the definition of a “consumer” for the purposes of the consumer guarantees and what is a “consumer contract” for the purposes of the unfair contract terms provisions? How do the two differ?

2.

Is it necessary that a person intends to mislead or deceive?

3.

Is it possible to limit or exclude liability for a breach of (a) s 18 and (b) the consumer guarantees? If your answer to (a) is “no”, please explain Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592. If your answer to (b) is “no”, please explain the effect of s 64A(1)–(2) and s 139A.

4.

What are the remedies for a breach of (a) s 18, (b) s 29 and (c) the unfair contract provisions?

5.

What is a “civil penalty”? Is it available for a breach of s 18?

6.

What is “unconscionable conduct”? Examine the list of factors in s 22(1) that a court may consider in determining if a person has engaged in unconscionable conduct. Which do you believe are the most significant? What remedies are available for a breach of the prohibition on engaging in unconscionable conduct?

7.

Refer to the contract of employment in Chapter 2. In the light of the Unfair Contract Terms amendments to the ACL, do you believe cl 7 is valid?

8.

Trinco manufactures and sells outdoor furniture. Included in their range of outdoor furniture are sun lounges and deck chairs, which belong to Trinco’s “Comfi” range and are sold under Trinco’s name. Another manufacturer, Contour, also sells outdoor furniture, including sun

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lounges and deck chairs as part of its “Funtimes” range. The sun lounges and deck chairs in Trinco’s “Comfi” range and Contour’s “Funtimes” range are almost identical in shape, design and general appearance, although on close inspection, differences can be observed. Has the manufacturer of the “Funtimes” range contravened s 18(1) of the ACL? 9.

Alice Plump needs to lose some weight. She sees a half-page newspaper advertisement by Skinny is Cute (SIC) Pty Ltd. The advertisement reads “Lose up to 10kg of weight for a $10 program fee”. In small print, at the foot of the advertisement, are the words “Purchase of food is an additional cost”. In the centre of the advertisement is a photo of JH, a famously skinny model, looking very skinny and referred to as “one of the program’s ambassadors”. The advertisement also states (again in small print) that some of the meals are gluten free. Alice is excited and visits SIC’s city centre to sign up. To her disappointment, an employee tells her that to join the weight loss program she will have to sign up for their weekly meals (at a minimum cost of $150 per week). Alice is further disappointed when she discovers that none of SIC’s meals are gluten free. She also reads in an article in the newspaper that JH is, in fact, not an ambassador of the program.



Advise Alice of her rights under the ACL.

10.

After her disappointments at SIC, Alice now considers buying an exercise bike. She visits “Beta Bikes” and approaches the sales assistant, Marcia, and, after a long discussion, she recommends the “Upgraded Amateur Choice” model as suitable for Alice’s needs and particularly recommends it because it has pedal straps that reduce the risk of slippage while riding. Alice is persuaded and purchases the bike for $1,200, taking note of the packaging which reads “Upgraded Amateur Choice – the superior exercise bike for amateurs”. Soon after purchasing the bike, whilst exercising, the pedal straps snap and Alice falls on the floor breaking her hip. Consequently, she spends some time in hospital and is off work for two months. Alice also discovers the bike’s heart rate monitor (one of the many add-on gadgets) has stopped working. Alice returns to the store and seeks a refund. Marcia shows her a clause in the contract she signed, which reads: “The liability of Beta Bikes is hereby limited to the repair or replacement of goods. In no event shall Beta Bikes be liable other than for the repair or replacement of goods”. Advise Alice Plump of her rights, if any, under the consumer guarantees in the ACL.

11.

In October 2018, after a number of its phones exploded or caught fire when the batteries were being recharged, Samsung offered store credit for the Galaxy Note 7 owners willing to exchange their handsets and urged all customers to turn off their devices immediately and indefinitely. Samsung warned users against using their Galaxy Note 7 smartphones, asking customers to power down the handsets and “stop using” them for the foreseeable future. The decision came after a number of users reported that their new or replaced Galaxy Note 7 handsets were catching fire: (a)

Is the offer of store credit sufficient under the consumer guarantees provisions of the ACL?

(b)

Assume Abigail was severely injured when her Samsung phone exploded. Is she entitled to claim damages under the ACL as compensation for her injuries?

12. Read the following article:  https://www.theage.com.au/national/victoria/get-a-map-man fails-in-bid-for-40-000-car-refund-over-dodgy-satnav-20180312-p4z3xt.html. Please draft the reasons you believe the VCAT reached its decision (include relevant sections of the ACL). Do you believe it is a fair and just decision?

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13.

Net Pty Ltd (Net) provided internet access services throughout Australia under standard form contracts that included a list of “Terms and Conditions”. One of the terms stated: “Net reserves the right to change prices or services at any time without prior notice to customers or the public, except when the service is an Australian Broadband Guarantee Service. Price changes will not be retroactive for existing prepaid customers. It is the User’s responsibility to check this online”.



Advise whether this term is likely to breach the ACL. If it does, what is the likely consequence?

14.

Tenzin and Lobtse are Mongolian students studying at an Australian university in Melbourne. Under the terms of a student visa, they are allowed to work for 40 hours a fortnight. They both sign a contract with Kleen Cleaners and begin work cleaning toilets in a 10-storey office block in the CBD. For two months, they have not been paid. They speak to the manager who informs them that under the contract they signed, they agreed that the first three months was a “training period” for which there was no payment. Tenzin and Lobtse consult you. It is true that the contract does in fact contain this term, but (a) they did not read it and (b) they received no training during that period. Please advise them.

15.

Paul recently purchased Henry’s shop. Henry claimed the business was thriving with an annual income of $95,000. On closer inspection of Henry’s books, Paul discovers that the business has never turned over $95,000 per annum, as Henry claimed. Advise Paul. Would it make a difference if it was accepted that Henry genuinely believed the business did in fact turn over $95,000?

16.

The German drug company Chemie Grunenthal developed and sold Thalidomide that was used to alleviate morning sickness in pregnant women. Shortly after the drug was sold, between 5,000 and 7,000 infants were born with malformation of the limbs. Throughout the world, about 10,000 cases were reported. Those subjected to thalidomide while in the womb experienced limb deficiencies in a way that the long limbs either were not developed or presented themselves as stumps. Other effects included deformed eyes and hearts, deformed alimentary and urinary tracts, blindness and deafness. What would the company have to prove in order to take advantage of the state-of-the-art defence in s 142? Should it be able to use the state-of-the-art defence? If it can use the defence, on whom does the loss fall?

17.

Silicone-based breast implants are marketed towards women to increase their breast size or as part of breast reconstruction surgery. However, recent studies have shown that women with breast implants may have an increased risk of developing serious complications including anaplastic large cell lymphoma (ALCL), a rare type of non-Hodgkin’s lymphoma. It usually involves a swelling of the breast, typically 3–14 years after the operation to insert the breast implant.



Manufacturers sold the silicone implants only after extensive clinical trials and a clearance by the Therapeutic Goods Administration. Manufacturers continue to deny that the implants cause ALCL.



Risk analysis:  based on the currently available data, it is not possible to provide an accurate estimate of risk. Current expert opinion puts the risk of ALCL at between 1:1,000 and 1:10,000. If 1:5,000 women (the middle of the experts’ range) is the best estimate of risk, this would mean that, of 5,000 women with implants, one will develop ALCL over a period of about 3–14 years following an implant; the other 4,999 women will not develop ALCL. You are asked to advise Jane, who has had a breast implant and how has ALCL, what she would must prove in order to successfully sue the manufacturer under Pt 3-5 of the Australian Consumer Law.

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PART 4: TORTS

Chapter 14: Law of Torts

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chapter 14

Law of Torts [14.20] Comparing tort with criminal law and contract law ...............................................................  292 [14.40] Negligence ...................................................................................................................................................  292 [14.280] The duty of care in pure economic loss cases ..........................................................................  304 [14.450] Breach of the duty of care ...................................................................................................................  311 [14.760] Remoteness of damage .......................................................................................................................  322 [14.800] Defences to an action in negligence ..............................................................................................  324

Introduction [14.10]  In law, a “tort” is a civil wrong (the word “tort” comes from the Latin “tortus” meaning “crooked” or “wrong”). The “law of torts” is primarily concerned with providing a remedy for one person’s wrongful interference with another’s personal or property rights. Such “rights” arise as a result of corresponding “duties” imposed by law (either common law or statute). Where there is no duty, there is no right. Thus, the tort of nuisance that involves a duty not to interfere with an occupier’s use and enjoyment of land creates a corresponding right in the occupier to be able to use and enjoy. Again, the tort of defamation that imposes a duty not to damage a person’s reputation creates a corresponding right to a good reputation. Where a tort is committed, the person committing the tort (the tortfeasor) is liable to pay damages to the plaintiff. The aim of tort damages (unlike contract damages) is to put the plaintiff, as far as money can do it, back in the position that he or she was in before the tort was committed. The law of torts is an important area of law for society generally but, for those involved in business, it is vital to appreciate the potential liability they may have in tort –​particularly in the tort of negligence – to their customers, consumers, employees, other businesses and to the general public. If the law of torts is, historically, a creature of the common law courts, it is the legislature that is now playing an important role in clarifying and reforming the law so that we now have to consider both the case law and the legislation. It is useful to begin a study of the law of torts by distinguishing it from other branches of the law.

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Comparing tort with criminal law and contract law Liability in tort and criminal liability [14.20]  As the criminal law is also concerned with wrongful interference with an individual’s person or property, it is not surprising that there is an overlap between criminal liability and liability in tort. In some cases, the conduct may be both a tort and a crime. However, there is an important difference between the two forms of liability. A crime is considered to be an offence against the state, and therefore, criminal proceedings are conducted in the name of the state. For instance, in the case of a sexual assault of a woman, the culprit may be prosecuted and, if found guilty beyond a reasonable doubt, will receive a criminal sanction (a fine or imprisonment or some other penalty). The victim is not involved in the prosecution (except as a witness) and will not generally receive any compensation from the defendant. On the other hand, the law of torts is concerned with the individual’s right to compensation for the loss or injury caused by the wrongful conduct. In the case of the assault, it is the victim who is responsible for bringing the action and, provided she can prove her case on the balance of probabilities, she will receive a remedy (usually damages). So we can see that the object or purpose of tort and criminal law are quite distinct: the primary object of tort law is compensation for victims, whereas the primary object of the criminal law is to deter crime and punish the culprits.

The law of torts and contract law [14.30]  As in the case of the commission of a tort, a breach of contract can also give rise to a civil action for damages. However, there are important differences between the rights protected by the law of torts and the law of contract. Contract law is concerned with vindicating a party’s right to have a contractual promise performed. This right arises because the parties voluntarily agreed to mutual obligations. On the other hand, the law of torts protects general rights enjoyed by all individuals that derive not from specific agreement but are imposed by the law itself. In some cases, conduct that amounts to a breach of contract may also constitute a tort. For example, a contract for the provision of services between a professional person, such as a solicitor or an accountant and their client, includes an implied term that the services will be performed with reasonable care. A failure to do so gives rise to an action not only for a breach of contract but also a claim based on the tort of negligence.

Negligence Scope of the tort of negligence [14.40]  Negligence emerged as an independent tort following the landmark decision of the House of Lords in Donoghue v Stevenson [1932] AC 562. In the years following the decision, negligence assumed prime importance in the law of tort and has had a profound impact on the society at large and business in particular. Unlike other torts, for example, trespass, nuisance and defamation, negligence does not involve a specific form of conduct: an action for negligence is about careless behaviour and can, therefore, be applied to any form of human activity. Successful claims have been brought in a wide variety of circumstances including traffic accidents, actions against retailers and manufacturers for loss or injury incurred as a result

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of the supply of defective products, and against those who fail to exercise reasonable care in carrying on a profession such as doctors, solicitors, accountants and financial advisers. Damages are now recoverable not only for the negligent infliction of physical and psychological injury but also for pure economic loss. As with the law of torts generally, the tort of negligence was a creature of the common law courts and the common law remains the key to understanding the tort of negligence. However, as noted below, the common law principles governing negligence liability have now been reformed by legislation enacted in all Australian States and Territories.

Statutory reform Figure 14.1: Civil law reforms –​general principles

Risk was foreseeable (ie a risk the person knew of or should have known)

Section 5B(1). No negligence unless:

Not insignificant

And a reasonable person would have taken precautions

Civil Law Reforms General Principles

Probability of harm

Section 5B(2). Factors for the court to consider:

Likely seriousness of harm

Cost of taking precautions

Social utility

[14.50]  The so-​called ‘civil liability reforms’ have been reformed by legislation enacted in all Australian States and Territories.1 As the relevant provision in the New South Wales Civil Liability Act 2002 (NSW)

1

Civil Liability Act 2002 (NSW); Wrongs Act 1958 (Vic); Civil Liability Act 2003 (Qld); Civil Liability Act 1936 (SA); Civil Liability Act 2002 (WA); Civil Liability Act 2002 (Tas); Civil Law (Wrongs) Act 2002 (ACT); Personal Injuries (Liabilities and Damages) Act 2003 (NT).

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shows, the legislation is broad in its scope and applies to “any claim for damage for harm resulting from negligence regardless of whether the claim is brought in tort, contract, under statute or otherwise”.2 The laws not only cover personal injury but also property damage and economic loss. One aspect of the operation of these laws is to limit the scope of potential liability for negligence. Broadly speaking, this effect is achieved in two ways: (a)

By modifying the common law principles governing the general ingredients of the cause of action in negligence such as breach and causation as well as the circumstances in which a defendant can raise a defence to a plaintiff’s negligence claim; and

(b)

By restricting the plaintiff’s right to recover in a number of particular categories of negligence action. For instance, liability is limited in circumstances, where the plaintiff’s injury arises from having been engaged in a “recreational activity”.3 Other examples include cases involving defendants who are professionals,4 public authorities,5 volunteers6 and food donors.7

Another important objective of this legislation is to reduce the amount of damages that can be awarded to a plaintiff for personal injuries in a negligence action. The common law principle that aims to provide the plaintiff with full compensation has been abandoned and replaced with a new system. For example, the Civil Liability Act 2002 (NSW) places a cap on the amount that can be awarded to a plaintiff for general or non-​economic damages.8 Other measures include the abolition of exemplary, punitive and aggravated damages for personal injury9 and a limitation on damages for past or future economic loss due to loss of earnings or impairment of earning capacity.10 2

3

4

5

6

7 8

9 10

Civil Liability Act 2002 (NSW), s 5A(1) (emphasis added). The corresponding provisions are: Wrongs Act 1958 (Vic), s 44; Civil Liability Act 2003 (Qld), s 4(1); Civil Liability Act 1936 (SA), s 4; Civil Liability Act 2002 (WA), s 6; Civil Liability Act 2002 (Tas), s 4; Civil Law (Wrongs) Act 2002 (ACT), s 41 and Personal Injuries (Liabilities and Damages) Act 2003 (NT), s 4. Civil Liability Act 2002 (NSW), Pt 1A, Div 5; Civil Liability Act 2003 (Qld), Pt 1, Div 4; Civil Liability Act 2002 (WA), Pt 1A, Div 4; Civil Liability Act 2002 (Tas), Pt 6, Div 5. In South Australia, see the Recreational Services (Limitation of Liability) Act 2002 (SA). Compare Wrongs Act 1958 (Vic); Civil Law (Wrongs) Act 2002 (ACT) and Personal Injuries (Liabilities and Damages) Act 2003 (NT), which do not deal with this issue. Civil Liability Act 2002 (NSW), s 5O, 5P; Wrongs Act 1958 (Vic), ss 59, 60; Civil Liability Act 2003 (Qld), s 22; Civil Liability Act 1936 (SA), s 41 and Civil Liability Act 2002 (Tas), s 22. There is no corresponding provision in the legislation enacted in Western Australia, the Northern Territory or the Australian Capital Territory. Civil Liability Act 2002 (NSW), Pt 5; Wrongs Act 1958 (Vic), Pt XXII; Civil Liability Act 2003 (Qld), Pt 3; Civil Liability Act 2002 (WA), Pt 1C; Civil Liability Act 2002 (Tas), Pt 9 and Civil Law (Wrongs) Act 2002 (ACT), Ch 8. Compare the Northern Territory and South Australian laws which are silent on the matter. Civil Liability Act 2002 (NSW), Pt 9; Wrongs Act 1958 (Vic), ss 34–​37; Civil Liability Act 2003 (Qld), Pt 3, Div 2; Civil Liability Act 2002 (Tas), Pt 10; Civil Law (Wrongs) Act 2002 (ACT), Pt 2.2. In Western Australia, see the Volunteers (Protection from Liability) Act 2002 (WA) and in South Australia, the Volunteers Protection Act 2001 (SA). There is no corresponding legislation in the Northern Territory, but see the Volunteers Protection Act 2003 (Cth). Civil Liability Act 2002 (Tas), Pt 8B; Civil Liability Act 1936 (SA), Pt 9, Div 11A; Civil Law (Wrongs) Act 2002 (ACT), Pt 2.2A. Civil Liability Act 2002 (NSW), s 16; Wrongs Act 1958 (Vic), s 28G, 28H and Pt VBA; Civil Liability Act 2003 (Qld), s 62; Civil Liability Act 1936 (SA), s 52; Civil Liability Act 2002 (WA), ss 9–​10A; Civil Liability Act 2002 (Tas), ss 27–​28; Civil Law (Wrongs) Act 2002 (ACT), s 99; Personal Injuries (Liabilities and Damages) Act 2003 (NT), ss 24–​28. But note Perisher Blue Pty Ltd v Nair Smith (2015) 295 FLR 153 at [195], where the New South Wales Court of Appeal upheld a decision that Pt 2 of the Civil Liability Act 2002 (NSW) is invalid to the extent of its inconsistency with the former s 74(1) of the Trade Practices Act 1974 (Cth) (see now, the Australian Consumer Law, s 60 (Sch 2 to the Competition and Consumer Act 2010 (Cth))). This means that damages recoverable under s 60 are determined by common law principles and not subject to the limitations imposed by the Civil Liability Act. Civil Liability Act 2002 (NSW), s 21 and Civil Liability Act 2003 (Qld), s 52. These provisions are not replicated in the other States or Territories. Civil Liability Act 2002 (NSW), s 12; Wrongs Act 1958 (Vic), s 28F; Civil Liability Act 2003 (Qld), s 54; Civil Liability Act 1936 (SA), s 54; Civil Liability Act 2002 (WA), s 11; Civil Liability Act 2002 (Tas), s 26; Civil Law (Wrongs) Act 2002 (ACT), s 98; Personal Injuries (Liabilities and Damages) Act 2003 (NT), s 20. In Queensland, these provisions must also be

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Despite these legislative reforms, the basic common law principles still underpin the law of negligence. For this reason, the common law principles will now be considered and, where relevant, reference will be made to the operation of the legislation. Figure 14.2: Negligence criteria

1. Does D owe a duty of care to P?

Reasonable foreseeability Proximity Broader policy considerations

2. If so, has D breached that duty of care?

3. If so, has P suffered damage?

4. Are there any defences?

Was it a foreseeable risk? If yes, how would a reasonable person in D’s position have responded

Was damage caused by the breach? (”but for” test) Is the damage too remote? (reasonably foreseeability test)

Contributory negligence Voluntary assumption of risk

The defendant in an action based on negligence will only be liable if the plaintiff can prove: (a)

the defendant owed the plaintiff a duty of care;

(b)

the defendant was in breach of this duty of care;

(c)

the defendant’s breach of duty was the cause of the plaintiff’s loss (“causation”); and

(d)

the damage suffered by the plaintiff was not too remote (“remoteness of damage”).

There are two other considerations: (e)

Whether either of the two defences or mitigating factors to a negligence claim –​contributory negligence and voluntary assumption of risk –​are relevant.

(f)

Whether the civil liability reforms are relevant.

Duty of care [14.60]  In the following landmark decision, the modern law of negligence was born.

read in conjunction with Personal Injuries Proceedings Act 2002 (Qld) which aims to minimise the cost of claims. See also Civil Law (Wrongs) Act 2002 (ACT); and Legal Profession Act 1987 (NSW). The Personal Injuries Proceedings Act 2002 (Qld) and Civil Law (Wrongs) Act 2002 (ACT) also place restrictions on the commencement of actions. See also Personal Injuries (Civil Claims) Act 2003 (NT).

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Figure 14.3: Is there a duty of care?

Established category of cases where duty exists?

Yes - duty of care exists

No. Was harm from conduct reasonably foreseeable? This is composite test -foreseeable (fact) plus reasonable (value) (Tame)

Yes - duty of care exists

No - no duty of care

Donoghue v Stevenson [14.70]  Donoghue v Stevenson [1932] AC 562. On the evening of Sunday, 26 August 1928, May Donoghue and an unnamed friend went to the Wellmeadow Café in Paisley, Scotland. The friend ordered and paid for an “ice-​cream drink” (ginger beer and ice cream). The owner, Mr Minchella, brought the order and poured the ginger beer from an opaque bottle into the glass containing ice cream. May Donoghue drank some of the contents and her friend lifted the bottle to pour the remainder of the ginger beer into the glass. The remains of a decomposed snail dropped out of the bottle into the glass. May Donoghue later complained of stomach pain and her doctor diagnosed her as having gastroenteritis and being in a state of nervous shock. As there was no contract between herself and the café owner (because she was not the purchaser), she could not sue in contract for breach of an implied term that the goods be of good quality. For this reason, she decided to sue the manufacturer, David Stevenson, in tort for negligence. She argued that the manufacturer “owed her a duty to take reasonable care that the ginger beer he manufactured, bottled, labelled and sealed, and invited her to buy, did not contain substances likely to cause her injury”. Such a writ had never been issued before: up to this point, a manufacturer was not –​outside of contract or fraud –​liable to a consumer for negligence. The House of Lords upheld May Donoghue’s appeal. In the course his judgment, Lord Atkin delivered his famous “neighbour principle” that has become the key conceptual tool when deciding whether a duty of care is owed by one person to another. Having referenced the Biblical parable of the Good Samaritan (see James 2:8 and the Parable of the Good Samaritan) and its aspirational direction to “love thy neighbor”, Lord Atkin settles on a more realistic legal requirement that you must not injure your neighbour and makes an attempt to the answer the question that has troubled lawyers ever since:

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“… and the lawyer’s question, Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law, is my neighbour? The answer seems to be –​persons who are so closely and directly affected by my act that I  ought reasonably to have them in contemplation as being so affected when I  am directing my mind to the acts or omissions which are called in question.” Lord Atkin applied this general principle to the specific facts of the case. He said: “[A]‌manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with knowledge that the absence of reasonable care in the preparation or putting up of products will result in an injury to the consumer’s life or property, owes a duty to the consumer to take that reasonable care.”

  

The case was returned to Scotland for the Court of Session to apply the ruling to the facts of the case. In the event, David Stevenson died within a year of the decision and his executors settled out of court for £200.

[14.80]  Shortly after Donoghue v Stevenson, the duty of care principle was extended to other consumer goods –​such as underwear:

Grant v Australian Knitting Mills [14.90]  Grant v Australian Knitting Mills [1936] AC 85. Dr Grant, a medical practitioner, purchased two pairs of woollen underwear from a retailer. There was no instruction to wash the underwear before wearing and Dr Grant did not do so. He suffered a skin irritation within nine hours of first wearing them. Dr Grant continued to wear the underwear for the rest of the week. He then wore the second pair for the next week and washed the first pair. This was in an era when changing underwear only once a week was “the ordinary custom of ordinary people”. The skin irritation got worse and he developed into a severe case of dermatitis that left him in hospital for weeks. He almost died. As the excessive sulphides in the underwear was the cause of the dermatitis, Dr Grant sued the retailer (for breach of the implied terms that the goods were fit for the purpose and were of merchantable quality) and the manufacturer, the Australian Knitting Mills, alleging that it had been negligent in failing to take reasonable care in the preparation of the garments. In finding that the manufacturer owed a duty of care to the consumer, the Privy Council looked to the recently decided Donoghue v Stevenson in the House of Lords and applied the statement of Lord Atkin:

  

“A manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with the knowledge that the absence of reasonable care in the preparation or putting up of the products will result in an injury to the consumer’s life or property, owes a duty to the consumer to take that reasonable care.”

Forseeability of harm –​established and novel situations [14.100] After Donoghue v Stevenson, the “reasonable forseeability of harm” test emerged as the touchstone requirement for a negligence action. The plaintiff has the onus of proving it was reasonably foreseeable

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to a reasonable person in the defendant’s position that harm may result to the plaintiff from the conduct in question. If the harm was not reasonably foreseeable, the defendant does not owe the plaintiff a duty of care. Satisfying the “reasonable forseeability of harm” test is relatively straightforward, where the relationship between the plaintiff and the defendant is one that falls into one of the established categories where a duty has been recognised by the courts. For example, although the precise nature and extent of the duty of care depends on the circumstances, it is clear that: ▶▶

manufacturers owe a duty of care to consumers;

▶▶

motorists owe a duty of care to other road users;

▶▶

doctors and other health professionals owe a duty of care to their patients or clients;

▶▶

lawyers and accountants, engineers and architects owe a duty of care to their clients;

▶▶

teachers owe a duty of care to their students;

▶▶

employers owe a duty of care to their employees;

▶▶

local councils owe a duty of care to people who use their facilities;

▶▶

banks and financial advisers owe a duty of care to their customers; and

▶▶

occupiers owe a duty of care to those who come onto their land or into their buildings.

In circumstances where the duty of care question is not established or resolved, the High Court reaffirmed in the following case that the reasonable foreseeability inquiry is a composite test involving an issue of fact (is it reasonably foreseeable that if D does not exercise reasonable care, P would be injured?) and a question of value that involves an assessment of community standards (would the community regard it as reasonable for a duty of care to exist?).

Tame v New South Wales [14.110]  Tame v New South Wales (2002) 211 CLR 317. The appellant who had been involved in a car accident in 1991 was tested to determine her blood alcohol content. A police sergeant incorrectly reported as having a reading of 0.14, almost three times the legal limit. It was soon corrected, and it was never acted upon by anybody. However, the appellant, who had consumed very little alcohol for twenty years, became obsessed by the error when informed by her solicitor in 1992 and in 1995 was diagnosed as having developed a psychotic depressive illness because she felt that the community would believe she had been drunk when the accident occurred. She sued the police in negligence. The High Court dismissed the claim. The respondent did not owe a duty of care because: (a) as a matter of fact, the police sergeant could not reasonably have been expected to foresee that his mistake carried a risk of harm to Mrs Tame of the kind that resulted; and (b) as a reflection of community values, the High Court said that the community would not regard it as reasonable for a duty of care to exist because it would have placed too great a burden on police if they were liable for the consequences of every relatively minor administrative mistake.   

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The duty of care in specific situations Figure 14.4: Nature of the duty of care

Duty of care and acts causing physical harm

Reasonable foreseeability/proximity/broader policy factors – Donoghue v Stevenson

Duty of care and acts causing mental harm

Reasonable forseeability/limits on proximity – Jaensch v Coffey

Liability for omissions

Law limits duty to act – but see duty to warn/public authorities cases – Rogers v Whitaker/Nagle

Acts causing pure economic loss Statements causing pure economic loss

see the Caltex/Apand/Johnson criteria

Two party –Hedley Byrne/Evatt/Shaddock etc Third party – the Esanda factors

[14.120]  We will now consider the duty of care test in five specific situations. There is clearly overlap but it is useful to examine how the courts have formulated the tests depending on the act or omission or the kind of damage inflicted. 1.

Negligent acts causing physical harm.

2.

Negligent acts causing mental harm.

3.

Liability for omissions.

4.

Negligent acts causing pure economic loss.

5.

Negligent statements causing pure economic loss.

1. Acts causing physical harm [14.130]  In the case of a positive infliction of physical harm, the existence of a duty of care is well established. As we have seen, the existence of a duty depends on whether the harm suffered by the plaintiff was reasonably foreseeable. The court asks whether a reasonable onlooker would have foreseen the possibility of injury (reasonable foreseeability of injury) to the plaintiff. As we noted (see [14.100]) there are many relationships that have been recognised as ones that fall into one of the established categories where a duty has been recognised by the courts. An example of a relationship that has generated significant case law is the situation, where an occupier owes a duty to take positive steps to protect persons lawfully entering his or her property. Such liability has attached to supermarkets for the failure to prevent injuries sustained by a customer.

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Australian Safeway Stores Pty Ltd v Zaluzna [14.140]  Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479. On 20 January 1979, the respondent entered the “foyer area” of the appellant’s supermarket intending to buy some cheese. It was a rainy day and the vinyl-​tiled floor of the foyer area had become wet or moist. Unfortunately, before entering the area of the supermarket where the merchandise was displayed, the respondent slipped and fell heavily on the floor and was injured. At the trial, the court held that there was no breach of the restricted duty of care owed by an occupier to an invitee. The plaintiff appealed and the Full Court ordered a new trial. The defendant appealed to the High Court. The High Court denied the appeal and ordered a retrial. It held that the fact that the respondent was a lawful entrant upon the land of the appellant establishes a relationship between them, which of itself, suffices to give rise to a general duty on the part of the appellant to take reasonable care to avoid a foreseeable risk of injury to the respondent.

  

Note: At the retrial, the plaintiff lost (again) and appealed to the Full Court (again). The Full Court upheld her appeal (again) but, as it could not substitute a judgment for her, it ordered a retrial in the Supreme Court (again). Unfortunately, there is no report of the final decision in the matter nor is there any information regarding the legal costs incurred by the parties over more than a decade.

[14.150] As the following case shows, only in exceptional circumstances will a duty arise to protect a person from the criminal conduct of third parties.

Modbury Triangle Shopping Centre Pty Ltd v Anzil [14.160]  Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254. The appellant was the owner of the Modbury Triangle Shopping Centre. Anzil, the respondent was the manager of a video shop owned by Focus Video Pty Ltd which leased premises in the Centre. The Centre had a large outdoor area for car parking. The video shop faced the car park. At night, the car park was dark (except for slight illumination from fluorescent lighting on the roof of the verandah facing the car park), unless the car park lights were turned on. The attack occurred at around 10.30 pm at night. Anzil closed the video shop and walked to his car in the car park. The car park lights were not on at the time. He was attacked by the three men and was badly injured. The High Court held that the appellant’s duty as an occupier of land did not extend to taking reasonable care to prevent physical injury resulting from the criminal behaviour of third parties on that land:

  

“To impose such a burden upon occupiers of land, in the absence of contract or some special relationship …, would be contrary to principle; a principle which is based upon considerations of practicality and fairness.”

2. Negligent acts causing mental harm [14.170]  In the early nervous shock/​psychiatric damage cases, the courts, reflecting the community standards of the day, were reluctant to recognise nervous shock as a kind of damage in its own right. Rather they

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required that the psychiatric injury be a consequence of direct and contemporaneous physical injury or, later, at least required the plaintiff to be within the area of possible physical injury by impact. However, as the following case demonstrates, the courts (and the community) gradually came to the view that the duty of care extends to the duty not to cause a person psychological damage, independent of physical injury.

Jaensch v Coffey [14.180]  Jaensch v Coffey [1984] HCA 52. The plaintiff’s husband, Allan, was a policeman. He was on duty riding his motorcycle when he collided with a motor vehicle negligently driven by Mr Jaensch and was seriously injured and taken to hospital. At the time of the accident, Mrs Coffey was at home and police brought her to the hospital where she saw her husband in terrible pain and unlikely to survive. After her experience at the hospital, Mrs Coffey suffered severe anxiety and depression. Her psychiatric condition caused gynaecological problems and a hysterectomy was later performed. She sued the driver. The High Court decided that Mrs Coffey could recover damages for “nervous shock” because (a) damage to the plaintiff in the form of psychiatric injury was reasonably foreseeable by the defendant and (b) there was, therefore, sufficient “proximity” (she was “so closely and directly affected by the act”) because although she was not present at the scene of the accident, she came to the hospital in the immediate aftermath.

  

To prevent the so-​called floodgates opening on “nervous shock” claims, the High Court excluded a number of claimants including (a) claimants who experienced “normal” rather than pathological grief as a result of their loved one’s death or injury; (b) claimants who have not personally experienced –​with eyes or ears –​the “immediate aftermath” of the event (rather than having “mere knowledge” –​that is, were told about the death or injury of their loved one); and (c) claimants who were only bystanders or curious onlookers.

[14.190]  Rules for recovery of damages for psychiatric illness that were explained in Jaensch v Coffey were reconsidered by the High Court in Tame v New South Wales (see [14.110]) and Annetts v Australian Stations Pty Ltd [2002] HCA 35. The appeals were heard together. The decision significantly amended the principles governing the common law of compensation for negligently inflicted pure psychiatric injury. The High Court opted for a simple test of reasonable foreseeability of this kind of harm, taking into account: (a)

the relationship between the parties;

(b)

the plaintiff’s physical and temporal proximity to the event that causes the mental harm; and

(c)

what the reasonable response of a person of normal fortitude might be.

Annetts v Australian Stations Pty Ltd [14.200]  Annetts v Australian Stations Pty Ltd [2002] HCA 35. Mr and Mrs Annetts’ son, James, went to work as a jackeroo for Australian Stations in Western Australia as a 16 year old. The Annetts, being particularly concerned about the safety of their son in such a harsh working environment, contacted Australian Stations. They only agreed to allow their son to work for Australian Stations after making enquiries as to the safety arrangements that would be put in place for James and being assured that he would be under constant supervision. However, despite those assurances, after only seven weeks, he was sent to work alone as a caretaker in a

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remote location. In December 1986, it was discovered that James was missing and likely to be in grave danger. Police informed Mr and Mrs Annetts of this over the phone and Mr Annetts subsequently collapsed. A prolonged search for James then ensued leading to the discovery of his bloodstained hat in January 1987 and finally his body in April. On the basis of medical evidence, it was concluded that James had died in December 1986 as a result of dehydration, exhaustion and hypothermia. The High Court held that reasonable foreseeability of risk should be the fundamental test for the imposition of a duty of care in pure psychiatric injury claims. Consequently, at common law there is now no difference between cases of physical injury and cases of psychiatric injury. In both, reasonable foresight of the risk of harm will prima facie determine the existence of a duty of care, although McHugh J opined that “policy issues may be relevant to the issue of reasonable foresight because reasonableness requires a value judgment”.

  

[14.210]  Liability for what is now called “mental harm” is now, in some Australian jurisdictions, limited by the reform legislation.11 Under the statutory reforms, only claimants who suffer a recognised psychiatric illness or disorder can recover damages for negligently occasioned mental harm. In the following two cases, the High Court has had an opportunity to consider the statutory reforms. For example, in King v Philcox (2015) 255 CLR 304, the High Court considered the operation of s 53(1) of the Civil Liability Act 1936 (SA) which provides that: “Damages may be awarded for mental harm if the injured person “was physically injured in the accident” or “was present at the scene of the accident when the accident occurred” or “is a parent, spouse, domestic partner or child of a person killed, injured or endangered in the accident.” It was held that the plaintiff (the brother of a person killed as a result of the defendant’s negligent driving) could not recover damages for a major depressive illness in circumstances where he heard of his deceased brother’s accident a few hours after it happened and realised that he had driven past the location of the accident earlier in the day when his brother had been trapped and was dying in the car.

3. Liability for omissions [14.220]  Generally, the common law imposes no liability for omissions or failing to act. The classic example concerns the child drowning in a shallow swimming pool. As morally confronting as it may be, unless the onlooker is a parent or a lifeguard or has some close relationship with the child, the common law imposes no duty to rescue the child. The reason for the reluctance to impose liability for an omission is that such liability involves the imposition of a duty to take positive action and the courts see this as a more serious interference with a person’s liberty than imposing an obligation to take care when acting. The only circumstance in which a person may be liable for omissions is where a person has a positive duty to act. Positive duties may be imposed where the parties are in a pre-​existing relationship that contains elements of reliance or dependence or where the defendant is in a position of control. Examples include parent and child, doctor and patient, school authority or teacher and student, employer and employee and occupier and visitor. 11

Liability for mental harm is dealt with by legislation in all States except Queensland and the Northern Territory: Civil Liability Act 2002 (NSW), Pt 3; Wrongs Act 1958 (Vic), Pt XI; Civil Liability Act 2002 (WA), s 1B; Civil Liability Act 1936 (SA), s 53; Civil Liability Act 2002 (Tas), s 34 and the Civil Law (Wrongs) Act (ACT), Pt 3.2.

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The following “duty to warn” case confirmed that in usual circumstances the choice of whether to undergo a procedure is that of the patient but in order to make this decision they need to be informed of the risks that may be involved.

Rogers v Whitaker [14.230]  Rogers v Whitaker (1992) 175 CLR 479. The respondent, Maree Whitaker, had been almost totally blind in her right eye for nearly 40 years. Nevertheless, she had lived a normal life. She consulted the appellant, Rogers, an ophthalmic surgeon, who advised her that an operation on the injured eye would not only improve its appearance but would probably restore sight to it. Following the surgery, the respondent developed a condition known as “sympathetic ophthalmia” in her left eye, which resulted in her losing her sight in that eye. Despite the fact that the operation was conducted with due care and skill, it failed to restore her sight. As a result, she was almost totally blind. She sued the appellant, alleging his failure to warn her of the risk of sympathetic ophthalmia was negligent. She had not specifically asked whether the operation to her right eye could affect her left eye but she had incessantly questioned the appellant as to possible complications. Evidence given at the trial was that the risk of sympathetic ophthalmia was about one in 14,000 but, even then, not all cases lead to blindness in the affected eye. The appellant relied on the principle that the standard of care owed to a patient in all things is determined by medical judgment. The High Court rejected that argument. It held that, except in cases of emergency or necessity, doctors have a duty to warn patients of the risks associated with a surgical procedure.

  

“[A]‌medical practitioner has a duty to warn a patient of a material risk inherent in the proposed treatment; a risk is material if, in the circumstances of the particular case, a reasonable person in the patient’s position, if warned of the risk, would be likely to attach significance to it or if the medical practitioner is or should reasonably be aware that the particular patient, if warned of the risk, would be likely to attach significance to it”.

[14.240]  In the following case, the High Court considered the extent to which licensees or publicans have a duty of care to look after their customers’ health and welfare.

CAL No 14 Pty Ltd and Kirkpatrick v Motor Accidents Board [14.250]  CAL No 14 Pty Ltd and Kirkpatrick v Motor Accidents Board (2009) 239 CLR 390. In January 2002, Shane Scott went to the Tandarra Motor Inn in Triabunna, Tasmania, for a drink after work. Scott gave the keys to his motorbike to Kirkpatrick, the licensee, and told Kirkpatrick not to allow him to ride home. He remained there drinking for about three hours. Kirkpatrick knew Scott was so drunk that he should refuse him service and that Scott would endanger himself if he left on his motorcycle. Nevertheless, he handed Scott the keys to his motorbike when Scott aggressively demanded them. Scott then left the hotel and, soon after, lost control of the bike, collided with a bridge, and was killed. At the time of his death, Scott had a blood alcohol level of 0.253. His widow, Sandra Scott, sued the owner and licensee of the motor inn, alleging they owed her husband a duty of care.

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The High Court held that a publican owed a duty to prevent a patron from driving his motorcycle home from the premises where he had been drinking. Although the actual decision in this case was decided on a narrower basis, the High Court took the unusual step of “explicitly stating” the following “fundamental reason” why the lower court’s determination on the duty of care was incorrect: “The reason is that outside exceptional cases … persons in the position of the Proprietor and the Licensee … owe no general duty of care at common law to customers which requires them to monitor and minimise the consequences of the alcohol they choose to consume.”

  

[14.260]  As the following case shows, a public authority that controls and manages land, parks, reserves or other public areas can come under a duty to act to protect members of the public against foreseeable danger in those areas.

Nagle v Rottnest Island Authority [14.270]  Nagle v Rottnest Island Authority (1993) 177 CLR 423 at 430. Nagle was an employee of the Rottnest Island Authority Board but had never previously visited the Reserve or swum at the Basin. He dived from a partially submerged rock ledge into the water. His head struck a fully submerged rock and he became a quadriplegic. He sued the Board in negligence arguing that it failed to give any or any adequate warning that the ledge was unsafe for diving when it knew or ought to have known that it formed a natural platform that members of the public would assume to be suitable for diving. The High Court held that the Board was the occupier of the Reserve and was under a statutory duty to manage and control it for the benefit of the public. In these circumstances, the Board owed a duty of care to warn those visitors of any foreseeable risks of injury to which they might be exposed. By encouraging the public to swim in the Basin, the Board came under a duty to take reasonable care to avoid injury to them and the discharge of that duty would naturally require that they be warned of foreseeable risks of injury associated with the activity so encouraged.

  

The duty of care in pure economic loss cases [14.280]  A pure economic loss occurs when the plaintiff suffers a financial loss due to the negligence of the defendant and this financial loss was not the result of a personal injury or damage to property. Common examples of financial losses are a loss of profit or an opportunity to make a profit, a loss of earnings or expenditure. There are two types of pure economic losses that we will consider: 1.

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Negligent acts causing pure economic loss: For example, where the defendant may damage a third party’s property and this causes the plaintiff to suffer a financial loss (eg Caltex Oil (Aust) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 (see [14.330])) or where the defendant’s act causes the plaintiff to suffer financial loss (eg Perre v Apand Pty Ltd (1999) 198 CLR 180 (see [14.300])).

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Negligent statements causing pure economic loss: Usually regarding parties in the business or profession of giving advice, such as financial advisers giving negligent advice leading to a financial loss.

2.

A major concern in pure economic loss cases is the issue of indeterminancy. The courts have been reluctant to recognise a duty, where it would lead to a liability that is “in an indeterminate amount for an indeterminate time to an indeterminate class (of plaintiff)”: Ultramares Corp v Touche (1931) 255 NY 170. In determining whether a duty of care exists, the courts will consider a number of so-​called “salient features”: ▶▶

▶▶

▶▶

▶▶

▶▶

▶▶

▶▶

Vulnerability: If the plaintiff is unable to take reasonable steps to protect himself from the defendant’s negligence, then it is more likely the defendant will owe a duty of care (eg see Apand and Marsh). Control: If the defendant was in control of the negligence which caused the economic loss, then it is likely more likely the defendant will owe a duty of care (eg see Johnson). Interference with legitimate business activity: If a duty of care would interfere with the carrying on of the defendant’s legitimate business, it is more likely that that the defendant will not owe a duty of care (eg see Apand). Assumption of responsibility or reliance: If the defendant has assumed responsibility or has created an assumption in the plaintiff, and the plaintiff relies upon this, then it is more likely that there will be a duty of care (eg see Shaddock). Indeterminate liability: If the defendant cannot readily identify or realistically calculate all the parties who would be affected by their negligence, and what their economic losses may be, it is less likely there will be a duty of care (eg see Apand and Johnson). Disclaimers: If the defendant provided reasonable notice of an enforceable disclaimer from liability to the plaintiff, it is more likely there will not be a duty of care (eg see Hedley Byrne v Heller). Financial interest: If the defendant had a financial interest in the transaction with the plaintiff, there is more likely to be a duty of care (eg see MLC v Evatt and the reference in San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979).

4. Negligent acts causing pure economic loss [14.290]  In the following pure economic loss case, the High Court outlined five criteria that were relevant in their determination that a duty of care existed.

Perre v Apand Pty Ltd [14.300]  Perre v Apand Pty Ltd (1999) 198 CLR 180. Perre was a potato farmer who suffered economic loss when the defendant supplied diseased potato seeds to a farm 20 kilometres from the plaintiffs’ property. The diseased seeds resulted in the growth of a crop with bacterial wilt. The plaintiffs’ economic loss arose because they were unable to export their potato crop to Western Australia, owing to a legislative prohibition on the importation of potatoes grown within a 20 km radius of a disease outbreak. The High Court considered the following five criteria in deciding that a duty of care was owed: 1. Reasonable foreseeability:  the economic loss suffered by Perre was reasonably foreseeable. 2. Indeterminancy of liability: imposing the duty on Apand did not expose it to indeterminate liability because there were a finite number of growers within the radius who may have been affected by the defendant’s careless conduct.

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3. The individual autonomy factor: imposing the duty did not unreasonably interfere with Apand’s commercial freedom. 4. The vulnerability to risk:  the plaintiffs’ business was exposed to Apand’s conduct because they were not in a position to protect themselves against the effect of Apand’s negligence. 5. The defendant’s knowledge, of the risk and its magnitude:  Apand was aware of the risk that the bacterial wilt disease would break out and was aware of the potential repercussions.   

Johnson Tiles Ltd v Esso Australia Pty Ltd [14.310]  Johnson Tiles Ltd v Esso Australia Pty Ltd [2004] VSC 466. In 1998, there was a huge explosion at Esso’s natural gas plant at Longford in Victoria. Esso was the sole supplier of natural gas to Gascor which was the sole distributor of gas in Victoria. The explosion shut down the Longford plant and, as a result, Melbourne was without any gas supply for a number of weeks. The explosion was the result of the negligence of Esso in maintaining its plant. As a result of the lack of gas supply, a number of gas customers (both business and private) and workers claimed they had suffered losses. Although the Court held that Esso owed a duty of care to gas customers to avoid a stoppage of gas causing property damage it decided Esso did not owe a duty of care to its employees (indeed Esso attempted to blame its workers for the explosion!) nor to the private customers who relied on Esso’s gas for their businesses and who suffered pure economic loss as a result of its negligent actions. Its reasons were as follows: ▶▶ ▶▶

▶▶

Gas customers were inconvenienced but not totally reliant on Esso (cf Perrre v Apand); Gas supply interruptions were not completely unknown or unexpected. The business customers could, and many had, taken out back-​up precautions or insurance (cf Perre v Apand); and Esso’s contracts showed that it had not assumed the risk for losses suffered as a result of a gas stoppage. All the supply contracts contained a term that the supplier would not be responsible for losses suffered as a result of a gas stoppage.

In concluding that Esso owed no duty of care to its customers for pure economic loss, Gillard J said:

  

“The gas customers are aware that there is no guarantee of uninterrupted supply, they know what steps can be taken to avoid or minimise the risk of harm to their particular business or interest and it is their choice as to what they should do. Gas customers are in a far better position than anyone else to assess their likely loss due to interruption of supply and if insurance is the preferred means of minimising the loss, they can take out insurance based upon a reasonable assessment of the likely harm and factor the expense of the premium into the price of their products or services.”

[14.320]  Similarly, in Marsh v Baxter (2015) 49 WAR 1, the plaintiffs sought to recover the economic loss suffered as a result of their decertification as organic farmers owing to the incursion of genetically modified material on their property. They claimed that this loss arose from the negligence of the defendant who grew

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and harvested genetically modified canola nearby. However, the Western Australian Court of Appeal held that the plaintiffs, who knew and appreciated the risk of incursion, could have taken steps to guard against it such as building buffers and barriers. In other words, unlike in Apand, the plaintiff partners were not vulnerable to the relevant risk.

Caltex Oil (Aust) Pty Ltd v The Dredge “Willemstad” [14.330]  Caltex Oil (Aust) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529. The respondent’s dredger damaged a pipeline owned and operated by Australian Oil Refinery Pty Ltd (“AOR”). The defendants knew of the existence of the pipeline and the charts showed it went from an oil refinery on one side of Botany Bay to the Caltex Oil terminal on the opposite shore. Owing to the damage, the pipeline could not be used for some time. The defendants admitted liability for the loss of the oil in the pipeline but denied liability for the considerable additional expense incurred by Caltex in transporting the oil by alternative means to its terminal.

  

The High Court decided that Caltex could recover the economic loss suffered. The Court, in addressing the “indeterminacy issue”, said that there were exceptions to the indeterminacy obstacle where the defendant has the knowledge, or means of knowledge, that the plaintiff individually, and not merely as a member of an unascertained class will be likely to suffer loss.

5. Negligent statements causing pure economic loss [14.340]  A distinction was drawn between negligent words and negligent acts because the courts recognised that a statement may have far wider repercussions than a physical act. Recovery for economic loss arising out of a statement made by another person was limited to cases, where the statement was intentionally false or was made in breach of a fiduciary relationship, for example, a solicitor–​client relationship. The breakthrough came in 1964 with the following decision of the House of Lords that a duty of care could arise from a negligent misstatement where a “special relationship” existed between the parties.

Hedley Byrne & Co Ltd v Heller & Partners Ltd

  

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[14.350]  Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. The plaintiff was an advertising agency that was to place television and newspaper advertisements on behalf of a company called Easipower. As the plaintiff was to personally guarantee the payment of these advertising accounts, it sought credit references from the defendant, Easipower’s bank. The defendant’s written response indicated that Easipower was creditworthy. In its reply, the defendant had disclaimed responsibility for its credit reference. Easipower was not creditworthy and the plaintiff agency was unable to recover the amount paid for the advertisements. The House of Lords decided that a duty of care in making statements could arise in circumstances where a “special relationship” existed between the parties. The Court did not detail the precise nature of this relationship, although it is clear that it would involve some element of reliance. Although the Court said that a duty of care could arise in circumstances like those before it, the plaintiff’s action actually failed because the defendant bank had effectively disclaimed responsibility for the reference it had given.

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[14.360]  In the following case, the High Court of Australia confirmed that a person could owe a duty of care for negligent statements provided: (a)

the advice was given in respect of a serious or business matter;

(b)

the adviser should have realised he or she was being relied upon to give correct advice; and

(c)

it was reasonable for the other person to have relied on the advice.

Mutual Life and Citizens’ Assurance Co Ltd v Evatt [14.370]  Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556. The officers of a life assurance company (Mutual Life and Citizens’ Assurance Co Ltd (MLC)) made statements to policy holder (Evatt) about the financial affairs of another company, Palmer. As a result of acting on the advice, Evatt suffered economic loss. The Privy Council held that MLC owed no duty of care because the duty of care arose only where the advice was given in the exercise of business or professional skill possessed or claimed by the adviser or possibly where the adviser had a financial interest in the advice being acted upon. However, when the case had come on appeal before the High Court of Australia (on its way to the Privy Council –​as could happen until the abolition of the right to appeal to the Privy Council in 1986)  Barwick  CJ expanded on the nature of the “special relationship” that must exist before a duty can arise in cases of pure economic loss:

  

“It seems to me, therefore, that whenever a person gives information or advice to another, whether that information is actively sought or merely accepted by that other upon a serious matter, and particularly a matter of business, and the relationship of the parties arising out of the circumstances is such that on the one hand the speaker realises or ought to realise that he is being trusted, particularly if he is thought by the other to have, or to have particular access to, information or to have a capacity or opportunity to exercise judgment or both as to the matter in hand, to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to seek or accept and in either case to act upon that information and advice the speaker, choosing to give the information or advice in such circumstances, comes under a duty of care both to utilise with reasonable care the information and sources of information at his disposal and to employ with reasonable care what capacity he has for judgment in relation to the matter and to exercise reasonable care in the expression of what he is prepared to convey by way of information or advice.”

[14.380]  The High Court’s decision in Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 establishes that the duty extends to the supply of information as well as the provision of advice.

Shaddock & Associates Pty Ltd v Parramatta City Council [14.390]  Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225. The plaintiff company was a property developer and owned land in Parramatta, Sydney. It intended to redevelop the land by erecting a commercial building on the property. Its

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solicitor made inquiries to the Council about the property. In answers to verbal inquiries and later written inquiries by the solicitor, the Parramatta City Council did not reveal that there were proposals for road-​widening that affected the property. In actual fact, the proposals were, at the time of the solicitor’s inquiries, already adopted in principle by the Council. The plaintiff claimed that the remaining parts of the property would be unsuitable for its proposed redevelopment. It also alleged that it would not have bought the property if it had been aware of the proposal to reduce the size of the property to widen the adjacent streets. The plaintiff argued that the Council owed it a duty of care to inform it about the road-​ widening proposal.

  

The High Court held that the Council committed the tort of negligence causing pure economic loss and was liable to the plaintiff for its losses. The Council was under a duty of care in relation to the provision of advice or information (the court held that no distinction should be drawn between “advice” and “giving of information”) because it was of a kind that called for skill and competence that the Council professed to possess. Further, the Council knew or ought to have known that the plaintiff intended to act or rely on the information.

[14.400]  It is clear from the following case that the High Court accepted the Barwick CJ formulation of the “special relationship” as the test for determining the existence of a duty of care in the making of statements or the giving of advice.

San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 [14.410]  San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 concerned the publication of a redevelopment plan by the State Planning Authority and the Sydney City Council. The plan encouraged private developers to buy land sites and construct high density office blocks. On the faith of the plan, the plaintiff company bought up land with a view to redevelopment. When the plan was abandoned because it was found not to be feasible, the plaintiffs suffered a financial loss. The plaintiff argued that the defendant had falsely represented that the plan was feasible. The High Court held that the plaintiff could not succeed unless it could establish “at least, amongst other things, (1) that the alleged representation was made, and (2) that the Authority and the council made the representation with the intention of inducing members of the class of the developers to act in reliance on the representation”. The High Court concluded that the plaintiff failed to establish the first matter and therefore the second did not arise.

  

While the Court pointed out that in the usual case of negligent misstatement, an antecedent request for information or advice demonstrates reliance (is a key determinant of the existence of a duty of care), such a request is not essential and that a defendant volunteering information or advice can be liable for negligent misstatement.

[14.420]  Third party scenarios: The establishment of liability for negligent misstatement has also led to an increasing number of actions against solicitors, accountants, auditors and other financial advisers for recoupment of financial losses allegedly suffered as a result of reliance by third parties (such as investors,

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creditors, shareholders, mergers and takeovers analysts), on negligent advice or information provided by tax specialists, accountants, auditors and lawyers. An issue that has arisen in respect of an auditor’s liability for misstatement is whether the auditor’s duty of care is limited to the client for whom the audited accounts are prepared, or whether the duty extends to any person who relies on a statement contained in the auditor’s report. In the United Kingdom, the House of Lords has held that the liability of an auditor does not extend to the situation where the audit statement was relied on by a third party for a purpose other than the particular purpose for which it was prepared: Caparo Industries Plc v Dickman [1990] 2 AC 605. The decision of the High Court in the following case demonstrates how cautious the courts are about recognising a duty of care in a situation, where negligent advice or information provided to one person is used by an unintended or unknown person who suffers economic loss as a result. Something more than reasonable foreseeability of harm is required: there must be some reliance or assumption of responsibility.

Esanda Finance Corp Ltd v Peat Marwick Hungerfords [14.430]  Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241. The plaintiff (Esanda) was a financier who, in reliance on the audited accounts of a company (Excel), lent money to various companies associated with Excel, accepting a guarantee of repayment from Excel. Peat Marwick Hungerfords (PMH), a firm of chartered accountants was Excel’s auditor. Excel went bankrupt and Esanda lost considerable amounts of money. Esanda claimed that PMH owed it a duty of care, as Esanda relied on the report and belonged to a class of persons who might reasonably have done so. The High Court held that PMH did not owe Esanda a duty of care. The decision clearly shows that the court does not regard foreseeability of the third party’s reliance as a sufficient basis for imposing liability on an auditor. The question that remains to be determined in this context is whether the “reasonableness of reliance” element of the test formulated by Barwick CJ in Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 could be satisfied in circumstances, where a third party uses an audit statement for purposes such as investment. After pointing out that the defendant auditors were in a “particularly advantageous position to know or ascertain the true financial position” of Excel, their audit client, the Court made the following remark about the reasonableness of Esanda’s conduct:

  

“However, there is nothing to suggest Esanda was not itself able to have accountants undertake the same task on its behalf as a condition of its entertaining the possibility of entering into financial transactions with Excel. And, which is much the same thing in the circumstances of this case, there is nothing to suggest that it was reasonable for Esanda to act on the audited reports without further inquiry.”

[14.440]  Actions for misleading or deceptive conduct: s 18 of the Australian Consumer Law. Depending on the particular circumstances, it may be preferable for a person who has suffered loss as a result of negligent advice to pursue an action for contravention of the misleading and deceptive conduct provisions of s 18 of the Australian Consumer Law rather than the common law principles regarding negligent misstatements: see further at [13.40]. Section 18 has been used in a wide range of actions involving negligent advice.

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Breach of the duty of care Figure 14.5: How to approach the breach of duty issue

Common law and CLA approach to the question of breach of the duty of care

Was the risk foreseeable?

No. No breach of duty

Yes. Was the risk 'not insignificant'?

Yes.

No. The risk was insignificant. No breach of duty

Consider relevant "Wyong factors" to determine if D acted as a reasonable person

[14.450] Whether there has been a breach of the duty of care in the particular circumstances involves consideration of whether the defendant met the standard of care required by the law of negligence. The standard expected is that of the “reasonable man”. In Blyth v Birmingham Waterworks Co (1856) 156 ER 1047, Alderson B said: “Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs would do, or something which a prudent and reasonable man would not do.”

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The Civil Liability Acts set out the test in almost exactly the same terms as the Court used in Wyong Shire Council v Shirt (1980) 146 CLR 40. A person does not breach a duty to take precautions against a risk of harm unless: (a)

the risk was foreseeable (that is, it is a risk of which the person knew or ought to reasonably have known);

(b)

the risk was not insignificant; and

(c)

in the circumstances, he or she did what a reasonable person would have done.12

The “reasonable person” test [14.460]  The standard of the reasonable person involves an objective test. What would a reasonable person in the position of the defendant have done? A recent decision of the NSW Court of Appeal in a typical shopping centre slipping accident affirmed that the defendant is not the guarantor of the plaintiff’s safety or well-​being: he or she is only expected to do what a reasonable person would do in the circumstances.

Argo Managing Agency Pty Ltd v Al Kammessy [14.470]  Argo Managing Agency Pty Ltd v Al Kammessy [2018] NSWCA 176. Mr Al Kammessy was shopping with his daughter at a Westfield Shopping Centre in Sydney. At 10.44 am, he slipped and fell on liquid that had been split on the tiled floor. Atlantic Cleaning & Security Pty Ltd (“Atlantic”) was the cleaning company contracted to provide cleaning services at the shopping centre, services that included regular “loops” by cleaners walking with cleaning trolleys. The evidence was that the spill extended over a small area that had a lot of pedestrian traffic and was difficult to detect because of the design of the tiled floor. CCTV footage confirmed that an Atlantic employee had conducted an inspection of the fall site nine minutes before the fall and it was common ground between the parties that this inspection had been conducted with reasonable care. Sackville AJA reviewed the evidence and concluded the wet patch was present when Mr Nguyen conducted his loop and that he had failed to detect it. However, he decided that there had been no breach of the duty of care: “... the duty owed by Atlantic … to the respondent and other patrons was to exercise reasonable care to identify and remove potential hazards to their safety. It was not to guarantee that all hazards would be removed. And it is not permissible to conclude with the benefit of hindsight that by reason of Mr Nguyen’s failure to detect a particular hazard that he and Atlantic breached the duty of care they owed to the respondent.”

  

[14.480]  The reasonable person is equipped with the same skills and expertise expected of a person exercising a particular trade or profession. Thus, in Argo (see [14.470]) although the cleaner had failed to detect the spill, he had done what a reasonable cleaner would have done in the circumstances. In an action against professionals  –​doctors, lawyers, accountants or engineers  –​for professional negligence, 12

Civil Liability Act 2002 (NSW), s 5B(1); Wrongs Act 1958 (Vic), s 48(1); Civil Liability Act 2003 (Qld), s 9(1); Civil Liability Act 1936 (SA), s 32(1); Civil Liability Act 2002 (WA), s 5B(1); Civil Liability Act 2002 (Tas), s 11(1) and the Civil Law (Wrongs) Act (ACT), s 43(1). The Northern Territory legislation does not deal with this issue.

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the relevant standard is that of an ordinary, competent professional exercising ordinary professional skill. However, a person who advertises that he or she is a “specialist tax accountant” has to provide the advice that a reasonable “specialist tax accountant” would provide.

SKM Industries Pty Ltd v Australian Reliance Pty Ltd

  

[14.490]  SKM Industries Pty Ltd v Australian Reliance Pty Ltd [2017] VSC 159. This is an interesting case involving negligent advice provided by an insurance broker. It decided that in order to satisfy the requisite standard of care, a reasonable broker would take reasonable steps to understand the nature and extent of their client’s instructions, advise the client about the optimal insurance available and arrange the insurance as instructed. Additionally, the court said it would be reasonable for the broker, in providing advice, to take into account all relevant circumstances, include the client’s commercial sophistication, any previous advice that had been provided, whether the broker had assumed responsibility to perform calculations necessary to complete the client’s insurance application or renewal questionnaire, and whether the broker had reason to suspect any information provided by the client was inaccurate.

[14.500]  When assessing reasonableness, the courts consider what a reasonable person would have done in the circumstances, at that time; they do not look in the rear vision mirror and ask what could have been done to avoid the injury, loss or damage. In New South Wales v Fahy (2007) 232 CLR 486, a police officer suffered post-​traumatic stress disorder when she was left alone to deal with an injured victim of an armed robbery. She claimed that the Police Department had breached its duty of care to her because it should have ensured that officers worked in pairs. Although, in hindsight, this would have reduced the risk of her trauma, it was not something that a reasonable person would have done at that time. The following case confirms that the standard of care expected of the occupier of premises, where alcohol is served will depend on the particular facts of each case and demonstrated that courts are reluctant to find such occupiers liable for sudden, unprovoked and unpredictable assaults.

Packer v Tall Ships Sailing Cruises Aust Pty Ltd [14.510]  Packer v Tall Ships Sailing Cruises Aust P/​L & Anor [2015] QCA 108. The plaintiff’s employer arranged a Christmas party day cruise on South Stradbroke Island. The cruise operator provided a buffet lunch and activities. Alcohol was served throughout the day. The assault took place when the guest approached a group at the ship’s bar whilst the ship was boarding after lunch and asked if they could keep their language down. The guest was assaulted without warning with a one punch king-​hit to his face. He had major reconstructive surgery and claimed medical expenses and economic loss. The plaintiff alleged that the tour company (as an occupier) failed to control the continued presence or behaviour on its premises of the group to which the assailant belonged. Given that assault is a foreseeable risk when alcohol is served, precautions, such as the presence of “crowd controllers”, should have been taken. The Court of Appeal affirmed the decision at trial deciding there was no obligation on behalf of Tall Ships to take steps to exclude the group from the ship, withdraw the service of alcohol to the group or otherwise monitor their behaviour or provide “crowd controllers”. It held that the precautions taken were sufficient to address foreseeable risks of assault: there was nothing

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in the boisterous conduct of the group at the bar which gave an inkling that the situation … might produce violence. It was not a foreseeable risk and therefore there was no duty to do any more than they did to prevent injury.

  

The impact of the statutory reforms [14.520]  The reform legislation deals with the breach of duty issue. Section 5B of the Civil Liability Act 2002 (NSW) mirrors the common law principle established in Wyong Shire Council v Shirt (1980) 146 CLR 40 in so far as it provides a two-​stage inquiry for determining whether there has been a breach of duty. Section 5B(1)13 alters the common law by requiring a greater degree of probability in determining whether there is a foreseeable risk of harm to which a reasonable person would have responded. At common law, it is thought that a reasonable person would respond to a risk of harm that is not “far-​fetched and fanciful”.14 Under the Act, the defendant will only be in breach of duty for a failure to respond if the risk of harm is “not insignificant”. As to the second stage of the inquiry, s 5B(2)15 adopts the common law approach of taking into account various factors to consider whether, and if so how, a reasonable person would have responded to the risk. These factors, which are not looked at in isolation but are weighed against one another (eg see Roads and Traffic Authority of NSW v Dederer (2007) 238 ALR 761 at [14.540]): 1.

the probability of the risk of injury;

2.

the gravity of the harm;

3.

the burden of eliminating the risk; and

4.

the utility of the defendant’s conduct.

(a) Probability of the risk of injury Bolton v Stone [14.530]  Bolton v Stone [1951] AC 850. The plaintiff brought an action against the defendant cricket club after being injured by a ball that was hit out of the cricket ground during a match. The evidence showed that the risk of a person being struck by a ball hit out of the cricket ground was negligible. The court weighed this factor against the reality that the only sensible way to entirely eliminate the risk of a person being hit by a ball would be to cease playing cricket on the ground altogether.

13

14 15

Civil Liability Act 2002 (NSW), s 5B(1); Wrongs Act 1958 (Vic), s 48(1); Civil Liability Act 2003 (Qld), s 9(1); Civil Liability Act 1936 (SA), s 32(1); Civil Liability Act 2002 (WA), s 5B(1); Civil Liability Act 2002 (Tas), s 11(1) and the Civil Law (Wrongs) Act 2002 (ACT), s 43(1). The Northern Territory legislation does not deal with this issue. Wyong Shire Council v Shirt (1980) 146 CLR 40 at 47 per Mason J. Civil Liability Act 2002 (NSW), s 5B(2); Wrongs Act 1958 (Vic), s 48(2); Civil Liability Act 2003 (Qld), s 9(2); Civil Liability Act 1936 (SA), s 32(2); Civil Liability Act 2002 (WA), s 5B(2); Civil Liability Act 2002 (Tas), s 11(2) and Civil Law (Wrongs) Act 2002 (ACT), s 43(2). The Northern Territory legislation does not deal with this issue.

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The House of Lords held that in these circumstances a reasonable person would have thought it right to ignore the risk. The case established that a defendant may be justified in disregarding a foreseeable risk of injury, where the probability of that risk occurring is small and the circumstances are such that a reasonable man would think it right to neglect the risk.

Roads and Traffic Authority of NSW v Dederer [14.540]  Roads and Traffic Authority of NSW v Dederer (2007) 238 ALR 761. The plaintiff, a 14-​year-​old boy, suffered catastrophic injuries when he dived off a bridge and into a river about nine metres below and struck his head on a submerged sandbar. Although there were signs on the approach to the bridge (that the plaintiff was aware of) prohibiting diving, there was evidence that people had been diving off the bridge for 40 years and this was the first reported diving accident. The High Court found there was no breach of the duty of care: “What Shirt requires is a contextual and balanced assessment of the reasonable response to a foreseeable risk. Ultimately, the criterion is reasonableness, not some more stringent requirement of prevention. Here, the risk of injury consequent upon jumping or diving from the bridge into water of variable depth was reasonably foreseeable … The magnitude of the risk was self-​evidently grave … The probability of that injury occurring was, however, low. Despite the frequency of jumping and diving from the bridge, no-​one was injured until Mr Dederer’s unfortunate dive. What, then, of the expense, difficulty and inconvenience of taking alleviating action? The erection of further warning signs should not have been expensive, but … the reasonableness of such measures is open to doubt. … Returning, then, to the assessment of breach mandated by Shirt, it becomes apparent that the RTA did not breach its duty of care. Though grave, the risk … was of a very low probability, and a reasonable response to that risk did not demand the measures suggested by him. This was not a case in which the defendant had done nothing in response to a foreseeable risk. To the contrary, the RTA had erected signs warning of, and prohibiting, the very conduct engaged in. …   

In the circumstances, that was a reasonable response, and the law demands no more and no less.”

(b) Gravity of the harm [14.550]  The more serious the risk, the greater the demand for precautions on the part of the defendant. There are two ways in which this factor can be relevant: (a)

where the defendant’s activity is dangerous. As explained in Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 in the case of dangerous substances or activities, “a reasonably prudent person would exercise a higher degree of care”; and

(b)

where the plaintiff, to the defendant’s knowledge, has a particular susceptibility which increases the seriousness or gravity of the risk: Paris v Stepney Borough Council [1951] AC 367.

A decision of the Victorian Supreme Court provides guidance as to how the statutory test of the standard of care for professionals is to be applied.

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Brakoulias v Karunaharan (Ruling) [14.560]  Brakoulias v Karunaharan (Ruling) [2012] VSC 272. Mrs Brakoulias, the plaintiff, suffered a cardiac arrest when 50  years of age. She stopped breathing. Before being resuscitated by paramedics, she was substantially deprived of oxygen for 26  minutes. As a result, she suffered serious, long-​term injuries, including loss of motor and cognitive function, speech impairment, loss of memory and other injuries. About four months before her cardiac arrest, she had been prescribed a weight loss drug called Reductil by her local general practitioner, Dr Karunaharan, the defendant. Mrs Brakoulias took the drug up until the day of her cardiac arrest. Mrs Brakoulias alleged that Dr Karunaharan was negligent in prescribing her Reductil, and that the taking of Reductil caused her cardiac arrest and her injuries.

  

Macaulay  J instructed the jury that to prove negligence against a professional, a plaintiff must prove negligence according to the common law standard of care, currently expressed in Rogers v Whitaker (1992) 175 CLR 479, where the majority of the High Court said “the standard of reasonable care and skill required is that of the ordinary skilled person exercising and professing to have that specialised skill”. If that burden is discharged, a defendant is to be found negligent unless the defendant establishes that he or she acted in a manner that accorded with peer professional opinion as set out in s 59 of the Wrongs Act 1958(Vic) (virtually identical to s 5O of the NSW legislation) provided it is not unreasonable. The jury determined that Dr Karunaharan had not been negligent in her management and treatment of Mrs Brakoulias and the proceeding was dismissed with costs.

Paris v Stepney Borough Council [14.570] In Paris v Stepney Borough Council [1951] AC 367, the defendant employer knew that the plaintiff, his employee, was blind in one eye. Consequently, the plaintiff’s condition was considered in determining whether the defendant was negligent in failing to provide the plaintiff with goggles that would have protected him against injury to his good eye.

  

The House of Lords held that whatever the defendant’s duty to his other workers, the gravity of the consequences of an injury to the plaintiff’s good eye (ie complete blindness) meant that the defendant employer was in breach of the duty of care owed to the plaintiff employee.

[14.580] In Rogers v Whitaker (1992) 175 CLR 479 (see [14.230]), the High Court held that, although the risk of a potential complication after eye surgery was low (approximately 1 in 14,000), the consequences for a person who was already blind in one eye were so serious that a reasonable person would have warned of the (slight) risk before operating.

(c) Burden of eliminating the risk [14.590]  As Denning LJ pointed out in Watt v Hertfordshire CC [1954] 1 WLR 835 at 838: “One must balance the risk against the measures necessary to eliminate the risk”. The easier it is to eliminate a risk, the less likely a defendant’s failure to take precautionary steps will be justifiable. In considering this factor, the court can take into account not only the cost and inconvenience involved in taking precautionary measures

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but also any risk that these steps may themselves involve: Mercer v Commissioner for Road Transport and Tramways (NSW) (1936) 56 CLR 580. In Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540, the court found that the cessation of sale of Wallis Lake oysters or the removal of operations to another area constituted “alleviating action of the most difficult, expensive and inconvenient type”.

Woods v Multi-​Sport Holding Pty Ltd [14.600] In Woods v Multi-​Sport Holding Pty Ltd (2002) 208 CLR 460, the market availability of a protective helmet was a critical issue in determining whether it was reasonable to expect the defendant indoor cricket game organiser to provide the player with such protective gear. In circumstances where such headgear had yet to be designed and manufactured and the rules of the game did not allow for the use of helmets, the High Court held that it was open for the trial judge to find that the defendant was not negligent in failing to provide the plaintiff with a helmet.

  

[14.610]  In New South Wales, s 5C of the Civil Liability Act 2002 (NSW)16 restates three common law principles relating to the reasonableness of the defendant’s response: (a)

the burden of taking precautions to avoid risk of harm includes the burden of taking precautions to avoid similar risks;

(b)

the fact that the risk could have been avoided by doing something a different way does not of itself give rise to liability; and

(c)

the subsequent taking of action does not constitute an admission of liability.

(d) Utility of the defendant’s conduct [14.620]  The gravity of the risk is also weighed against the utility or social value of the defendant’s conduct. There may be cases where the social utility of an activity is sufficiently high as to justify, notwithstanding other factors, a finding that a reasonable person would not have taken necessary precautions against the identified risk of harm, that is, rescuing people from the impact of floods, cyclones and earthquakes. Consider the following two cases:

Watt v Hertfordshire County Council [14.630]  Watt v Hertfordshire CC [1954] 1 WLR 835. The claimant was a fireman. A woman had been involved in a traffic accident and was trapped underneath a truck. This was 200–​ 300 yards away from the fire station. The fire services were called to release the woman. They needed to transport a heavy jack to the scene of the accident. The jack could not go on the fire engine and the normal vehicle for carrying the jack was not available. The fire

16

Wrongs Act 1958 (Vic), s 49; Civil Liability Act 2003 (Qld), s 10; Civil Liability Act 2002 (Tas), s 12; Civil Law (Wrongs) Act 2002 (ACT), s 44 and Civil Liability Act 2002 (WA), s 5PB(1). The South Australian and Northern Territory legislation does not contain this provision.

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chief ordered the claimant and other firemen to lift the jack on to the back of a truck. There was no means for securing the jack on the truck and the firemen were instructed to hold it on the short journey. In the event, the truck braked and the jack fell onto the claimant’s leg causing severe injuries. The Court decided there was no breach of duty. The emergency of the situation and utility of the defendant’s conduct in saving a life outweighed the need to take precautions.

Wilson v Nilepac Pty Ltd t/​as Vision Personal Training (Crows Nest) [14.640]  Wilson v Nilepac Pty Ltd t/​as Vision Personal Training (Crows Nest) [2011] NSWCA 63. In March 2008, Mr Wilson, a 40 year old, decided to lose weight and get fit. He consulted Vision Personal Training Studio (Vision) and underwent a pre-​exercise screening assessment. During the assessment he was prescribed an exercise program that was divided into phases, with each new phase facilitating gradual progression to more difficult exercises. Mr Draffin, a personal trainer at Vision (a 20-​year-​old graduate from the Australian Institute of Fitness (AIF)) was allocated to train the plaintiff. The plaintiff was one of his first 10 clients. In April 2008, during a session, Mr Draffin required the plaintiff to perform a “crunch exercise” involving the use of a 5.4 kg medicine ball and a twist motion of the torso. As a result of this exercise, the plaintiff sustained a prolapse of the lumbar spine. At the time of the accident, the plaintiff’s program included an exercise called “supine floor crunch” that did not involve the use of a medicine ball or twisting of the torso. The plaintiff brought proceedings against Mr Draffin in negligence (based on the crunch exercise being dangerous). The Court of Appeal found that Mr Draffin breached his duty of care owed to the plaintiff in that he: ▶▶

▶▶

  

failed to appreciate the consequences of prescribing the crunch exercise (an advanced exercise) to a client who was not at the appropriate level of fitness; and failed to consider the appropriateness of the crunch exercise for the plaintiff.

The Civil Liability Act 2002 (CLA) does not “assume that it might be reasonable to take fewer precautions against the risk of harm created by an activity of high social utility”. While it can be said that physical activity is of social utility, what the CLA required to be taken into account is “the social utility of the activity that creates the risk of harm”. In this case, the activity was the crunch exercise, which of itself had no relevant social utility.

[14.650]  More generally, in determining whether there has been a breach of the duty of care, the defendant’s compliance or non-​compliance with applicable statutory standards may also be relevant. However, compliance with relevant statutory standards is not conclusive of the issue. For example, a defendant who has complied with the appropriate traffic regulations may still be found to have been in breach of the duty of care they owed to other road-​users. Similarly, in professional negligence and industrial accident cases, evidence of compliance with the common practices and customs in the particular profession or industry is relevant but not conclusive.

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The standard of care for professionals –​the statutory tests [14.660]  It is clear that in most instances, the Wyong factors (or, in NSW, the s 5B(2)) (or, in Victoria, the s 48(2) factors) are not applicable in relation to the standard of care expected of professionals (at least in relation to negligent misstatements causing pure economic loss). In this context, the question is whether the defendant behaved as a reasonable adviser/​professional would have behaved in those circumstances at that time. On this point, in professional negligence cases, evidence of compliance with the common practices and customs in the particular profession or industry is relevant but not conclusive. The reform legislation provides that a professional does not breach a duty of care if the conduct in question (eg legal or financial advice, medical interventions, engineering works etc) is widely accepted by peer professional opinion as sound professional practice. With respect to the liability of professional persons, the Civil Liability Act 2002 (NSW), s 5O provides:17 (1)

A person practising a profession (“a professional”) does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice. However, peer professional opinion cannot be relied on for the purposes of this section if the court considers that the opinion is irrational. The fact that there are differing peer professional opinions widely accepted in Australia concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section. Peer professional opinion does not have to be universally accepted to be considered widely accepted.18

(2) (3)

(4)

It is clear that s 5O is a defence that is available to a defendant once a breach of the duty has been established. To put it another way, where the plaintiff proves that the defendant professional has not exercised reasonable care in the discharge of his or her professional duties, the defendant is liable unless he or she can show by way of defence that he or she acted in a manner that satisfies the “peer professional opinion” test in s 5O. There has been a reluctance of the courts to accept a peer opinion unless it accurately and exhaustively comments upon the professional’s conduct, the peer has appropriate qualifications and expertise and can make objective comments without any demonstrable bias towards the defendant. For these reasons, the peer professional opinion defence failed in the following two cases. In Cam & Bear Pty Ltd v McGoldrick [2016] NSWSC 1894, the court expressed the view that the practitioner peer acted, both in his peer opinion and when giving evidence at trial, as an advocate for the defendant professional and not as an independent peer. Noting that seemed to avoid direct questions and tended to give explanations to questions he considered assisted the defendant, the court declined to accept the peer opinion as a basis for making out the defence.

17

18

Civil Liability Act 2002 (NSW), ss 5O, 5P; Wrongs Act 1958 (Vic), ss 59, 60; Civil Liability Act 2003 (Qld), s 22; Civil Liability Act 1936 (SA), s 41 and Civil Liability Act 2002 (Tas), s 22. There is no corresponding provision in the legislation enacted in Western Australia, the Northern Territory or the Australian Capital Territory. See also, Wrongs Act 1958 (Vic), s 59; Civil Liability Act 2003 (Qld), s 22; Civil Liability Act 1936 (SA), s 41 and Civil Liability Act 2002 (Tas), s 22. There is no equivalent provision in Western Australia or the Territories.

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Mules v Ferguson [14.670]  Mules v Ferguson [2015] QCA 5. Ms Mules sought treatment for neck pain from her general practitioner on a number of occasions in early September 2008. The doctor advised her to continue taking her pain relief medication and to continue seeing her chiropractor. She did so. On 18 September, the doctor ordered a CT scan and after examining the photos said she had some curvature of the spine. She continued to decline until, on 25 September 2008, she was admitted to Cairns Private Hospital and the following day diagnosed with cryptococcal meningitis. Although the diagnosis came just in time to save her life, the treatment was too late to prevent irreversible brain damage, leaving the plaintiff blind and deaf. Ms Mules sued her general practitioner, alleging that her illness should have been diagnosed earlier, and, if this had happened, that this would have allowed her to avoid the resulting injuries. The trial judge agreed but said that the breach did not cause her injuries and also found that based on the evidence of the experienced general practitioners who gave evidence at the hearing, Dr Ferguson had established the peer professional opinion defence created by s 22 of the CLA (Qld). The Court of Appeal took a different view on both causation and the peer professional opinion defence. As to the peer professional opinion defence, the Court found that although there was evidence that two experienced general practitioners considered Dr Ferguson’s approach was consistent with a reasonable standard of general practice, they had based their opinions on assumptions that were consistent with Dr Ferguson’s version of events and not with the facts as found by the trial judge.

  

Damages [14.680]  The final element that a plaintiff must prove for an action in negligence to succeed is that: (a)

it was caused by the defendant’s negligence; and

(b)

it is appropriate for the “scope of the defendant’s liability” to extend to the loss or damage or injury.

Causation [14.690]  It is not enough for the plaintiff to establish the existence of a duty of care and its breach by the defendant. The plaintiff must also be able to prove that the defendant’s negligence caused the damage suffered. There is no requirement to prove with absolute certainty that the breach caused the loss. As pointed out earlier, the reform legislation also deals with the issue of causation. In New South Wales, s 5D(1)(a) of the Civil Liability Act 2002 (NSW) provides that the decision whether a breach of duty caused the particular harm involves a test or element of “factual causation”.19 The determination of factual causation under this provision is a statutory statement of the common law “but for” test of causation. The application of this test involves the consideration of a hypothetical situation, where the circumstances are the same as the

19

Wrongs Act 1958 (Vic), s 51(1)(a); Civil Liability Act 2003 (Qld), s 11(1)(a); Civil Liability Act 1936 (SA), s 34(1)(a); Civil Liability Act 2002 (WA), s 5C(1)(a); Civil Liability Act 2002 (Tas), s 13(1)(a); and Civil Law (Wrongs) Act 2002 (ACT), s 45(1)(a). The legislation in the Northern Territory does not deal with the matter.

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facts of the case except for the defendant’s negligence. If, in this hypothetical situation, the plaintiff would not have suffered damage then the defendant’s negligence is taken to be the effective cause of the plaintiff’s damage.

Strong v Woolworths Ltd

  

[14.700]  Strong v Woolworths Ltd (2012) 246 CLR 182. Kathryn Strong, who was disabled and required the use of crutches, was injured when the tip of her crutch came into contact with a chip lying on the floor of an area occupied by Woolworths in a shopping centre in Taree, NSW. She sued Woolworths and the occupier. The High Court held that even though the plaintiff could not show exactly when the chip was dropped, by showing that the probabilities were that the chip was dropped more than 20 minutes before the fall, she could satisfy her onus of proof.

[14.710] The High Court has affirmed that the main question in any inquiry into causation remains whether it was more probable than not that the defendant’s breach was the cause of the plaintiff’s loss. Where the defendant’s breach of duty is clear or admitted, the plaintiff will not fail on the causation issue only because there is no positive evidence establishing the causal link between the defendant’s breach and the plaintiff’s injury. The “but for” test was also applied in the following case, where there were two or more acts or events which would each have caused the plaintiff’s injury.

Richtoll Pty Ltd v WW Lawyers Pty Ltd (In Liquidation) [14.720]  Richtoll Pty Ltd v WW Lawyers Pty Ltd (In Liquidation) [2016] NSWCA 308. WW Lawyers Pty Ltd (WWL) acted for Ongoing Financial Services Pty Ltd (OFS) in relation to a loan for $4.5 million to Sanctuary Developments (Australia) Pty Ltd (Sanctuary), secured by a second mortgage over land (the Sanctuary Loan). Sanctuary defaulted on the Sanctuary loan, and OFS lost all of the principal sum it had advanced. The evidence is that the day after the Sanctuary Loan was executed, receivers were appointed to Sanctuary. WWL had conducted a search of the ASIC register before the Sanctuary Loan was executed, but did not conduct a further search prior to drawdown five weeks later by which time the appointment of receivers had been entered on the ASIC register. The trial judge found that although WWL breached its duty to OFS by failing to search the ASIC register shortly before drawdown OFS had failed to prove causation because the Court said it would have proceeded with a loan transaction despite its lawyer’s negligent conduct. It looked at a number of factors in coming to that conclusion including: ▶▶ ▶▶

▶▶

  

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▶▶

OFS was to engaging in high interest, short term “mezzanine” lending; OFS had an interest in distressed loans and little account of a borrower’s ability to service or repay the loan; the debt which led to the appointment of the receivers was not large relative to the impending loan; and the appointment of the receivers did not affect OFS’s security.

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[14.730]  The following case illustrates that even when a breach of the duty of care has been established, the causation hurdle must still be cleared and it is sometimes difficult.

Nouri v Australian Capital Territory [14.740]  Nouri v Australian Capital Territory [2018] ACTSC 275 (28 September 2018). The parents of a severely disabled child brought a negligence action against the Canberra Hospital. The child was born on suffering from trachea-​oesophageal fistula (TOF) which is an abnormal connection between the oesophagus and the trachea. The child’s disabilities are so severe that she requires 24/​7 care. The plaintiff mother had an ultrasound in the Hospital that confirmed she was pregnant with twins and that in the case of the female twin, some abnormalities were detected in relation to the foetal heart. A range of ultrasounds and other investigations were then carried out over the course of the pregnancy but at no time was the possibility of the female having a possible TOF raised. It was not until the twins were born that the baby girl was diagnosed with a TOF and only then were the consequences and prognoses explained to the plaintiffs. They claimed that had her disability been known to them in utero they would have elected to terminate the pregnancy. The issues were whether the hospital breached its duty of care (in failing to provide information on the condition) and, if so, in relation to causation, whether or not the parents would have had a termination when the information regarding the disability should have been provided to them.

  

The Court decided that the defendant Hospital had breached its duty of care but that the plaintiffs had failed in relation to causation because they did not prove that they could have, or would have, terminated the pregnancy when the Hospital should have been disclosed the information to them.

[14.750]  The reform legislation in New South Wales, s 5D(1)(b) of the Civil Liability Act 2002 (NSW) and in other States20 sets out an additional element for determining whether a breach of duty caused the particular harm. This requirement relates to the “scope of liability”. It involves a consideration of policy issues including the “remoteness of damage” question considered at common law to determine whether, and to what extent, a defendant should have to answer for the consequences of their negligent conduct.

Remoteness of damage [14.760]  For obvious reasons, it would not be sensible or practical for a defendant to be responsible for all the consequences of his or her negligent words or conduct. It would create the same “indeterminacy” problem that has concerned the courts in the past.21 Defendants could be liable for all the future consequences of their actions. To avoid this problem, the courts place a limit by using the concept of forseeability: a defendant is liable for the harm that is caused by the breach of a duty of care only if the harm was not too remote from the breach.

20

Wrongs Act 1958 (Vic), s 51(1)(b); Civil Liability Act 2003 (Qld), Pt 1, Div 2, s 11(1)(b); Civil Liability Act 1936 (SA), s 34(1)(b); Civil Liability Act 2002 (WA), s 5C(1)(b); Civil Liability Act 2002 (Tas), s 13(1)(b) and Civil Law (Wrongs) Act 2002 (ACT), s 45(1)(b). The legislation in the Northern Territory does not deal with the matter. 21 See Perre v Apand Pty Ltd (1999) 198 CLR 180 and Ultramares v Touche (1931) 255 NY 170.

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The test for determining whether the damage is too remote, and therefore not recoverable, is whether the damage was reasonably foreseeable by the defendant. A leading case on the issue is the decision of the Privy Council in Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388.

Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd

  

[14.770]  Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388. The defendant charterer of a ship negligently spilt a quantity of oil while it was being loaded. The oil floated on the surface of the water in Sydney Harbour. The oil was ignited by some molten metal falling from the plaintiffs’ wharf, where welding operations were being carried out, onto cotton waste floating in the oil which acted as a wick. The ensuing fire extensively damaged the plaintiffs’ wharf. The flashpoint of the oil was 170 degrees F and would not normally have ignited on water. The Privy Council held that the defendant charterer was not liable to the plaintiffs for the damage caused to their wharf. Although there was a clear causal connection between the events that took place, that was not enough. The defendant is only liable for the harm caused if the harm was of a kind that was reasonably foreseeable. The kind of damage resulting from the spillage of the oil was not reasonably foreseeable in the circumstances.

[14.780]  By way of contrast, in a later case relating to the same incident, the plaintiff owner of a ship which was damaged by the fire succeeded in an action against the negligent charterer where the shipowner proved that the charterer was aware that there was a real risk of fire damage as a result of the oil spill: Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The Wagon Mound No 2) [1967] AC 617 (PC). The difference in result between the two cases arose because in the first case the plaintiff wharf owners failed to prove that a reasonable man in the position of the defendant charterer would foresee the real risk of damage by fire as a result of the oil spill, whereas in the later case, the plaintiff shipowner did prove that the damage in question was reasonably foreseeable and therefore not too remote. The damage suffered by the plaintiff must have been reasonably foreseeable, or of the same type or kind as the foreseeable damage.

Rowe v McCartney [1976] 2 NSWLR 72 [14.790]  The plaintiff, at the defendant’s request, had allowed the defendant to drive her powerful car. The defendant drove negligently, struck a telegraph pole and suffered severe injuries that resulted in him becoming a quadriplegic. The plaintiff, who was a passenger in the car, incurred only minor physical injury. However, the plaintiff suffered mental illness brought on by her sense of guilt in allowing the defendant to drive her car.

  

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The New South Wales Court of Appeal held that the psychiatric illness suffered by the plaintiff was neither reasonably foreseeable, nor was it of the same type or kind of injury that was reasonably foreseeable in the circumstances. The type or kind of injury that would have been foreseeable was mental illness arising from nervous shock from seeing or hearing about the injury of another, or from shock or worry about her own injury.

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Defences to an action in negligence [14.800]  The principal defences to an action for negligence are: (a)

contributory negligence; and

(b)

voluntary assumption of risk.

Contributory negligence [14.810] At common law, contributory negligence was a complete defence. No compensation could be recovered where the plaintiff suffered damage partly through their own negligence and partly through the negligence of another. However, the defence of contributory negligence is now governed by legislation that allows for an apportionment of damage.22 For example, in New South Wales the Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 10 provides: “Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage.” Like actionable negligence, contributory negligence is the failure to take reasonable precautions against a foreseeable risk of injury. However, unlike actionable negligence, it does not involve a duty on the plaintiff’s part to avoid harm to others. Contributory negligence is concerned with the plaintiff’s failure to take precautions for their own safety. To be “contributory”, the plaintiff’s negligence must be causally relevant to the damage suffered. The reform legislation provides that the same principles that apply to determine a breach of duty to another are to be applied to determine whether there has been a failure to take reasonable care for one’s own safety.23 Contributory negligence is a special defence and must be pleaded by the defendant. The burden of establishing contributory negligence is on the party alleging it. The jury, or the judge (if there is no jury), apportions the damages. An assessment is made of the damages that would have been awarded if there had been no fault on the plaintiff’s part. This amount is then reduced by the percentage of the plaintiff’s contribution. The apportionment is worked out by a comparison of the party’s degree of departure from the standard of a reasonable man: Pennington v Norris (1956) 96 CLR 10. In New South Wales, the Civil Liability Act 2002 (NSW)24 alters the common law relating to contributory negligence by allowing a court to reduce a plaintiff’s damages by any contribution of the plaintiff to their own damage. A court may find

22

23

24

Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 10; Wrongs Act 1958 (Vic), s 26; Law Reform Act 1995 (Qld), s 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA), s 7; Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA), s 4; Wrongs Act 1954 (Tas), s 4; Law Reform (Miscellaneous Provisions) Act 1955 (ACT), s 15; Law Reform (Miscellaneous Provisions) Act 1956 (NT), s 16. Civil Liability Act 2002 (NSW), s 5R; Wrongs Act 1958 (Vic), s 62; Civil Liability Act 2003 (Qld), s 23; Civil Liability Act 1936 (SA), s 44; Civil Liability Act 2002 (WA), s 5K; Civil Liability Act 2002 (Tas), s 23. There is no corresponding legislation in either of the Territories. Civil Liability Act 2002 (NSW), s 5S; Wrongs Act 1958 (Vic), s 63; Civil Liability Act 2003 (Qld), s 24. There is no corresponding provision in the other States or Territories.

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that the plaintiff’s contribution was in fact 100%, which will have the effect that the defendant has no ultimate liability.25

March v E & MH Stramare Pty Ltd [14.820]  March v E & MH Stramare Pty Ltd (1991) 171 CLR 506. March sued to recover damages for personal injuries sustained when, around 1.00 am at night, he collided with the tray of a truck, owned by Stramere, that was parked in the centre of the road for the purpose of loading it with large wooden bins containing fruit and vegetables. March was intoxicated to such an extent that his ability to judge speed and distance was impaired. The primary judge found that, although the parking and hazard lights of the truck were illuminated, the driver should have appreciated that the parked vehicle might, in some circumstances, constitute a danger to oncoming vehicles. The High Court recognised that the “but for” test gives rise to a well-​known difficulty in cases where there are two or more acts or events which would each be sufficient to bring about the plaintiff’s injury. In the past, according to the “last opportunity” or “last clear chance” rule, the plaintiff was entitled to recover, despite his or her own negligence, if the defendant had the last opportunity of avoiding the accident but failed to do so due to negligence. If this principle were applied here, March would not succeed because he had the last opportunity to avoid the accident, but did not. Courts now readily recognise that there are concurrent and successive causes of damage and that it is a common sense approach that liability will be apportioned as between the wrongdoers. Thus, Stramere’s negligence was a cause of the accident and of March’s injuries. The wrongful act in parking the truck in the middle of the road created a situation of danger, the risk being that a careless driver would act in the way that the appellant acted. In these circumstances, the respondents’ negligence was a continuing cause of the accident. The Court concluded that March was responsible for 70% of his losses and Stramere 30%.

  

Alzawy v Coptic Orthodox Church Diocese of Sydney, St Mary and St Merkorious Church (No 2) [14.830]  Alzawy v Coptic Orthodox Church Diocese of Sydney, St Mary and St Merkorious Church (No 2) [2016] NSWSC 1123. Carolin Alzawy attended a bible study group that met in a building on the grounds of the Church of St Mary and Merkorious in Sydney. After the meeting, she descended a flight of stairs as she had done many times before. The staircase consisted of tiled steps with “nose tiles” laid on the outer edge of each tread and a handrail along the entire length. The “nose tile” on one of the steps had been broken four years earlier but never

25

Compare the decision of the High Court in Wynbergen v Hoyts Corporation Pty Ltd (1997) 149 ALR 25. Note the following legislative provisions governing the effect of the plaintiff’s intoxication on the standard of care and the defence of contributory negligence: Civil Liability Act 2002 (NSW), Pt 6; Wrongs Act 1958 (Vic), s 14G; Civil Liability Act 2003 (Qld), Pt 4, Div 2; Civil Liability Act 1936 (SA), s 46; Civil Liability Act 2002 (WA), s 5L; Civil Liability Act 2002 (Tas), Pt 2; Civil Law (Wrongs) Act 2002 (ACT), ss 95–​96; Personal Injuries (Liabilities and Damages) Act 2003 (NT), ss 14–​15.

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fixed. Ms Alzawy did not to use the handrail as she descended the stairs. Some way down the staircase, she fell forward, hitting her head forcefully on the metal handrail before falling down to the bottom of the stairs.

  

The trial judge was satisfied that the plaintiff had stepped on the broken tile when she slipped. As such, the broken tile itself, and the church’s failure to fix it, had caused the damage the plaintiff had suffered. The defendant was therefore held liable for the plaintiff’s injuries. However, the judge found a person descending a flight of stairs ought to take reasonable care for their own safety. In this instance, reasonable care included simple precautionary measures such as the use of the handrail and keeping a proper lookout. The plaintiff was found to have been 50% responsible for the injuries she suffered on account of her own contributory negligence.

[14.840]  In 1999, the High Court held that the apportionment legislation was concerned only with actions in tort, and did not affect actions based on breach of contract whether or not the plaintiff had or could have sued in tort:  Astley v Austrust Ltd (1999) 197 CLR 1. All jurisdictions have since amended their apportionment legislation to permit the apportionment of damages for breach of contractual duty of care in cases of contributory negligence.26

Voluntary assumption of risk [14.850]  Unlike contributory negligence, a successful plea of voluntary assumption of risk is a complete defence.27 The rationale behind this defence is that no wrong can be done to a person who consents. Over the years, the courts have limited the scope of this defence. It is not enough for the defendant to show that the plaintiff knew of the risk. The plaintiff must have fully appreciated the risk and accepted it freely and willingly. The strict requirements of the defence mean that it is now rarely raised successfully. In cases involving an obvious risk, the reform legislation applies to introduce a presumption of awareness of the risk on the part of the plaintiff and place the onus on the plaintiff to show he or she was not aware of that risk.28

Vicarious liability [14.860]  In certain circumstances, a person is regarded by the law as responsible for the acts or omissions of another person: such liability is known as vicarious liability. It is a form of strict liability as the person held responsible for the acts or defaults of another may not themselves have been personally at fault. Vicarious liability arises where a particular relationship exists between the person held responsible and the wrongdoer, the most common example being the relationship of employer and employee.

26 See Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9; Wrongs Act 1958 (Vic), s 26; Law Reform Act 1995 (Qld), s 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA); Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA), s 4; Wrongs Act 1954 (Tas), s 44; Civil Law (Wrongs) Act 2002 (ACT), s 102; Law Reform (Miscellaneous Provisions) Act (NT), s 16. 27 Note that this defence is made redundant in circumstances, where the following provisions apply: Civil Liability Act 2003 (Qld), s 48; Civil Liability Act 1936 (SA), s 47; Civil Law (Wrongs) Act 2002 (ACT), s 96. 28 Civil Liability Act 2002 (NSW), s 5G; Wrongs Act 1958 (Vic), s 54; Civil Liability Act 2003 (Qld), s 14; Civil Liability Act 2002 (WA), s 5N; Civil Liability Act 1936 (SA), s 37; Civil Liability Act 2002 (Tas), s 16. There is no corresponding legislation in the Northern Territory. The relevant provision in the legislation of the Australian Capital Territory deals with obvious risk only in cases involving equine activity: Civil Law (Wrongs) Act 2002 (ACT), Sch 3.

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An employer or master is vicariously liable for the acts or omissions committed by his or her employee or servant. However, an employer is not vicariously liable for the tortious acts committed by an independent contractor: Hollis v Vabu Pty Ltd (2001) 207 CLR 21. Accordingly, a distinction is drawn between servants and independent contractors. The general test used to determine the distinction between a servant and an independent contractor is what is known as the “control test”. If an employer has legal authority to tell a worker not only what to do but how to do, it then a master–​servant relationship will exist: Humberstone v Northern Timber Mills (1949) 79 CLR 389. Other factors can also be relevant such as the mode of remuneration (including who pays any income tax and superannuation), the power of dismissal, whether a uniform is worn, and the provision of equipment. The High Court found that Stevens v Bodribb Sawmilling Co Ltd (1986) 160 CLR 16 and Sweeney v Boylan Nominees (2006) 226 CLR 161 were both cases involving independent contractors. However, in Hollis v Vabu Pty Ltd (2001) 207 CLR 21, an employer/​employee relationship was present. In On Call Interpreters and Translators Agency Pty Ltd v the Commissioner of Taxation (No 3) [2011] FCA 366, the Court said that whether a person was an employee or an independent contractor was a practical question and depended on whether the person was performing the work as an entrepreneur who owned and operated their own business, or, worked in and for the employer’s business. This case was considering liability of the “employer” for superannuation payments and so any considerations that may apply to other types of cases, such as negligence causing injury to third parties, need to also be considered. This question of whether a person is an employee or an independent contractor is a very important issue in an era where businesses often contract out tasks and utilise labour hire arrangements. In circumstances where a worker is “borrowed” by another employer, the lending employer prima facie remains liable for the employee’s acts or omissions. A lending employer can only escape liability for the wrongdoing of a “borrowed” employee if he/​she can show that control over the employee has been effectively transferred to the “borrowing” employer. The vicarious liability of an employer is limited to acts or omissions that are committed in the course of the employee’s employment. It is not always easy to determine whether a servant’s act or omission took place in the course of their employment. Clearly, an employer will be vicariously liable for acts or omissions that they authorised or ratified. The notion of “course of employment” also covers conduct that can be regarded as an unauthorised mode of performing an authorised task. For example, the employer of a petrol-​tanker driver was held vicariously liable for the damage caused by a fire which ignited when the driver lit a cigarette when delivering petrol to an underground tank. The driver’s action was considered to be an unauthorised way of performing the authorised task, namely, delivering petrol: Century Insurance Co Ltd v Northern Ireland Road Transport Board [1942] AC 509. However, an employer will not be liable for an employee’s wrongdoing if it was unrelated to their employment. In New South Wales v Lepore (2003) 212 CLR 511, deliberate predatory sexual behaviour was not seen as having been committed in the course of the teacher’s employment.

Deatons Pty Ltd v Flew

  

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[14.870]  Deatons Pty Ltd v Flew (1949) 79 CLR 370. Where a barmaid threw a glass into the face of an inebriated customer who as a result lost the sight of an eye, it was held that the act was of a personal nature unconnected with the employee’s duties and therefore the employer was not vicariously liable for the injury suffered by the customer.

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Further reading RP Balkin and JLR Davis, Law of Torts (5th ed, LexisNexis, Sydney, 2013). A Clarke et al, Torts –​A Practical Learning Approach (3rd ed, LexisNexis, Sydney, 2013).

Tutorial activities 1.

What is a “tort”? Distinguish a tort from a contractual obligation and a crime.

2.

What are the four main elements of a negligence action?

3.

Distinguish between the duty of care owed in respect of: (a)

a negligent act causing physical or mental loss; and

(b)

a negligent statement causing pure economic loss.

4.

In Donoghue v Stevenson [14.70] why did May not sue the shop owner? What is the essence of the general test of the duty of care as explained by Lord Atkin in Donoghue v Stevenson? How did Lord Atkin explain the specific duty of care owed by a manufacturer to a consumer?

5.

In novel situations where the duty of care question has not been settled, what twofold or “composite” test is outlined by the High Court in Tame?

6.

Explain why the courts have been reluctant to find a duty of care in cases where the damage is psychological. Do you agree with the decisions in [14.200] and King v Philcox [14.210].

7.

Why were the courts reluctant to find a duty of care existed where the loss was pure economic loss?

8.

What is the standard of care that a person who owes a duty of care must meet? What is the statutory “two-stage” enquiry for determining whether the standard has been met?

9.

Actual damage or injury is an essential element of a cause of action in negligence. But for what damage is a defendant who has committed a breach liable? Outline the two-step approach used to assess whether a defendant is liable to compensate a plaintiff for their loss or damage.

10.

As part of an upgrade of the country rail network, VicRail, a government-owned enterprise with responsibility for running the network, automated all signal boxes. After the automation, no manual signalling at level crossings was possible. However, to minimise the risk in connection with driver error or brake failure, VicRail installed “piston-breaks” on each train. These were designed to halt a train very quickly where the brakes had failed or where a train was on a collision course approaching a level crossing. There was a slight risk of derailment. On 8 June 2015, Wang Li was travelling home to Geelong on a VicRail train when the brakes failed approaching the main level crossing. The “piston-breaks” were activated, but because the train stopped suddenly on a bend, several carriages were derailed. Wang Li was in one of those carriages. He was seated near an open window and was thrown from the train onto the embankment. He suffered horrific injuries. Many other passengers were also injured.



Police, ambulances and television crews were on the scene in minutes. Wang Li’s old friend, Jerry Guo, was watching the disaster as it unfolded on the television. The television camera focused on a badly injured person being rescued from the embankment. Jerry recognised Wang Li and saw the horrific injuries he had suffered. Jerry was traumatised and continues

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to suffer from post-traumatic stress disorder. After things settled down, both Wang Li and Jerry seek your advice about whether to sue VicRail in negligence. Please advise:

11.

(a)

whether VicRail owes Wang Li and/or Jerry Guo a duty of care; and

(b)

assume for the purposes of part (b)  only that VicRail owes a duty of care, whether VicRail breached its duty of care? [Note that VicRail, after conducting a cost–benefit analysis, rejected the installation of a sophisticated system of “catch-points” that would have significantly reduced the risk of derailment. To install the “catch-points” would have cost VicRail over $50 million and taken two years to install. The “piston-breaks” cost less than $2 million to install and could be done very easily and quickly.]

It was Chinese New Year. Han Wei decided to take his young 12-year-old nephew Jerry to Chinatown for Chinese New Year celebrations. They went to the Flower Pot to meet other members of the family, including his grandmother. The owner of the Flower Pot, Qi Yi, had just finished putting in a new, polished slate floor. He could have remained closed until the floor was “worn in”, but he did not want to disappoint his customers (or his wallet). He appreciated there was a risk that someone might slip on the new floor, so he erected a large sign that said, in Mandarin, “New slate floor…be very careful…it is slippery and there is a risk of injury”. Han Wei read the sign and walked carefully. Jerry could not read Mandarin, and, being 12, he ran quickly to hug his grandmother…and fell, hitting his skull and suffering brain damage. There is evidence that the slate used in the Flower Pot was unusually slippery. (a)

Advise whether Qi Yi has breached the duty of care he owes his customers.

(b)

Jerry’s grandmother witnesses the accident and, herself, suffers psychological damage after witnessing hr. Does Qi Yi owe her a duty of care?

12.

Pauline graduated from the KL Horticultural College with a major in floristry. Immediately after graduating, she set up her own cut flower business (“Blossoms”). In early 2015, things were going well, and she was thinking about expanding the business. She met Daniel Sloan, an accountant and financial adviser. They discussed Pauline’s expansion plans, and Daniel agreed to review her financial situation and prepare a business plan.



A month later, they met again. After Daniel had prepared some financials for Pauline and had researched the cut flower market, he advised Pauline that she was in a sound position to expand and recommended that she borrow money to set up a store in a trendy part of town. Pauline relied on him and decided to act on the advice. In January 2016, she borrowed $30,000 from Eastpac Credit, a small credit union that provided a loan and overdraft facilities. Eastpac relied on the financial statements prepared by Daniel. She then signed a fiveyear lease, bought some equipment and hired a firm to design a web page.



Then things went sour. Daniel admitted he had not adequately factored in her pre-existing debts, had underestimated the significant establishment costs associated with setting up a business in the area and the extent to which online florists had eroded the traditional retail market. Pauline has to terminate the lease (and pay six months’ rental) and default on the Eastpac loan. She has already spent $7,500 of her own money on the web page and other costs. Eastpac is faced with significant losses on the loan as much of the loan was unsecured.



Advise Pauline and Eastpac about their prospects of success in an action against Daniel in the tort of negligence.

13.

Jack is using a grader to excavate his backyard in preparation for a tennis court when he slices through an electrical cable. This affects the electricity supply to Kevin’s factory located

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nearby. Jack is aware of the factory but had no idea the cable ran through his block. As a result of the disruption, Kevin suffers a financial loss until the cable is repaired.

Advise Jack whether he owes a duty of care to Kevin.

14.

You are an accountant and financial planner. You owe a duty of care to your client, and, in this particular instance, you have breached that duty and your client has suffered financial loss. However, you argue that you were only doing what every other accountant and financial planner does. What protection does the “peer professional opinion” defence offer you? What do you need to prove in order for the defence to be accepted?

15.

Case study: Breast implants and ALCL



Silicone-based breast implants are marketed towards women to increase their breast size or as part of breast reconstruction surgery. However, recent studies have shown that women with breast implants may have an increased risk of developing serious complications including anaplastic large cell lymphoma (ALCL), a rare type of non-Hodgkin’s lymphoma. It usually involves a swelling of the breast, typically 3–14 years after the operation to insert the breast implant.



Manufacturers sold the silicone implants only after extensive clinical trials and a clearance by the Therapeutic Goods Administration. Manufacturers continue to deny that the implants cause ALCL.



Risk analysis:  based on the currently available data, it is not possible to provide an accurate estimate of risk. Current expert opinion puts the risk of ALCL at between 1:1,000 and 1:10,000. If 1:5,000 women (the middle of the experts’ range) is the best estimate of risk, this would mean that, of 5,000 women with implants, one will develop ALCL over a period of about 3–14 years following an implant; the other 4,999 women will not develop ALCL.



You are asked to advise Jane, who has had a breast implant and how has ALCL, what she would must prove in order to successfully sue the manufacturer in negligence. You may assume that the manufacturer owes a duty of care to consumers. If you need further facts, please indicate what you need and why.

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PART 5: BUSINESS RELATIONSHIPS

Chapter 15: Law of Agency Chapter 16: Law of Partnerships Chapter 17: Corporations Law

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chapter 15

Law of Agency [15.20] [15.100] [15.220] [15.420] [15.550] [15.600] [15.740] [15.860] [15.910]

Agency distinguished from other relationships ......................................................................  334 Creation of agency ...................................................................................................................................  337 Nature and scope of an agent’s authority ..................................................................................  340 Duties of an agent ...................................................................................................................................  348 Rights of agents ........................................................................................................................................  351 Liabilities of agents .................................................................................................................................  353 Termination of agency ..........................................................................................................................  358 Particular types of agents ...................................................................................................................  360 Statutory regulation of agents ..........................................................................................................  361

Introduction Figure 15.1 Principal Authorises agent to act

Third party

Agent

Contract created with principal. Agent drops out

Acts with third party on behalf of principal

  [15.10] An increasingly important concept in the commercial world is the concept of agency. Although we usually act for ourselves and are responsible for our own actions, it is also clear that for various reasons –​lack of time, lack of expertise, inability to be present –​we often rely upon or engage others to act on our behalf. When we do, we are acting through an agent and we are in the realm of agency law. We only need to think of real estate agents, sports and theatrical agents, stockbrokers, employees, travel agents and directors of corporations to appreciate that agency is crucial to many aspects of commercial life.

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The law of agency, a creature of the common law, allows one person to authorise another person to do any act that he or she has capacity to do themselves  –​negotiate or enter into contracts, receive information, perform work, buy and sell real estate or other property, and make representations –​ as if the principal were acting in person. However, the foundational principle of the law of agency is that the principal, who has chosen to conduct his or her business through an agent, must bear the consequences of that decision (and, naturally, the principal is entitled to the benefits created by the relationship). Agency is a consensual relationship. Therefore, the use of an agent by a principal will always be voluntary, even if a particular act by the agent is not authorised. In other words, a principal will not be bound by the acts of his or her agent, unless the principal has given authority to the agent to act on his or her behalf. If it were not so, we would all be vulnerable because we might be bound by the acts of a person who simply claimed to be acting on our behalf. This immediately raises the issue of the authority that an agent has to act on the principal’s behalf. This authority may be actual or apparent. Actual authority is the authority actually conferred on the agent (either express or implied) by the principal. Obviously, the principal is responsible for any contracts made by an agent acting within his or her actual authority. For example, a principal may instruct his or her agent (a stock broker) to enter into a contract to purchase shares up to a value of $1 million. The agent binds the principal if and when he or she does so. More problematically, the principal may be bound by the acts of an agent acting within his or her apparent authority. This is the authority that the agent appears to have but which, in fact, he or she does not have. The principal is responsible for the foreseeable consequences of the agent who acts outside of his or her actual authority but within his or her apparent authority. In the above example, if the agent purchases shares worth $1.3 million, the question will be whether the agent (who clearly does not have actual authority) has apparent authority to do what he or she did. If so, the principal will be bound by the acts of the agent. The principal may also be liable in tort for the actions of his or her agent. For instance, the partners in an accounting firm are both principals and agents for one another. So if, for instance, a partner were to provide negligent advice to a client or steal the client’s funds, the other partners may be liable (as principals) for the conduct of the partner (who was acting as an agent of the firm). A final introductory concept: an agency relationship is a fiduciary relationship, one in which the agent must always act in good faith towards the principal, putting the principal’s interests above his or her own interests and act under the control and direction of the principal at all times. In this chapter, we compare agency with other relationships and then examine various types of agency, look at how an agency relationship may be created and how it may be ended, explore in some detail the power and authority an agent may have and the various rights and responsibilities of each of the parties –​principal, agent and third parties.

Agency distinguished from other relationships [15.20]  Agency overlaps with two other relationships that appear at first sight to be somewhat similar, namely, that of employer and employee and that between an independent contractor and the person with whom he or she contracts.

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Employees and independent contractors are mutually exclusive classes. The former comprises persons employed on such terms that they are subject to control regarding the manner in which their work is to be carried out. Independent contractors, on the other hand, exercise their own discretion as to the manner in which they carry out the work they undertake to perform. The difference may be further illustrated by distinguishing between a person employed under a contract of service (an employee) and a person engaged under a contract for services (an independent contractor). There are many reasons why it may be important for an employer to distinguish between an employee (agent) and an independent contractor.

International Harvester Co of Australia v Carrigan’s Hazeldene Pastoral Co [15.30]  International Harvester Co of Australia v Carrigan’s Hazeldene Pastoral Co [1958] 100 CLR 644. Carrigan bought a machine from H & K, a machinery supplier, which described itself as the “agent” in that area for International Harvester (IH) products. However, H & K owned the machine it had bought from IH and which was onsold to Carrigan. When the machine broke down and the suppliers went bankrupt, the question arose as to whether the suppliers were acting as agents of IH. If so, Carrigan could sue IH as the principal.

  

The High Court decided that no agency relationship existed between IH and H & K. The fact that H & K described itself as an “agent” was not determinative –​the word was not used in a legal sense. One had to look at all the circumstances, including the control that IH exercised over H & K. 

[15.40]  Some independent contractors are agents for those who employ them and some employees are general agents for their employers, but it is not true to say that all employees or all independent contractors are agents for their employers. Employers risk breaching taxation, superannuation and workplace laws and regulations if they incorrectly classify a worker as an independent contractor rather than an employee/​agent. In the case of some types of employee, this will be readily implied, for example, a shop assistant employed to sell goods is an agent. On the other hand, an auctioneer (an independent contractor) retained to sell goods is an agent of the vendor but not an employee. Sometimes it will not be clear and, as in International Harvester, all the facts and circumstances will need to be considered. For instance, there is currently considerable doubt as to the legal status of Uber drivers –​are they independent contractors or employees? If the Uber driver is characterised as an employee, there are implications for leave and superannuation entitlements, workcover, workplace health and safety and so on. A person who is characterised as an “employee” has far greater rights (and responsibilities) than one who is characterised as an “independent contractor”. This is the central issue in ongoing litigation concerning Uber and its relationship with its drivers (whether they are employees of the company –​and therefore entitled to minimum wages, leave and superannuation etc –​or independent contractors)? An agent should also be distinguished from a trustee. Both act in a similar manner, that is, on behalf of other persons. However, although a trustee exercises their powers on behalf of beneficiaries, a trustee is not the agent of the beneficiaries. Thus, a trustee does not bring the beneficiaries of the trust into a contractual relationship with third parties that is the normal function of an agent. In dealing with matters relating to the trust, the trustee is considered a principal not an agent.

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Capacity to act as principal and agent [15.50]  There is a marked distinction between a person’s capacity to act as a principal and their capacity to act as an agent. Generally speaking, only those persons with full contractual capacity may employ an agent. Any person can be employed as an agent and can exercise any of the rights and powers conferred by the contract of agency, even though they may not have the necessary contractual capacity to bind themselves in similar negotiations. For example, although a minor is not able to bind herself or himself to certain contracts, a minor may be employed as an agent, and consequently may bind the principal to contracts he or she has entered into as agent. In respect of contracts to which a minor is able by law to bind herself or himself, it is permissible for the minor to appoint an agent for such purpose. A minor’s capacity to act through an agent is coextensive with the minor’s capacity to do the act that he or she purports to delegate. An agent cannot have greater powers conferred upon them than the principal has; if the principal is under some disability, the powers of the agent are equally limited according to the nature of such disability. Where the alleged principal is in fact incapable of giving authority to an agent to act on their behalf, an agent who represents that he or she has such authority is liable to the third party for breach of warranty of authority.

Classification of agents [15.60]  A general classification of agents is as follows: (a)

special agents;

(b)

general agents; and

(c)

universal agents.

These classifications have no special legal significance apart from illustrating the varying authorities of the agents mentioned. The real problem is the actual extent of the agent’s authority.

Special agents [15.70]  A special agent is one who is appointed for the performance of some special act, or to represent the principal in some particular transaction, such act or transaction not being in the ordinary course of the agent’s trade, profession or business as an agent. For example, P appoints A his agent for the purpose of procuring a truck suitable for towing; the only authority given to A as agent is that necessary to procure the type of truck mentioned.

General agents [15.80]  A general agent is an agent who has authority: (a)

to act for the principal in all matters, or in all matters concerning a particular trade or business, or of a particular nature; or

(b)

to do some act in the ordinary course of their trade, profession or business as an agent on behalf of the principal, for example, where a solicitor or broker is employed as such.

Universal agents [15.90]  A universal agent is one whose authority is unlimited to do such things which the principal may do through the instrumentality of another. Such types of agents are rare in practice and, when they do exist,

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they are appointed by extensive powers of attorney. The only limits which are imposed upon the authority of a universal agent are those which the law imposes with regard to the legality of the objects and the capacity of the parties in relation to contracts in general.

Creation of agency [15.100]  The relationship of principal and agent may be created in the following ways: (a)

expressly (ie by agreement)



(i)

by deed;



(ii)

by writing; and



(iii)

by word of mouth;

(b)

“holding out” or estoppel;

(c)

ratification;  or

(d)

operation  of law



(i)

agency of necessity; and



(ii)

agency arising by cohabitation.

Expressly By deed [15.110]  The appointment of an agent by deed (ie instrument under seal) is necessary where the agent is required to execute any instrument under seal on behalf of their principal, in which case the document creating the power is termed a power of attorney.1 A power of attorney is often given where a principal is going abroad and desires to leave another in charge of their affairs.

By writing [15.120]  An agent is often appointed in writing. In some cases, the appointment is required by statute to be in writing. For example, in most States agents employed to sell or buy land and agents employed to sell or buy businesses cannot sue for remuneration, that is, commission, unless the appointment of the agent is in writing.

By word of mouth [15.130]  A verbal offer followed by acceptance in writing or verbally is sufficient to conclude a contract of agency for most purposes other than those mentioned above. In practice, it is usually desirable that the appointment of an agent be in writing.

1

Powers of attorney to enable attorneys to deal with land under the Torrens system of registration in force in the various States require registration or deposit of copy. See Transfer of Land Act 1958 (Vic), s 94; Real Property Act 1886 (SA), s 156; Transfer of Land Act 1893 (WA), ss 143, 144. The corresponding provision in the Real Property Act 1900 (NSW), s 88 was repealed by the Real Property (Amendment) Act 1970 (NSW), s 13. As to dealings with land under the general law by attorneys, see Conveyancing Act 1919 (NSW), s 163; Instruments Act 1958 (Vic), Pt XI; Land Title Act 1994 (Qld), ss 132–​ 135; Registration of Deeds Act 1935 (SA), s 35; Property Law Act 1969 (WA), s 85; Powers of Attorney Act 2000 (Tas), requiring registration of powers to validate such dealings.

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Holding out or estoppel [15.140]  The relationship of principal and agent may arise between two persons by virtue of one, by words or conduct, “holding out” that the other is their agent or permitting the latter to do so. That is, where P, either by words or conduct, leads others to believe that A is P’s agent, then P will not be allowed to subsequently deny the authority of A to act as P’s agent where a third person has entered into an agreement with A on the faith of the representation that A was the agent of P:  Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. The question whether one person has led third parties to believe that another person is their agent is a question of fact to be decided upon the circumstances of each particular case:  Crabtree-​Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72.

Ratification [15.150]  The relationship of agency may also arise as a result of “ratification”. Where one person acts on behalf of another, without having authority to do the particular act, the person on whose behalf the act is done may, by “ratifying” it, render the act as valid and effectual as if it had been done by their duly authorised agent. This may arise where an agent has exceeded their authority. For example, where an estate agent enters into a contract for a lease for a term longer than the principal has stipulated, the principal may adopt the transaction and thus bind themselves to the unauthorised act of the agent. In order that the ratification may be effectual, the following rules should be observed: 1.

The acts must have been done as agent for and on behalf of the supposed principal:  Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68. For the legal position where an agent does not disclose to the third party that he or she is acting as an agent, see [15.660].

2.

The ratification may only be by a principal who was in existence at the time of the making of the contract. However, s 131 of the Corporations Act 2001 (Cth) provides that where a non-​existent company purports to contract and the company is within a reasonable time subsequently formed, the company may then ratify the contract.

3.

The principal must have the capacity to make the contract both at the date of the contract and at the date of ratification.

4.

Ratification must be of the whole contract. A principal cannot ratify that which is beneficial and reject the remainder:  Cox v Mosman [1909] QSR 45.

5.

Ratification must be with full knowledge of what has been done so that the inference may properly be drawn that the principal intended to take upon themselves the responsibility for such acts:  Marsh v Joseph [1897] 1 Ch 213.

Where the rules set out above are satisfied, ratification operates retrospectively to validate a previously unauthorised act. The position is the same as if the agent had been vested with authority at the outset.

Operation of law [15.160] An agency can arise by operation of law, that is, irrespective of assent or intent, in two main situations; namely, in cases of: (a)

necessity;  and

(b)

arising out of cohabitation.

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Agency of necessity [15.170]  The common law recognises that an emergency situation may occur which allows one person to bind another without the authority of the other. In such a case, an agency of necessity arises, not through any contract or agency agreement but from the relationship of the parties in the particular case. Four factors are essential to establish such an agency of necessity: 1.

A person must have been entrusted with another’s property.

2.

An immediate expense must be required for the preservation of the property, or there must be some commercial necessity for the action, that is, there must be an emergency.

3.

It must be commercially impossible or extraordinarily difficult to communicate with the owner of the property:  Sachs v Miklos [1948] 2 KB 23.

4.

The agent must act bona fide in the interest of the principal.

Great Northern Railway Co v Swaffield

  

[15.180]  Great Northern Railway Co v Swaffield (1874) LR 9 Exch 132. The plaintiff railway company agreed to deliver the defendant’s horse to a particular railway station. However, on arrival at the station at night there was no-​one to take possession of the horse on the defendant’s behalf. Accordingly, the plaintiff’s stationmaster sent the horse to a nearby livery stable. Subsequently, the plaintiff paid the stablekeeper his charges. It was held that the plaintiff had acted reasonably in placing the horse in the livery stable and was entitled to recover from the defendant the expense it had incurred in doing so.

Munro v Willmott

  

[15.190]  Munro v Willmott [1949] 1 KB 295. Another example of an agency of necessity is where the master of a ship is compelled to pledge (hypothecate) the ship in order to effect essential repairs to preserve the ship, or to sell damaged cargo which would be ruined if there was further delay. On the other hand, the fact that property (eg a parked car) may be causing a person inconvenience does not mean that such an emergency has arisen which compels its disposal.

Agency arising by cohabitation Debenham v Mellon

  

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[15.200]  Debenham v Mellon (1880) 5 QBD 394. In the case of a married woman cohabitating with her husband, and even in the case of an unmarried woman cohabitating with a man, the law presumes that she has his authority to pledge his credit for necessaries in all domestic matters ordinarily entrusted to a wife. It is possible for the man to rebut the presumption of such authority in various ways, for example, by showing that he had expressly warned the tradesman not to supply his wife, or de facto wife, that he had expressly forbidden her to pledge his credit or that he had provided her with a sufficient allowance to pay for necessaries.

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[15.210] The common law also recognised that a wife left without adequate means of support by her husband, for example, in the case of desertion, had the authority to pledge the husband’s credit for goods that she reasonably required for her maintenance. In New South Wales, South Australia, the Australian Capital Territory and the Northern Territory, the common law doctrine enabling a wife to pledge her husband’s credit has been abolished.2

Nature and scope of an agent’s authority Figure 15.2: Agent’s authority

The authority of an agent

Actual authority

Apparent authority

Express authority

Implied authority

Oral or written

“Necessarily incidental” to carry out tasks Usual authority that agents of that type have

Agent acting without authority

Principal not bound

Principal may ratify

[15.220]  The fact that an agency has been created does not mean that the principal is bound by all the actions of the agent. The principal will only be bound by those acts of the agent which fall within the scope of the agent’s authority. The principal will not be affected by what the agent does in excess of her or his authority, unless the principal subsequently ratifies the unauthorised act of the agent. Furthermore, if the agent acts outside their authority, the agent may be liable to the principal for breach of the contract of agency or to third parties for breach of implied warranty of authority. The following case is an example of the importance of determining the scope of an agent’s authority. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 (see [9.250]), the main issue was whether the principle of L’Estrange v Graucob applied. Alphapharm also submitted that Richard Thomson Pty Ltd was not acting within its authority when its employee signed the contract. If not, the Conditions of Contract that included the exclusion clause would not bind Alphapharm. The High Court rejected the argument and concluded that Thomson was acting as an agent for Alphapharm and acting within its authority. The Court said: 2 In New South Wales, the Married Persons (Equality of Status) Act 1996 (NSW), s 7 provides: “A married person does not, by reason only of the person’s status as a spouse, have authority to pledge the credit of the other spouse for necessaries or to act as agent for the other spouse for the purchase of necessaries”. See similarly, Law of Property Act 1936 (SA), s 104; Married Persons’ Property Act 1986 (ACT), s 5; Northern Territory, Married Persons (Equality of Status) Act 1989 (NT), s 5.

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“ ‘In contracting to obtain the supply of those services, Richard Thomson was acting for the benefit of Alphapharm. As Dixon AJ said in Press v Mathers [1927] VLR 326: ‘in any ordinary case the question whether one person authorized another to do an act or series of acts on his behalf is best answered by considering for whose benefit or in whose interest it was intended it should be done. Such a consideration may not be conclusive, but it is a useful practical starting point’. The evidence compels the conclusion that Alphapharm authorised Thomson to contract with Finemores and to agree upon rates of freight, terms of payment, and such other standard terms and conditions of the contract of storage and transportation as were required by Finemores. So long as the terms and conditions to which Richard Thomson agreed were Finemores’ standard terms and conditions then Richard Thomson was acting within its authority”. The authority of an agent may be: (a)

actual authority; or

(b)

apparent or ostensible authority.

Actual authority [15.230] Actual authority arises out of an agreement between the principal and the agent. The general nature and effect of the actual authority of an agent was explained by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 as follows: “An ‘actual’ authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the ‘actual’ authority, it does create contractual rights and liabilities between the principal and the contractor”. (emphasis added) The actual authority of an agent can be express or implied. That is to say, the actual authority of an agent is either: (a)

actual express authority; or

(b)

actual implied authority.

Actual express authority [15.240] The express authority of an agent is the authority the principal has expressly given the agent in words or writing, for example, where the principal gives the agent-​specific instructions to enter into a contract on the principal’s behalf or to purchase a particular piece of land at a stipulated price, or to sell a specific item. In other words, the agent’s authority may be specifically created and limited by the terms of the agreement which gives rise to the agency relationship.

Actual implied authority [15.250]  In addition to the express authority contained in the agency agreement, the agent may have a further implied authority to do whatever is necessarily incidental to carrying out the principal’s express instructions. For example, where an agent is expressly authorised to sell goods, the agent will also have

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implied authority to do everything in the usual course of business to complete the transaction, such as receive cash, issue receipts or arrange delivery of the goods. Furthermore, where a person employs a particular type of agent to carry out some act on behalf of the principal, the agent will have such implied authority as agents of that class normally have; that is, the agent will have the usual authority which agents of that particular profession or calling normally have to carry out their functions. For example, when the board of directors of a company appoints one of their number to be managing director: “They thereby impliedly authorise him to do all such things as fall within the usual scope of that office”:  Hely-​Hutchinson v Brayhead Ltd [1968] 1 QB 549. Similarly, a solicitor in a law firm is an agent and has the actual implied authority to carry out the tasks in respect of which she has actual express authority.

Hopcroft v Edmunds

  

[15.260]  Hopcroft v Edmunds (2013) 116 SASR 191. The respondents’ accountant sent a shareholders’ agreement to the appellants for signature. The respondents did not sign the agreement. The appellants argued that the accountant had authority to make an offer on the respondents’ behalf by sending the contract for their signature. It was held that the accountant did not have actual authority to bind the respondents. The respondent had told their accountant to “do whatever [is] necessary”: at [33]. The court held that such an instruction related only to ascertaining the necessary actions and preparing the necessary documents, not binding the respondents. The expectation that the respondents would need to have signed the agreement in order to be bound could only have been displaced by clear evidence of the accountant’s authority to bind them.

[15.270]  Implied authority is regarded as an aspect of an agent’s actual authority since such implications of implied authority are made on the basis that the principal has consented to the agent having authority to act in such a manner. If there is evidence that the principal has not so consented, for example, where the board of directors specifically limited the managing director’s authority in some respect, then to the extent of such limitation an implication of implied authority cannot be made. However, it may well be that in such a case the third party can rely on the agent’s apparent authority to enter into the particular transaction.

Apparent (or ostensible) authority [15.280]  Apparent (also known as ostensible) authority is conceptually distinct from actual (express or implied) authority. There is no actual authority, but instead the mere appearance of authority. It is a device to protect third parties who contract or otherwise engage with an agent based on the authority that he or she appears to have. This may be more important than the actual authority because third parties will often not be aware of the actual authority of an agent. Thus, where a principal represents either by words or conduct that an agent has authority to contract on the principal’s behalf, the principal will be bound by those acts of the agent which fall within that represented authority. The agent in such a case is said to act within the scope of their apparent or ostensible authority. This principle applies whether or not the agent has any actual authority, or such actual authority has been limited. The principal may specifically represent to the third party that a person has authority to act on the principal’s behalf, for example, where the principal tells the third party that a particular person has been

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authorised to negotiate for the purchase of goods on behalf of the principal. More often, however, the representation which creates the apparent or ostensible authority is representation by conduct, for example, by the principal permitting a person to act in the management or conduct of the principal’s business so that the third party is led to believe that such person has authority to contract on behalf of the principal. The courts have taken the view that if a principal allows or acquiesces in an agent occupying a particular position, for example, where the board of directors of a company permits one of the directors to act as a managing director without having been formally appointed, the agent will have apparent or ostensible authority to deal with third parties in a manner consistent with the functions and duties normally falling within the usual authority of the holder of such position. The leading case on this point is Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.

Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [15.290]  Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. Kapoor and Hoon formed the defendant company to purchase, develop and then resell the Buckhurst Park Estate in Berkshire, UK. The board of directors comprised Kapoor, Hoon and a nominee of each. The Articles contained a power to appoint a managing director but none was appointed. The development of the land was left to Kapoor who, with the knowledge of the board of directors, acted as managing director although he had never been formally appointed to the position. Kapoor employed Freeman and Lockyer, the plaintiff firm of architects. Kapoor had no specific authority to do this, either in the Articles or from the Board. When the architects claimed their fees from the company, the company refused to pay, arguing that Kapoor had no authority to employ the architects. The plaintiffs sued the company for payment of their fees. It was held by the Court of Appeal that the defendant company was liable for the plaintiffs’ fees. Diplock LJ first differentiated between actual and apparent authority. Actual authority arises from the relationship that exists between the principal and the agent. The third party does not affect the extent of actual authority. Provided the agent acts within the scope of his or her actual authority, the principal is bound by the acts of the agent. On the other hand, apparent authority arises from the relationship between the principal and the third party. The agent does not affect the extent of apparent authority. The extent of the authority depends on what the principal represents to the third party (expressly or impliedly, by words or conduct) about the authority of the agent. Once the principal relies on the representations by the principal, the principal cannot subsequently claim the agent did not in fact have that authority. The Court of Appeal rejected the submission that Kapoor had actual authority. There was no express authority to engage the architects and there was no implied actual authority, which might have existed had Kapoor been appointed managing director. However, the Court of Appeal unanimously agreed that Kapoor had apparent authority to engage the plaintiffs. Kapoor was the driving force behind the venture (Hoon was absent for most of the time) and evidence from the Board meetings indicated Kapoor should carry out all the acts necessary to make the venture a success. However, before, such authority exists, Diplock LJ set out four criteria that must be met:

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“… (1)  that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor; (2) that such representation was made by a person or persons who had ‘actual’ authority to manage the business of the company either generally or in respect of those matters to which the contract relates; (3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and (4) that under its memorandum or articles the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent”.

[15.300]  Thus, on the one hand, the law protects third parties by allowing them to rely on a principal’s representations about the agent’s authority (when those representations are inconsistent with the agent’s actual authority). On the other hand, the law is protecting principals, who otherwise may find themselves bound to a contract made by an agent who acted without authority, by stating (in Diplock LJ’s conditions 1 and 2) that for apparent authority to exist, someone with actual authority (usually the principal) must have represented that the agent is acting within his authority.

Williams Group Australia Pty Ltd v Crocker [15.310]  Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265. The recent decision of the NSW Court of Appeal involved a trading customer (Crocker) making a credit application to its supplier (Williams). The supplier required directors’ guarantees and a guarantee document was attached to the credit application. The directors of the customer had established an electronic signature system using “HelloFax”. The credit application (including the personal guarantee document) was returned to Williams with the electronic signatures of the directors attached, each of them having been purportedly witnessed by the customer’s administration manager. The customer defaulted and Williams looked to enforce the guarantees. Crocker successfully resisted the claim against him, arguing that “an unknown person” (in the company) had added his electronic signature to the credit application and the guarantee without his knowledge and without him giving that “unknown person” actual or apparent authority to do so. The decision was principally concerned with the issue of apparent rather than actual authority. It was accepted that Crocker had not given any actual authority to the “unknown person” to add his signature. The Court also decided there was no ostensible authority because that would require the “principal” (Crocker) to have made a representation to Williams of his authorisation of that other (unknown) person to affix his signature and for Williams to have relied on that representation.

  

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The Court found there had been no representation here. Williams simply assumed that the affixation of the signature was genuine and authorised. That assumption was aided by the fact that the office administration manager had apparently witnessed it. The Court was not prepared to find that Crocker’s failure to change his password had in effect provided anyone from his company with the means of affixing his signature to documents.

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[15.320]  Where a person is appointed to a particular position such person will have as part of their apparent authority all the usual authority of a person occupying that position.

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd

  

[15.330]  Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711. The secretary of a company (Fidelis) contracted with a hire-​car company (Panorama) to hire expensive cars, ostensibly to transport Fidelis’ clients from Heathrow airport to the company’s offices. In fact, the secretary had no actual authority to enter into such agreements and was using the cars for his own purposes. The hire-​car company sued Fidelis to recover the hiring charges. It succeeded. The Court of Appeal held that entering into contracts like this was within the usual authority of company secretaries and therefore within the apparent authority of this particular secretary. The Court said that a company secretary is an officer of the company with wide responsibilities. They may be seen to have authority to make representations and enter contracts on behalf of the company in respect of the day-​to-​day administration of the company. This would include such routine matters as hiring cars. So whilst a company secretary may not have actual authority to do such things, he or she has apparent authority.

[15.340]  A principal is bound by those acts of an agent that fall within the scope of the agent’s apparent authority even though the agent acted outside the terms of their actual authority. Where an agent occupies a particular office, or exercises a particular profession or calling the agent, by virtue of the position he or she holds, may have both implied actual authority and apparent authority to do a particular act binding on the principal. That is to say, although actual authority and apparent authority are independent of each other, in certain circumstances they may co-​exist and coincide in the same person. In such a case, the agent’s ostensible authority is likely to be wider than their actual authority (whether express or implied) which may be limited by the terms of the agreement between the agent and the principal:  Hely-​Hutchinson v Brayhead Ltd [1968] 1 QB 549.

Pacific Carriers Ltd v BNP Paribas [15.350]  Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451. NEAT Ltd sold legumes to an Indian grain trader, Royal Trading Company (RTC). While the cargo was in transit to India, the world price of legumes fell sharply and RTC delayed accepting the cargo and refused to pay the purchase price. The original bills of lading were not available to enable the cargo to be unloaded, and Pacific Carriers (the shipper) required bank-​endorsed letters of indemnity before releasing the cargo. NEAT and BNP Paribas (a large French merchant bank) signed letters of indemnity. Ira Dhiri, the documentary credits department manager at BNP signed for BNP and faxed them to Pacific allowing legumes to be released to RTC. Discharge of legumes occurred in stages then stopped. Pacific sustained losses and claimed against BNP, NEAT having become insolvent. BNP claimed that the indemnities were signed without its authority, and did not bind it. The High Court held that Ms Dhiri’s belief about what the documents were meant to convey was irrelevant. The question was what a reasonable person in Pacific’s position would have

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understood them to mean, based on their wording and the surrounding circumstances. Ms Dhiri had authority to sign and stamp documents verifying NEAT’s undertaking but no authority to sign letters of indemnity. However, nothing put Pacific on notice or inquiry as to her lack of authority. The High Court held that Ms Dhiri had apparent authority, Pacific reasonably relied on that authority, and therefore BNP was bound. “A kind of representation that often arises in business dealings is one which flows from equipping an officer of a company with a certain title, status and facilities … The holding out might result from permitting a person to act in a certain manner without taking proper safeguards against misrepresentation”.

  

[15.360]  The basis of apparent (or ostensible) authority is that there has been a representation of authority of the agent on which the third party relied. However, only someone who has the actual authority to make the representation can make the representation of authority. For example, in the case of a company, only a person who had actual authority (not apparent authority) to manage the business of the company can make the representation.

Crabtree-​Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd [15.370]  Crabtree-​Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72. ADMA was a family company. Bruce Williams Sr was the Chair of the Board. His son, Bruce Jr, was the managing director. The other son, Peter, had resigned as a director because he was a bankrupt, but continued to do the same work. Peter placed an order for machinery with Crabtree-​Vickers. The order was on ADMA’s standard form order. At the bottom of the form was Bruce’s printed signature, next to which was “per” and then Peter’s written signature. When ADMA backed out, Crabtree Vickers sued for breach of contract. One of ADMA’s defences was that there was no contract because Peter had no authority to place the order. He had no apparent authority because someone who had actual authority to enter into that contract had not made the representation. In the company the actual authority to enter into this contract rested with the Board. The managing director alone did not have actual authority and therefore could not represent that Peter had apparent authority. The High Court accepted this argument, relying on Diplock LJ’s judgment in Freeman and Lockyer.3

  

[15.380]  It has been held that the apparent authority of a solicitor includes authority to compromise a dispute on behalf of their client. Accordingly, the client will generally be bound by a compromise entered into by the solicitor with a third party, notwithstanding that the solicitor’s actual authority to compromise on behalf of the client had been withdrawn:  Waugh v HB Clifford & Sons Ltd [1982] 1 Ch 374. Even where the solicitor mistakenly exceeds the client’s instructions as to the amount of a proposed settlement, the client will generally be bound, unless it would be unconscionable for the party seeking to enforce the compromise to rely on it:  Buseska v Sergio (1990) 102 FLR 157. Where the plaintiff’s solicitor exchanged identical signed contracts that included terms to which the plaintiff had not agreed at the time of signature,

3

It is perplexing that a managing director may bind the corporation because it has clothed him with apparent authority (as in Freeman v Lockyer) but that same person is unable to represent that someone else has apparent authority.

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it was held that the plaintiff’s solicitor possessed ostensible authority to bind the plaintiff:  Zhang v VP302 SPV (2009) 223 FLR 213. A third party will generally rely on the apparent or ostensible authority of an agent when contending that the principal is bound by the acts of the agent, since: (a)

the third party will usually be unaware of the terms of the agreement between the principal and the agent, and therefore be unaware of the extent of the agent’s actual authority; and

(b)

the agent’s apparent or ostensible authority will be unaffected by limitations on the agent’s actual authority (whether express or implied) of which the third party was unaware. In other words, it is usually easier for the third party to establish that the agent acted within the scope of their apparent authority, rather than the agent’s actual authority.

Ratification [15.390]  A person may be an agent but act outside his or her actual authority. In these circumstances, the principal may retrospectively ratify (or adopt) the contract concluded with the third party. Such “ratification” can occur provided: ▶▶

at the time the subsequently ratified agreement was created, the agent represented to the third party that he or she was acting on the principal’s behalf;

▶▶

the principal had contractual capacity at the time of the creation and ratification of the contract; and

▶▶

the principal ratifies the whole contract.

Keighley, Maxsted & Co v Durant [15.400]  Keighley, Maxsted & Co v Durant [1901] AC 240. Keighley, Maxsted & Co authorised Roberts to buy wheat on a joint account for himself and Keighley, Maxsted & Co at or below a certain price. Roberts, on his own behalf, bought wheat from Durant at a higher price than the price for which he had authority. Roberts did not disclose to Durant that he was acting as an agent for Keighley, Maxsted & Co as well as himself. Keighley, Maxsted & Co, however, later agreed with Roberts to ratify his purchase and buy the wheat at the higher price but eventually failed to do so. Durant resold it at a loss and sued Keighley, Maxsted & Co for the loss. The issue was whether a contract made by an agent, purporting to act on his own behalf, and not on behalf of a principal, but having an intention to give the benefit of the contract to a principal, can be ratified by that principal, so that the principal becomes liable on that contract.

  

The House of Lords held that a contract made by an agent in his own name cannot be ratified. Lord Lindley noted the anomaly in holding a person bound to another of whom he knows nothing and with whom he did not in fact intend to contract. He said, “what Roberts intended was never disclosed to Durant and cannot be inferred from the nature of the transaction itself. His intention, therefore, cannot be allowed to affect the rights of the parties”.

Williams Group Australia Pty Ltd v Crocker [15.410]  (See facts at [15.310].) Williams also argued that Crocker had ratified the guarantee by his subsequent conduct after accessing the “HelloFax” system, seeing the list of documents

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and effectively “shutting his eyes” to the obvious fact that his signature had been applied to the guarantee. The Court held that for Crocker to be held to have ratified a document executed by someone else (but in his name), there must be “full knowledge of all the material circumstances”. Crocker did not have that level of knowledge. The mere fact of the email listing the documents from “HelloFax” was not enough to establish ratification for the reasons mentioned earlier (namely, the fact that the personal guarantee was not mentioned as opposed to the credit application itself).

Duties of an agent [15.420]  Every agent owes certain duties to their principal that varies in degree according to the nature of the agency or according to the express terms of the contract of agency. These duties include the: (a)

duty to follow the principal’s instructions;

(b)

duty to act in person;

(c)

duty to act in good faith;

(d)

duty to make full disclosure of any personal interest;

(e)

duty not to make a secret profit;

(f)

duty to exercise reasonable care and skill; and

(g)

several other duties.

Each of these duties will be examined in turn.

Duty to follow principal’s instructions [15.430]  The primary duty of every agent is to follow the principal’s instructions, written or verbal. An agent must comply with the provisions of the contract of agency before he or she will be entitled to remuneration. Failure to comply with the principal’s instructions, except where they are illegal, will render the agent liable for the loss suffered by the principal as a result of the breach.

Duty to act in person [15.440]  Every agent must act in person and, apart from the express or implied authority of the principal, or from particular usage, an agent has no authority to delegate their duties as agent to another. This is expressed in law by the maxim “Delegatus non potest delegare”, that is, a person to whom authority has been given cannot delegate that authority to another. Owing to the exigencies of business, this rule is relaxed in order to enable the agent in certain cases to delegate their powers and appoint a sub-​agent. The authority of an agent to delegate their duties may be implied in the following situations: 1.

Where by the usage of a trade an agent usually acts through other agents; for example, a country solicitor may employ a city agent whose acts will bind the client. However, where the principal forbids the employment of a sub-​agent, the agent has no authority to delegate.

2.

Where the duties to be performed by the agent are purely ministerial, and do not involve the exercise of any discretion or skill on the part of the agent in person; for example, collecting rents.

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3.

Where from the nature of the transaction it is clear that the parties intended, or may be reasonably presumed to have known, that it might be necessary to act through a sub-​agent.

4.

Where unforeseen circumstances arise which necessitate the agent delegating. The necessity must be urgent and the sub-​agent must be appointed with discretion.

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Duty to act in good faith [15.450]  An agent occupies what is called a fiduciary position. A fiduciary relationship exists between one person and another where the former is bound to exercise rights and powers in good faith for the latter. An agent’s duty to make full disclosure of any personal interest and not to make a secret profit, discussed separately below, are really aspects of the agent’s basic duty to act in good faith. The agent is under a duty in all cases to act in the interests of the principal and must not allow their own interests to conflict with those of the principal.

Lintrose Nominees Pty Ltd v King [15.460]  Lintrose Nominees Pty Ltd v King [1995] 1 VR 574. The respondent purchaser had bought property from the appellant vendor on the advice of an agent to whom the purchaser had paid a fee for the advice. Unknown to the purchaser, the vendor had also retained the agent to sell the property.

  

The Full Court of the Supreme Court of Victoria held that the purchaser was entitled to rescind the contract of sale with the vendor. “[T]‌he vendor could not properly sell its property through its agent, knowing that the agent was retained to advise the purchaser on the purchase, without knowing also that the dual allegiance of the agent was disclosed to the purchaser”.

[15.470]  The proper course to be adopted by every agent upon entering into an agreement to act on behalf of another is to consider whether he or she has any personal interest in the matter which might conflict with the duty owed to the intended principal and, if so, he or she should decline to act as agent.

Duty to make full disclosure of any personal interest [15.480]  An agent must disclose to the principal all the material circumstances of which they are aware which might influence the principal in entering into any negotiation. If the agent fails to make such disclosure, he or she is not entitled to commission:  Dargusch v Sherley Investments Pty Ltd [1970] Qd R 338. Any profit received by the agent resulting from non-​disclosure is recoverable by the principal on learning the true facts:  Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815. Should any question arise as to the validity of any transaction on this score, the onus lies upon the agent to prove that they acted bona fide and also that they made full disclosure of all material facts. After the termination of their employment, an agent may not use information acquired in the course of the agency in a manner prejudicial to the interests of the principal:  Robb v Green [1895] 2 QB 315.

Duty not to make a secret profit [15.490]  A fundamental duty of an agent is not to use their position to make a gain for themselves without the knowledge and assent of the principal. In the case of Parker v McKenna (1874) 10 Ch App 96, James LJ said:

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“No agent in the course of his agency, in the matters of his agency can be allowed to make any profit without the knowledge of his principal; … that rule is an inflexible rule and must be applied inexorably by this court, which is not entitled, in my judgment, to receive evidence, or suggestion or argument as to whether the principal did or did not suffer any injury in fact, by reason of the dealing of the agent”.

Regal (Hastings) Ltd v Gulliver [15.500]  Regal (Hastings) Ltd v Gulliver [1942] UKHL 1. The defendants were the directors of Regal, a company which operated a cinema. It created HAC, intending it to be a subsidiary, to acquire the leases on two cinemas nearby. However, because the company itself did not have sufficient money, the directors and the company solicitor personally paid for 60% of the shares in HAC. HAC acquired the cinemas, and then both were sold off to the plaintiff [Gulliver] for a tidy profit. The plaintiff, as the new management of Regal, sued the ex-​directors and solicitor, seeking an account of profits made on the sale of their personal shares in HAC, saying that this profit was in breach of their fiduciary duty to the company. The four directors were ordered to disgorge the profit they made from the sale of shares because they had acquired the shares through their positions as directors. The House of Lords said that the rule of equity, which insists on those who by use of a fiduciary position make a profit being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or considerations as to whether the property would or should otherwise have gone to the plaintiff. The liability arises from the mere fact of a profit having been made. Lord Wright put the ethical responsibilities of fiduciaries well in the following statement:

  

“Once, it was said, they came to a bona fide decision that the appellant company could not provide the money to take up the shares, their obligation to refrain from acquiring those shares for themselves came to an end. With the greatest respect, I feel bound to regard such a conclusion as dead in the teeth of the wise and salutary rule so stringently enforced in the authorities. It is suggested that it would have been mere quixotic folly for the four respondents to let such an occasion pass when the appellant company could not avail itself of it…(however) the person in the fiduciary position may be the only person in the world who could not avail himself of the opportunity”.

[15.510]  Should the agent receive a secret commission or profit, the principal may recover it as well as dismiss the agent without notice. Where the agent desires to act for both vendor and purchaser and to obtain commission from both, the agent must make full disclosure to each party of her or his intention to act for and receive payment from the other, and must obtain the assent of each party for so acting:  Fullwood v Hurley [1928] 1 KB 498. This general principle applies unless a special usage or custom which is notorious, certain and reasonable is proved to the contrary. Thus, it has been held that a firm of stock and share brokers were entitled as a matter of custom, which had been established to be sufficiently notorious and certain and which was reasonable in the circumstances of the case, to “marry” or cross certain selling and buying orders for shares without express reference to the respective clients. Where such custom is established, it would seem that the share broker is entitled to commission from both the seller and the buyer of the shares:  Jones v Canavan [1972] 2 NSWLR 236.

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Duty to exercise reasonable care and skill [15.520]  An agent who is employed for remuneration is presumed to have and is bound to exercise such skill, care and diligence in the performance of the undertaking as is usual or necessary for the ordinary or proper conduct of the profession or business in which the agent is employed, or is reasonably necessary for the proper performance of the duties. If the agent fails to exercise the requisite care and skill in carrying out the terms of the contract of agency, the agent will be liable to the principal for the loss sustained by the latter as a result of the agent’s breach of duty.

Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp

  

[15.530]  Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp [1984] WAR 365. An insurance broker was instructed by a client to obtain unqualified insurance cover against damage caused by storm and flood. Unknown to the client, the broker obtained insurance cover excluding flood caused by the sea. Subsequently, the client suffered loss as a result of flooding by the sea in a cyclone but the insurance company avoided liability by virtue of the exclusion clause. The broker was held liable because of his failure to exercise reasonable care and skill in effecting the insurance.

Further duties [15.540]  Further duties of the agent are: (a)

to take such care in keeping the property (which includes money) of the principal as a reasonably prudent person would take in caring for their own property;

(b)

to keep all moneys and property of the principal separate from their own;

(c)

to keep separate accounts of all dealings on behalf of the principal, and to have such accounts ready for inspection by the principal, and, subject to the agent’s right of lien, to hand over to the principal, if so required, all moneys, papers and documents relating to the principal’s affairs; and

(d)

to preserve confidentiality in all matters coming to their knowledge whilst acting as agent:  Weld-​ Blundell v Stephens [1920] AC 956.

Rights of agents Right to remuneration [15.550]  The amount of remuneration for an agent depends upon the agreement made between the principal and the agent. In commercial transactions, remuneration often takes the form of a percentage commission on the value of the transaction. In order to determine the agent’s right to commission, the terms and circumstances of the appointment must be examined as the agent may be entitled to remuneration only if he or she completes the sale, or again, in special cases, commission may be payable if the agent simply brings the parties together. Further,

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there may exist a time limit for the completion of the contract or the remuneration may be of a continuous nature payable on all further business arising from the same source.

Agent must be effective cause of sale [15.560]  The transaction in relation to which the agent claims remuneration must not only come within the scope of the agent’s authority but the transaction must have resulted from the services he or she has rendered. The agent must, in effect, have been the means whereby the two contracting parties were brought together and entered into a legally binding contract:  Luxor (Eastbourne) Ltd v Cooper [1941] AC 108. That is to say, the agent must have been the effective cause of the sale to be entitled to remuneration. This principle is illustrated by the following case:

L J Hooker Ltd v W J Adams Estate Pty Ltd [15.570]  L J Hooker Ltd v W J Adams Estate Pty Ltd (1977) 138 CLR 52. The respondent company was the owner of a property in Sydney and engaged the appellant real estate agent to find a purchaser for it. The appellant introduced the property to company A that made several unsuccessful offers to purchase it. Meanwhile, the respondent was negotiating for the sale of the property to company B that the appellant had not introduced. On company A and company B learning of each other’s interest in the property, they entered into a joint venture agreement for the purpose, inter alia, of avoiding the risk of forcing up the price by competing bids. The joint venture agreement provided that each company would continue to negotiate upon agreed terms and conditions with the respondent, and that upon one of the companies becoming the purchaser, that party would complete the purchase and carry out the redevelopment of the site with the other on an equal basis. Neither the appellant estate agent nor the respondent owner was then aware of the joint venture agreement. The respondent owner eventually sold the property to company B. The appellant then sued the respondent to recover commission. It was held by a majority of the High Court that the appellant estate agent was not entitled to recover any commission as it had not been an effective cause of the sale to company B, nor of any sale of any interest in the property to company A. The Court said:

  

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“The proper analysis in the present case … is that company A, without the intervention of the appellant or the knowledge of the respondent, agreed with company B to acquire an interest in common with company B in the whole of the property upon its purchase by company B. The situation is not comparable to a sale by a vendor to a purchaser of part of the property, where that purchaser was introduced to the property or the vendor by the agent. Further, it seems to me that in this case the acquisition by company A of an interest in the property as joint purchaser would not entitle the appellant to commission simply because the appellant had introduced company A to the property and to the respondent. In my opinion, the acceptance by the respondent of company A as a purchaser would be indispensable to the success of the appellant’s claim … I am unable to accept the conclusion that, because company A  made an agreement with company B through which it acquired an interest in the property the subject of sale by the respondent to company B, the appellant is entitled to any commission upon that sale. The argument that the appellant was an effective cause of the sale to company B is to my mind completely unacceptable”.

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Right to indemnity and reimbursement [15.580]  Every agent is entitled to be indemnified against all losses and liabilities sustained, and to be reimbursed for all expenses lawfully incurred in the carrying out of the principal’s instructions. Attention is drawn to the word “lawfully” for where the agent has acted outside the scope of her or his authority, or has engaged in an unlawful act, or suffered loss through their own negligence or default, the agent has no claim to be reimbursed or indemnified.

Right of lien [15.590] An agent has what is called a particular lien on such property of the principal as comes into the agent’s hands for the due payment of all expenses and remuneration lawfully incurred by the agent in transacting the principal’s affairs. However, the transactions must relate to the property over which the agent desires to exercise a lien. The agent may have a general lien extending to all claims arising out of the agency either by express contract or by usage.

Liabilities of agents [15.600]  An agent may incur liability: (a)

to the principal; and

(b)

to third parties.

Liability of agent to principal Figure 15.3: Liability of agent to third parties

Liability of agent to third parties

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Doctrine of undisclosed principal

Breach of warranty of authority

Third party can sue either principal or agent

If agent acts without authority, third party may sue agent for damages

Tort/ACL

Third party may sue agent (or principal) for misrepresentation, misleading conduct or unconscionable conduct of agent

Third party may sue agent (or principal) for tortious acts of agent

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[15.610] The general position is that the agent is an intermediary who is employed to negotiate some transaction on behalf of one person with another in order to effect the completion of a contract between them. Generally, the agent incurs no liability to the principal in regard to the contract. However, where the agent disobeys the principal’s instructions, the agent will be liable for the loss suffered by the principal as a result of the breach of the contract of agency. Furthermore, where the agent is negligent in carrying out their duties, the agent will be liable to make good the damage suffered by the principal as a consequence of the agent’s negligence:  Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp [1984] WAR 365. Any confidential knowledge acquired by an agent during the course of the agency should not be used by the agent or made available to third parties, and should the agent do so, he or she may be liable in an action for damages.

Liability of agent to third parties [15.620]  The agent’s liability towards third parties depends upon the agent’s method of contracting and in particular as to whether: 1.

The agent discloses the name of the principal.

2.

The agent does not disclose the name of the principal but does disclose the existence of the principal.

3.

The agent does not disclose the existence of any agency, that is, where the agent acts as if he or she were a principal.

Name of principal disclosed [15.630] Where the agent discloses the name of the principal, the contract is deemed to be that of the principal, and the agent is not liable on the contract except: (a)

where the agent contracts outside the scope of their actual or apparent authority, in which case the agent will be liable to the third party in damages for breach of warranty of authority (discussed at [15.670]);

(b)

the agent agrees to be liable;

(c)

usage or custom makes the agent liable;

(d)

the agent contracts by deed in their own name; or

(e)

where the principal is in fact non-​existent.

Regarding (e)  above, if a person professes to contract on behalf of a principal and the principal is a fictitious or non-​existent person, the person is presumed to have intended to contract personally, unless a contrary intention is proved; and where the contract is in writing, such contrary intention cannot be proved by oral evidence, but must appear from the terms of the contract or from the surrounding circumstances. The fundamental question must be what the parties intended, or must be fairly understood to have intended; thus, where the intention is that the contract be made by the company, and the person who signs “For and on behalf of” the company does not purport to contract as agent, he or she will not be personally liable on the contract:  Miller Associates (Australia) Pty Ltd v Bennington Pty Ltd [1975] 2 NSWLR 506.

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Kelner v Baxter

  

[15.640] In Kelner v Baxter (1866) LR 2 CP 174. The promoters of a company entered into a contract to buy goods, the contract being signed by them “on behalf of the proposed Gravesend Royal Alexandra Hotel Company”. It was held that, as the contract was not contingent upon the company being formed, the only persons who could be liable were the promoters.

Existence but not name of principal disclosed [15.650]  The general rule is that where the agent discloses the fact that a principal exists but not the name of the principal, the agent’s liability, provided he or she contracts as agent, is similar to the cases where the name of the principal is disclosed. If the third party contracts knowing there is a principal and yet does not ascertain the principal’s name, the third party cannot sue the agent:  Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232. In other words, the agent’s liability is the same, provided he or she contracts as agent, whether or not the principal’s name is disclosed. This principle may alter where the custom of trade makes the agent personally liable.

Existence of principal not disclosed [15.660]  Sometimes an agent does not disclose to the third party that he or she is acting as an agent. Accordingly, the third party believes that the person they have been negotiating with is the other party to the contract, whereas in reality such person is acting on behalf of an undisclosed principal. In such a case, either the undisclosed principal or the agent can sue or be sued on the contract, unless the contract between the agent and the third party expressly or impliedly excludes the rights of persons other than the agent to be a party to the contract:  Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141. However, the legal rights and obligations of the undisclosed principal only arise where the agent was in fact her or his agent at the time of the transaction, that is, where the agent had actual authority from the principal to enter into the contract. An undisclosed principal cannot purport to ratify as the act of their agent a transaction entered into without their authority by one who purports at the time to be a principal and does not disclose that he or she is an agent:  Keighley, Maxsted & Co v Durant [1901] AC 240. The general principles applying to undisclosed principals were summarised in Siu Yin Kwan (Administratrix of the Estate of Chan Ying Lung, Decd) v Eastern Insurance Co Ltd [1994] 2 AC 199: “(1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2)  In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4)  Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal”. While at the outset it is open to the third party to hold either the agent or the undisclosed principal liable on the contract, once the third party has elected to hold liable either the agent or the principal, the third party is then irrevocably bound by the election and cannot afterwards charge the other on the contract.

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Where the third party sues and recovers judgment against the agent on the contract, the third party is conclusively deemed to have elected to hold the agent liable and cannot thereafter sue the undisclosed principal. Where the third party has not sued the agent to judgment, the question whether the third party has so elected or not is a question of fact depending on the circumstances of the particular case; the mere fact that the third party has commenced an action against the agent is not of itself conclusive although it may be some evidence of an election. The undisclosed principal may intervene and sue on the contract unless the contract is such as to be entirely inconsistent with agency. The undisclosed principal may be met with any right of set-​off which the third party has acquired against the agent before the third party discovered the existence of the principal. Where an agent contracts in such a manner as to make themselves personally responsible, the agent will be liable whether the principal was or was not known at the time of the contract, for example, where the agent signs a bill of exchange in their own name instead of on behalf of the principal.

Breach of warranty of authority [15.670]  So long as the agent does not exceed their authority, the agent will not be personally liable to persons with whom he or she deals. It is a complete answer for the agent to show that he or she acted only as an agent as the other party well knew, and that everything they did was within the scope of their authority. Where an agent represents, either expressly or impliedly, that he or she has authority to enter into a particular transaction and a third party relies on that representation of authority, the agent is taken to warrant that such representation is true. If it is in fact untrue, the agent is liable in damages for breach of warranty of authority. The measure of damages is the actual loss sustained by the third party. It will be no defence that the agent acted innocently or in mistake as to the precise extent of the authority conferred upon her or him. A person who purports to act as an agent impliedly warrants that they have authority and is liable for breach of that warranty even though their authority has come to an end by reason of facts of which they have no knowledge or means of knowledge:  Yonge v Toynbee [1910] 1 KB 215. However, the agent is not liable where the other party knew of the agent’s lack of authority:  Weigall & Co v Runciman & Co (1916) 85 LJKB 1187.

Liability of principal and agent for misrepresentations [15.680]  Where an agent is engaged to sell property, it will normally fall within the scope of the agent’s ostensible authority to describe the nature and quality of the property the agent is selling on behalf of the principal. Accordingly, if the agent’s representations are untrue, the vendor will be liable to the purchaser for the loss suffered by the purchaser as a result of relying on the agent’s representations:  Aliotta v Broadmeadows Bus Service Pty Ltd [1988] ATPR 40-​873. Where the agent made a negligent misrepresentation that was relied on by the purchaser, the agent will be liable in damages to the purchaser for the loss suffered. For example, a real estate agent for the vendor of a business was held liable to the purchaser for negligent misrepresentations made by the agent as to earnings of the business:  Roots v Oentory Pty Ltd [1983] 2 Qd R 745. A principal is vicariously liable for a tort committed by an agent where the agent has acted within the scope of his or her actual or apparent authority. The liability of the principal includes liability for the negligent misrepresentations of their agent. For example, the vendor of a building was held vicariously liable to the purchaser for damages because of the negligent misrepresentation made by the vendor’s agent as to the

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“lettable” floor space of the building:  Thompson v Henderson & Partners Pty Ltd (1990) 58 SASR 548. In the latter case, the agent was also held liable to the purchaser; furthermore, the vendor was entitled to an indemnity from the agent in respect of the vendor’s liability to pay damages to the purchaser. The representations of an agent may also constitute, in an appropriate case, misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law4:  Aliotta v Broadmeadows Bus Service Pty Ltd [1988] ATPR 40-​873). Where an agent’s representation to a third party comprises information provided to the agent by their principal, the agent will be entitled to an indemnity from the principal in the event of the agent being liable to the third party because the representation proves to have been untrue. In such a case, the agent would have the ordinary right of indemnity of an agent against a principal where the agent has acted within the scope of their authority.

Liability of principal and agent for wrongful acts [15.690]  An agent is liable for their tortious acts but the principal will also be liable for any tort committed by the agent where the agent has acted within the scope of their actual or apparent authority, whether the tort was committed for the benefit of the principal or of the agent. The liability of the principal includes liability for the negligence or negligent misrepresentations of their agent (see [15.680]). The principal will also be liable for the fraudulent conduct of their agent where such was committed within the scope of the agent’s apparent authority.

Royal Globe Life Assurance Co Ltd v Kovacevic

  

[15.700]  Royal Globe Life Assurance Co Ltd v Kovacevic (1979) 22 SASR 78. An insurance agent persuaded Kovacevic to enter into certain life assurance proposals. Kovacevic paid the agent an initial premium and was given a receipt for the amount by the agent from a receipt book provided by the insurance company. Some months later, the agent again approached Kovacevic and invited him to invest moneys on loan with the insurance company. The agent told Kovacevic that a deposit of moneys with the company would return a higher rate of interest and give Kovacevic the right to obtain from the company a loan on mortgage for the purchase of a house. Kovacevic paid the agent $2,000 and was again given a receipt from the agent’s receipt book. The agent misappropriated the money and disappeared and Kovacevic sued the insurance company for the $2,000. It was held that the agent had received the money from Kovacevic in the course of his employment by the insurance company, which was accordingly liable to Kovacevic for the agent’s fraud.

[15.710]  Thus, the principal may be liable in tort for damages if the agent is guilty of a wrong or deceit or fraudulent misrepresentation. The fraud may be the fraud of the principal in instructing the agent that a certain fact is true, whereas it is actually untrue; or it may be the fraud of the agent in taking upon themselves to say that it is true, whereas the agent knows that it is untrue. In either case, the principal is liable.

4 The Australian Consumer Law is Sch 2 to the Competition and Consumer Act 2010 (Cth) (formerly, the Trade Practices Act 1974 (Cth)): see Chapter 13.

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A principal will not be liable for the fraud of an agent where the agent was not authorised to do the act; where the act was not within the class of acts that an agent in their position is usually authorised to do; and the principal has done nothing to represent that the agent had authority to do the act:  Armagas Ltd v Mundogas SA [1986] 1 AC 717. Similarly, a principal will not be liable for other wrongful acts of an agent that are outside the agent’s actual or apparent authority, for example, where an agent commits an unauthorised assault upon third parties:

Deatons Pty Ltd v Flew

  

[15.720]  Deatons Pty Ltd v Flew (1949) 79 CLR 370. D conducted a hotel in which it employed B as a barmaid. P, a customer in the hotel, acted in an offensive manner and B asked him to go away. In the course of an altercation, B threw a glass of beer and then the glass itself in P’s face. It was held that, whether or not B had been provoked as D alleged, B was not acting within the scope of her employment in doing what she did and that accordingly D was not liable to P in damages.

[15.730] A principal (or employer) will not be liable for the negligence of an agent (or employee) who acts without any authority and in their own interests and not on behalf of the principal (or employer):  Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462 (PC).

Termination of agency [15.740]  The time when, and the circumstances upon which, the relationship of principal and agent will end depend upon the terms of the original contract of agency.

Performance or completion of agency [15.750]  Where the agent is appointed either for the performance of one specific act, or for the duration of a definite period, then the authority of the agent will extend only until such act has been done, or the specified period has expired.

Impossibility of performance [15.760]  Where it becomes impossible for the agent to carry out their obligations, for example, where the subject matter of the agency is destroyed, the authority of the agent must cease there and then, for example, where the building that an agent has been instructed to sell is destroyed by fire.

Agreement [15.770] Whilst the agency is still current, both the principal and agent may mutually agree to its termination.

Revocation [15.780]  In most cases, the appointment of an agent will be revocable. In fact, the general rule is that the authority of an agent may be revoked by the principal, or the agent may revoke the agency agreement, even

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if it is agreed by their contract to be irrevocable. But neither notice of revocation nor notice of renunciation will affect any rights or liabilities that may have been created between the principal and third parties prior to the notice. The right of the principal to revoke the agent’s authority may be limited or affected by the rights of: (a)

third parties; and

(b)

the  agent.

Rights of third parties [15.790] The principal may be liable to third parties even after the principal has validly revoked the authority of the agent, where such parties have had previous dealings with the agent and continue to deal with the agent without notice of the withdrawal of the agent’s authority. An example would be where a commercial traveller had authority to collect the debts of their firm and was dismissed without the firm notifying the customers of the termination of the traveller’s authority. The traveller continues to call and receive from the old customers, payment of their accounts supposedly for the firm. The traveller’s action would bind the firm as payment to the traveller would be held as good payment to the firm as regards customers unaware of the traveller’s dismissal.

Rights of the agent [15.800]  The right of the principal to revoke the authority of their agent may be limited by the principal’s obligation to indemnify the agent against any loss or damage the agent may have suffered as a result of their employment, for example, expenses in advertising, etc, connected with the agency. Further, the agent may be entitled to claim for loss of commission in certain cases depending upon the nature of the agency, the terms upon which commission is payable and the circumstances existing at the time the principal revoked the agent’s authority. For instance, the principal cannot capriciously or without reasonable grounds refuse to enter into a contract and determine the agency when the agent has found and introduced a purchaser ready, willing and able to buy at the stipulated price:  Trollope (George) & Sons v Martyn Bros [1934] 2 KB 436.

By death [15.810]  The death (or in the case of a corporation, the liquidation) of either principal or agent immediately puts an end to the agency. Accordingly, an agent’s authority to draw on the principal’s bank account terminates on the principal’s death:  Noonan v Martin (1987) 10 NSWLR 402. The general rule is that the death of the principal terminates the authority of the agent even though the agent is unaware of and had no means of ascertaining the fact. Consequently, the agent becomes personally liable to third parties for having made any contract entered into by the agent after the death of the principal and on behalf of the deceased principal, and may be sued by such party for breach of warranty of authority even though the agent was ignorant of the principal’s death. The estate of the principal is not liable under such a contract though the personal representative (eg the executor) may confirm the contract. In some States, every act done in good faith within the scope of a power of attorney after the death of the donor and before the receipt of notice thereof is valid and the donee of such power is not liable.5 5

Powers of Attorney and Agency Act 1984 (SA), s 12; Property Law Act 1969 (WA), s 85(2); Powers of Attorney Act 2000 (Tas), s 52; Powers of Attorney Act 1956 (ACT).

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By insanity [15.820]  Once insanity has overtaken either principal or agent, the contract of agency, with its attendant rights and liabilities, is at an end:  Yonge v Toynbee [1910] 1 KB 215. However, a third party is entitled to treat the authority of the agent as subsisting until they receive notice of the insanity in cases where the principal, before becoming insane, had held out the agent as having authority.

Bankruptcy Of the agent [15.830]  The bankruptcy of the agent determines their authority, except where the bankruptcy does not affect their capacity to contract as agent. Thus, where the duties of the agent are merely formal, the agent’s bankruptcy would not necessarily affect their authority.

Of the principal [15.840]  The bankruptcy of the principal also determines the relationship of principal and agent. However, an agent, even after notice of the principal’s bankruptcy, may do such acts as are necessary to complete some transaction which was already binding on the principal before the bankruptcy.

Renunciation by the agent [15.850]  The agent may renounce the agency at any time but must compensate the principal for any loss occasioned by such renunciation.

Particular types of agents Factors and mercantile agents [15.860]  A factor is considered at common law to be an agent employed to sell goods, the possession or control of which has been entrusted to the factor’s care by the principal. A factor has been generally recognised as possessing certain powers which apply in the absence of any special instructions from the principal to the contrary. Thus, a factor may sell goods in their own name as though he or she was the principal. In the various States, there exist Acts6 relating to factors and mercantile agents. They define a mercantile agent as “an agent having in the customary course of his business as such agent authority either to sell goods, or to consign goods for the purpose of sale or to buy goods, or to raise money on the security of goods”.

Brokers [15.870] A broker is a general agent who buys and sells goods for a principal without being entrusted either with the possession or control of the goods or of their documents of title. Often, a broker does little 6

Factors (Mercantile Agents) Act 1923 (NSW); Goods Act 1958 (Vic), ss 65–​72; Factors Act 1892 (Qld); Mercantile Law Act 1936 (SA); Imperial Act 5 & 6 Vict, c 39 (WA); Factors’ Acts Amendment Act 1878 (WA); Factors Act 1891 (Tas).

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more than bring the parties together, and when a contract is concluded takes their commission and entirely drops out of the transaction. The general practice of brokerage is for the broker, upon making the contract, to enter a note in their book signed by the broker, and send a note or memorandum to both parties. The one sent to the purchaser is called the “bought note”, that to the vendor is the “sold note”.

Partners [15.880]  Each partner is a general agent of the other with regard to partnership matters, and the partnership is bound by any act done by one of its members in the course of the firm’s business, unless the partner so acting has in fact no authority to act for the firm in the particular matter and the person with whom the partner is dealing either knows that he or she has no authority or does not know or believe her or him to be a partner.

Directors [15.890]  Subject to the qualification that they must act together as a board, directors are agents for their company, and a company is liable in respect of all contracts made on its behalf by directors acting within the scope of the authority given to them by the rules of the company.

Estate agents [15.900]  Generally, the term “estate agent” is used in statutes to include agents entrusted with the duty of buying or selling land, or of buying or selling businesses, on behalf of principals. Sometimes, however, the statutes differentiate between “land agents” or “real estate agents” and “business agents”. An auctioneer is an agent for the sale of property at a public auction.

Statutory regulation of agents [15.910]  There is considerable regulation by State statutory law of auctioneers and “estate agents”. Thus, in most States, auctioneers and estate agents have to be licensed.7 In most States, repossession and debt collecting agents (referred to as “commercial agents”) are subject to licensing requirements.8 Finance brokers (ie agents who negotiate loans for other persons) are required to be licensed and are subject to

7

In New South Wales, the Married Persons (Equality of Status) Act 1996 (NSW), s 7 provides: “A married person does not, by reason only of the person’s status as a spouse, have authority to pledge the credit of the other spouse for necessaries or to act as agent for the other spouse for the purchase of necessaries”. See similarly, Law of Property Act 1936 (SA), s 104; Married Persons’ Property Act 1986 (ACT), s 5; Married Persons (Equality of Status) Act 1989 (NT), s 5. See also Estate Agents Act 1980 (Vic), ss 49A, 50; Property Agents and Motor Dealers Act 2000 (Qld), ss 117, 140, 217, 288, 346; Land Agents Act 1994 (SA), s 6(2); Real Estate and Business Agents Act 1978 (WA), s 60; Property Agents and Land Transactions Act 2005 (Tas), s 18. The following statutes should also be considered: Auction Sales Act 1973 (WA); Agents Act 2003 (ACT); Auctioneers Act 1935 (NT); Agents Licensing Act 1979 (NT). The National Competition Review “concluded that the benefits of licensing auctioneers of goods are outweighed by the costs”: Victorian Hansard (Assembly), 5 April 2001, p 761. As a result of this recommendation, the Auction Sales Act 1958 (Vic) was repealed: Auction Sales (Repeal) Act 2001 (Vic), s 3.

8

Commercial Agents and Private Inquiry Agents Act 2004 (NSW); Property Agents and Motor Dealers Act 2000 (Qld), s 45; Security and Investigation Agents Act 1995 (SA); Debt Collectors Licensing Act 1964 (WA); Security and Investigations Agents Act 2002 (Tas); Commercial and Private Agents Licensing Act 1979 (NT).

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certain obligations in the conduct of their business under the national scheme established by the National Consumer Credit Protection Act 2009 (Cth). In all States and Territories, “uniform” legislation formerly required the licensing of travel agents and regulated their operations. One of the conditions to be satisfied before a licence would be granted was that the applicant be a participant in the Travel Compensation Fund, which was established to compensate travellers who suffer loss as a result of misappropriations by travel agents. However, it is intended that these licensing requirements will be repealed in all jurisdictions and the Compensation Fund will be closed. See Victorian Legislative Assembly Hansard, 13 November 2013, p 4024. The legislation has already been repealed in New South Wales, Queensland, Victoria, South Australia, Northern Territory and the Australian Capital Territory.9 Employment agents may also be subject to licensing requirements.10

Further reading G Dal Pont, Law of Agency (3rd ed, LexisNexis Butterworths, Sydney, 2014). S Fisher, Agency Law (Butterworths, Sydney, 2000).

Tutorial activities

9

10

1.

What is the essential idea that is at the heart of the law of agency?

2.

Distinguish between express and implied actual authority.

3.

Distinguish between actual and apparent authority.

4.

When can an agent exercise apparent authority?

5.

When is ratification of an agent’s action possible?

6.

Anwar was appointed to the stationery purchasing agent position during his time at Awesome Accountants. He regularly purchased stationery on Awesome Accountant’s account from Stationery Express Ltd with Awesome Accountant’s knowledge and acquiescence. Anwar’s purchasing limit was $500 per week, although he never needed to order stationery worth more than $300 at a time.



After the end of his internship with Awesome Accountants, he placed a $250 stationery order with Stationery Express. Anwar picked up this stationery and took it home for his own use. Awesome Accountants has received the invoice for the stationery and does not wish to pay. (a)

Is there an agency relationship between Awesome Accountants and Anwar?

(b)

Assuming there is, is the purchase within Anwar’s authority?

Travel Agents Act 1985 (WA); Travel Agents Act 1987 (Tas). The Travel Agents Act 1986 (NSW) was repealed by the Travel Agents Appeal Act 2014 (NSW). The Travel Agents Act 1986 (Vic) was repealed by the Travel Agents Appeal Act 2014 (Vic). The Travel Agents Act 1988 (Qld) was repealed by the Construction and Tourism (Red Tape Reduction) and Other Legislation Amendment Act 2014 (Qld), s 52. The Travel Agents Act 1986 (SA) was repealed by the Travel Agents Repeal Act 2014 (SA). The Consumer Affairs and Fair Trading Act 1990 (NT), Pt 11 was repealed by the Consumer Affairs and Fair Trading Amendment Act 2014 (NT), s 6. Agents Act 2003 (ACT), s 21 was repealed by the Justice and Community Safety Legislation Amendment Act 2014 (ACT), Sch 1 Pt 1.1 Item 1.3. Employment Agents Registration Act 1993 (SA), s 6; Employment Agents Act 1976 (WA), s 12; Agents Act 2003 (ACT), s 22.

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7.

Ricardo is the senior curator and ground manager at Noora Norra Golf Club Resort, a luxury facility in north Queensland owned by Gabba Pty Ltd. Noora Norra has been under financial pressure since the Global Financial Crisis affected the flow of Japanese tourists. The Board cut budgets and informed Ricardo that he could not enter into any contracts valued at over $10,000. Despite this instruction, he proceeded to negotiate a landscaping contract with Willow Landscaping that was valued at $13,000. An associated water feature cost an extra $4,000. When work commenced, the CEO asked Ricardo what was happening. Ricardo informed him of the landscaping project but did not mention the water feature. After considering the circumstances, the CEO tells Willow to proceed. Soon after, the Board understands the totality of the commitment. Advise the Board of its rights and obligations.

8.

Jeremy is an estate agent in the Melbourne inner city area of Docklands. He is selling highrise units “off the plan” for Aspirational Developments Pty Ltd. He has friends who work for other developers and becomes aware that a competing high-rise that is also selling “off the plan” has run into difficulties and is unlikely to go ahead. The result is that the units he is selling are likely to be more valuable than previously thought. Being an opportunist, Jeremy assists a friend to arrange finance so she can buy three of the units with a view to selling later at a profit that they will split 50–50. Furthermore, in return for a small payment, he informs several people who have expressed an interest in purchasing a unit of the news. Aspirational Developments learns of Jeremy’s conduct and seeks your advice.

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chapter 16

Law of Partnerships [16.80] [16.250] [16.420] [16.460] [16.710] [16.780]

Nature of partnership ............................................................................................................................  368 Relationship of partners with each other ....................................................................................  373 Relationship of partners to third parties ......................................................................................  381 Liability of partners to third parties ................................................................................................  383 Dissolution of partnership ...................................................................................................................  391 Limited partnerships ..............................................................................................................................  394

Introduction to partnerships [16.10]  Although the use of partnerships has been eclipsed by the rise of the limited liability company, it is still an important form of business association. It is the chosen (or only) permitted form of joint activity allowed in many professions  –​for example, many firms of public accountants are partnerships, and it is a way of gathering resources and expertise for major projects. There are other reasons for forming a partnership: partners may not wish to take on the formality and expense that is a necessary part of the incorporation of a company; they may complement each other by bringing new or different skills to the business and new partners may bring new capital or broader funding options. Unlike the formal incorporation process required for the creation of a company, a partnership requires no formalities. Simply put, a partnership exists when two or more persons are carrying on business together with a view of making a profit. So while professional firms have detailed and complex partnership agreements that cover every aspect of the relationship, the extended family that opens a café or fruit shop, with no written agreement of any kind, may, in law, also be regarded as a partnership. And, as seen throughout this chapter, there are important reasons why it may be necessary to decide whether or not a partnership relationship exists: a number of significant rights and obligations –​of both the parties involved in the relationship, as well as third parties –​turn on the decision. The legal relationship arising out of a partnership is similar to the relationship between principal and agent, except that a partner is both a principal to and agent for the other partners, able to bind the other partners (as an agent) and be bound by the actions of the other partners (as a principal). It is, therefore, above all, a fiduciary relationship: “Ordinary partnerships are by the law assumed and presumed to be based on the mutual trust and confidence of each partner in the skill, knowledge and integrity of every other partner. As between the partners and the outside world (whatever may be their private

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arrangements between themselves), each partner is the unlimited agent of every other in every manner connected with the partnership business, and not being in its nature beyond the scope of the partnership”: Re Agriculturist Cattle Insurance Co (1870) LR 5 Ch App 725. The legislation in each State is basically uniform and will be referred to in this chapter as the “Partnership Act”.1 However, in New South Wales, Victoria, Queensland, South Australia, Western Australia and Tasmania, provision is also made for limited partnerships.2 The Australian Capital Territory, Northern Territory, New South Wales, Queensland, South Australia, Tasmania and Victoria have also introduced incorporated limited partnerships.3 These specialised partnership forms are discussed separately at the end of this chapter. The principles of partnership law contained in the Partnership Act are essentially declaratory of the pre-​existing common law and are not to be taken as an exhaustive exposition of the law on the topic. Most provisions of the Partnership Act may be supplemented, amended or excluded by agreement, and the Act provides that the rules of the common law and equity are to continue in force except insofar as they are inconsistent with the Act.4   

Formation of partnership [16.20]  A partnership is created by agreement. The agreement may be oral, written, under seal or inferred from a course of dealing adopted or agreed upon by all the partners.5 Capacity to enter into a contract of partnership is governed by the general law of contract but minors are in a special position: see [16.60].

Number in partnership [16.30]  Under the Corporations Act 2001 (Cth), s 115, the maximum number of persons who may form a partnership for the acquisition of gain is 20, except where partnerships are formed to carry on certain professions or callings,6 or are incorporated or formed under another Australian law. A person who takes part in the formation of a business association with more than the allowed number of members, known as an “outsize partnership”, becomes liable to a criminal penalty ($500) but the agreement is not invalid and

1

The various Partnership Acts are: Partnership Act 1892 (NSW); Partnership Act 1958 (Vic); Partnership Act 1891 (Qld); Partnership Act 1891 (SA); Partnership Act 1895 (WA); Partnership Act 1891 (Tas); Partnership Act 1963 (ACT); Partnership Act 1997 (NT). 2 Partnership Act 1892 (NSW), Pt 3; Partnership Act 1958 (Vic), Pt 3; Partnership Act 1891 (Qld), Ch 3; Partnership Act 1891 (SA), Pt 3; Limited Partnerships Act 1909 (WA); Partnership Act 1891 (Tas), Pt 3. 3 Partnership Act 1963 (ACT), Pt 6; Partnership Act 1997 (NT), Pt 3; Partnership Act 1892 (NSW), Pt 3; Partnership Act 1958 (Vic), Pt 5; Partnership Act 1891 (Qld), Ch 4; Partnership Act 1891 (SA), Pt 6; Partnership Act 1891 (Tas), Pt 3. 4 Partnership Act 1892 (NSW), s 46; Partnership Act 1958 (Vic), s 4; Partnership Act 1891 (Qld), s 48; Partnership Act 1891 (SA), s 46; Partnership Act 1895 (WA), s 6; Partnership Act 1891 (Tas), s 5; Partnership Act 1963 (ACT), s 5; Partnership Act 1997 (NT), s 4. Considered in Cameron v Murdoch (1986) 60 ALJR 280 at 286. 5 Formerly, if the partnership was to continue for more than one year, the agreement had to be evidenced in writing to be enforceable under the Statute of Frauds 1677 (Imp). However, this particular requirement of the Statute of Frauds 1677 (Imp) has been repealed in all States and Territories with the exception of Tasmania: see Mercantile Law Act 1935 (Tas), s 6. 6 The Corporations Regulations 2001 (Cth), reg 2A.1.01 sets maxima of 50 for actuaries, medical practitioners, patent attorneys, sharebrokers and stockbrokers, and trademark attorneys; 100 for architects, pharmaceutical chemists and veterinary surgeons; 400 for legal practitioners and 1,000 for accountants.

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does not affect the enforceability of contracts or other arrangements made. Both partners and outsiders should be able to implement the transactions of outsize partnerships to the same extent as those of ordinary partnerships. 7

Capacity to be a partner [16.40]  Certain types of persons have restricted capacity to enter into partnership. The most important of these are persons of unsound mind and minors.

Persons of unsound mind as partners [16.50]  A person of unsound mind is capable of entering into partnership during a period of sanity. To escape liability as a partner, it must be proved that they were of unsound mind when they entered the partnership, and the party with whom they entered the partnership knew this. Otherwise, the partner who is of unsound mind is both capable of binding the firm as a partner and of being bound by their co-​partners.

Minors as partners [16.60]  A minor (ie a person under 18 years of age) may be a partner although generally it is not a satisfactory arrangement for the other partners. If a partner who is a minor enters into contracts with third parties on behalf of the firm, such contracts bind the adult partners but the minor is not liable for partnership debts so far as their private assets are concerned. The adult partners, however, have the right to apply the whole of the partnership assets (including the capital contributed by the minor) to pay all partnership debts. A creditor who has obtained judgment against the firm may seize all partnership property but not the minor’s separate property. On or before attaining majority, the minor may repudiate the partnership agreement but unless the minor repudiates it within a reasonable time after attaining majority, he or she will become liable as an ordinary partner.8

Firm name [16.70]  Those who have entered into partnership with one another are called collectively a firm, and the name under which their business is carried on is called the firm name.9 The firm name may be the name of one or more members of the partnership or may be an assumed name, for example, Excelsior Estate Agency. A partnership may include the word “company” in its name, for example, Weir & Co but must not use the word “limited” as the last word in its name. There is separate legislation that controls the actual registration of the firm name.10 7 8

9

10

Corporations Act 2001 (Cth), s 103. However, in New South Wales, the legal position of minors differs markedly from that in the other States as a result of the Minors (Property and Contracts) Act 1970 (NSW) while, in South Australia, the Minors Contracts (Miscellaneous Provisions) Act 1979 (SA) provides both a way of validating minors’ contracts and the possibility of minors avoiding some common law liabilities. Partnership Act 1892 (NSW), s 4; Partnership Act 1958 (Vic), s 8; Partnership Act 1891 (Qld), s 3; Partnership Act 1891 (SA), s 4; Partnership Act 1895 (WA), s 10; Partnership Act 1891 (Tas), s 9; Partnership Act 1963 (ACT), s 8; Partnership Act 1997 (NT), s 8. Business Names Registration Act 2011 (Cth) replaced State and Territorial Acts on 28 May 2012.

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Registration of the firm name as a business name is required, unless the firm name consists only of the full names or surnames and initials of all partners. For instance, it would be necessary to register the firm name of the following partnerships: Brown & Co Wilson & Smith Apex Motor Garage The particulars requiring registration include the business name, the general nature and principal place of the business, and in respect of every individual partner there must be disclosed: (a)

their given names and surnames;

(b)

their usual residence; and

(c)

any other business occupation that they follow.

A change or alteration in the constitution of the firm must also be registered. The legislation also prohibits the inclusion of certain words in a trade or business name, for example, Royal, Crown, etc.

Nature of partnership Definition of a partnership: the Partnership Act [16.80]  The first question often considered when a partnership dispute arises is whether or not a partnership exists.11 It is often a difficult question to answer. The Partnership Act defines a partnership as “the relation which subsists between persons carrying on a business in common with a view of profit”.12 Business includes every trade, occupation or profession.13 A partnership, therefore, has three elements: 1.

carrying on a business;

2.

in common; and

3.

with a view to profit.

We will consider each of these elements:

1. Carrying on a business [16.90]  The tests to determine if people are “carrying on a business” generally involve an assessment as to whether the activities have a commercial “look and feel” and are of an ongoing or repetitious kind. An association formed for doing one particular act that is never to be repeated may be a joint venture but would not be a partnership. [16.100]  In the following case, the issue concerned the time at which the parties begin “carrying on a business”.

11 12

13

The question usually arises when one (alleged) partner denies that a partnership exists in order to avoid liability to a partner or third party, or an (alleged) partner asserts that a partnership exists in order to share in the profits. Partnership Act 1892 (NSW), s 1; Partnership Act 1958 (Vic), s 5; Partnership Act 1891 (Qld), s 5; Partnership Act 1891 (SA), s 1; Partnership Act 1895 (WA), s 7; Partnership Act 1891 (Tas), s 6; Partnership Act 1963 (ACT), s 6; Partnership Act 1997 (NT), s 5. Partnership Act 1892 (NSW), s 45; Partnership Act 1958 (Vic), s 3; Partnership Act 1891 (Qld), s 3; Partnership Act 1891 (SA), s 45; Partnership Act 1895 (WA), s 3; Partnership Act 1891 (Tas), s 4; Partnership Act 1963 (ACT), s 4; Partnership Act 1997 (NT), s 3.

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Khan v Miah [16.110]  Khan v Miah [2000] 1 WLR 2123. In May 1993, Miah and his colleague were the head waiter and chef, respectively, at an Indian restaurant. They wanted to open a restaurant of their own but were not in a position to put up any significant amount of money. So they asked the appellant, Khan, to invest in the venture. It was agreed that they would be partners, that Khan would provide most of the initial capital, and that Miah would manage the restaurant and his colleague would be the chef. The relationship broke down in January 1994. At this time, the restaurant was still not open for business. However, the parties had acquired the freehold, taken delivery of furniture and equipment and arranged for the purchase of carpets and advertised the restaurant in the local press. Khan deposited virtually all the moneys in the partnership bank account that was used to make payments for work done in preparation for the opening of the restaurant. It opened for business in February 1994. The respondents carried on the business on their own account but without any settling of accounts with Khan.

  

The House of Lords said the correct question in determining whether the parties had been “carrying on a business” was not whether the restaurant had commenced trading, but whether the parties had embarked on the venture. By acquiring and fitting out the premises, buying furniture and equipment, establishing accounts etc, the parties had, indeed, embarked on their venture. A partnership was formed at that time and therefore Khan was entitled (as a partner) to a share of the capital and the profits generated by the partnership until it ended.

[16.120]  In the following case, the court was concerned with a similar question but decided that the parties had never begun “carrying on” a business.

Goudberg v Herniman Associates Pty Ltd

  

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[16.130]  Goudberg v Herniman Associates Pty Ltd [2007] VSCA 12. In September 2000, Herniman Associates, a firm of architects, entered into a contract with Williams for the provision of architectural services and advice regarding a project that Williams was involved with. At the trial it was decided that at the time that contract was made, Williams was in partnership with Goudberg and on that basis he was held to be jointly liable with Williams for unpaid fees due to Herniman Associates under the contract. Goudberg appealed. The Court of Appeal unanimously decided that, although Goudberg and Williams were clearly acting “in common with a view of profit”, nothing done by them in the period leading up to September 2000 constituted the “carrying on of a business”. Nor was what they had done “preparatory” in the sense (as it was in Khan v Miah [2000] 1 WLR 2123). It was true that Williams had developed a plan for the establishment of a business and had involved Goudberg in the furtherance of that plan. However, by September 2000, when Herniman Associates was engaged, all that Williams and Goudberg had done was some market research and demographic surveys and made two trips to the United States to explore potential franchise models and a potential franchisor. As Goudberg was not a partner, he was not jointly responsible for the fees.

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2. In  common [16.140]  To be a partnership, there must be a “mutuality or sharing of rights and obligations”. That is, the business must be carried on by (or on behalf of) all the partners. This does not mean that each of the alleged partners should take an active part in the direction and management of the firm: the important question is whether there is a sense that each is acting for and on behalf of the others.

Degiorgio v Dunn [16.150]  Degiorgio v Dunn [2004] NSWSC 767. The plaintiff and the defendant were members of a rock band. The four members of the band operated as a partnership, the business of which consisted of doing cover versions of AC/​DC songs. Shortly after the group disbanded, the defendant took steps to put together another group to perform AC/​DC music. He discussed his plans with the plaintiff and invited him to join up. The plaintiff argued that upon the formation of the second band, the plaintiff and the defendant carried on the business (of the new band) in common and, therefore, he was entitled to a share of the profits. The NSW Supreme Court held that the business was run with a view of profit but was not run “in common” with reciprocal rights and obligations. Some of the factors that persuaded the Court that no partnership existed in this case were: ▶▶

the plaintiff did not share the establishment costs with the defendant;

▶▶

he chose to be paid a fixed fee ($150) for each performance;

▶▶

▶▶

▶▶   

he did not mention the partnership in his tax returns (the plaintiff returned as income “professional fees” of $6,550); just after the partnership was allegedly formed, the plaintiff went to Canada for 17 months and during this time he did not involve himself in any way in the business; and the plaintiff approached performers in the band and tried to persuade them to join him in a new band called “High Voltage” which was also to be an AC/​DC tribute band.

3. With a view to profit [16.160]  Partnerships must be created with a view to profit. Obviously they do not always make a profit but that must be the purpose. Sports association or charities or religious associations are not partnerships because although they may make a profit through their ancillary projects (selling pies or raffle tickets) they reinvest those profits in their primary activities and, critically, do not distribute them as dividends to their members.

Evidence of a partnership: the statutory rules [16.170]  As we have seen from the cases in the previous section, it is not always easy to apply the statutory definition of a partnership to the particular facts of a case. To assist in determining whether a business is being carried on in common, the Partnership Act14 contains a number of statutory rules “to which regard 14

Partnership Act 1892 (NSW), s 2; Partnership Act 1958 (Vic), s 6; Partnership Act 1891 (Qld), s 6; Partnership Act 1891 (SA), s 2; Partnership Act 1895 (WA), s 8; Partnership Act 1891 (Tas), s 7; Partnership Act 1963 (ACT), s 7; Partnership Act 1997 (NT), s 6.

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shall be had” in determining whether a partnership exists. These rules have been included in the Act to supplement, not replace, the statutory definition. However, note that each rule simply states a negative: that a certain fact does not of itself create a partnership –​it is only indicative of a partnership. The correct question is simply whether, by their words and conduct, the parties intended to create a partnership. A partner need not contribute capital, need not receive a share of profits, although those may be factors indicating that a partnership has not been created. [16.180]  The Act provides that in determining whether or not a partnership exists, regard shall be had to the following rules: 1.

Joint or part ownership or joint tenancy, or tenancy in common whether or not the owners or tenants share the profits, does not of itself create a partnership as to anything so held or owned.

2.

The sharing of gross returns whether the persons sharing such returns have or have not a joint or common right or interest in any property from which the returns are derived, does not of itself create a partnership.

Cribb v Korn [16.190]  Cribb v Korn (1911) 12 CLR 205. A farmer entered into an agreement with Cribb under which he had the exclusive use and occupation of a certain area of Cribb’s land. As part of the agreement, the farmer would pay Cribb half of the proceeds of sale of the produce of the land and stock. Korn, a farmworker employed by the farmer was injured while working and claimed worker’s compensation from Cribb on the basis that Cribb and his employer were partners. The High Court held that, as the farmer had exclusive right to occupy the land and Cribb had no right to direct or control the farmer’s working of the land, there could be no partnership and the sharing of gross returns was not enough to establish a partnership. It was a tenancy agreement and the payments were tantamount to rent. The Court said: “To be partners, they must be shown to have agreed to carry on some business –​in this case the business of farming –​in common with a view of making profits and afterwards of dividing, or of applying them to some agreed object. There is nothing to show that the appellant intended to engage in farming at all, or to be concerned in the transaction beyond his right to compensation”.

  

[16.200]  3.

The receipt by a person of a share of the profits of a business is prima facie evidence that they are a partner in the business, but the receipt of such a share, or of an amount of money varying with the profits of the business, does not itself make that person a partner in the business, and in particular the following circumstances do not of themselves make such person a partner:



(a)

the receipt of a debt by instalments or otherwise from the profits;

Cox v Hickman [16.210]  Cox v Hickman (1860) 11 ER 431. B and J Smith carried on business as ironworkers and corn merchants under the name of B Smith & Son. They owed a lot of money to the

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creditors, including Cox. A deed of arrangement was executed. The creditors were to carry on business until the debts were paid off at which time ownership would revert to the partners. Until that time, all profits from the business were to be shared by the creditors. The question was whether the creditors were partners in the business (and thereby liable for the debts of the partnership). The Court held that they were not, even though they had a right to share in the profits.

[16.220]  (b)

the receipt of remuneration by a servant or agent of a person engaged in business, by a share of the profits of that business;



Employees are often offered a share of the profits as part of an incentive package. This, alone, does not make the employee a partner in the firm. In Plummer v Thomas [2002] NSWSC 1185, there was an agreement between two parties to split profits equally. In every other sense, Thomas did everything including arranging a lease, paying the bond, registering the name of the business and hiring and firing workers. Despite the agreement on splitting profits, there was no partnership.

(c)

the receipt by a spouse or child of a deceased partner of an annuity out of the profits made in the business in which the deceased person was a partner;



This protects the family of a deceased partner that receives a payment based on profits.

(d)

the receipt of interest varying with the profits, or of a share of the profits in consideration of an advance. However, a contract providing for such interest or profit must be in writing and signed by all the parties, otherwise a partnership may exist;

Re Megevand; Ex parte Delhasse

  

[16.230]  In Re Megevand; Ex parte Delhasse (1878) 7 Ch D 511. Delhasse agreed to lend money to two others; he stressed that the advance was a loan only and did not make the lender a partner. However, provision was made for him to share in the profits, have a right to inspect the accounts, and have the option of dissolving the partnership in specified circumstances. Further, the loan was not to be repayable until after the dissolution of the firm and the loan represented the entire capital of the firm. The Court held that this was a partnership. It went further than a mere lender-​creditor relationship.

[16.240]  (e)

the receipt by way of annuity or otherwise of a portion of the profits of a business in consideration of the sale by that person of the goodwill of such business.

This subsection protects a person who sells a business and then receives an annuity, based upon a percentage of the profits, until the purchase price of the business has been paid in full. The courts will look at the agreement but, without more, the purchaser and vendor are not partners in the business.

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Relationship of partners with each other Figure 16.1: Three aspects of partners relationship with each other

• Rights and duties of the partnership Partnership agreement

• Rights and duties of the partners • Rules about managing the partnership

Partnership Act

• Interstitial role (covering matters not covered in the agreement)

• Equitable duty to act in good faith - not to profit or have conflict of interest Fiduciary obligations

• Statutory duties (to account and disclose, not to secretly profit, not to secretly compete) reflect equitable duties

[16.250]  The rights and obligations of the partners to each other arise from three distinct areas of law –​ the partnership agreement, the statute and the equitable concept of the fiduciary. Partnerships arise by agreement and partnership law affords partners great latitude to establish the terms of their relationship. In most partnerships, an agreement, usually written, details the major terms of the partnership relation. However, to the extent that the agreement does not cover aspects of the relationship and does not exclude the statutory terms, the relationship will be governed by the implied terms detailed in the statute. Superimposed upon the contractual arrangement are the fiduciary obligations that require partners to deal openly and in good faith with each other in all matters concerning the partnership. The agreement establishes the nature and extent of the partnership business, but the fiduciary obligations are the prime regulator of partners’ conduct one to another within that range.

1. The partnership agreement [16.260]  Although an agreement can be reached orally or by a course of conduct, it is good practice for the rights, duties and liabilities of the partners among themselves to be set out in a written partnership agreement. While oral arrangements may be subsequently denied and it is difficult to prove a course of conduct, a written agreement places on record the intention of the partners to create a partnership. It is desirable that, at least, the following matters should be covered in a partnership agreement: (a)

the names of the partners and the firm name;

(b)

the nature of the business;

(c)

the term of the partnership;

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(d)

the capital to be introduced by each partner;

(e)

provisions for proper accounts and their audit;

(f)

the authority of partners;

(g)

provision as to the division of the profits;

(h)

arrangements as to partners’ drawings;

(i)

arrangements as to partners’ salaries;

(j)

provision regarding interest on capital;

(k)

arrangements as to interest on advances;

(l)

arrangements as to interest on drawings;

(m)

provisions regarding the death or bankruptcy of a partner;

(n)

details regarding the retirement of a partner;

(o)

the amount to be paid to an outgoing partner;

(p)

method of valuing goodwill upon death or retirement of a partner; and

(q)

any special restraints to be observed by partners.

The rights and duties of partners may be varied during the partnership with the consent of all partners (such consent being either express or implied), or in any manner specially provided by the partnership agreement. For instance, it may be provided in the agreement that the senior partner is solely responsible for hiring and firing the practice manager. Further, because the law of contract applies, there may be terms implied into the agreement provided there is no agreement on the matter in the agreement itself.

2. The Partnership Act [16.270]  The partnership agreement may be silent on a particular issue (eg how are profits and losses to be shared? can a partner be paid a wage? can a majority of partners expel a partner? can a partner be excluded from management?), or it may be an issue that has arisen since the partnership began. When the partnership agreement does not cover the issue, then the Partnership Act determines the rights, duties and interests of partners:15 1.

All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses, whether of capital or otherwise, sustained by the firm.



The Act provides for equality of profits notwithstanding that capital has been contributed unequally. This recognises the fact that partners may contribute a personal value to the firm apart from the monetary value of any capital paid in.

2.

The firm must indemnify every partner in respect of payments made and personal liabilities incurred by those partners:



(a)

in the ordinary and proper conduct of the business of the firm; or



(b)

in or about anything necessarily done for the preservation of the business or property of the firm.

15

Partnership Act 1892 (NSW), s 24; Partnership Act 1958 (Vic), s 28; Partnership Act 1891 (Qld), s 27; Partnership Act 1891 (SA), s 24; Partnership Act 1895 (WA), s 34; Partnership Act 1891 (Tas), s 29; Partnership Act 1963 (ACT), s 29; Partnership Act 1997 (NT), s 28.

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3.

A partner making for the purpose of the partnership any actual payment or advance beyond the amount of capital which they have agreed to subscribe is entitled to interest at the rate of 7% per annum in New South Wales, Victoria and South Australia, Australian Capital Territory and Northern Territory and to 6% in Queensland, Western Australia and Tasmania, from the date of the payment or advance.

4.

A partner is not entitled before the ascertainment of profits to interest on the capital subscribed by them.

5.

Every partner may take part in the management of the partnership business.



Unless specially provided by agreement between the parties, one partner has no more authority than another.

6.

No partner is entitled to remuneration for acting in the partnership business.



This provision is often varied by the partnership agreement but unless so provided the partners must give their services to the partnership affairs gratuitously. Where one of the partners has neglected to meet commitments to the partnership business and has thus thrown extra burdens on their co-​ partner, then the partner not in default may be entitled to claim compensation for the extra work done by them.

7.

No person may be introduced as a partner without the consent of all existing partners.



This is recognised as one of the fundamental principles of partnership. If two or more persons have sufficient faith in one another to enter into an agreement of partnership, they are entitled to have the right of determining if others are to be admitted. However, it is not uncommon to find a partnership agreement providing for a majority of the partners to have the right to introduce another person into the partnership.

8.

Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of partners. However, no change may be made in the nature of partnership business without the consent of all existing partners.

9.

The partnership books are to be kept at the place of business of the partnership (or the principal place if there is more than one) and every partner may have access to inspect and copy any of them when he or she thinks fit.

375

Further, a majority of the partners cannot expel a partner unless power to do so has been conferred by express agreement between the partners.16 If such a power of expulsion is conferred by the partnership agreement, it must be exercised in the utmost good faith by all the partners whose concurrence is necessary. In general, a partner that the others propose to expel is entitled to natural justice: they must be given notice of the charge and a reasonable opportunity of meeting the case against them before receiving notice of expulsion but, except in Western Australia, partnership agreements may dispense with the need for notice or a hearing. Provided the partners exercise the power of expulsion in good faith with a view to the benefit of the firm and strictly in accordance with the terms of the partnership agreement, the court will not interfere. The following case provides an excellent example of the effect of s 28(1) of the Partnership Act 1958 (Vic) and the benefit of a prompt settlement of accounts after a partnership is wound up.

16

Partnership Act 1892 (NSW), s 25; Partnership Act 1958 (Vic), s 29; Partnership Act 1891 (Qld), s 28; Partnership Act 1891 (SA), s 25; Partnership Act 1895 (WA), ss 35, 36; Partnership Act 1891 (Tas), s 30; Partnership Act 1963 (ACT), s 30; Partnership Act 1997 (NT), s 29.

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Popat v Schonchhatra [16.280]  Popat v Schonchhatra (1997) 3 All ER 800. The plaintiff and defendant were partners in a newsagency. After the partnership was terminated, the defendant continued to operate it himself but did not settle the accounts between himself and the plaintiff. Two-​and-​a-​half years later, the defendant sold the business and made a capital profit of £12,000. Although he had contributed only a small part of the capital at the outset (and had not played any part since the termination), he claimed, inter alia, half the capital profits, including the profits that had accrued after the partnership ended. The Court decided that Popat was entitled to half the profits on the sale of the business. In the absence of an agreement to the contrary, partners are entitled to an equal share of the capital profits. In this case, there was no contrary agreement. The court also held that Popat was entitled to a share of the profits that had accrued after the dissolution of the partnership but before the final settlement of accounts.

  

3. Fiduciary obligation [16.290]  The partners are bound to act in good faith in their dealings with one another for the benefit of the partnership. This obligation continues throughout the term of the partnership. It does not conclude with dissolution but continues until the final settlement of accounts on winding-​up. These fiduciary duties have been expressly incorporated into the Partnership Acts:17 1.

Duty of partners to render accounts etc.



Partners are to render true accounts and full information of all things affecting the partnership to any partner or his legal representative.18 In the event that a partner does not reveal the accounts to the other partner or partners, a court order may be sought.

2.

Accountability of partners for private profits.



(1)

Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership or from any use by him of the partnership property name or business connection.



(2)

This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner and before the affairs thereof have been completely wound up either by any surviving partner or by the representatives of the deceased partner.19



If A  and B were in a legal partnership and, as a result of work done for a client corporation A  received an additional annual fee to be “on call” for that client, the fee would belong to the

17

18

19

Partnership Act 1892 (NSW), ss 28–​30; Partnership Act 1958 (Vic), ss 32–​34; Partnership Act 1891 (Qld), ss 31–​33; Partnership Act 1891 (SA), ss 28–​30; Partnership Act 1895 (WA), ss 39–​41; Partnership Act 1891 (Tas), ss 33–​35; Partnership Act 1963 (ACT), ss 33–​35; Partnership Act 1997 (NT), ss 32–​34. Partnership Act 1892 (NSW), s 28; Partnership Act 1958 (Vic), s 32; Partnership Act 1891 (Qld), s 31; Partnership Act 1891 (SA), s 28; Partnership Act 1895 (WA), s 39; Partnership Act 1891 (Tas), s 33; Partnership Act 1963 (ACT), s 33; Partnership Act 1997 (NT), s 32. Partnership Act 1892 (NSW), s 29; Partnership Act 1958 (Vic), s 33; Partnership Act 1891 (Qld), s 32; Partnership Act 1891 (SA), s 29; Partnership Act 1895 (WA), s 40; Partnership Act 1891 (Tas), s 34; Partnership Act 1963 (ACT), s 34; Partnership Act 1997 (NT), s 33.

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partnership. Similarly, if A submitted (and won) a tender in his own name to perform legal work on an infrastructure project, any monies received by him would belong to the partnership. 3.

Duty of partner not to compete with firm.



If a partner without the consent of the other partners carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business.20

An example of the fiduciary obligation and its effect is found in each of the following three cases:

Chan v Zacharia [16.300]  Chan v Zacharia (1984) 154 CLR 178. Chan and Zacharia were partners in a medical practice which they conducted from leased premises. The lease had an option to renew that had to be exercised by both partners. Zacharia sued for a declaration that Chan held the lease as a constructive trustee for himself and Zacharia. On the dissolution of a medical partnership, one of its more valuable assets was the lease of surgery premises, with rights of renewal. One of the partners suggested to the other that the option to renew should be exercised but the other negotiated a new lease of the premises in his own name. The court decided that that the fiduciary relationship continued until the partnership had finally been wound up. Therefore, Chan was not permitted to put his interests ahead of those of the partnership and he had to account to the partnership for any profit he obtained from the lease. As Deane J put it: “Dr  Chan abused his fiduciary position as a trustee and former partner to seek an advantage for himself and … he holds any fruits of that abuse … upon constructive trust for those entitled to the property of the dissolved partnership”: at 205.

  

United Dominion Corp Ltd v Brian Pty Ltd [16.310]  United Dominion Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1. Three joint venturers –​a property owner (Special Projects Ltd (SPL)), a finance company (United Dominion Corp Ltd (UDC)) and an investor (Brian Pty Ltd (B)) –​began negotiating an agreement to build a shopping centre on land owned by SPL. They intended that SPL would be registered on the title as the owner with most of the finance provided by UDC, secured by a mortgage over the land, with the balance being provided by each of the parties in proportion to their interests. The parties would share the profits. On 24 October 1983, nine months before the written partnership agreement was executed, SPL executed a mortgage in favour of UDC to secure loans that UDC had made to SPL for this development as well as other ventures. Without B’s knowledge, the mortgage included a clause stating that no share of the joint venture profits would be distributed to B until the loan monies were repaid to UDC in full. The joint venture made a substantial profit but because of the effect of the clause, B received nothing. B sued UDC arguing that the

20

Partnership Act 1892 (NSW), s 30; Partnership Act 1958 (Vic), s 34; Partnership Act 1891 (Qld), s 33; Partnership Act 1891 (SA), s 30; Partnership Act 1895 (WA), s 41; Partnership Act 1891 (Tas), s 35; Partnership Act 1963 (ACT), s 36; Partnership Act 1997 (NT), s 34.

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joint venture was a partnership and, as such, B was owed a fiduciary duty that was breached when SPL and UDC failed to give it notice of the clause. The High Court held that the joint venturers were “intending partners” after the agreement of 24 October 1983 was signed and became “partners” on 23 July 1984 when the joint venture agreement was executed. The Court said: “[A]‌fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled”.

  

[16.320]  The following decision of the Full Court of the Federal Court concerns the consequences of a breach of the fiduciary duty owed by a partner to his fellow partner.

Retirement of partner [16.330]  Where no fixed term has been agreed upon for the duration of the partnership, that is, in the case of a partnership at will, any partner may determine the partnership at any time by giving notice of their intention to do so to all the other partners.21 The dissolution takes place from the date mentioned in the notice or, if none is specified, then from the date when the notice is communicated. If a partnership has been constituted by deed, written notice signed by the partner giving it is sufficient notice.

Revocation of guarantee by change in firm [16.340]  A continuing guarantee given by or to a partnership, subject to any agreement to the contrary, is revoked as to future transactions by any change in the constitution of the partnership.22 Should one partnership give such a guarantee for another partnership, the guarantee would be revoked by a change in the construction of either partnership.

Continuance of business after expiration of term [16.350]  Where a partnership which has been entered into for a fixed term is continued after the term has expired, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, but the partnership becomes a partnership at will.23

21

22

23

Partnership Act 1892 (NSW), s 26; Partnership Act 1958 (Vic), s 30; Partnership Act 1891 (Qld), s 29; Partnership Act 1891 (SA), s 26; Partnership Act 1895 (WA), s 37; Partnership Act 1891 (Tas), s 31; Partnership Act 1963 (ACT), s 31; Partnership Act 1997 (NT), s 30. Partnership Act 1892 (NSW), s 18; Partnership Act 1958 (Vic), s 22; Partnership Act 1891 (Qld), s 21; Partnership Act 1891 (SA), s 18; Partnership Act 1895 (WA), s 25; Partnership Act 1891 (Tas), s 23; Partnership Act 1963 (ACT), s 22; Partnership Act 1997 (NT), s 22. Partnership Act 1892 (NSW), s 27; Partnership Act 1958 (Vic), s 31; Partnership Act 1891 (Qld), s 30; Partnership Act 1891 (SA), s 27; Partnership Act 1895 (WA), s 38; Partnership Act 1891 (Tas), s 32; Partnership Act 1963 (ACT), s 32; Partnership Act 1997 (NT), s 31.

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Partnership property [16.360]  Partnership property must be used exclusively for the purposes of the partnership and in the manner set out in the partnership agreement.24 Partnership property consists of: (a)

property originally brought into the partnership;

(b)

property acquired whether by purchase or otherwise on account of the firm or for the purposes and in the course of the partnership business;

(c)

property acquired with the firm’s money unless the contrary intention of the parties appears from the transactions; and

(d)

the goodwill of the business.

Whether the separate property of one partner used in a partnership becomes part of the assets of the partnership or remains the separate property of the partner ultimately depends upon the agreement between the partners. Where no express agreement has been reached between the partners, agreement may be inferred from the manner in which the affairs of the partnership have been conducted. However, to infer that the parties intended that the separate property of one partner was to become part of the assets of the partnership, their conduct must plainly lead to that result. In the following case, the Court, in a decision that supports the primacy of the nuclear family, decided that it did not.

Harvey v Harvey [16.370]  Harvey v Harvey (1970) 120 CLR 529. Harvey owned a property that he was considering selling. When his brother suggested that he and his sons would work the land, Harvey agreed. There were mutual benefits for both families –​for Harvey it would mean that the property could one day be available for his son, who was then only six; for his brother, it would mean his own sons could get valuable experience running a farm. They agreed that Harvey would provide stock and machinery but would not take part in the management of the farm. His brother and his sons would provide skill and labour but no capital. Profits and expenses, including the cost of capital improvements, would be shared equally. The partnership lasted 20 years. During this time improvements, like farm buildings, fences, dams as well as extensive land clearing, were made that increased the value of the property. When the partnership ended, the question arose as to whether the land (and improvements) were partnership property. The High Court decided that the land did not become partnership property. The evidence supported the view that both parties to the agreement recognised that Harvey intended that his son take over the land one day and this would not have been possible if the land had become part of the partnership property. Furthermore, the Court decided that, in the absence of agreement to the contrary, there is no general principle that an appreciation in the capital value of a partner’s personal property, as a result of the expenditure of partnership money, should become a part of the final accounts of the partnership and thereby become available for distribution among the partners.

  

24

Partnership Act 1892 (NSW), s 20; Partnership Act 1958 (Vic), s 24; Partnership Act 1891 (Qld), s 23; Partnership Act 1891 (SA), s 20; Partnership Act 1895 (WA), s 30; Partnership Act 1891 (Tas), s 25; Partnership Act 1963 (ACT), s 24; Partnership Act 1997 (NT), s 24.

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What is the nature of a partner’s interest in the partnership property? [16.380] A partner has an interest in all partnership property. But what is the nature of that interest? “Business partners own between them the whole of the partnership assets, and each has a proprietary interest in each and every item. But this interest is not a fixed proportion of each item –​it is an indefinite and fluctuating interest, which at any given moment is in proportion to his share in the ultimate surplus coming to him if at that moment the partnership were wound up and its accounts taken”. Sharp v Union Trustee Co of Aust Ltd (1944) 69 CLR 539.

Goodwill [16.390] Associated with professions, trade and commerce is an intangible asset commonly known as “goodwill”. Goodwill has been defined as “the probability that the old customers will resort to the old place”: Cruttwell v Lye (1810) 34 ER 129. It consists of the advantages a business has in connection with its customers. Lord Macnaghten in Trego v Hunt [1896] AC 7 described goodwill thus: “Often it happens that the goodwill is the very sap and life of the business, without which the business would yield little or no fruit. It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money”. The goodwill of a partnership business like any other partnership asset is, in the absence of any agreement to the contrary, to be sold upon the dissolution of a partnership for the benefit of all the partners.

Provisions in partnership agreement [16.400]  A deceased partner’s representative or a retiring partner is entitled to a share of the goodwill at the date of death or retirement. To avoid disputes or the necessity of selling the business to determine the value of goodwill, provision should be contained in the agreement as to the basis upon which the value of the goodwill is to be estimated. The agreement, for instance, may provide that the goodwill upon the death or retirement of a partner is to be calculated as worth, say, two years’ purchase of the average profits over the last five preceding years, and that the retiring or deceased partner is to be entitled to their share of the total value of the goodwill according to the proportion in which they shared profits. In some agreements, it is provided that the goodwill is to be valued as at the date of death or retirement by a public accountant.

Charging a partner’s share [16.410]  Partnership property is not liable to be seized for the private debt of a partner and may only be made liable on a judgment against the partnership. A creditor who has obtained judgment in respect of the separate debt of a partner, however, may obtain an order charging that partner’s interest in the partnership property and profits with the amount of the debt and interest. In addition, the creditor may obtain by the same or a subsequent order the appointment of a receiver of that partner’s share of profits and of any other money which may be coming to the partner

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in respect of the partnership. The other partner or partners may at any time redeem the interest charged, or, in the case of a sale being directed, purchase the same.25 If a partner allows their share of a partnership to be so charged for their separate debt, the other partners may dissolve the partnership.

Relationship of partners to third parties Figure 16.2: Liability of partners to third parties

Liability of partners to third parties

Joint liability for debts and obligations

“The kind of business”

Partner will bind when s/he concludes a contract that is within scope of:

Scope of normal authority

Liability by “holding out”

“Done in the usual’ way”

“Partner had no authority and TP knew or did not believe person was a partner”

Non-partner liable when s/he holds him/herself out as being a partner

Joint and several liability for torts and crimes

Joint and several liability for misapplication of money

Acts in ordinary course of the business of the firm

Receives money within scope of apparent authority and misapplies

[16.420]  There are two sources of law that are relevant when considering how partners bind their partners when dealing with third parties. There is, firstly, the common law (including equity) of agency and then there is the Partnership Act. The common law complements the provisions of the Partnership Act in relation to the authority that an agent has. The Partnership Acts state that the acts of every partner who does any act for carrying on in the usual way, business of the kind carried on by the firm of which they are a member, bind the firm and the partners unless: (a)

the partner exceeds their authority in the particular matter and the person with whom the partner is dealing knows that the partner has exceeded their authority; or

(b)

the person with whom the partner is dealing does not know or believe them to be a partner.26

25

26

Partnership Act 1892 (NSW), s 23; Partnership Act 1958 (Vic), s 27; Partnership Act 1891 (Qld), s 26; Partnership Act 1891 (SA), s 23; Civil Judgments Enforcement Act 2004 (WA), s 14(4); Partnership Act 1891 (Tas), s 28; Civil Procedure Rules 2006 (ACT); Partnership Act 1997 (NT), s 27. Partnership Act 1892 (NSW), s 5; Partnership Act 1958 (Vic), s 9; Partnership Act 1891 (Qld), s 8; Partnership Act 1891 (SA), s 5; Partnership Act 1895 (WA), s 26; Partnership Act 1891 (Tas), s 10; Partnership Act 1963 (ACT), s 9; Partnership Act 1997 (NT), s 9.

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Actual express and actual implied authority Scope of partnership authority Actual Authority

Express

What ever has been agreed

Implied Buy and sell goods

Apparent Authority

The authority that a partner in a firm such as this would be expected to have: Freeman v Lockyer

Receive payments Hire and fire Borrow money

[16.430] A partner will have express actual as well as implied actual authority to engage in particular activities with third parties, and provided he or she acts within this actual authority (express or implied) he or she will bind the other partners. A partner may be granted express authority orally or in writing. The implied actual authority of a partner extends to all matters necessary for carrying on the business of the firm in the usual way in which businesses of a like kind are carried on. The implied actual authority only extends to transactions in the usual course of the partnership business. There are certain acts which partners are entitled to perform and for which the partner will have implied actual authority (even if he or she no express actual authority): (a)

to sell any goods or personal chattels of the firm;

(b)

to purchase on account of the firm any goods of a kind necessary for or usually employed in the business carried on by it. For example, a member of a partnership conducting the business of farming was deemed to have implied authority to purchase farming machinery on time payment;

(c)

to receive payment of debts due to the firm, and give receipts or releases for them;

(d)

to engage employees for the partnership business.

If the partnership is a trading one (eg is engaged in the buying and selling of goods), every partner may also bind the firm by any of the following acts: (e)

accept, make, and issue bills and other negotiable instruments in the name of the firm;

(f)

borrow money on the credit of the firm;

(g)

for that purpose, pledge any goods or personal chattels belonging to the firm; and

(h)

for the like purpose, give an equitable mortgage, by deposit of deeds or otherwise, of real estate or chattels real belonging to the firm but he or she cannot give a legal mortgage of land.

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Authority not implied [16.440]  A partner has no implied authority to bind the firm by deed for such authority must be given to that partner by deed. Furthermore, a partner has no implied authority to give a guarantee in the name of the firm or to bind the firm by a submission to arbitration. A partner cannot pledge the firm’s credit for a purpose not apparently connected with its ordinary course of business without express authority,27 nor can he or she pledge the firm’s assets for private debts where the other party knows they are not that partner’s own assets. If it has been agreed between the partners that any restrictions be placed upon the power of any one or more of them to bind the firm, an act done in contravention of the agreement is not binding on the firm where a third person has notice of the agreement.28

Apparent authority [16.450]  This authority only extends to transactions in the usual course of the partnership business, and carried out in the usual way, otherwise the firm will not be liable even though the partnership derives a benefit from the act.

Liability of partners to third parties [16.460]  As we have seen, a partnership is not a separate legal person. It is nothing more than individual partners and it is those partners who are (a) jointly liable for the debts of the partnership; (b) jointly and severally liable for the wrongful acts of the partner(s); and (c) jointly and severally liable for misapplication of money or property. We will look at each in some detail.

(a) Liability for debts and obligations [16.470]  The Partnership Act explains that: “[E]‌very partner is an agent of the firm and his other partners for the purpose of the business of the partnership, and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners unless the partner so acting has in fact no authority to act for the firm in the particular matter and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner”.29

27

28

29

Partnership Act 1892 (NSW), s 7; Partnership Act 1958 (Vic), s 11; Partnership Act 1891 (Qld), s 10; Partnership Act 1891 (SA), s 7; Partnership Act 1895 (WA), s 14; Partnership Act 1891 (Tas), s 12; Partnership Act 1963 (ACT), s 11; Partnership Act 1997 (NT), s 11. Partnership Act 1892 (NSW), s 8; Partnership Act 1958 (Vic), s 12; Partnership Act 1891 (Qld), s 11; Partnership Act 1891 (SA), s 8; Partnership Act 1895 (WA), s 15; Partnership Act 1891 (Tas), s 13; Partnership Act 1963 (ACT), s 12; Partnership Act 1997 (NT), s 12. Partnership Act 1892 (NSW), s 5; Partnership Act 1958 (Vic), s 9; Partnership Act 1891 (Qld), s 8; Partnership Act 1891 (SA), s 5; Partnership Act 1895 (WA), s 26; Partnership Act 1891 (Tas), s 10; Partnership Act 1963 (ACT), s 9; Partnership Act 1997 (NT), s 9.

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Thus, partners may be bound by the actions of a partner: ▶▶

▶▶

when the partners have authorised a partner to enter into a transaction on their behalf with the outsider. Here the normal rules of agency apply so that if the agent has acted within his or her actual or apparent authority, the partners will be bound to the transaction; when one of the partners has acted, without express authorisation, in circumstances where the four requirements of the Partnership Act have been met:



(i)

the act or transaction was entered into by a partner;



(ii)

the act or transaction entered into must be within the scope of the kind of business carried on by the firm;



(iii)

the act or transaction must be carried out in the usual way; unless,



(iv)

the other party to the transaction must either know or believe that the person lacks authority or do not believe him or her to be a partner.

We will consider each element. But first we should note that in a commercial partnership, the following acts come within the scope of a partner’s normal authority: he or she may pledge or sell the partnership property, may buy goods on account of the partnership, may borrow money, incur and pay debts on account of the partnership, sign cheques and hire employees.

(i) The act or transaction was entered into by a partner [16.480]  The partners will only be bound to a transaction made with a third party when that transaction was made by one or more of their partners. If the person entering into the contract was not a partner, the other partners would not be liable under this section of the Partnership Act and the situation would then have to be analysed in accordance with normal agency rules.

(ii) The act or transaction entered into must be within the scope of the kind of business carried on by the firm [16.490]  Whether an act or transaction is within the scope of the kind of business that is carried on by the firm is a question of fact. Although the following case involves the liability of the partners for a civil wrong, the issue concerning the scope of the partnership’s business is relevant here. It should be noted that the partners may be liable for a contract entered into by one of the partners, even though it is outside the scope of this particular firm’s business, where the business transaction is of a kind that is usually entered into by other firms in the same kind of business.

(iii) The act or transaction must be carried out in the usual way [16.500]  Notwithstanding that a partner has entered into a transaction which is within the scope of the kind of business carried on by the partnership, the third party will be put “on notice” that the partner may lack authority if the transaction is carried out in an unusual way.

Mercantile Credit Co Ltd v Garrod [16.510]  Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103. Two partners were in a partnership that leased out garages. Both were prohibited, under the partnership agreement, from selling motor vehicles. Despite this, Parkin, one of the two partners, sold a car which he did

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not own. He had done this in the past. The plaintiff sued the partnership and recovered damages. The court looked at the transaction as it would have appeared to the plaintiff and concluded that from the plaintiff’s point of view the sale was within the usual course of business. The court held that when Parkin entered into the sale of the Mercedes Benz to the plaintiff, “he was doing an act of a like kind to the business carried on by the persons trading as a garage”. Further:

  

“[W]‌hatever express restrictions there might earlier have been on Mr Parkin’s authority, the defendant had known … that Mr Parkin had been selling cars in the firm’s name and that he intended to continue doing so, and … the defendant, having taken no steps to prevent such sales, was liable for his partner’s actions”.

Goldberg v Jenkins [16.520]  Goldberg v Jenkins (1889) 15 VLR 36. A  partner purported to borrow money on behalf of the firm at over 60% interest when at the time the comparable rates were between 6% and 10%. It was held that such borrowing was beyond “the usual way” of the firm and thus the firm was not bound to the transaction. According to Hodges J:

  

“A person conducting his transactions in the ordinary way … would have been able to obtain all the advances which he could reasonably require at rates varying from 6 to 10 per cent; but in this case, referring to the last transaction, the interest was something over 60 per cent and the person lending money on those terms knows that the person borrowing is not conducting an ordinary business transaction, and that, therefore the partner borrowing would have no power to bind his co-​partners”.

(iv) The other party to the transaction must either know or believe that the person acting is a partner or must not know of his or her lack of authority to act [16.530]  Where a partner, without actual authority, enters a contract that is within the scope of the kind of business carried on by the firm and it is entered in the usual way, it will not be binding on the partners if the third party knows of the lack of authority or does not know or believe that the partner with whom they acted was a partner.

Construction Engineering Pty Ltd v Hexyl Pty Ltd [16.540]  Construction Engineering Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541. Tembel Pty Ltd and Hexyl formed a partnership in order to develop some property. The partnership agreement expressly said that Tembel would enter the construction contract on its own behalf and not on behalf of the partnership and, in fact, when Tembel signed a contract with Construction Engineering to construct the building, it did so under its own name. After a dispute arose, Construction Engineering sued both Tembel and Hexyl for breach of the contract. Hexyl denied liability. The High Court held that Hexyl had no liability. The construction contract was between Construction Engineering and Tembel. There was no liability under the section because (a) there

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was no actual authority (the partnership agreement expressly limited Tembel’s authority to bind the firm) and (b) there was no apparent authority (Construction Engineering, at the time of making the contract with Tembel, was unaware of Hexyl –​it had assumed Tembel was acting on its own behalf only).

  

Joint liability for debts [16.550]  Consistent with the mutuality principle that underpins partnership law, partners are “jointly” liable for the whole of the debts of the firm.30 A creditor can bring one action, and one action only, against the members of a partnership and any partner can insist that the action be stayed until all other partners are joined as parties. If judgment is obtained against one or more partners of a firm, no action may be taken against the others even if satisfaction cannot be obtained from the partner(s) sued.

Liability of incoming partner [16.560] A person admitted into an existing firm does not become liable for debts or obligations contracted before he or she became a partner.31 However, liability may be incurred where it is specially agreed upon, for example, where it is agreed to release a retiring partner from the firm’s debts and substitute an incoming partner. Such a contract, however, cannot be enforced by a third party (ie a creditor) against the incoming partner unless the third party was a party to the contract.

Liability of retiring partner [16.570] A partner who retires from a firm does not thereby cease to be liable for partnership debts incurred before his or her retirement. However, a retiring partner may be discharged from any existing liabilities by an agreement to that effect between themselves and the members of the firm as newly constituted and the creditors. The agreement may be either express or inferred from the course of dealing between the creditors and the firm as newly constituted.32 Such an agreement is called a tripartite agreement. The creditors (first party) will agree to release the retired partner (second party) and the continuing (and new) partners (third party) will agree to accept liability. The position in relation to debts subsequently incurred is different. When a person deals with a firm after a change in its constitution, they are entitled to treat all apparent members of the old firm as still being members of the firm until they have notice of the change.33 30

31

32

33

Partnership Act 1892 (NSW), s 9; Partnership Act 1958 (Vic), s 13; Partnership Act 1891 (Qld), s 12; Partnership Act 1891 (SA), s 5; Partnership Act 1895 (WA), s 26; Partnership Act 1891 (Tas), s 10; Partnership Act 1963 (ACT), s 9; Partnership Act 1997 (NT), s 9. Partnership Act 1892 (NSW), s 17; Partnership Act 1958 (Vic), s 21; Partnership Act 1891 (Qld), s 20; Partnership Act 1891 (SA), s 17; Partnership Act 1895 (WA), s 24; Partnership Act 1891 (Tas), s 22; Partnership Act 1963 (ACT), s 21; Partnership Act 1997 (NT), s 21. Partnership Act 1892 (NSW), s 17; Partnership Act 1958 (Vic), s 21; Partnership Act 1891 (Qld), s 20; Partnership Act 1891 (SA), s 17; Partnership Act 1895 (WA), s 24; Partnership Act 1891 (Tas), s 22; Partnership Act 1963 (ACT), s 21; Partnership Act 1997 (NT), s 21. Partnership Act 1892 (NSW) s 36; Partnership Act 1958 (Vic) s 40; Partnership Act 1891 (Qld) s 39; Partnership Act 1891 (SA) s 36; Partnership Act 1895 (WA) s 47; Partnership Act 1891 (Tas) s 41; Partnership Act 1963 (ACT) s 41; Partnership Act 1997 (NT) s 40.

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In such a case, the person dealing with the firm has two potential but alternative courses of action. She may either sue the members of the firm as they were prior to the change, or she may sue the members of the firm after the change, but she cannot in the one action sue both the partners prior to the change and the partners after the change. In order to avoid being made liable for debts incurred after their retirement, a retiring partner should give specific notice of their retirement to those persons with whom the firm has had dealings. The mere alteration of the names on the letterhead of a firm and receipt of communications on the changed letterhead is insufficient notice, unless the letterhead or the body of a letter spells out in clear terms what alteration there has been to the partnership.

Hamerhaven Pty Ltd v Ogge [16.580]  Hamerhaven Pty Ltd v Ogge [1996] 2 VR 488. Ogge was a senior partner in a law firm in Melbourne. He retired in 1987. Two years later, the firm transferred H’s funds to a finance company that promptly collapsed. H sued the firm, including all those who were partners in 1989. For one year after he retired, Ogge was retained as a consultant and his name appeared as such on the letterhead. After 1988, he retired completely and his name no longer appeared. The issue was whether the removal of his name from the letterhead prior to 1989 was proper notice. The Court decided that the removal was not proper notice for the purposes of s 40 of the Partnership Act 1958 (Vic). A general advertisement is also insufficient for this purpose. Notice of dissolution published in a certain manner is, however, deemed sufficient notice to persons who have not had prior dealings with the firm.

  

[16.590]  On the dissolution of a partnership or retirement of a partner, any partner may publicly notify the fact of the dissolution or retirement, and may require the other partner or partners to concur in any necessary acts which cannot be done without their concurrence.34 The estate of a partner who dies, or who becomes bankrupt, or of a partner who, not having been known to the person dealing with the firm to be a partner (ie a dormant partner), retires from the firm, is not liable for partnership debts contracted after the date of the death, bankruptcy or retirement, respectively.

Tower Cabinet Co Ltd v Ingram [16.600]  Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397. Mr Christmas and Mr Ingram dissolved their partnership (running Merry’s furniture store in Edmonton) but no notice was given or advertisement published. After the dissolution, Christmas ordered goods from Tower Cabinet using the firm’s old notepaper that showed Ingram as a partner. The supplier failed in his action against Ingram because Ingram had not knowingly allowed himself to be represented as a partner and, indeed, the plaintiff was unaware that Ingram was a partner of the firm before its dissolution.

  

34

Partnership Act 1892 (NSW), s 37; Partnership Act 1958 (Vic), s 41; Partnership Act 1891 (Qld), s 40; Partnership Act 1891 (SA), s 37; Partnership Act 1895 (WA), s 48; Partnership Act 1891 (Tas), s 42; Partnership Act 1963 (ACT), s 42; Partnership Act 1997 (NT) s 41.

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Liability for “holding out” as a partner [16.610]  A person who represents themselves, or who knowingly allows themselves to be represented, as a partner, is liable as a partner to anyone who has, on the faith of any such representation, given credit to the firm (ie the “partner” is estopped from denying to third parties that he or she is a partner and liable as such).35 This section makes it clear that it is the person who is represented as a partner or who represents themselves as a partner that is liable to outsiders who have on the faith of the representation given credit to the firm.

Liability for crimes or civil wrongs [16.620]  Partners are liable jointly and severally for the wrongful act or omission of any partner acting in the ordinary course of business of the firm, or with the authority of their co-​partners.36 This means that the plaintiff can sue one, some or all of the partners. A wrongful act or omission may be a tort (such as a negligent act, such as negligent driving when engaged in the usual course of business), negligent misrepresentation or defamation, engaging in misleading or deceptive conduct under s 18 of the Australian Consumer Law, breach of fiduciary duty (such as acting in a way that involves a conflict of interest) or a crime (such as fraudulent misappropriation of funds) but it does not include breach of contract. In order for liability to be established, it must be shown that the wrongful act or omission of the partner: (a)

occurred in the ordinary course of the business of the firm; or

(b)

was authorised by the co-​partners.

In deciding whether the wrongful act or omission was committed while the partner was acting in the ordinary course of business of the firm, it is necessary to identify the nature and scope of the firm’s business. This will be determined by reference to the agreement between the partners.

Walker v European Electronics Pty Ltd [16.630]  Walker v European Electronics Pty Ltd (1990) 23 NSWLR 1. There were three partners in a firm of chartered accountants. One specialised in receivership work, another specialised in tax and another specialised in bankruptcy and liquidations. Garrity misappropriated a large sum of money when acting as the receiver of a company. He was imprisoned for fraud and made bankrupt. The defrauded company then sued the other partners. They argued that, as Garrity was the only partner who did receivership work, the receivership practice was not part of “the ordinary course of the firm’s business”. After examining the partnership agreement, and taking into account that the fees earned from the receivership work went into the partnership, the NSW Court of Appeal disagreed. It said:

35

36

Partnership Act 1892 (NSW), s 14; Partnership Act 1958 (Vic), s 18; Partnership Act 1891 (Qld), s 17; Partnership Act 1891 (SA), s 14; Partnership Act 1895 (WA), s 21; Partnership Act 1891 (Tas), s 19; Partnership Act 1963 (ACT), s 18; Partnership Act 1997 (NT), s 18. Partnership Act 1892 (NSW), ss 10, 12; Partnership Act 1958 (Vic), ss 14, 16; Partnership Act 1891 (Qld), ss 13, 15; Partnership Act 1891 (SA), ss 10, 12; Partnership Act 1895 (WA), ss 17, 19; Partnership Act 1891 (Tas), ss 15, 17; Partnership Act 1963 (ACT), ss 14, 16; Partnership Act 1997 (NT), ss 14, 16.

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“If partners have agreed to carry on a certain kind of business and that business includes acting in a particular manner or capacity then conduct by one of them in pursuance of that agreement will attract the operation of s 10 [of the Partnership Act 1892 (NSW)]. It is their agreement to go into that kind of business which is the foundation of their joint and several liability”.

  

The Court held that two partners of a firm of chartered accountants were liable for the fraudulent misappropriation of $221,064 by a third partner who was acting as the receiver and manager of a company.

[16.640]  On the other hand, a partner will not be liable for the fraud of a co-​partner who was not acting in the ordinary course of the firm’s business.

National Commercial Banking Corp of Australia Ltd v Batty [16.650]  National Commercial Banking Corp of Australia Ltd v Batty (1986) 160 CLR 251. Batty and Davis were partners in a firm of accountants. Davis fraudulently deposited cheques of a company of which he was a director into the firm’s trust account and misappropriated the proceeds. The company, on discovering the fraud, successfully sued the National Australia Bank (the collecting bank) in the tort of conversion. The bank then sought an indemnity from Batty (Davis died before the action was heard) arguing that he was liable for the fraud of his partner.

  

The High Court decided that in depositing the cheques to the firm’s trust account, the partner had not been acting in the course of the firm’s business and accordingly his co-​partner was not liable for his fraudulent conduct.

Polkinghorne v Holland [16.660]  Polkinghorne v Holland (1934) 51 CLR 143. Florence Polkinghorne was a long-​ standing client of a firm of three solicitors that included Thomas Holland and his son, Harold. She received advice from Harold about the investment of Florence’s money which was generally in low-​risk, low-​yield government bonds and first mortgages. However, at one point, Harold advised her to invest in two risky companies run by his associates. When the companies failed, Florence sued the firm. The main issue was whether the two innocent partners were liable for her loss. The High Court, in upholding her appeal, found that the other partners were liable: “The difficulty of the case really lies in determining what is within the course of a solicitor’s business. By associating themselves in a partnership with Harold Holland, the respondents made themselves responsible, as principals are for an agent, for all his acts done in the course of his authority as a partner. That authority was to do on behalf of the firm all things that it is part of the business of a solicitor to do. If, in assuming to do what is within the course of that business, he is guilty of a wrongful act or default, his partners are responsible, notwithstanding that it is done fraudulently and for his own benefit … But, to make his co-​partners answerable, it is not enough that a partner

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utilises information obtained in the course of his duties, or relies upon the personal confidence won or influence obtained in doing the firm’s business. Something actually done in the course of his duties must be the occasion of the wrongful act”. The Court then held that the giving of financial or investment advice was within the usual course of business of that firm of solicitors: “But it is one thing to say that a valuation or expression of his own judgment upon a commercial or financial question is not within the scope of a solicitor’s duties, and another to say that when he is consulted upon the wisdom of investing in the shares of a company of which his client knows nothing, it is outside his province as a solicitor to inquire into the matter and to furnish his client with the information and assistance”. In other words, notwithstanding that a solicitor had no special skill regarding the investments, it was within the ordinary scope of the business to enquire on the client’s behalf and give her relevant information and assistance.

  

Joint and several liability for wrongs [16.670]  Partners are liable jointly and severally for the wrongful act or omission of any partner acting in the ordinary course of business of the firm, or with the authority of their co-​partners. This means that the partners are both collectively (jointly) and individually (severally) liable meaning that the plaintiff can sue one, some or all of the partners and can sue them at different times until the debt is paid.

Liability for misapplication of trust moneys [16.680]  The Partnership Act37 specially provides for the liability of the firm where the money or property of a third person has been received and misapplied by a member of a partnership: A partnership must make good any loss occasioned: (a) where one partner acting within the scope of their apparent authority receives the money or property of a third person and misapplies it; and (b) where a firm in the course of its business receives the money or property of a third person and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm.



Under (a) above, the liability of the firm depends on whether the partner who misapplies the money had express or apparent authority to receive it, whereas under (b), the liability of the firm depends on the money being in the custody of the firm, whether its receipt was in the ordinary course of the business of the firm or not. For example, if a member of a firm of solicitors acting for a vendor in a sale receives a deposit and then absconds with it, their partners are also liable to refund the money.

37

Partnership Act 1892 (NSW), s 11; Partnership Act 1958 (Vic), s 15; Partnership Act 1891 (Qld), s 14; Partnership Act 1891 (SA), s 11; Partnership Act 1895 (WA), s 18; Partnership Act 1891 (Tas), s 16; Partnership Act 1963 (ACT), s 15; Partnership Act 1997 (NT) s 15.

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Innocent partners are also liable for the misrepresentation by one of their partners or employees in matters connected with the ordinary business of the firm. They are also liable for damages caused by the negligence of a partner in the ordinary conduct of the partnership business. This follows the rule applicable to the liability of a principal for the wrongs of their agent. A principal is liable for the fraud or other illegal act committed by their agent within the general scope of the authority given to the agent.

Lloyd v Grace, Smith & Co [16.690]  Lloyd v Grace, Smith & Co [1912] AC 716. Where a managing clerk of a firm of solicitors acting within the scope of his authority interviewed a client concerning an alteration in her investments and induced her to sign papers that enabled him to misappropriate property, it was held that the firm was responsible for the fraud committed by their representative in the course of his employment.

  

[16.700]  If a partner, being a trustee, improperly employs trust property in the business or on account of the partnership, the other partners are not liable to the persons beneficially interested therein unless they were aware of the breach of trust. This relates only to the private affairs of the partner, that is, where the partner is a trustee in a personal capacity and not as a member of the partnership. The trust money may be followed and recovered from the firm if still in its possession or under its control.38

Dissolution of partnership [16.710]  It is a fundamental principle of the law of partnership that any change in the membership of the partnership, whether occurring as a result of the retirement, expulsion, death or otherwise of a partner, effects a dissolution of the partnership. The addition of a new partner also effects the dissolution of the former partnership and the creation of a new partnership. In the absence of other arrangements, the dissolution of a partnership should be followed by a winding-​ up and final settlement of accounts. However, many partnership agreements contain provisions to enable the transition from one firm to another to be effected without the disruption of a formal winding-​up. A term is frequently included in the agreement to the effect that the other partners have the right to purchase the retiring or deceased partner’s interest at a valuation, calculated according to an agreed formula. These are essential in large firms, such as many accounting and legal practices, where there are regular changes in membership. A partnership may be dissolved by operation of law, by agreement of the partners, in accordance with the provisions of the partnership agreement or by the court upon application. If the partnership agreement contains any provisions for the dissolution, these must be followed. The Partnership Act, however, sets out certain specific circumstances which are grounds for dissolution.

38

Partnership Act 1892 (NSW), s 13; Partnership Act 1958 (Vic), s 17; Partnership Act 1891 (Qld), s 16; Partnership Act 1891 (SA), s 13; Partnership Act 1895 (WA), s 20; Partnership Act 1891 (Tas), s 18; Partnership Act 1963 (ACT), s 17; Partnership Act 1997 (NT), s 17.

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Operation of law [16.720]  Apart from any agreement between the partners or any decision of the court, a partnership is dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on, or for the members of the firm to carry on in partnership, for example where one member becomes –​by outbreak of war –​a resident in an alien territory.39

By partners [16.730]  Subject to any agreement between the partners, a partnership is dissolved: (a)

if entered into for a fixed term, by the expiration of that term;

(b)

if entered into for a single adventure or undertaking, by the termination of that adventure or undertaking, for example, a partnership entered into for the purpose of salvaging a shipwreck would be terminated by the recovery and disposal of the wreck;

(c)

if entered into for an undefined time (ie a partnership at will), by any partner giving notice to the other or others of their intention to dissolve the partnership. The partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is mentioned, as from the date of the communication of the notice. A valid notice of dissolution once given cannot be withdrawn except by consent of all parties. However, in a partnership where the agreement provided that the partnership could be terminated by “mutual agreement only”, the court held that one of the partners could not determine the partnership by notice against the will of the other: Moss v Elphick [1910] 1 KB 846;

(d)

by the death, bankruptcy or insolvency of any partner. If a partner gives a valid notice of dissolution but dies before the expiration of the notice, the partnership is dissolved by death and not by the notice; or

(e)

at the option of the other partners, if any partner allows their share of the partnership property to be charged for their separate debt.

By the court [16.740]  On application by a partner, the court may order a dissolution of the partnership in any of the following cases: 1.

When a partner has been declared to be of unsound mind and incapable of managing their affairs, or is shown to the satisfaction of the court to be of permanently unsound mind.

2.

When a partner, other than the partner suing, becomes in any other way permanently incapable of performing their part of the partnership contract.

3.

When a partner, other than the partner suing, has been guilty of such conduct as in the opinion of the court, regard being had to the nature of the business, is calculated to prejudicially affect the carrying on of the business.

4.

When a partner, other than the party suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts themselves in matters relating to the partnership business

39

Partnership Act 1892 (NSW), s 34; Partnership Act 1958 (Vic), s 38; Partnership Act 1891 (Qld), s 37; Partnership Act 1891 (SA), s 34; Partnership Act 1895 (WA), s 45; Partnership Act 1891 (Tas), s 39; Partnership Act 1963 (ACT), s 39; Partnership Act 1997 (NT), s 38.

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that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with them. For example, the following have been held to be grounds for dissolution: continuous quarrelling or consistently keeping the accounts incorrectly, or such mutual incompatibility of temper of the partners as to make it impossible to carry on the business successfully or beneficially. 5.

When the business of the partnership can only be carried on at a loss. Every partnership is entered into with a view to profit and, if it can only be carried on at a loss, the whole purpose of the partnership fails, and it may be dissolved.

6.

Whenever in any case circumstances have arisen which, in the opinion of the court, render it just and equitable that the partnership be dissolved.40

Continuing authority of partners for purposes of winding-​up [16.750]  After the dissolution of a partnership, the authority of each partner to bind the firm and the other rights and obligations of the partners continue, notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution.

Application of partnership property on dissolution [16.760]  On dissolution, every partner is entitled to have the partnership property applied towards the payment of the partnership liabilities and thus free themselves from these liabilities. A partner also has the right to have any surplus assets, after the payment of the firm’s liabilities, applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm. For the purpose of having the assets applied towards the payment of the partnership debts and for the distribution of the surplus assets, any partner or their representatives may, on the termination of the partnership, apply to the court for a decree dissolving the partnership and for the appointment of a receiver to wind up the business and affairs of the firm.41

Final settlement of accounts on dissolution [16.770] The Partnership Act provides a number of rules on the final settlement of accounts between partners in the event of dissolution. Subject to any agreement between the partners as to their rights and liabilities inter se, the following rules must be observed: 1.

40

41

Losses, including losses and deficiencies of capital, must be met first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits.

Partnership Act 1892 (NSW), s 35; Partnership Act 1958 (Vic), s 39; Partnership Act 1891 (Qld), s 38; Partnership Act 1891 (SA), s 35; Partnership Act 1895 (WA), s 46; Partnership Act 1891 (Tas), s 40; Partnership Act 1963 (ACT), s 40; Partnership Act 1997 (NT), s 39. Partnership Act 1892 (NSW), s 39; Partnership Act 1958 (Vic), s 43; Partnership Act 1891 (Qld), s 42; Partnership Act 1891 (SA), s 39; Partnership Act 1895 (WA), s 50; Partnership Act 1891 (Tas), s 44; Partnership Act 1963 (ACT), s 45; Partnership Act 1997 (NT), s 43.

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2.

The assets of the firm, including the sums, if any, contributed by the partners to make up any losses or deficiencies of capital, must be applied in the following manner and order:



(a)

in paying the debts and liabilities of the firm to persons who are not partners in the firm;



(b)

in paying to each partner rateably what is due by the firm to her or him for advances as distinguished from capital;



(c)

in paying to each partner rateably what is due from the firm to them in respect of capital; and



(d)

the ultimate residue, if any, is to be divided among the partners in the proportion in which profits are divisible.42

Limited partnerships [16.780] In the States, but not the Territories, provision is made for limited partnerships.43 The basic scheme of the legislation is to enable the formation of a partnership in which there is at least one general partner with unlimited liability and one or more limited partners whose liability for the debts and obligations of the partnership is limited. Limited partnerships thus allow firms to bring in partners who provide capital for the firm effectively as investors in the firm. Like other passive investors, limited partners do not participate in management. If a limited partner takes part in the management of the business of the firm, they will be liable as if the partner was a general partner. The advantages, in certain circumstances, of a limited partnership for commercial purposes over an ordinary partnership, corporation or trust are seen to include: (a) the comparative simplicity of the formal requirements for the formation of a limited partnership; (b) the advantage of conferring limited liability on a limited partner without having to achieve this via a limited liability company under the Corporations Act 2001 (Cth); (c) in New South Wales, Victoria, Queensland, South Australia and Tasmania, the absence of a limit on the maximum number of limited partners; and (d) the ability of the partners to utilise income tax losses incurred by the partnership.

Incidents of limited partnerships [16.790]  The limited partnership legislation in all States provides that a limited partner must not take part in the management of the business and does not have power to bind the firm. If a limited partner does take part in the management of the business, he or she will be liable as a general partner. A limited partner has the right to inspect the books of the firm at any time. Subject to the terms of any agreement to the contrary between the partners in a limited partnership: (a) any differences arising as to ordinary matters connected with the firm’s business are to be decided by a majority of the general partners; (b) a limited partner may assign their share in the partnership with the consent of the general partners;

42

43

Partnership Act 1892 (NSW), s 44; Partnership Act 1958 (Vic), s 48; Partnership Act 1891 (Qld), s 47; Partnership Act 1891 (SA), s 44; Partnership Act 1895 (WA), s 57; Partnership Act 1891 (Tas), s 49; Partnership Act 1963 (ACT), s 50; Partnership Act 1997 (NT), s 48. Partnership Act 1892 (NSW), Pt 3; Partnership Act 1958 (Vic), Pt 3; Partnership Act 1891 (Qld), Ch 3; Partnership Act 1891 (SA), Pt 3; Limited Partnerships Act 1909 (WA); Partnership Act 1891 (Tas), Pt 3.

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a person may be admitted as a partner without the consent of any limited partner; the other partners are not entitled to dissolve the partnership by reason that a limited partner has suffered their share of the partnership property to be charged for their separate debt; and a limited partner is not entitled to dissolve the partnership by notice.

In New South Wales, Victoria, Queensland, South Australia and Tasmania, any document (eg letters, notices, contracts and cheques etc) issued on behalf of a limited partnership in connection with the conduct of the partnership’s business, must contain in legible letters the words “A Limited Partnership” immediately adjacent to its firm name. A partnership ceases to be a limited partnership if none of the partners is a limited partner or the partners agree that they will carry on the business of the partnership otherwise than as a limited partnership. Subject to the provisions of the limited partnership legislation, the ordinary rules of partnership as set out in the Partnership Act apply.

Incorporated limited partnerships [16.800] The incorporated limited partnership is common in the venture capital sector and is a variant of the limited partnership.44 This category of limited partnership wraps a corporation around the basic limited partnership structure. In consequence, the general partner manages the business on behalf of the company and there is no risk that the limited partners will be vicariously liable for tortious or other breaches of duty by the general partner. Registration is limited to associations registered or registering under the Venture Capital Act 2002 (Cth).

Further reading K Fletcher, The Law of Partnership in Australia (9th ed, Lawbook Co, 2007). S Graw, An Outline of the Law of Partnership (4th ed, Thomson Reuters, 2011).

Tutorial activities

44

1.

What are the advantages and disadvantages of a partnership?

2.

What are the factors that determine whether a partnership exists?

3.

What does a retiring partner need to do to avoid liability for partnership debts after he or she retires?

4.

What is partnership property and why is it important to be able to identify it?

5.

Bob, a property owner, gives Janine the right to use his premises to run a business. Janine pays Bob a weekly amount from the profits made in return for the right to use the premises. Bob is not involved in any of the activities related to running the business, and he has no right of entry to the premises while Janine is conducting her business. Is Bob a partner of Janine? Discuss.

Partnership Act 1892 (NSW) Pt 3; Partnership Act 1958 (Vic) Pt 5; Partnership Act 1891 (Qld) Ch 4; Partnership Act 1891 (SA) Pt 6; Partnership Act 1891 (Tas) Pt 3; Partnership Act 1963 (ACT) Pt 6; Partnership Act 1997 (NT) Pt 3.

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6.

Linda and Mary operate a hair salon as partners. To set up the business, Linda contributed 70% of the money. All ongoing costs were equally contributed. In their written partnership agreement, it is stated that all profits, debts and liabilities are to be distributed equally between the partners. After operating the business for several years, Linda terminates the partnership. Linda claims that she is entitled to 70% of the profits from the sale of the business. Mary, however, argues that capital profits are to be shared equally. Discuss.

7.

Greg, Allan and George are partners in a small law firm specialising in family and property law, and share a large city office where they operate their business. Their partnership agreement states that all profits, debts and liabilities of the firm are to be shared equally among partners. Greg sometimes conducts client meetings from his home office in the evenings and on weekends. He also offers these clients additional legal services such as wills and estate planning. He does not share the profits from these transactions with his business partners. Is Greg required to account for these profits under the Partnership Act?

8.

Jamie and Greg are partners in a firm called Copythat, that leases photocopiers to commercial businesses. Their partnership agreement states that they are prohibited from selling toner to clients other than by arrangement with David’s business, which sells toner. An important client asks Jamie to supply toner, which Jamie provides from a private supplier in India, and does not inform Greg or David. The toner is of poor quality, and the firm sues Copythat for damages, arguing that it was in the scope of their business to supply toner. Greg argues that as a partner he is not jointly liable since James acted contrary to their agreement. Discuss the liability of partners to third parties.

9.

John and Peter are partners in a firm of chartered accountants that specialises in tax management for wealthy clients. Without John’s knowledge, Peter misappropriates millions of dollars from his clients over many years, secretly adding his name as a beneficiary to dividends that are distributed to the clients by the firm. When the misappropriation is discovered, the clients seek compensation from John (Peter having disappeared to Mexico). Advise John whether he is liable.

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chapter 17

Corporations Law [17.20] Administration of the Corporations Act .......................................................................................  398 [17.30] Nature and formation of companies ..............................................................................................  398 [17.150] Constitutions and replaceable rules ...............................................................................................  402 [17.180] The company making contracts: liability for the acts of its agents ...............................  403 [17.230] Membership ................................................................................................................................................  406 [17.260] Management and control ....................................................................................................................  407

Introduction [17.10]  The modern corporation is the dominant business institution of our time. Although the first modern corporation (the Dutch East India Company) was formed in 1602, the emergence and expansion of the corporation over the past 100 years is a compelling story. The modern corporation has been partly responsible for the creation of enormous individual and common wealth in all so-​called developed economies, but this has not been without considerable cost to individuals and the broader society.1 In Australia, where the four major banks are among the largest corporations in the land, their individual and collective behaviour has been laid bare in the Interim Report of the Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry.2 Although there are various types of corporate entities, the same fundamental concepts are shared by the family business on Main St, the proprietary SMEs, the trillion dollar FAANGs (Facebook, Amazon, Apple, Netflix and Google), banks, energy, property and media companies –​ the company as a separate legal entity, with limited liability of the owners who are (often) separate from the management. In essence, the corporate entity makes it possible to carry on a business, raise capital and do so without the exposure to personal liability. The Corporations Act 2001 (Cth) is the key piece of legislation that regulates corporation in Australia. As the Act comprises more than 1,500 sections, it is only possible to deal with the more significant of those provisions as they affect the formation, management and operation of companies. This chapter, therefore, does not discuss takeovers, mergers, fund-​raising, financial services and financial markets. Section references in the discussion that follows are to sections of the Corporations Act 2001 (Cth) unless otherwise indicated.

1

2

See “The Corporation” https://​www.youtube.com/​watch?v=Y888wVY5hzw. The documentary shows the development of the corporation from a relatively limited institution set up under a charter to carry out specific public functions (like building railroads) to the modern institution that as Ambrose Bierce’s Devils Dictionary (Doubleday) cryptically says, “is an ingenious device to obtain profit without individual responsibility”. https://​financialservices.royalcommission.gov.au/​Pages/​interim-​report.aspx.

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Administration of the Corporations Act [17.20] The Australian Securities and Investments Commission (ASIC) has sole responsibility for the administration and enforcement of the Corporations Act nationally. It is an independent statutory commission. In exercising its functions and powers, ASIC is subject only to a written direction by the responsible Commonwealth Minister about the policies it should pursue or priorities to be followed under the national scheme. As part of its administrative role, ASIC has established business centres in each capital city and in certain regional centres to deal with company registrations, document lodgment, registration of security interests, and to provide facilities for the public to search for information in the company registers.

Nature and formation of companies Registration of companies [17.30] To register a company, a person must lodge an application with ASIC and pay the required fees: Corporations Act 2001, s 117(1). The contents of the application are set out in s 117(2). The new company is entered in ASIC’s register of companies and an Australian Company Number is issued: s 118(1). A  company comes into existence as a body corporate at the beginning of the day on which it is registered: s 119.

Figure 17.1: Key features of a company

Separate legal personality

Limited liability

Flexible ownership

Raising funds

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• Upon incorporation, a company is a legal person, separate from its members and its management • Can do most things a natural person can do, including sign contracts • Of shareholders, extent depends on type of company • Particularly in company limited by shares - can easily be bought and sold (although less so with pty ltd company) • Companies can attract investors (usually as members)

Flexible governance

• Constitution or rules provide guidelines on governance

Tax rates and breaks

• Companies are taxed at a lower rate than individuals and have more tax breaks

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Corporate personality [17.40]  The House of Lords in Salomon v Salomon & Co Ltd [1897] AC 22 (see below) affirmed the basic legal principle that, upon incorporation, a company is a new and separate legal person. This principle of the limited liability of the owners of the company is the cornerstone of modern corporate law. It has statutory force through s 124(1) of the Corporations Act 2001 which provides that from the date of registration, a company has the full legal capacity of a natural person. It has an existence separate from its members (the shareholders) and its management (directors) and agents (such as employees). The acts of a company are its acts, not the acts of its members. It can sue and be sued. It can hire and fire human beings. It can become bankrupt. It can acquire, hold and dispose of property. Its assets belong to the company, not to its members who are not liable for the company’s debts beyond their initial capital investment, and have no proprietary interest in the property of the company. The company has perpetual succession –​it is not affected by changes to its members (s 119) –​and it remains a legal person until it is deregistered: s 601AD(1). Although a company may be a separate legal person and have the capacity to enter into contracts etc, since it has no beating heart, it has to act through agents. Section 126 allows the agents of a company to make, vary, ratify or discharge a contract on behalf of the company. Section 127 recognises that the agents of a company are also liable to execute documents on its behalf by either using its common seal (a rubber stamp with the company’s name and registration number) or through the signature of authorised officers. The decision of the House of Lords in the following case confirmed that a company, upon registration, is a separate legal entity.

Salomon v Salomon & Co Ltd [17.50]  Salomon v Salomon & Co Ltd [1897] AC 22. Aaron Salomon was the sole proprietor of a successful leather shoe and boot manufacturing business. He had a wife, a daughter and five sons. The sons wanted to become partners in the business, so he turned the business into a limited company with the required seven shareholders (him, his wife and five children). The two eldest sons were appointed directors. Salomon took 20,001 of the company’s 20,007 shares. The purchase price was approximately £39,000. Salomon received the purchase price by way of 20,000 shares in the new company (valued at £1 each), a cash amount and debentures (secured loans) worth £10,000. Shortly after the company was floated, its business was badly affected by strikes and a severe downturn in the market for its products. The company failed. On liquidation, its assets were not sufficient to discharge the secured creditors, including Salomon himself (ie his debentures), in full. The unsecured creditors (like employees and creditors) argued that Salomon and his company were in essence the same person and that he, far from being a secured creditor, should actually be liable for the debts of the company. The Court of Appeal upheld the trial judge’s decision that the company was a “sham” (Salomon was the company, the other shareholders were not active or independent of him) and that he was (and should be) personally liable for the company’s debts (as he would have been prior to the incorporation).

  

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The House of Lords reversed the decision. It said that as the company was properly incorporated it was a separate legal person and there was no basis for holding Salomon personally liable for the debts of the company.

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The lifting of the corporate veil [17.60]  Once registered, the veil of incorporation comes down and shields the owners (the shareholders) or managers (directors and agents) from personal liability. Only in limited circumstances, does the common law or the Corporations Act 2001 allow that veil to be pierced or lifted. For instance, the Corporations Act 2001 imposes liability on directors if they allow the company to trade while insolvent (ss 588G–​588M) and under the common law, the veil may be lifted where a company is set up or used to perpetuate a fraud on investors or creditors.

Types of companies that may be registered [17.70]  The most important method of company incorporation is that of formation under the Corporations Act 2001. The types of company that may be registered under the Corporations Act 2001 are listed below. The first distinction between types of companies is whether they are proprietary or public. For this chapter, a brief overview of the characteristics is sufficient. Proprietary companies are limited to 50 members and are also limited as to how they may raise funds. Proprietary companies are not permitted to raise funds from the public (eg by a public share offer). Public companies are not limited as to the number of members and may raise funds from the public subject to compliance with other rules about raising funds and issuing shares. Generally speaking, public companies have significantly higher levels of accounting, reporting and disclosure obligations. To list on the stock exchange, a company must be a public company and comply with the additional rules imposed by the Australian Stock Exchange (ASX Listing Rules). Within each of the two broad categories of company –​proprietary and public –​it is the extent to which members are liable for the debts of the company that is the key distinguishing feature. For each type of company listed below, special rules may determine when such a type of company is allowed to be registered, depending on the membership and activities of the company. For example, no liability companies are only available to companies whose activities are strictly limited to mining. The types of companies are discussed below: ▶▶

▶▶

proprietary companies ▷▷

liability limited by shares; or

▷▷

liability unlimited with share capital.

public companies ▷▷

liability limited by shares;

▷▷

liability limited by guarantee;

▷▷

liability unlimited with share capital; or

▷▷

no liability.

Companies limited by shares [17.80]  This is the most common type of corporate structure in Australia. The company issues shares to raise capital. The Corporations Act defines a company limited by shares as a company formed on the principle of having the liability of its members limited to the amount unpaid on their shares: Corporations Act 2001, s 9. A company limited by shares may be either: 1.

a public company; or

2.

a proprietary company.

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Public companies are those that may offer their shares and other securities to the general public for purchase, while proprietary companies are formed on the principle of limiting their numbers to fewer than 50 non-​employee members and keeping their business affairs private.

Companies limited by guarantee [17.90]  These public companies do not have share capital. It, therefore, has a restricted scope and is usually found in the non-​profit sector (eg sporting clubs). The company is formed on the principle that the original guarantors of the company undertake to guarantee the payment of a certain sum to be used to pay the company’s debts in the event of the company being wound up: Corporations Act 2001, s 9. Their liability is limited to the extent of the amount guaranteed.

Unlimited companies [17.100]  This means a company formed on the principle of having no limit placed on the liability of its members. The holders of shares have no limit on their liability to contribute to the assets of the company in the event of it being wound up and consequently they can be called upon to pay any amount necessary to discharge the liabilities of the company. Few companies of this type exist.

No liability companies [17.110]  This class of company may be formed only for the purpose of mining, and on the principle of their members incurring no liability to pay calls, that is to say, the acceptance of a share does not constitute a contract to pay calls in respect of money unpaid on such shares. There are special provisions in the Corporations Act 2001 relating to the liability of members, payment of calls and dividends.

Proprietary and public companies [17.120] A distinction is drawn between public and proprietary companies. The most popular type of company incorporated in Australia is the proprietary company, which is otherwise referred to as a private company. The legislature, recognising the fact that many companies are of a private nature and require a simple form of incorporation, has enacted special provisions giving proprietary companies rights, privileges and exemptions not enjoyed by other companies. A proprietary company must be a company limited by shares, or unlimited with a share capital, and have no more than 50 “members” (people who have been allocated shares excluding those who are employees). A proprietary company is not permitted to raise funds by offering or issuing shares to the general public.

Company name [17.130]  When the company is registered, it must be given a name that distinguishes it from other companies and is not already registered as a business name on the Business Names register. A public company with limited liability must include the abbreviation “Ltd” at the end of the name. A limited proprietary company must have the word “Proprietary” or the abbreviation “Pty” as part of its name inserted immediately before the abbreviation “Ltd”. An unlimited proprietary company must have the word “Proprietary” or “Pty” at the end of its name. A no liability company must include the abbreviation “NL”.

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Company seal [17.140]  A company need not have a common seal. Even if it does, it need not use it in the execution of documents. If a company adopts a common seal, it is required to set out in legible characters on its common seal its name followed by the expression “Australian Company Number” (or “ACN”) and its registration number, unless its name is also its registration number: Corporations Act 2001, s 123.

Constitutions and replaceable rules Figure 17.2: Internal management of a company

Internal management of a company

Company can have its own constitution

Company can have both a constitution and replaceable rules: s 134

Company can choose replaceable rules: s 135

Memorandum and articles of association [17.150]  Prior to July 1998, the memorandum and articles of association were the two fundamental documents upon which the registration of any company was based. The Company Law Review Act 1998 (Cth) abolished the need for both. Companies in existence prior to July 1998 continue to have a memorandum and articles of association as their constitution unless and until they resolve to repeal them. If an existing company repeals its constitution and does not adopt a new one in its place, the “replaceable rules” (see below) will apply to that company: Corporations Act 2001, s 135(1).

Replaceable rules and a company’s constitution [17.160]  A company’s internal management is governed by the “replaceable rules” stated to apply to the company, a constitution if one is adopted, or a combination of both: Corporations Act 2001, s 134. A company’s constitution (if any) and any replaceable rules that apply to the company, have effect as a contract between the company and its members, the company and each director and secretary, and the members themselves: s 140(1). The “replaceable rules” are basic rules relating to the internal management of a company. They are “replaceable” in that a provision stated to apply to a company as a replaceable rule can be displaced or modified by the company’s constitution:  Corporations Act 2001, s  135(2). The relevant provisions are stated to be replaceable rules in the headings to the provisions. A table of provisions that apply as replaceable rules appears in s 141 of the Corporations Act 2001.

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If a company does not want one or all of the replaceable rules, it may modify or replace them by adopting a constitution. This can occur on registration by the written agreement of all persons consenting to become members of the company before lodgment of an application, or after registration by special resolution (a vote by members requiring at least 75% approval): Corporations Act 2001, s 136(1).

Actions of the company [17.170] Actions of the company will not be invalid notwithstanding that the company’s constitution contains an express or implied restriction on, or prohibition of, the exercise of any of its powers: s 125(1). Nor will an act of the company be invalid merely because it is contrary to or beyond the objects stated in the company’s constitution: s 125(2). Furthermore, the fact that some act by a company (such as entering into a particular contract, or the transfer of property to or by the company) is not in the best interests of the company does not affect its legal capacity to do the act: s 124(2). People are not taken to have information about a company (eg its constitution) merely because the information is available to the public through ASIC: Corporations Act 2001, s 130.

The company making contracts: liability for the acts of its agents [17.180]  As an artificial entity, a company must of necessity act through its directors, officers and other agents. Accordingly, difficult questions may arise as to whether acts purported to have been done on behalf of the company by its directors and other agents are binding on the company. A company may enter into any contract that a natural person can and it is important to note that the actions of a company (through its agents) are not invalid because they contravene the company’s constitution (if it has one): s 125. Section 127 is the formal way in which a company may execute a document, including a contract: it may execute a document without using a common seal if the document is signed by two directors of the company; or a director and a company secretary of the company; or for a proprietary company that has a sole director who is also the sole company secretary –​that director. If a company seal is fixed, two directors or a director and secretary witnessing the affixing of the company seal can execute the document. When the company executes in one of the ways set out in s 127 then, even if this is in contravention of the constitution, those people who have dealings with the company will be able to rely on the assumptions contained in ss 129(5) and 129(6) unless they were aware the assumption is incorrect: s 128(4).

The assumptions third parties are entitled to make [17.190]  There are a number of assumptions that affect the substantive authority that the company’s agent has when contracting with a third party. Section 128 states that persons dealing with a company are entitled to make certain assumptions (specified in s 129) as to the powers of the company and the authority of the officers and agents with whom they deal. The policy objective is to increase the protection for third parties by limiting the circumstances in which a company may argue that it is not bound by contracts because its agent was not authorised to enter into the contract. The assumptions are cumulative and may “cure” defects in the formal execution process (non-​compliance with s 127) and any defects in the substantive authority of an agent who was ostensibly authorised to act on the company’s behalf.

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Figure 17.3: How does a company contract with a third party?

How does a company contract with a third party?

Formal authority

Indirectly by agent signing on behalf of company: s 126

Directly by the company with or without seal: s 127

If company executes a document under s 127 this may trigger assumptions in s 129(5) and (6)









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Substantive authority

Actual and ostensible authority

The statutory assumptions

In certain circumstances, s 128 permits assumptions in s 129

s 129 assumptions

Section 128 –​Entitlement to make assumptions 1. A person is entitled to make the assumptions in s 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect. 2. A person is entitled to make the assumptions in s 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect. 3. The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings, as per s 128(3). 4. A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect, as per s 128(4). Section 129 –​The assumptions that can be made under section 128 1. That at all relevant times the constitution and replaceable rules of the company have been complied with (s 129(1)); 2. That a person who appears, from information provided by the company and available to the public from ASIC, to be a director or a secretary of the company: (a) has been duly appointed; and (b) has authority to exercise the powers and perform the duties customarily exercised or performed by a director or secretary of a “similar” company (s 129(2)); 3. That a person who is held out by the company to be an officer or agent of the company: (a) has been duly appointed; and

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(b)



4.



5.



6.

has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company (s 129(3)); That the officers and agents of the company properly perform their duties to the company (s 129(4)); That the relevant documentation has been duly signed or sealed (if executed under seal) in accordance with the proper procedures (s 129(5), (6)); and That an officer or agent of the company who has authority to issue (sign or certify) a document on its behalf, has authority to certify that the document is genuine or a true copy: s 129(7).

Note that s 128(3) provides that these assumptions may be made even if the officer or agent of the company had acted fraudulently or had forged a document in connection with the dealing. However, it is probable that knowledge of the fraud or forgery by persons dealing with the company would disentitle them from claiming the benefit of the relevant assumption. Under s  129(1), a person is entitled to assume that the dealing (eg a contract to purchase goods or services) in which they are engaged does not breach the company’s constitution or an irreplaceable rule. Under s  129(2), a person is entitled to assume that ASIC records concerning a director or company secretary are correct and that the person has been validly appointed and has the authority to exercise the powers and perform the duties “customarily exercised or performed” by such a person. “Customary” powers are the equivalent of the implied/​usual powers of an agent: see Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 for a discussion of “customary powers” (see below at [17.220]). As mentioned above, the assumptions in s 129(5) and 129(6) apply when the company executes in one of the formal ways a contract as set out in s 127. Section 129(5) provides that a person may assume that a contract has been duly executed by the company if it appears to have been signed in accordance with s 127(1). Section 129(6) provides that a person may assume that a contract has been duly executed by the company if the common seal appears to have been affixed in accordance with s 127(2) and the fixing of the seal appears to have been witnessed in accordance with s 127(2). The one assumption that has generated significant case law is s 129(3).

“Holding out” [17.200]  Under s 129(3), a person is entitled to assume that a person who is “held out by the company to be an officer or agent of the company has been duly appointed; and has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company”. The issue in the following case was whether a “holding out” had occurred.

Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [17.210]  Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279. Soon after being taken over by the Goldberg group of companies, Brick & Pipe Industries Ltd (Brick & Pipe) provided a third-​party guarantee to Occidental. The guarantee had to be signed by a director and the secretary of Brick & Pipe or a person appointed for that purpose.

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Goldberg and Furst, who were both directors of Brick & Pipe, executed the deed without prior board approval. Furst, however, signed as secretary, a position to which he had not been appointed. When a solicitor, who had read the public documents, challenged Furst’s capacity to act as secretary, another officer, in the presence of Goldberg, asserted that Furst had been appointed to that position. That officer had no actual authority to give that assurance. He may have had apparent authority but a person with apparent authority cannot hold out another as having actual authority. Only a person with actual authority can do so.

  

Three days later, the Goldberg group collapsed and Brick & Pipe refused to honour the guarantee. The question was whether the company had held out Furst as being the company secretary. If there was a holding out by the company, it had to be done by someone with actual authority to do so. The Court of Appeal held that the guarantee was enforceable by Occidental. It recognised that Goldberg was controller of all companies in the group and had implied actual authority to represent that Furst was the secretary of the company. By remaining silent, he had impliedly represented that Furst had been validly appointed to the position of secretary.

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [17.220]  Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711. Fidelis’ company secretary, Mr Bayne, hired cars from Panorama Development. Bayne used Fidelis’ paper and represented that he wished to hire a number of Rolls Royce cars for the business while his managing director was away. He was in fact using them for his own purposes. Bayne was prosecuted and imprisoned, but Panorama had over £500 in unpaid bills for the hired cars. Fidelis claimed that it was not bound to the hire contracts, because Bayne never had the authority to enter into contracts of this kind.

  

The Court of Appeal held that entering into contracts like this was within the usual authority of company secretaries and therefore within the apparent authority of this particular secretary. Salmon  LJ said the secretary “is the chief administrative officer of the company” so he has ostensible authority with administrative matters. Nothing is more natural than “ordering cars so that its servants may go and meet foreign customers at airports, nothing to my mind, is more natural than that the company should hire those cars through its secretary.” So while a company secretary may not have actual authority to do such things, he or she has apparent authority to do them because they are the usual or implied powers enjoyed by company secretaries.

Membership Where membership exists [17.230]  A person is a member of a company if he or she is identified as a member of the company on its application for registration: Corporations Act 2001, s 120. Membership also extends to every other person who agrees to become a member of the company and whose name is entered in its register of members. The most usual ways by which persons become members are by the allotment of shares to them or the transfer to them of shares by a person who already is a member.

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A company must set up and maintain a register of its members (eg its shareholders) containing details about the member and its shareholding. The register must be kept at the company’s registered office, an office at the company’s principal place of business, or the office where the register is maintained, unless another office has been approved by ASIC. The office must be in Australia: s 172.

Shares [17.240]  Shares are an important source of capital for a company. A company may use the issue of shares as a means to raise capital throughout its life. There are a number of rules under the Corporations Act 2001 and the ASX Listing Rules (for companies listed on the Stock exchange) that regulate share issues so as to protect existing members’ rights and the prospective investors in shares. Offering shares on the stock exchange for the first time (often referred to as “listing”) is an extremely complex and highly regulated event and the company will usually require advice from expert lawyers and corporate advisers. Shares are a form of property. The members who subscribed for shares on registration or acquire shares in subsequent issues may choose to sell their shares in the future. If a member sells their share, then the member retains the price they receive for the share.

Members’ rights [17.250]  Members do not have any rights over the company property. This is an important consequence of the separate legal identity of the company. The company owns the company property –​not the members. The members have certain rights that attach to their share or membership in the company. As we have discussed above, directors have the control of the day-​to-​day management of the company and its business. Members’ rights in respect of the management of the company are essentially limited to voting for the directors. The general rights of members are: ▶▶

▶▶

▶▶

▶▶

The right to vote –​to appoint or remove directors; on directors’ remuneration (but this is limited); on any changes to the company constitution; for any matters that are specified in the company constitution as being matters for members to vote on; on financial benefits given by public companies to the directors and other related parties. The right to distribution –​to receive a dividend if the company makes a profit and the directors declare a dividend; to receive a share of any surplus if the company is wound up or capital is returned. The right to information about the company –​to inspect the company books and receive annual reports; to be notified about company meetings. The rights attached to their class of shares –​class rights are special rights that are attached to a particular group of shares, for instance, a priority dividend, or a right to appoint a director, or to veto a major business decision.

Management and control Registered office [17.260]  Every company must have a registered office to which all communications and notices may be addressed. A company would be liable to a penalty if it carried on business without such an office. Notice of the full address of the registered office and any change in address must be lodged with ASIC. A company

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must paint or affix its name in a conspicuous manner on the outside of every office or place in which its business is carried on, and in the case of the registered office of a public company must add the words “registered office”. The registered office of a public company must be open to the public for at least three hours in each business day: Corporations Act 2001, ss 121, 142–​145.

Directors [17.270] As a company is an artificial legal person, it must act through the agency of others. Directors carry out the day-​to-​day management of a company and s 198A provides the business of the company is managed “by or under the direction of the directors”. The directors are elected by the members (shareholders) or appointed according to the rules of the company. The number of directors depends on the size of the company –​a proprietary company may have as few as one director; public companies must have at least three: Corporations Act 2001, s 201A. If there is more than one director, they are collectively referred to as a “board of directors”. The board will usually appoint a managing director or chief executive officer who will run the company and report directly to the board. Directors who also are involved with managing the company (eg the chief financial officer) are called executive directors; those not involved with management are called non-​executive directors. A public company must also have a secretary who is responsible for “book-​keeping”, drawing up agendas and providing notice of meetings, ensuring compliance with disclosure and reporting requirements, signing or authorising payments. All public companies must have a secretary. Personal details and particulars of the appointment and resignation of all directors must be filed with ASIC. A director must also give notice of contracts to which they are a party: ss 191–​192. A director of a listed public company must notify the relevant securities exchange of their interests in the company’s securities (as well as in the securities of any related company). Notice must be given within 14 days of appointment as a director or listing of the company: s 205G.

Company secretary [17.280]  The secretary of a company is an important officer and the appointment of such an executive to handle the administrative affairs of the company has long been usual company practice. The Corporations Act 2001 requires that every public company must have at least one secretary:  s  204A. The directors appoint the secretary of a company: s 204D. A company of any magnitude requires a secretary. Quite apart from legal compulsion, it is essential that some officer of the company should be made responsible for attending to the requirements of the Corporations Act 2001 concerning the filing of returns, keeping a record of the proceedings at meetings, share transactions and other allied duties. A secretary as we saw in Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 has implied authority to make contracts of an administrative nature for the company: The Corporations Act 2001 imposes a number of duties and obligations on “officers” of the company and s 9 of the Act defines officers to include the company secretary (as well as certain other participants in company management). This means company secretaries can be liable for breach of duties such as the duty of care and diligence and the duty to act in the best interests of the company, which are discussed below, in the same way as directors.

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Validity of acts of a director [17.290]  The acts of a director or secretary are valid notwithstanding any defect that may afterwards be discovered in their appointment: Corporations Act 2001, s 201M. The term “director” includes a person who is appointed to the position of a director. The term “director” is further defined as a person who is not validly appointed as a director but who acts in the position of a director (de facto), or a person in accordance with whose instructions or wishes the directors of the company are accustomed to act (shadow): s 9. This is important as it imposes duties and potential liability on people who try to exercise control of a company and its business through others.

Powers of directors [17.300]  The directors of a company can exercise all the powers of the company, except for matters that require the authority of the shareholders. They can hire and fire people, authorise employees or agents to represent the company, take out loans, enter contracts for the company, buy, sell or lease goods or real property.

Duties and liabilities of directors and other officers Figure 17.4: Director’s duties

Directors’ duties

Corporations Act

General law

Care, skill and diligence

Duty to act in good faith and in the interests of the company, for a proper purpose, duty to avoid conflicts of interest

Care and diligence: s 180

Good faith, in best interests and for proper purpose: s 181

No improper use of position or information to gain personal advantage: ss 182–183

Criminal offence if act dishonestly in relation to ss 181–183

Overview [17.310]  It is because the owners of the company (shareholders) do not have power to influence or control the managers (directors and officers) that the common law and statute impose significant duties on the directors and officers to act in the best interests of the company. The duties imposed on officers are generally regarded as being owed to the company as a whole (ie the members or shareholders as a whole, rather than to particular or individual members). The Corporations Act imposes a wide range of duties on directors. Some are mundane, clear and direct such as the duty to call a meeting when requested by shareholders: s 249D. Others are more complex such as the duty to disclose any material personal interests that relates to the affairs of the company: s 191. The

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statutory fiduciary duties that are imposed on directors and other officers we will focus on are set out in ss 180–​183. The general law duties include a wide range of obligations but focus on duties of trust, honesty and disclosure of interests that may conflict. The general law and statutory duties overlap and complement each other. Before beginning, it is worth noting some of the comments from Interim Report of the Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry.3 The Royal Commissioner offered some general observations on the role of directors: “As commercial enterprises, each of the entities whose conduct was considered in the first round of hearings rightly pursues profit. Directors and other officers of the entities owe duties to shareholders to do that. But the duty to pursue profit is one that has a significant temporal dimension. The duty is to pursue the longterm advantage of the enterprise. Pursuit of longterm advantage (as distinct from shortterm gain) entails preserving and enhancing the reputation of the enterprise as engaging in the activities it pursues efficiently, honestly and fairly. And, lest there be any doubt, it also entails obeying the law. But to preserve and enhance a reputation for engaging in the enterprise’s activities efficiently, honestly and fairly, the enterprise must do more than not break the law. It must seek to do ‘the right thing’. The evidence that was led in the first round of hearings suggested that the entities examined had done, and were doing, as little as they thought they have needed to do to meet their legal obligations, offering no (or at best, next to no) encouragement to or reward for staff or third parties to pursue the interests of the consumer. Compliance appeared to have been relegated to a cost of doing business. And, the case studies undertaken in the first round of hearings showed, that there had been occasions when profit has been allowed to trump compliance with the law, and many more occasions where profit trumped doing the right thing by customers.”

Statutory duties [17.320]  The statutory duties of a director are set out in ss 180–​183 which impose duties of trust and honesty on all officers, including directors, company secretary, executive officers and, in some circumstances, employees. The duties are as follows: ▶▶

▶▶

▶▶

▶▶

Care and diligence –​directors and other officers must act with the degree of care and diligence that a reasonable person might be expected to show in the role: s 180. Good faith –​to act in good faith in the best interests of the company and for a proper purpose (s 181); Improper use of position –​to not improperly use their position to gain an advantage for themselves or someone else or to the detriment to the company (s 182); Improper use of information –​to not improperly use the information they gain in the course of their director duties to gain an advantage for themselves or someone else or to the detriment to the company (s 183).

If the duties under ss 181–​183 of the Corporations Act 2001 are breached by a director or officer acting dishonestly or recklessly, a criminal offence is committed: s 184. A breach of s 180(1) attracts civil penalties only.

3

https://​financialservices.royalcommission.gov.au/​Pages/​interim-​report.aspx.

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Duty of care and diligence: s 180 [17.330]  Care and diligence –​directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation’s circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. Business judgment rule (2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:

(a) (b) (c)



(d)

make the judgment in good faith for a proper purpose; and do not have a material personal interest in the subject matter of the judgment; and inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and rationally believe that the judgment is in the best interests of the corporation.

The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. The duty of care and diligence required in s 180(1) is determined by looking at the corporation’s circumstances and the responsibilities that the officer had within the company. The concept of a “reasonable person” means that the duty applies an “objective” standard of care (a standard that an ordinary person might be expected to follow on his or her own behalf). While the scope of the duty depends on the particular circumstances, it is clear from the case law that all directors are required to satisfy some core, irreducible standards of care and diligence, which include to: ▶▶

be familiar with the fundamentals of the business and operations of the company;

▶▶

keep informed and make appropriate inquiries about the company’s activities;

▶▶

generally guide and monitor the company’s activities;

▶▶

▶▶

▶▶ ▶▶

be familiar with the company’s financial position, including its capacity and solvency (see following case); carefully review, and apply their own minds to, any financial report and directors’ report the company is required to prepare; attend board meetings unless exceptional circumstances exist; delegate tasks or responsibilities. Section 189D allows officers to delegate to whoever they regard as fit. However, s 190(1) makes it clear that directors are responsible for the actions of delegates “as if the power had been exercised by the directors themselves”.

The following case demonstrates the need of directors etc to understand the company’s accounts and financial position. Placing reliance solely on others, no matter how competent, is not sufficient; directors must themselves be familiar enough with current accounting standards to know what should be included in financial statements and whether there are any significant omissions. Neither ignorance nor honesty is a defence to an action under s 180(1).

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Australian Securities and Investments Commission v Healey [17.340]  Australian Securities and Investments Commission v Healey [2011] FCA 717; (2011) 196 FCR 291. ASIC launched civil penalty proceedings against the current and former non-​ executive directors, the former CEO and former CFO of the Centro group of companies. It accused the defendant directors and officers of failing to act in accordance with their duties of care and diligence and failing to take steps to ensure compliance with the financial reporting obligations under the Corporations Act 2001 (the Act). Mistakes were made in the financial statements. The mistakes were not inconsiderable: Centro Properties stated in its annual results released in August 2007 that it had no interest bearing current liabilities on its balance sheet. Centro Properties later confirmed that the amount of interest bearing current liabilities that should have appeared on its 30 June 2007 balance sheet was $2.7 billion and it had entirely omitted a US$1.75 billion short-​term liability guarantee. When the group eventually revealed the extent of their maturing debt obligations and when they revealed that they had been unable to refinance billions of dollars of debt that had become payable, their share prices fell dramatically. The critical question was whether in the circumstances, the obligation to exercise care and diligence required the directors to personally scrutinise the accounts looking for accounting errors or apparent inaccuracies and, if not, whether it was negligent for them to have failed to detect the errors where both management and the external auditor, PricewaterhouseCoopers (PwC), had not detected the errors.

  

Justice Middleton found that each of the directors and officers had breached his duty of care and diligence and had failed to take all reasonable steps to ensure compliance with the financial reporting obligations in the Act. The directors were aware of the guarantees, their current nature and that they were significant to the accounts. A diligent director should have noticed the failure to include the guarantees as current liabilities in the accounts, or at least asked questions about them of the managers and corporate advisers.

[17.350] The following case makes it clear that directors must think beyond financial consequences of their companies’ decisions, to include considerations of corporate culture, reputational harm and potential breaches of the law.

ASIC v Cassimatis (No 8) [17.360]  ASIC v Cassimatis (No 8) [2016] FCA 1023. Mr and Mrs Cassimatis, executive directors and sole shareholders of Storm Financial Ltd, breached their directors’ duties of care and diligence when they permitted (or failed to prevent) Storm providing unsuitable and inappropriate investment advice to clients, including financially vulnerable, elderly clients with little income and few assets. The “Storm model” involved the clients borrowing against the equity in their homes and obtaining margin loans to invest. In reaching his decision Edelman J said: ▶▶

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that in exercising care and diligence, directors must think beyond the financial consequences of a particular action and consider all the possible risks such as reputational harm and potential loss of license from non-​compliance with the law. In other words, a director

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will not avoid liability merely by showing that the likely profit from the contravention exceeded the financial cost from a contravention; and ▶▶

  

it is wrong to say that a contravention of the law by a company necessarily means that a director has breached s 180. In other words, there is no general duty on directors to ensure compliance by the company. However, contraventions (or the risk of contraventions) by the company are circumstances to be taken into account in assessing whether a director has exercised due care and diligence

[17.370]  What does this mean for directors? The statement by Edelman J that the risk of harm to a company is not limited to financial harm but includes such risks as reputational damage raises interesting questions about the extent of directors’ duties. It is clear that directors will only be liable for breach of their duty of care and diligence if it was reasonably foreseeable that their actions or failure to act might cause harm to the interests of the company. An interesting question raised in recent proceedings by two shareholders of the Commonwealth Bank (CBA) is whether the scope of this duty is broad enough to require directors to consider and manage risks posed by climate change. A recent legal opinion suggests that it is because, for many companies, climate change may well pose a reasonably foreseeable risk of harm –​direct or indirect –​to the interests of the company. In a society that increasingly values responsible environmental practices, a company may suffer reputational damage if it takes no action in the face of climate change. Directors may therefore be expected to actively consider and, if necessary, take action to mitigate risks posed by climate change. The two CBA shareholders subsequently dropped their action when the CBA’s annual report acknowledged the seriousness of the risks posed by climate change.

The business judgment rule [17.380] The business judgment rule in s  180(2) of the Corporations Act 2001 provides a defence for actions that may otherwise have constituted a breach of s 180(1). The introduction of a statutory “business judgment rule” into the Act was an attempt to provide a “safe harbour” for directors when they make informed and honest business decisions but ones which ultimately are proved to be wrong. The rule provides directors and other officers with a presumption that they have met the requirements of care and diligence in making a business judgment if they: ▶▶

have acted in good faith and for a proper purpose;

▶▶

do not have a material personal interest in their decision;

▶▶

▶▶

take steps which they believe to be reasonably appropriate to inform themselves about the subject of the decision; and rationally believe that the decision is in the best interests of the corporation.

A director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one, unless the belief is one that no reasonable person in their position would hold. The effect of the rule is that if directors meet the requirements in s 180(2), they are shielded from liability.

Australian Securities and Investments Commission v Rich [17.390]  Australian Securities and Investments Commission v Rich (2009) 236 FLR 1 One.Tel was a large Australian telco that collapsed in 2001. ASIC prosecuted two directors (Rich and Silberman) for breach of their statutory duties of care and diligence. Its case rested on the

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knowledge that directors ought to have had about the companies’ financial position at the crucial time and their failure to warn the Board. The Court decided that ASIC had failed to prove that the directors had breached their duty of care and diligence. They satisfied the business judgment rule because they held a rational belief that their actions were in the best interests of the company. Austin J said that the reasonableness of the belief should be assessed by reference to: ▶▶

the importance of the business judgment to be made;

▶▶

the time available for obtaining information;

▶▶

the costs related to obtaining information;

▶▶

the director or officer’s confidence in those exploring the matter;

▶▶

  

▶▶

the state of the company’s business at that time and the nature of competing demands on the board’s attention; and whether or not material information is reasonably available to the director

The following case is an example of the business judgment rule providing three directors with a “safe harbour” in the wake of a business judgment by directors that did not turn out well.

Australian Securities and Investments Commission v Mariner Corporation Limited

  

[17.400]  Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589. ASIC sought declarations that each of the three directors of Mariner breached his duty to act with due care and diligence in contravention of section 180(1) by making a decision that Mariner would announce an off-​market takeover bid for Austock without having secured funding. In considering whether the directors exercised reasonable care and diligence, the Court confirmed that it is not correct to say that if a director causes a company to breach the Corporations Act then, necessarily, the director has breached s 180. Importantly, Beach J said that the reasonableness of a director’s belief should be assessed by reference to the range of factors outlined in (see [17.390] above). In refusing the application by ASIC, he emphasised that the role of a director is essentially to balance the risk of foreseeable harm to the company against the potential benefits that could reasonably be expected to ensue as a result of their conduct. In this regard, whether a particular risk is foreseeable in any given case should be judged by what the director knew or ought to have known at the time, and not with reference to hindsight. Beach J said that even if one or more of the alleged risks of harm were reasonably foreseeable, the fact is that danger they posed was minimal, and the potential benefits for Mariner in pursuing the proposed takeover bid were so significant and outweighed the risks.

Duty to act in good faith: s 181 [17.410]  Section 181 Good faith –​directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose.

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This duty is a fiduciary obligation and is established in both the general law (as an equitable principle) and under statute. Directors must exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose: s 181. A director will breach this duty if they fail to give proper consideration to the separate interests of the company ahead of other interests. The best interests of the company are usually aligned with the best interests of the company’s shareholders (and not, for example, its creditors or employees). Where they do not align, then the interests of the shareholders (as a group, not individually) takes precedence over the interests of the company. Of course, there is often debate about what, in respect of a particular decision or strategy at a particular moment in time, is in the best interests of the company. For instance, a decision for the company to be a “carbon neutral” company may not be in the interests of the shareholders in the short term but may be in the longer term interests of future shareholders. A “proper purpose” is a purpose that benefits the company. The powers of a director must be used for the purpose for which they were given, not a collateral purpose. An improper purpose would include where the director uses a power to obtain advantage for themselves or someone else. For example in Whitehouse v Carlton Hotel Pty Ltd (1987) 5 ACLC 725, a husband, after separating from his wife, issued new shares in the company they owned so as to dilute her control and entrench his own position. As the decision was motivated by his personal interests and not about the company’s needs the High Court declared the share issue invalid. The following case raised issues in relation to the duties under s 181.

Australian Securities and Investments Commission v Adler [17.420]  Australian Securities and Investments Commission v Adler [2002] NSWSC 171. Adler was a non-​executive director of HIH, once Australia’s largest insurance company. HIHC (a subsidiary of HIH) authorised a $10 million loan to Pacific Eagle Equity (PEE), which was half-​ owned by Adler. This money was used by PEE to purchase shares worth nearly $4 million and the balance was used to buy shares in unlisted technology stocks from Adler Corporation and to make loans to entities that were associated with Adler. ASIC brought proceedings against the three directors, alleging inter alia they had contravened ss 180–​183.

  

Santow J concluded that Adler and other directors had breached their statutory duty of care (s 180) and had contravened their duty to act in good faith (s 181) because of the personal involvement he had in the investment transactions that were entered into for his benefit and the benefit of other and not HIHC, the subsidiary in which he was a director.

Conflict of interest: ss 182–​183 [17.430]  Section 182 Use of position –​directors, other officers and employees (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. Section 183 Use of information –​directors, other officers and employees (1) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:

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(a) (b)

gain an advantage for themselves or someone else; or cause detriment to the corporation.

The duty to avoid conflicts of interest is a fiduciary duty that exists in the general law and under statute. Under the general law, a conflict of interest occurs when the directors or officers put themselves in a position where there is conflict between their duties to the company and their personal interests. Under the general law, conflicts normally arise where a director: ▶▶

makes an undisclosed profit from their position in the company;

▶▶

competes with the company;

▶▶

▶▶

takes up an actual or potential opportunity that properly belongs or might belong to the company; and misuses confidential information or company funds for their own benefit.

To ensure that directors are not conflicted, the basic rule is to regard all corporate property, opportunities and information that come into their possession as a director as belonging solely to the company and unavailable for the director’s use or benefit. Only if a director can demonstrate that the property or information does not belong to the company or is otherwise public, will the director be free to make use of it. In relation to the statutory duties in relation to conflict of interest the following criteria are relevant: ▶▶

▶▶

▶▶

▶▶

a director causes a company to enter into an agreement that confers unreasonable personal benefits on the director; obtaining that agreement in a way that ensures any independent director is not aware of the fact that the benefits flowing to the director are unreasonable; it is sufficient to establish that the company carried out the transaction so that the director would benefit and the director does not make adequate disclosure of their interest; and whether the director has breached the section is assessed objectively.

Note that s 191 imposes a duty on directors to disclose material personal interests in matters that relate to the affairs of the company. See further at [17.490]. The following three cases raised issues in relation to ss 182–​183.

Australian Securities and Investments Commission v Adler [17.440]  Australian Securities and Investments Commission v Adler [2002] NSWSC 171. Adler was a non-​executive director, Williams was a director and the chief executive officer, and Fodera was a director and the financial controller of HIH. HIHC (a subsidiary of HIH) authorised a $10 million loan to Pacific Eagle Equity (PEE), which was half-​owned by Adler. This money was used by PEE to purchase shares worth nearly $4 million and the balance was used to buy shares in unlisted technology stocks from Adler Corporation and to make loans to entities that were associated with Adler. ASIC brought proceedings against the three directors, alleging inter alia they had contravened ss 180–​183.

  

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Santow J concluded that Adler had contravened s 182 due to the arrangement of the $10 million loan that was used to acquire HIH shares on the stock market. This transaction was merely done for the purpose of inflating the price of HIH shares and to allow Adler Corporation to sell the HIH shares it owned to HIH at a higher price.

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Cummings and anor v Claremont Petroleum NL [17.450]  Cummings v Claremont Petroleum NL [1992] FCA 674. Cummings and Fuller were directors of Claremont, a publicly listed mining company. They gained control of the board and passed resolutions to provide them (through a consulting firm that they also controlled) with luxury vehicles and very generous severance packages. When they were voted off the board, the new board cancelled the leases on the luxury cars and sought repayment of the severance payments. The company argued that both of the former directors were in breach of their duty to act honestly and not misuse their positions to gain an advantage or cause detriment.

  

The Full Court of the Federal Court affirmed that the two directors had misused their positions and had a conflict of interest.

Australian Securities and Investments Commission v Vizard [17.460]  Australian Securities and Investments Commission v Vizard [2005] FCA 1037. Steve Vizard, a qualified lawyer and high profile arts personality and benefactor, was appointed a non-​executive director of Telstra Corporation Limited (Telstra) in September 1996.

  

Telstra’s CEO would provide all the directors of Telstra with highly confidential information to help them make the right investment decisions. After having received such information, Vizard instructed his accountant to proceed with share transactions on behalf of a company that Vizard created for investment purposes. It was proven that each share transaction entered into happened because Vizard had obtained confidential information. ASIC commenced civil proceedings against Vizard for breaching his director’s duties under ss  183 and 232 of the Corporations Act 2001. Vizard pleaded guilty in exchange for a $390,000 fine and disqualification from acting as a company director for 10 years.

Duty to act in good faith, use of position and mis-​use of information [17.470]  Section 184 Good faith, use of position and use of information –​criminal offences

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Good faith –​directors and other officers (1) A director or other officer of a corporation commits an offence if they: (a) are reckless; or (b) are intentionally dishonest; and fail to exercise their powers and discharge their duties: (c) in good faith in the best interests of the corporation; or (d) for a proper purpose. Use of position –​directors, other officers and employees (2) A director, other officer or employee of a corporation commits an offence if they use their position dishonestly: (a) with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or

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(b)

recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation. Use of information –​directors, other officers and employees (3) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation commits an offence if they use the information dishonestly: (a) with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or (b) recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.

There are three offences created by s 184. First, directors commit a criminal offence if they are reckless or intentionally dishonest, and if they fail to exercise their powers and discharge their duties in good faith, in the best interests of the corporation, or for a proper purpose: s 184(1). Second, directors may commit a criminal offence if they use their position dishonestly, with the intention of gaining an advantage for themselves or someone else; or by causing detriment to the corporation; or, if they use their position dishonestly or are reckless as to whether they or someone gains an advantage; or whether they cause or may cause detriment to the corporation: s 184(2). Third, equivalent offences lie for the misuse of company information: s 184(3). The central element in each offence is dishonesty and this may be established by showing the director intended to act dishonestly or was reckless.

Remedies and penalties for breach of duty Penalties and remedies for directors and officers Consequences of breach of directors' duties

General law

Statutory

s180

Civil penalty only

ss191 and 195

ss 181–3

Civil penalty provisions - disqualification, fine, compensation

s 184 - criminal offence if reckless or dishonest-fine and/or jail

Fine

Company may seek civil remedies: damages, account of profits, compensation

[17.480]  The provisions of the Corporations Act 2001 concerning the duties of directors and other officers of a company are “civil penalty provisions”. The effect is that a person involved in a contravention of the provisions is liable to civil or, except for a breach of s 180, criminal sanctions. In relation to civil penalties, a court may make an order prohibiting a person from managing a corporation for a specified period, or

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order the payment to the Commonwealth of a pecuniary penalty up to $200,000 (for an individual; the maximum pecuniary penalty for a corporation is $1,000,000) or both. A director who commits an offence under s 184 may be liable to criminal penalties: the prescribed penalties are a fine of up to $420,000 or imprisonment for up to five years, or both. In addition, a court may order a person to compensate a corporation if the person has contravened a civil penalty provision and the corporation has suffered damage as a result of the contravention. In this context, “damage” includes profits made by any person: s 1317H. ASIC may apply for any of these remedies. The corporation may apply for a compensation order: s 1317J. Proceedings for these remedies must be started no later than six years after the contravention: s 1317K. If a person has contravened a civil penalty provision, but it appears to the court that they acted honestly and ought fairly to be excused, the court may relieve them from liability: s 1317S.

Penalties and remedies

Actions of director or officer breach statutory duties. ASIC may seek

Company suffers loss because of breach of duty by director or officer. Company may seek:

Fine (civil penalty or criminal fine)

Damages

Disqualification

Compensation

Imprisonment

Disclosure of interests by directors [17.490]  Subject to certain exceptions, a director who has a material personal interest in a matter that relates to the affairs of the company must give the other directors notice of that interest: Corporations Act 2001, s 191(1). Notice must be given at a directors’ meeting as soon as practicable after the director becomes aware of the interest: s 191(3). Contravention of this provision by a director does not affect the validity of any act, transaction, agreement, instrument or resolution: s 191(4). A director of a public company who has a material personal interest in a matter that is being considered at a director’s meeting must not vote on the matter and must not be present while the matter is being considered by the board: s 195(1). An exception is made where the board has passed a resolution stating that the directors are satisfied that the interested director should not be disqualified: s 195(2). ASIC may also exempt a director from the disqualification in certain circumstances: s 196. In contrast, the director of a proprietary company may participate in discussions, vote on a matter and keep any benefits that arise, provided they have declared their interest beforehand: s 194.

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In some circumstances, disclosure of a conflict and abstaining from voting will be insufficient to satisfy a director’s duty. In this case, the director may be under a positive duty to take steps to safeguard the company’s interests. The action required will depend on matters such as the extent of the conflict, the extent to which the director has been involved in the transaction and the gravity of possible outcomes for the company. In some extreme cases, the only option available is for the director to resign.

Director’s duty to prevent insolvent trading [17.500]  Directors, including non-​executive directors, are under a duty to prevent the company from trading (ie incurring debts) while it is insolvent. This is a crucial obligation for a director because a breach of this duty has the potential to expose directors to personal liability for the company’s debts. A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable: s 95A. In practice, the key question is whether the “cash in the bank” and the value of any assets (including sales, loans, injections of shareholder capital) are sufficient to meet the debts of the company as and when they become due and payable. The relevant provision is s 588G of the Corporations Act 2001, which applies where: (a)

a person is a director of a company at the time when the company incurs a debt;

(b)

the company is insolvent at that time, or becomes insolvent by incurring that debt (or debts including that debt); and

(c)

at that time, there are reasonable grounds for suspecting that the company is insolvent, or would become insolvent: s 588G(1).

By failing to prevent the company from incurring the debt, the director contravenes the section if they were aware at that time that there were reasonable grounds for suspecting that the company was insolvent, or if a reasonable person in a like position in a company in the company’s circumstances would be so aware: s 588G(2). In other words, would a reasonable person in the same position as the director have had a reasonable apprehension (not “mere speculation”: Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266) of insolvency. [17.510]  Safe harbour defence: The safe harbour amendments introduced into the Corporations Act on 19 September 2017 is a “safe to fail” regime that is intended to ameliorate the concerns of directors, who try to find a solution that results in a “better outcome” than the immediate appointment of an administrator. The safe harbour provisions apply if, after the director starts to suspect the company is or may become insolvent, the director starts to develop “one or more courses of action that are reasonably likely to lead to a better outcome for the company”. A “better outcome” is one where directors take appropriate steps to, amongst other things, obtain expert advice and prepare a restructuring plan. Evidence of such a course of action provides directors with a defence so that they won’t be held liable for debts incurred in connection with the course of action they take. Significantly, the plan developed and implemented by the director does not need to succeed in order for safe harbour protection to apply. It is possible that the course of action will result in a worse outcome for the company than if an administrator or liquidator was appointed immediately upon insolvency having been suspected. However, the safe harbour protection will still apply to the debts incurred by a director during that period so long as the course of action was still likely to lead to a better outcome at the time the decision was taken.

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Importantly, this protection is limited to liability under s 588. Thus, for instance, a director may remain liable for a breach of relevant directors’ duties.

Defences [17.520]  There are several defences available to a director in proceedings for contravention of the section. These are that, at the time the debt was incurred, the director: (a)

had reasonable grounds to expect, and did expect, that the company was solvent and would remain solvent even if it incurred the debt: s 588H(2);

(b)

believed on reasonable grounds that a competent and reliable person was responsible for providing adequate information to the director about whether the company was solvent, and on the basis of that information the director expected that the company was solvent and would remain solvent even if it incurred the debt: s 588H(3);

(c)

did not take part in the management of the company because of illness or some other good reason: s 588H(4); or

(d)

took all reasonable steps to prevent the company from incurring the debt. In this context, regard may be had to any action which the director took with a view to appointing an administrator of the company: s 588H(5)(6).

Contravention of the s 588 gives rise to the civil and criminal penalties discussed earlier (see [17.480]). In addition compensation may be ordered in the following circumstances: ▶▶

▶▶

where a creditor has suffered loss or damage in relation to the debt because of the company’s insolvency, the court may order the director personally to pay to the company compensation equal to the amount of that loss or damage: s 588J. where the company is being wound up, the company’s liquidator may bring proceedings to recover from the director personally such loss or damage as a debt due to the company: s 588M.

In relation to non-​executive directors, as the following case demonstrates, in order to defend an insolvent trading claim, they must ensure that they are fully informed of the company’s financial position and if it appears –​or should appear –​that the company is, or might become, insolvent, they must take swift action to appoint an administrator. If the non-​executive director is unable to persuade the Board that the company should cease trading, the director should resign. Obviously, the same applies but with more force (in relation to penalties) to executive directors.

Australian Securities and Investments Commission v Plymin, Elliott and Harrison [17.530]  Australian Securities and Investments Commission v Plymin, Elliott and Harrison [2003] VSC 123. The Victorian Supreme Court found that John Elliott, as a non-​executive director, had failed to prevent a company from incurring debts while it was insolvent. The Court was satisfied that the Water Wheel companies were insolvent at the time debts were incurred and the directors were, or should have been, aware that there were reasonable grounds for suspecting the companies were, or would become, insolvent. In relation to non-​executive directors, the Court said:

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“A non-​executive director is expected to take steps to put himself in a position to monitor the company and to exercise and form an independent judgment and to take a diligent and intelligent interest in the information either available to him or which he might with fairness demand from the executives or other employees and agents of the company.” The Court said that Elliott was aware of facts and matters that gave rise to reasonable grounds for suspecting insolvency. The Court said that it would not find a director guilty where he or she has acted honestly and ought fairly to be excused for the contravention. Here, Elliott had not acted dishonestly but, in assessing whether he ought fairly to be excused, the Court considers any action to appoint an administrator, the way in which the breach occurred; and the circumstances of the person seeking to be excused. In relation to penalty, the Court disqualified Elliott from managing a corporation for four years, ordered him to pay compensation of approximately $1.4 million, and a pecuniary penalty of $15,000 to ASIC. On appeal, the Court of Appeal, in agreeing with the decision and the penalty, said:

  

“We agree with the judge’s conclusions that Elliott’s contraventions over a period of five months were serious and inexcusable and showed continuing disregard for the position of creditors. In his role as a member of the Board of Water Wheel, albeit as a non-​executive director, Elliott had stubbornly and tenaciously allowed Water Wheel to trade after 14 September 1999 and did nothing to protect the creditors from the inevitable insolvency of the company.”

Prohibition of insider trading [17.540] The Corporations Act 2001 contains extensive provisions prohibiting trading with informational advantage or, as it is more commonly known, “insider trading”. Those provisions prohibit anyone in possession of non-​public, price-​sensitive information from dealing in, or engaging others to deal in, the shares of a company. While anyone can be an “insider”, directors and senior executives of a company are still the persons most likely to possess the valuable information of that nature. Sections 1042A–​1042H collectively give the prohibition in s 1043A an expansive meaning but ss 1043B–​1043K provide specific exceptions for vendors and purchasers, their agents, underwriters and companies or partnerships where adequate barriers separate the person with the information from the person engaging in the transaction. Severe penalties, both civil and criminal, may be imposed for contravention and, in addition, the “insider” is liable to compensate the other party to a dealing and to account for any profit to the company whose shares are traded: ss 1043A, 1043L. However, in addition to the statutory defences (s 1043M) to a prosecution, courts have power to relieve a party to a civil proceeding from liability where satisfied that the information was used innocently. For many years, this prohibition seemed to be a “paper tiger” but since the successful prosecution in the following case in 2002, the provisions have been used more frequently.

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R v Hannes

  

[17.550]  R v Hannes (2002) 173 FLR 1. Hannes was an executive director of Macquarie Corporate Finance, an adviser to TNT. He bought TNT options in the name of “M Booth” making use of information held by Macquarie Corporate Finance. The purchase of the options realised a profit of $2 million when a takeover of TNT was announced during their currency. Hannes did not collect the moneys and was sentenced to imprisonment for two years and two months and fined $100,000.

CDPP v Hill and Kamay

  

[17.560]  CDPP v Hill and Kamay [2015] VSC 86. The defendants, H and K, met while studying economics and commerce at Monash University. On graduation, H became a Commonwealth public servant in the Australian Bureau of Statistics (ABS) and a major bank employed K on its wholesale foreign exchange desk. Between August 2013 and May 2014, H provided K with sensitive, embargoed ABS main economic indicators information, which was used by K to conduct trades of margin contracts on the foreign exchange derivatives market. Both defendants pleaded guilty, inter alia, to insider trading under s 1043A of the Corporations Act 2001. H was sentenced to imprisonment for three years and three months and K to seven years and three months.

[17.570]  The New South Wales Court of Appeal upheld the conviction and sentence (nine months’ periodic detention and a fine of $30,000) imposed on a share-​trader who purchased Qantas shares after being given “inside information” on negotiations concerning a proposed commercial arrangement between the airline and a competitor: R v Rivkin (2004) 59 NSWLR 284.

Removal of directors [17.580]  Directors may be removed from office by an ordinary resolution (50% approval) of members. This is a replaceable rule for proprietary companies (s 203C) but not for public companies (s 203D).

Payments for retirement from office [17.590] Payments to directors as compensation for retirement from office, or in connection with the transfer of the whole or any part of the undertaking or property of a company are prohibited unless particulars have been disclosed to the members of the company and the proposal has been approved by the company in general meeting: Corporations Act 2001, ss 200A–​200J.

Certain persons not to manage corporations [17.600]  A person is disqualified from managing corporations if: 1.

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They are convicted of an indictable offence that concerns the making of decisions that affect the business of the corporation, or that concerns an act with the capacity to significantly affect the corporation’s financial standing: Corporations Act 2001, s 206B(1).

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2.

They are convicted under the Corporations Act 2001 of an offence punishable by imprisonment for more than 12 months: s 206B(1).

3.

They are convicted of an offence involving dishonesty which is punishable by imprisonment for at least three months: s 206B(1).

4.

They have committed an offence against the law of a foreign country that is punishable by imprisonment for more than 12 months: s 206B(1).

5.

They are an undischarged bankrupt: s 206B(3).

6.

They have executed a personal insolvency agreement under Pt X of the Bankruptcy Act 1966 (Cth) or a similar law of an external territory or a foreign country that has not been fully complied with: Corporations Act 2001, s 206B(4).

The court has the power to disqualify a person who has contravened a civil penalty provision: s 206C. A disqualified person may apply to the court for leave to manage corporations, a particular class of corporation or a particular corporation. When granting leave, the court may impose such conditions or limitations as it thinks fit. A person intending to apply for leave of the court must give ASIC not less than 21 days’ notice of their intention to apply. On an application by ASIC, the court may at any time revoke leave which it had granted under these provisions: s 206G. In recent years, the court has been given wider powers to prohibit a person from taking part in the management of a company. Thus, a person may be prohibited from managing a corporation where they have at least twice been an officer of a corporation that has contravened the Corporations Act 2001 while they were an officer, and each time they failed to take reasonable steps to prevent the contravention. A person may also be disqualified where they have at least twice contravened the Corporations Act 2001 while an officer (s 206E), or they have been disqualified under the law of a foreign jurisdiction (s 206EAA), or have been banned from managing companies under the Competition and Consumer Act 2010 (Cth) (s 206EA). On an application by ASIC, the court may disqualify a person from managing corporations for up to 20 years if within the last seven years that person has been an officer of two or more corporations when they have failed, and the management of the corporations was wholly or partly responsible for their failure: s 206D. ASIC may disqualify a person from managing corporations for up to five years if within the last seven years they have been an officer of two or more corporations which were wound up while they were an officer, or within 12 months after they ceased to be an officer. ASIC must give the person a notice requiring them to demonstrate why they should not be disqualified and must give them an opportunity to be heard: s 206F.

Further reading M Adams, J Harris and A Hargovan, Australian Corporate Law (4th ed, LexisNexis, 2013). E Boros and J Duns, Corporate Law (3rd ed, Oxford University Press, 2013). P Hanrahan, IM Ramsay and G Stapledon, Commercial Applications of Company Law (15th ed, CCH, 2014). P Lipton, A Herzberg and M Welsh, Understanding Company Law (18th ed, Thomson Reuters, 2016).

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Tutorial activities 1.

What are the main features of a company?

2.

In a “limited liability” company, whose liability is it that is “limited” and what is the extent of the “liability”?

3.

What is the main advantage of limited liability?

4.

What are the key duties and obligations of directors and officers?

5.

What is the directors’ and officers’ duty of care and diligence?

6.

Read the extract from Australian Securities and Investments Commission v Rich (at [17.390]). The defendants satisfied the business judgment rule because they held a “rational belief that their actions were in the best interests of the company”. How Austin J say the reasonableness of the belief should be assessed?

7.

What is the standard of care expected of directors and officers?

8.

What is the director’s fiduciary duty to act in “good faith”, “in the best interests of the company” and “for a proper purpose”?

9.

Explain the statutory provisions relating to conflict of interest.

10.

What is the difference between the penalties/fines for a breach of (a) ss 180–183 and (b) s 184?

11.

What is insolvent trading? What are the relevant defences to, and penalties for, a breach of the prohibition on insolvent trading?

12.

The new s 588GA of the Corporations Act provides a “safe harbour” for directors, who otherwise may be personally liable for insolvent trading if, after the directors suspect the company may be insolvent, they adopt a course of action or strategy that is “reasonably likely’ to lead to a better outcome for the company. What is the reason for this new “safe harbour” provision?

13.

Tim and Neil Finn are partners in the firm “Finn Homes”. They decide to incorporate the business. On incorporation, Tim and Neil become the directors and equal shareholders of Finn Homes Pty Ltd. At the time of the company’s incorporation, each director had paid the company $50,000 to form its capital and each had been issued with 25,000 $2 fully paid ordinary shares.



Tim acts as the CEO, although he has not been formally appointed to that position. Under the company’s constitution, both directors must agree to any purchases above $10,000 made on behalf of the company.



One day, Tim saw that a building supplies business, ABC Timber, was having a sale on timber products. Tim and Neil had purchased timber from ABC many times in the past, and, on many of those occasions, both Tim and Neil had referred to Tim as the CEO. On this occasion, Tim tried to contact Neil to discuss the purchase, but his mobile phone was turned off. As the prices were so good, Tim did not wait any further and purchased $20,000 worth of pre-fabricated house frames on credit on behalf of the company. When the timber was delivered to the company’s premises, Neil was furious and refused to accept delivery of the goods or to pay the invoice.

14.

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(a)

Explain why you believe Tim and Neil may have decided to incorporate the business.

(b)

Discuss whether Finn Homes Pty Ltd is required to pay for the frames.

H Pty Ltd is a property development company. It has three directors: Abe (CEO), Bob (CFO) and Connie (non-executive director). Several months ago, there was an opportunity to acquire

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a vacant site in the CBD from Lew Pty Ltd. Abe told the board that in his opinion the site was suitable for a multistorey apartment development. The Board also relied on information provided by Bob in a short presentation outlining how the acquisition could be funded and offering an opinion that the project would be highly profitable. The directors were unaware that the Heritage Council had restrictions on the height of CBD buildings. Further, Abe did not inform the Board that Abe and his family have a significant stake in Lew Pty Ltd.

The project was a financial disaster for H Pty Ltd. It paid too much for the site (given the planning restrictions) and the costs of borrowing escalated dramatically after the date of purchase.



Please advise whether:

15.

16.

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(a)

H Pty Ltd’s directors, including Connie, the non-executive director, breached their common law or statutory duties in relation to the purchase of the site. Indicate if there are any relevant defences.

(b)

Abe contravened any provisions of the Corporations Act in relation to the deal with Lew Pty Ltd. Advise on any possible sanctions.

Joe and Liz are the directors of BuzzMe Pty Ltd, a mobile phone company. Joe had known that the company was in financial difficulties in December 2017 but had assured his fellow director it was just a temporary cashflow issue and that the company could trade out of its difficulties and pay all of its creditors by February 2018. However, it was unable to do so, and, by April, Liz became concerned about the number of “final demand” notices from suppliers and asked to see the actual accounts rather than continuing to rely on the assurances of Joe. It was only then that she realised that the company was insolvent. The company went into liquidation in May 2018, owing large sums of money to its creditors. (a)

Advise Liz and Joe whether there may have been a breach of s 588G of the Corporations Act.

(b)

Assuming for the purposes of part (b) only, that there was a breach of s 588G, advise them of the remedies and penalties under the Corporations Act for the debts of the company. In particular, to what extent are they personally liable for those debts?

(c)

Assume that in April, in response to the insolvency problem, Joe and Liz, with the help of their accountant and a professional adviser, develop a plan to restructure the company in order to improve its financial position. The plan requires the company to incur debts while insolvent, but it is reasonably likely to lead to a better outcome for the company than the immediate appointment of an administrator or liquidator. In July, to reduce the financial pressure on the company, Joe decides to stop paying his employees’ super guarantee contributions, intending to pay them back when the company is on a more solid financial footing. Advise Joe whether he may be able to seek refuge in the “safe harbour” provided by s 588GA(1) in respect of his actions (a) in April and (b) in July.

Vine is a director and CFO of Rest Assured Insurance Ltd (RAI). Another insurance company was interested in a takeover by acquiring shares from existing shareholders of RAI. To try to persuade those shareholders not to sell their shares, RAI issued an updated and very positive profit forecast. Unfortunately, Vine, in preparing the forecast, neglected to sufficiently take into account some recent disasters – including recent tsunamis – that would inevitably affect RAI’s profits. ASIC prosecutes him for a breach of his duty of care under s 180. Advise Vine what standard of care is expected of a CFO.

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PART 6: BUSINESS ETHICS

Chapter 18: Business Ethics

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chapter 18

Business Ethics [18.20] Ethical issues in business ...................................................................................................................  429 [18.60] Ethical aspects of general commercial law principles ..........................................................  433 [18.70] Benefits of business ethics .................................................................................................................  434 [18.90] International standards ........................................................................................................................  436 [18.140] Corporate ethics codes ..........................................................................................................................  439 [18.150] Industry codes ...........................................................................................................................................  440 [18.160] Regulatory responses ...........................................................................................................................  440 [18.170] Socially responsible investing ...........................................................................................................  441 [18.180] Conclusion ....................................................................................................................................................  442

Introduction [18.10]  In the wake of the many corporate collapses in which management had engaged in questionable or illegal practices, business ethics have become a subject of intense public interest. The Royal Commissioner for the HIH Inquiry emphasised the importance of ethics for business life, along with the need for the education system to promote an awareness of business ethics. He wrote: “[A]‌ll those who participate in the direction and management of public companies, as well as their professional advisers, need to identify and examine what they regard as the basic moral underpinning of their system of values. They must then apply those tenets in the decision-​making process. The education system –​particularly at tertiary level –​should take seriously the responsibility it has to inculcate in students a sense of ethical method”.1 It is the attempt to “inculcate in students” a sense of ethics that is the raison d’être of this chapter. It does not attempt to assess the extent to which business ethics are observed in practice but, rather, identifies some real and present ethical issues and discusses the ways in which national and international responses affect, or should affect, the ways that business does business.

Ethical issues in business [18.20]  Business ethics must begin with a respect for the law but it is more than that: it must also incorporate a substantive moral content beyond what is required by the law. As the HIH Royal Commissioner wrote:

1

HIH Royal Commission, The Failure of HIH Insurance (Commonwealth of Australia, Canberra, 2003), Vol 1, p lxiii.

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“In an ideal world the protagonists would begin the process by asking: is this right? The end of the process must, of course, be in accord with the prescriptive dictates (ie the law), but it will have been informed by a consideration of whether it is morally right. In corporate decision making, as elsewhere, we should at least aim for an ideal world”.2 Judges have often complained about the lack of ethics of those appearing before them in cases of business misconduct. In Competition and Consumer Commission v Visy Industries Holdings Pty Limited (No 3) [2007] FCA 1617, the Federal Court imposed pecuniary penalties of $36 million for price fixing and other cartel offences. The judge commented that: “The cartel here went on for almost five years. Had it not been accidentally exposed, it would probably still be flourishing. It was operated by men who were fully aware of its seriously unlawful nature … the corporate culture of Visy in relation to its obligations under the Trade Practices Act was non-​existent. None of the most senior people hesitated for a moment before embarking on obviously unlawful conduct. There was in evidence a Visy document entitled “Trade Practices Compliance Manual” dated February 1998 … (It)might have been written in Sanskrit for all the notice anybody took of it”. Serious ethical issues may arise in relation to corporate governance, human rights, environmental protection and corruption. Major failures of corporate governance have become common. There have been many huge corporate failures in which key participants engaged in illegal or questionable business conduct. These practices have included accounting fraud, extravagant spending and the payment of large bonuses to senior personnel as insolvency neared. The Chair of the ACCC, Rod Sims, recently delivered the 2018 Giblin Lecture. His lecture was entitled “Companies Behaving Badly”.3 He begins with the following observation: “Few companies behave badly often, but rather many engage in occasional significant instances of bad behaviour, which remains unacceptable. It is often said that companies succeed by looking after the needs of their customers. I have been surprised over very many years, however, at the way in which many businesses often do precisely the opposite. Companies appear to put immediate profit ahead of their customers either by engaging in misleading or unfair conduct, or even unconscionable conduct towards their customers, or they engage in cartel or other anti-​competitive activity that raises prices for their customers. Too many large companies continue to mislead their customers, or treat them unconscionably. And it is not just customers who are subjected to bad behaviour from big companies. More recently, the ACCC has been taking action over unfair contract terms imposed on small businesses. On the competition side we have seen a range of cartel behaviours; where competitors agree to raise prices directly or restrict supply to achieve the same result, all of which hurts their own customers. In some cases, company executives push the boundaries to achieve short-​term growth targets. Some appear to ignore the risk of reputational damage over the longer term to achieve short-​term gains. It often appears as if company executives behave differently when they are at work, than the way they would privately, as if they feel their obligations to their company compels them to pursue profit to the maximum, even if their behaviour pushes too close to the boundaries of the law. The market economy is based on incentives. When the incentives for misconduct are strong, and the penalties for misconduct are comparatively weak, it is easy to understand that company boards and senior management do not act strongly enough to ensure such behaviour does not occur.” 2 3

HIH Royal Commission, The Failure of HIH Insurance (Commonwealth of Australia, Canberra, 2003), Vol 1, p lxiii. https://​www.accc.gov.au/​media-​release/​companies-​behaving-​badly.

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The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry [18.30] The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry conducted hearings throughout 2018. These hearings have exposed widespread, shocking and systemic fraud and misconduct by banks and insurance companies. Here is an extract from the Executive Summary:4 “The Commission’s work, so far, has shown conduct by financial services entities that has brought public attention and condemnation. Some conduct was already known to regulators and the public generally; some was not. Why did it happen? What can be done to avoid it happening again? These are now the key questions. In this Interim Report these questions –​‘why’ and ‘what now’ –​are asked with particular reference to banks, loan intermediaries and financial advice, with a view to provoking informed debate about both questions. Why did it happen? Too often, the answer seems to be greed –​the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained? But it is necessary then to go behind the particular events and ask how and why they came about. Banks, and all financial services entities recognised that they sold services and products. Selling became their focus of attention. Too often it became the sole focus of attention. Products and services multiplied. Banks searched for their ‘share of the customer’s wallet’. From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales. When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done. The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court. Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct. Infringement notices imposed penalties that were immaterial for the large banks. Enforceable undertakings might require a ‘community benefit payment’, but the amount was far less than the penalty that ASIC could properly have asked a court to impose. What can be done to prevent the conduct happening again? As the Commission’s work has gone on, entities and regulators have increasingly sought to anticipate what will come out, or respond to what has been revealed, with a range of announcements. These include announcements about new programs for refunds to and 4

https://​financialservices.royalcommission.gov.au/​Pages/​interim-​report.aspx.

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remediation for consumers affected by the entity’s conduct, about the abandonment of products or practices, about the sale of whole divisions of the business, about new and more intense regulatory focus on particular activities, and even about the institution of enforcement proceedings of a kind seldom previously brought. There have been changes in industry structure and industry remuneration. The law already requires entities to ‘do all things necessary to ensure’ that the services they are licensed to provide are provided ‘efficiently, honestly and fairly’. Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, ‘Do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain? Should the existing law be administered or enforced differently? Is different enforcement what is needed to have entities apply basic standards of fairness and honesty: by obeying the law; not misleading or deceiving; acting fairly; providing services that are fit for purpose; delivering services with reasonable care and skill; and, when acting for another, acting in the best interests of that other? The basic ideas are very simple. Should the law be simplified to reflect those ideas better?”

  

[18.40]  This is not new conduct. James Hardie was the subject of considerable negative publicity for its substantial under-​funding of a compensation foundation for those injured by its asbestos products despite its claims that the foundation was fully funded. Soon afterwards, the chief executive officer departed from the company with a payout of nearly $9 million.5 Goldman Sachs sold an Australian hedge fund collateralised debt obligations that a Goldman internal email described as an excremental deal.6 Numerous Australian investors lost heavily after a financial adviser at the Commonwealth Bank recommended that his clients invest in high-​risk financial products for which he would be paid substantial commissions.7 Lapses of business ethics may have serious economic and social effects. The extensive granting of “sub-​ prime” mortgages to persons with meagre incomes in the US caused huge financial losses across the world, including a staggering US$700 billion bailout by Congress.8 Accounting misconduct undermines business confidence because investment decisions are made on the assumption that the reported figures are accurate. Bribery of public officials increases the operating costs of business, reduces investment and economic growth, offsets the benefits of competition since purchasing decisions which are not merit-​based result in a misallocation of government expenditure and undermines the legitimacy of governments.9

Modern Slavery –​implications for business [18.50]  Contrary to popular belief, slavery was not eradicated with abolition in the 19th century. Over 150  years after the abolition of slavery and the trans-​Atlantic slave trade, over 21 million people are estimated to be victims of some form of forced labour with 90% of these

5 6 7 8 9

Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673 at [319]. One Shitty Deal, Four Corners, 14 June 2010, http://​www.abc.net.au/​4corners. Banking Bad, Four Corners, 6 May 2014, http://​www.abc.net.au/​4corners. Mortgage Meltdown, Four Corners, 17 September 2007, http://​www.abc.net.au/​4corners; Narvik: The Tip of the Iceberg, Dateline, 14 May 2008, http://​www.sbs.com.au/​news/​dateline. C Pacini et al, “The Role of the OECD and EU Conventions in Combating Bribery of Foreign Public Officials” (2002) 37 Journal of Business Ethics 385 at 385, 388–​389.

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exploited in the private economy. More than half of those working in forced labour conditions are working in our Asia Pacific region. The Joint Standing Committee on Foreign Affairs, Defence and Trade’s Inquiry was established to investigate measures to better combat modern slavery in Australia and around the world. The Committee heard strong support for key elements of the UK Modern Slavery Act 2015, including from businesses. The Committee recommended that the Australian Government introduce similar measures, with a range of improvements as outlined in this report. It released its Report, “Hidden in Plain Sight”, in December 2017.10 Largely as a consequence of the Report, the Australian Parliament passed the Modern Slavery Act 2018 on December 2 2018 requiring businesses in Australia to take action on their modern slavery risks and responsibilities. At the centre of the Act is the Modern Slavery Reporting Requirement that entities based, or operating, in Australia, that have an annual consolidated revenue of more than AUD $100 million, report annually on the risks of modern slavery in their local and global operations and supply chains, and take actions to address those risks. Other entities based, or operating, in Australia may report voluntarily. Any ‘reporting entity’ meeting the threshold must publish an annual statement, within six months of the end of their financial year, describing the risks and actions it has taken in relation to modern slavery – a term broadly defined to include all forms of trafficking in persons, slavery and slavery-like practices, and the worst forms of child labour. Modern slavery statements, which must be approved by an entity’s principal governing body and submitted to a public, government-run register, need to: (a) identify the reporting entity; (b) describe the structure, operations and supply chains of the reporting entity; (c) describe the risks of modern slavery practices in the operations and supply chains of the reporting entity, and any entities that the reporting entity owns or controls; (d) describe the actions taken by the reporting entity and any entity that the reporting entity owns or controls, to assess and address those risks, including due diligence and remediation processes; (e) describe how the reporting entity assesses the effectiveness of such actions; (f) describe the process of consultation with any entities that the reporting entity owns or controls, or entities with which it gives a joint modern slavery statement; and (g) include any other information that the reporting entity, or the entity giving the statement, considers relevant.

  

Businesses are advised to develop an action plan – guided by the legislative criteria and in line with the UN Guiding Principles on Business and Human Rights11 – that establishes a comprehensive modern slavery and, more broadly, a due diligence process designed to effectively protect human rights

Ethical aspects of general commercial law principles [18.60]  Much of the common law relating to contractual assent has an ethical character. For example, the courts offered some relief where mistake, misrepresentation, duress, undue influence and unconscionable 10

https://​www.aph.gov.au/​Parliamentary_​Business/​Committees/​Joint/​Foreign_​Affairs_​Defence_​and_​Trade/​ModernSlavery/​ Final_​report. 11 https://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf.

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contracts vitiated the apparent consent of one of the parties. And we saw in Chapter 13, that the consumer protection provisions of the Australian Consumer Law proscribe similar unethical business practices: unfair contractual terms, unconscionable conduct, misleading and deceptive conduct, various false representations, bait advertising, coercion and harassment, pyramid selling and asserting a right to payment for unsolicited goods. In a notable example, a painkiller was marketed in four different packages, each declaring that it had been formulated to treat a specific type of pain (such as period pain or back pain). The active ingredient was the same as that in the company’s regular painkiller, but the “specialist” packages were double the price. After the trial commenced the company admitted that it had engaged in misleading or deceptive conduct and the Full Federal Court imposed a pecuniary penalty of $6 million for misleading conduct regarding the nature or manufacturing process of goods.12 In another case, a provider of serviced apartments gave an accommodation review website incorrect email addresses for guests who is suspected might give a negative review. The Federal Court imposed a pecuniary penalty of $3 million for misleading conduct in relation to services.13 The Corporations Act 2001 (Cth) imposes upon companies and directors certain obligations which have an ethical dimension. A director’s duties include the duty to act in good faith, the duty not to make improper use of information and the duty to make disclosure of personal interests. Other provisions relate to disclosure documents, oppressive or unfair conduct, misleading or deceptive conduct, misstatements in prospectuses and insider trading.

Benefits of business ethics [18.70]  It is now widely believed that over the long-​term ethical business methods are more profitable than unethical methods. A company which observes ethical business practices is likely to achieve an enhanced business reputation. Ronald Francis well expressed the benefits of an ethical approach: “It takes many years to build up a good reputation, and is of enormous financial benefit to the companies that continue to maintain their good name. Although individual transactions may be foregone, other customers will continue to use such companies because they know that if a poor purchase has been made it is easy to exchange or get a refund. The basic issue here is whether or not one wishes to foster a continuing relationship; it would be as well to behave as if one had such a relationship in mind.”14 What is beyond dispute is that poor business ethics are often very poor business. The single greatest cost of unethical behaviour remains a loss of confidence in an organisation and customer desertion is sure to follow widespread media exposure. The adverse publicity generated by poor quality products can be very damaging. For example, every year the Australian consumer magazine Choice presents “Shonky Awards” for especially bad products.15 The Federal Court commented that this “award is not a badge of honour”.16An organisation of Australian parents also presents annual “Hall of Shame” awards for the marketing of “junk food” to children.17 A company may also incur negative publicity if it is ordered to publish corrective advertisements to remedy prior misleading advertising.18 12 13 14 15 16 17 18

Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 7) (2016) 340 ALR 25 at [178]–​[180]. Australian Competition and Consumer Commission v Meriton Property Services Pty Ltd (No 2) [2018] FCA 1125 at [92]. RD Francis, Ethics and Corporate Governance (UNSW Press, Sydney, 2000), p 9. https://​www.choice.com.au/​shonky-​awards. Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 7) (2016) 343 ALR 327 at [74]. https://​parentsvoice.org.au/​campaigns/​hall-​shame. Coca-​Cola Ordered to Correct Record in New Ads, World Today, 3 April 2009, http://​www.abc.net.au/​radio/​programs/​ worldtoday.

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Furthermore, the poor business ethics of individual companies are injurious to the interests of the business sector as a whole. Unethical business conduct is likely to lead to more stringent government regulation.19 For example, unethical conduct in the US financial sector prompted greater regulation of the sector.20 Controversial business practices in the banking industry led to the establishment of a Royal Commission into the Australian financial sector, which may recommend legislative reforms to address the widespread unethical practices that have been exposed.21 The Commission has revealed a host of unethical practices, including charging clients for services that were not provided.22

Ethical duties of business [18.80]  Scepticism about the ethics of business is not new. One of Charles Dickens’ characters said: “Here’s the rule for bargains –​‘Do other men, for they would do you.’ That’s the true business precept. All others are counterfeits”.23 Today such views are unlikely to be publicly advanced by any business leader. Businesses are well aware of the damage wrought by ethical lapses when publicly exposed. Ronald Francis defines ethics as “a highly explicit codified form of behaviour designed to produce particular ends and act[ion] in accordance with particular values”.24 Business ethics concerns the application of ethical concepts to business. There are many theories regarding the content of business ethics. Two prominent theories which have found their way into popular discourse will be discussed here. Milton Friedman famously argued that the only social responsibility of a corporation was to maximise returns to shareholders. One of his essays was entitled, “The Social Responsibility of Business Is to Increase its Profits”. He wrote: “[T]‌here is one and only one social responsibility of business –​to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.25 However, Friedman conceded that it was acceptable for managers to take into account environmental, social and other ethical considerations where doing so would protect the interests of shareholders.26 For example, managers should seek to minimise pollution if that would avoid damaging adverse publicity or reduce the prospects of litigation. A contrasting view is taken by those who promote “corporate social responsibility”. The European Commission defined corporate social responsibility as “the responsibility of enterprises for their impacts on society”.27 Under this concept, legal requirements are a minimum not a maximum level of corporate

19 20

21 22 23 24 25 26 27

D Grace and S Cohen, Business Ethics: Australian Problems and Cases (2nd ed, Oxford University Press, Melbourne, 1998), pp 119, xiii, 54. Pub L 111-​203, Dodd-​Frank Wall Street Reform and Consumer Protection Act (21 July 2010), 124 Stat 1376. This Act was partially repealed by Pub L 115-​174, Economic Growth, Regulatory Relief and Consumer Protection Act (24 May 2018), 132 Stat 1296. https://​financialservices.royalcommission.gov.au/​Pages/​default.aspx. Money For Nothing, Four Corners, 23 July 2018, http://​www.abc.net.au/​4corners. C Dickens, The Life and Adventures of Martin Chuzzlewit (Oxford University Press, London, 1951), p 181. RD Francis, Business Ethics in Australia (Centre for Professional Development, Melbourne, 1994), p 7. M Friedman, The Social Responsibility of Business is to Increase its Profits, New York Times Magazine, 13 September 1970, p 124. MM Jennings and J Entine, “Business with a Soul: A Re-​examination of What Counts in Business Ethics” (1998) 20 Hamline Journal of Public Law and Policy 1 at 26–​27. Communication from the Commission: A Renewed EU Strategy 2011-​14 for Corporate Social Responsibility, COM (2011) 681 final at [3.1].

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responsibility and corporations should strive to observe a higher level of behaviour.28 Supporters of this concept argue that corporations bear social obligations in return for limited liability and the right to operate a business. The “triple bottom line” is another phrase which frequently arises in discussions of business ethics. These three “bottom lines” are financial, social and environmental. This concept emphasises that a corporation should consider not only the financial outcome of its activities but also the social and environmental consequences. Supporters argue that the financial bottom line is dependent upon social and environmental sustainability.29 The influence of the notion of corporate social responsibility is apparent in the United Kingdom Companies Act 2006 (UK). That Act provides that company directors shall have regard to “the impact of the company’s operations on the community and the environment” and “the desirability of the company maintaining a reputation for high standards of business conduct”: s 172(1)(d)–​(e). Of course, there have been many companies which have loudly proclaimed their adherence to ethical principles but which have fallen short of their declared ideals.30 Such hypocrisy is not an argument against the desirability of business ethics but for closer monitoring of their observance.

International standards United Nations Convention against Corruption [18.90]  The most comprehensive international response to corruption is the United Nations Convention against Corruption.31 Australia ratified this treaty on 7 December 2005. The Commonwealth Attorney-​ General’s Department indicated that Australia’s obligations under the Convention would be implemented under existing legislation such as the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth).32 Several provisions of the Convention relate specifically to corruption in the private sector. Parties to this treaty are obligated to take measures to enhance accounting and auditing standards in the private sector, including the imposition of appropriate penalties for breaches of these standards: United Nations Convention Against Corruption, Art 12(1). These measures may include the development of codes of conduct designed to prevent conflicts of interest. They may also include measures which ensure that private enterprises have sufficient internal auditing controls to assist in preventing and detecting acts of corruption: Art 12(2)(b), (f). Parties must prohibit off-​ the-​ books accounts and transactions, recording of non-​ existent expenditure, incorrect identification of liabilities, use of false documents and destruction of bookkeeping

28 29 30 31

32

R Sarre, “Responding to Corporate Collapses: Is There a Role for Corporate Social Responsibility?” (2002) 7(1) Deakin Law Review 1 at 7–​8. R Sarre, “Responding to Corporate Collapses: Is There a Role for Corporate Social Responsibility?” (2002) 7(1) Deakin Law Review 1 at 12. MM Jennings and J Entine, “Business with a Soul: A Re-​examination of What Counts in Business Ethics” (1998) 20 Hamline Journal of Public Law and Policy 1 at 60. United Nations Convention Against Corruption (New York, 31 October 2003, 2349 UNTS 41). See generally, AK Weilert, “United Nations Convention against Corruption (UNCAC) –​After Ten Years of Being in Force” (2016) 19 Max Planck Yearbook of United Nations Law 216. Joint Standing Committee on Treaties, Report 66 (Commonwealth of Australia, Canberra, 2005), pp 14–​15.

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documents: Art 12(3). Parties to this treaty are to consider adopting legislation or other measures prohibiting bribery and embezzlement of property in the private sector: Arts 21–​22.

United Nations Guiding Principles [18.100] International bodies now give increased attention to the human rights practices of business. In July 2011, the United Nations Human Rights Council endorsed the Guiding Principles on Business and Human Rights.33 National governments have a duty to protect against human rights abuses by businesses:  para 1. Governments should clearly state their expectation that businesses of their nationality should respect human rights in their activities in other countries: para 2. Governments should enforce existing laws that require observance of human rights standards by business, such as anti-​discrimination, labour and privacy laws: para 3. States should also oversee the privatised delivery of services that may have an impact upon human rights: para 5. Governments must ensure that those subject to human rights abuses by business have access to an effective remedy for that abuse: para 25. Businesses “should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved”: para 11. The responsibility of business to respect human rights applies to businesses of any size: para 14. Businesses should publicly issue a policy commitment to respect human rights: para 16. They should conduct human rights “due diligence” to identify and address human rights issues: para 17. Businesses should comply with international human rights standards: para 23.

United Nations Global Compact [18.110] While the norms referred to in the previous section have a highly specific content, the United Nations Global Compact consists of more generalised undertakings. Corporations and business organisations can commit to observing the principles embodied in this agreement. The Compact consists of nine principles relating to human rights, labour and the environment. The text of these principles appears below. The Compact is not legally binding upon participating businesses.34 Corporations are expected to detail in their annual report how they have given effect to these principles. Companies are required to report their progress in implementation to the United Nations every year. If a company does not report for two consecutive years, it may be listed as an “inactive” participant.

OECD Guidelines [18.120]  Some international instruments concerning business practice relate specifically to multinational business operations. The Organisation for Economic Co-​operation and Development has adopted a series of Guidelines for Multinational Enterprises.35 These Guidelines are “standards of good practice” and are not legally binding: OECD Guidelines for Multinational Enterprises, Preface para (1). 33

34

35

See generally, LC Backer, “Moving Forward the UN Guiding Principles for Business and Human Rights: Between Enterprise Social Norm, State Domestic Legal Orders, and the Treaty Law That Might Bind Them All” (2015) 38 Fordham International Law Journal 457; J Southalan, “Human Rights and Business Lawyers: The 2011 Watershed” (2016) 90 Australian Law Journal 889; J Bonnitcha and R McCorquodale, “The Concept of ‘Due Diligence’ in the UN Guiding Principles on Business and Human Rights” (2017) 28 European Journal of International Law 899. J Nolan, “The United Nations’ Compact with Business: Hindering or Helping the Protection of Human Rights?” (2005) 24 University of Queensland Law Journal 445 at 447, 452. See generally, S Prakash Sethi and DH Schepers, “United Nations Global Compact: The Promise–​Performance Gap” (2014) 122 Journal of Business Ethics 193. OECD Guidelines for Multinational Enterprises (as revised at Paris, 25 May 2011). See generally, A Santer, “A Soft Law Mechanism for Corporate Responsibility: How the Updated OECD Guidelines for Multinational Enterprises Promote

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Figure 18.1: United Nations Global Compact Human Rights

Principle #1: Business are asked to support and respect the protection of international human rights within their sphere of influence; and Principle #2: make sure their own corporations are not complicit in human rights abuses. Labour Principle #3: Businesses are asked to uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle #4: the elimination of all forms of forced and compulsory labour; Principle #5: the effective abolition of child labour; and Principle #6: the elimination of discrimination in respect of employment and occupation. Environment Principle #7: Businesses are asked to support a precautionary approach to environmental challenges; Principle #8: undertake initiatives to promote greater environmental responsibility; and Principle #9: encourage the development and diffusion of environmentally friendly technologies. Multinational enterprises are subject to the laws of the host state. The Guidelines emphasise that “[o]‌beying domestic law is the first obligation of enterprises”: para I(2). Enterprises should not seek or accept exemptions from human rights, environmental, health, safety, labour and taxation laws that are not provided for by those laws: para II(5). They should not engage in “improper involvement” in the political life of the host state: para II(15). The Guidelines include human rights standards. Enterprises should “Respect human rights, which means they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved”: para IV(1). Enterprises are required to observe labour standards. Employers should respect the right of their employees to unionise and bargain collectively: para V(1)(a), V(8). Enterprises should employ local workers “to the greatest extent practicable”: para V(5). When bargaining with employees, enterprises should not threaten to withdraw from the host state: para V(7). Environmental standards are also included. Enterprises should provide environmental impact assessments for business activities that have significant environmental costs: para VI(3). Companies should not use the lack of complete scientific certainty about a possible environmental hazard as an excuse to avoid taking cost-​effective actions that will avert or reduce that risk:  para  VI(4). Companies should seek to develop products and services that do not have “undue environmental impacts”: para VI(6)(b). Consumer protection is another goal of the Guidelines. Products and services should satisfy the requirements of consumer health and safety laws: para VIII(1). Enterprises should not make deceptive, misleading or fraudulent representations to consumers: para VIII(4). The Guidelines express a strong disapproval of restrictive trade practices. Businesses should not enter into anti-​competitive arrangements with their competitors, including price fixing, collusive tendering, restriction of supply or dividing markets: para X(2).

Business for the Future” (2011) 43 George Washington International Law Review 375; OECD Due Diligence Guidance for Responsible Business Conduct (OECD, Paris, 2018).

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As of February 2018, 48 nations had adhered to these OECD principles. The implementation of the Guidelines is regulated by a decision taken by the OECD Council in June 2000. Each nation must set up a National Contact Point that will promote the observance of the Guidelines, answer questions regarding their application and undertake discussions with parties that consider that the Guidelines have been infringed: para I(1).36 The interpretation of the Guidelines is undertaken by the Investment Committee, though it has no power to “reach conclusions on the conduct of individual enterprises”: para II(4).

Other international conventions concerning business practices [18.130]  Some human rights treaties also contain provisions that are relevant to business practice both domestically and internationally.37 For example, several treaties obligate ratifying nations to prohibit discrimination by private persons.38 Another treaty provides that children have the right to be protected from performing any work that is likely to interfere with their education.39 Other treaties prohibit the employment of children in harmful forms of work.40 Those treaty rights should influence the conduct of corporations which are engaged in manufacturing in developing countries. Since 2014 the United Nations Human Rights Council has been drafting a treaty concerning the human rights obligations of transnational corporations.41

Corporate ethics codes [18.140] Many individual companies have ethics codes. An ethics code may be defined as a “written, distinct, and formal document which consists of moral standards used to guide employee or corporate behaviour”.42 An ethics code may adopt an aspirational or prescriptive approach. An aspirational code sets out ideals of best practice but is generally unenforceable. A prescriptive code is much more specific and breaches are subject to punishment.43 An aspirational code may be criticised as an exercise in symbolism over substance. A prescriptive code may be criticised for encouraging employees and management to observe the letter of the code while breaching its spirit. Ronald Francis set out a useful list of principles which may be appropriate for inclusion in a corporate ethics code. In summary, these principles include: 36

37

38

39 40

41 42 43

The website of the Australian National Contact Point is at http://​www.ausncp.gov.au. See generally, JC Ochoa Sanchez, “The Roles and Powers of the OECD National Contact Points Regarding Complaints on an Alleged Breach of the OECD Guidelines for Multinational Enterprises by a Transnational Corporation” (2015) 84 Nordic Journal of International Law 89; S van’t Foort, “The History of National Contact Points and the OECD Guidelines for Multinational Enterprises” (2017) 25 Zeitschrift des Max-​Planck-​Instituts für europäische Rechtsgeschichte 195. See, eg P Gerber, J Kyriakakis and K O’Byrne, “General Comment 16 on State Obligations Regarding the Impact of the Business Sector on Children’s Rights: What Is Its Standing, Meaning and Effect?” (2013) 14 Melbourne Journal of International Law 93; General Comment No 24 (2017) on State Obligations under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities (24 IHRR 1057). International Convention on the Elimination of All Forms of Racial Discrimination, Article 2(e) (New York, 7 March 1966, 660 UNTS 195); Convention on the Elimination of All Forms of Discrimination Against Women, Article 2(e) (New York, 18 December 1979, 1249 UNTS 13). Convention on the Rights of the Child, Article 32(1) (New York, 20 November 1989, 1577 UNTS 3). International Covenant on Economic, Social and Cultural Rights, Article 10(3) (New York, 19 December 1966, 993 UNTS 3); ILO Convention concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour (No 182) (Geneva, 17 June 1999, 2133 UNTS 161). A draft of the treaty was published in July 2018. See C Lopez, Towards an International Convention on Business and Human Rights, Opinio Juris, 23 July 2018, http://​opiniojuris.org. M Schwarz, “The Nature of the Relationship between Corporate Codes of Ethics and Behaviour” (2001) 32 Journal of Business Ethics 247 at 248. RD Francis, Business Ethics in Australia (Centre for Professional Development, Melbourne, 1994), p 13.

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(a)

observance of the law;

(b)

companies should consider the effect that their actions may have upon others;

(c)

accounts should follow conventional procedures so as to provide an accurate reflection of the financial position of the company;

(d)

respect for personal privacy;

(e)

non-​discrimination against employees on grounds such as race, gender or marital status;

(f)

employees should not be subject to arbitrary dismissal;

(g)

staff and management should declare potential conflicts of interest;

(h)

companies must not exploit the disadvantaged;

(i)

companies should not engage in bribery;

(j)

staff should not engage in misrepresentation or other deceptive conduct;

(k)

staff should not employ high-​pressure sales techniques;

(l)

companies should not enter into anti-​competitive contracts;

(m)

bills should be paid promptly;

(n)

cost savings from tax changes should be passed on to consumers;

(o)

companies should strive to minimise pollution; and

(p)

unnecessary cruelty to animals should be avoided.44

Some studies have suggested that codes have little direct influence upon the behaviour of employees and management.45 Moreover, a code is no more than “window dressing” if it is not observed in practice. The failed energy corporation, Enron, had a strong ethics code –​on paper. The lofty ideals of the code provided endless material for comedians following that firm’s accounting fraud. The code came to nothing because the board simply waived compliance when making a key decision.

Industry codes [18.150]  Under Pt IVB of the Competition and Consumer Act 2010 (Cth), industry codes of conduct may be prescribed and enforced under the Act (see [18.680]). These codes regulate the conduct of industry participants towards consumers or other industry participants. Adherence to such codes may be mandatory or voluntary. For example, the Code of Banking Practice is applicable to banking by individuals and small business customers: para 1. The staff of banks which subscribe to the Code are obliged to treat customers in a “fair, reasonable and ethical manner”: para 90.46

Regulatory responses [18.160]  It has been well observed that in business today:  “[E]‌thics is not an option. If a company or industry cares nothing for ethical requirements, it may expect from government a policy and legislative

44 45 46

RD Francis, Ethics and Corporate Governance (UNSW Press, Sydney, 2000), pp 155–​174. M Schwarz, “The Nature of the Relationship between Corporate Codes of Ethics and Behaviour” (2001) 32 Journal of Business Ethics 247 at 253. The text of the Code is available at https://​www.ausbanking.org.au/​code/​banking-​code-​of-​practice. The Code was revised in 2019.

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response which imposes standards and practices”. Laws are frequently enacted in response to, rather than in anticipation of, ethical breaches or problems.48 Regulatory responses may include criminal punishment or civil remedies. 47

The use of the criminal law to enforce ethical standards may be illustrated by the law prohibiting the bribery of foreign public officials. A person commits an offence if he or she provides a benefit to a foreign public official which is not legitimately due, with the intention of influencing the official in the exercise of their duties, in order to obtain business or a business advantage that is not legitimately due. In determining whether a benefit or business advantage is not legitimately due, the following factors are to be disregarded: the fact that the benefit or advantage is customary, necessary or required in the situation; the value of the benefit or advantage; and official tolerance of the benefit or advantage: Criminal Code Act 1995 (Cth), Sch s 70.2(2), (3). It is not necessary that the briber intended to influence a specific foreign official. It is also not necessary for the prosecution to prove that business or a business advantage was obtained: Sch s 70.2(1A). It is a defence that the conduct is lawful in the foreign official’s country: Sch s 70.3. It is also a defence that the benefit was of minor value and was provided for the purpose of expediting or securing the performance of a minor and routine government action. (Such payments are known as “facilitation payments”.) The provider of the benefit must keep a record of the payment: Sch s 70.4(1). To be punishable, the bribery must have taken place within Australia or, if it occurred outside Australia, the offender must be an Australian citizen, resident or corporation: Sch s 70.5(1). An alternative regulatory response is to apply civil penalties for corporate breaches of legislative proscriptions of particular business practices. The Competition and Consumer Act 2010 (Cth) imposes civil penalties for breach of the restrictive trade practices provisions. Sometimes the regulatory response is outright prohibition of a particular commercial activity. For example, it is illegal to broadcast or publish a tobacco advertisement: Tobacco Advertising Prohibition Act 1992 (Cth), ss 13, 15. The government justified the ban on the ground that tobacco advertising had encouraged children to smoke.49

Socially responsible investing [18.170] Socially responsible investing is an investment trend, where investment funds have regard to political, social, economic and environmental considerations when deciding what investments they will make.50 Investment funds that follow this approach must adopt a method for screening possible investments for compatibility with ethical considerations. There are three basic types of screening method. First, some funds adopt a negative screening approach, so that companies are excluded from the investment portfolio because they are engaged in particular activities which are regarded as unethical. Secondly, some funds adopt a positive screening approach, so that companies are included within the investment portfolio due to their superior record in environmental, labour or human rights concerns. Thirdly, some funds adopt a best-​of-​sector approach, favouring the most ethical companies within each sector. In some sectors, these

47 48 49 50

D Grace and S Cohen, Business Ethics: Australian Problems and Cases (2nd ed, Oxford University Press, Melbourne, 1998), p xiii. RT DeGeorge, Competing with Integrity in International Business (Oxford University Press, New York, 1993), p 26. House of Representatives Hansard, 16 December 1992, p 3884. Allen Consulting Group, Socially Responsible Investment in Australia (Allen Consulting Group, Melbourne, 2000), p 1.

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companies may be viewed as “least worst”. Such an approach may be criticised because it is likely to include companies from controversial sectors such as alcohol, tobacco and gambling.51 In Australia, the market for this type of investment is currently small. However, Commonwealth law has given statutory recognition to socially responsible investment through the introduction of disclosure requirements. Under the disclosure requirements of the Corporations Act 2001 (Cth), a Product Disclosure Statement for superannuation, managed investment or investment life insurance products must state “the extent to which labour standards or environmental, social or ethical considerations are taken into account in the selection, retention or realisation of the investment”: s 1013D(1)(l). Advocates of socially responsible investment argue that it offers superior returns to the more traditional approach under which such matters were not considered. This claim remains unverified since there is no long-​term experience of this investment method. There is more evidence for the proposition that very unethical companies tend to be risky investments.

Conclusion [18.180]  Poor business ethics are often very poor business. The single greatest cost of unethical behaviour is a loss of confidence in an organisation and customer desertion is sure to follow widespread media exposure. Where business does not pay heed to ethical principles, government regulation is the likely response. Milton Friedman famously argued that the only social responsibility of a corporation was to maximise returns to shareholders. Under a corporate social responsibility approach, legal requirements are a minimum not a maximum level of corporate responsibility and corporations should strive to observe a higher level of behaviour. An aspirational ethics code sets out ideals of best practice but is generally unenforceable. A prescriptive code is much more specific and breaches are subject to punishment. Socially responsible investing is an investment trend, where investment funds have regard to political, social, economic and environmental considerations when deciding what investments they will make. Commonwealth law has given statutory recognition to socially responsible investment through the introduction of disclosure requirements.

Further reading Books D Grace and S Cohen, Business Ethics (5th ed, Oxford University Press, Melbourne, 2013). A Lagan and B Moran, 3D Ethics: Implementing Workplace Values: Personal, Organisational and Social Dimensions of Business Ethics (eContent Management, Sydney, 2006). Internet sites Ethics Codes Collection http://​ethics.iit.edu/​ecodes (full texts of corporate codes, bibliography). United Nations Global Compact https://​www.unglobalcompact.org (detailed analysis of Compact). Principles for Responsible Investment http://​www.unpri.org/​.

51

Allen Consulting Group, Socially Responsible Investment in Australia (Allen Consulting Group, Melbourne, 2000), pp 2–​3.

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Journals Business and Human Rights Journal. Journal of Business Ethics. DVDs The Checkout Series 1 and 2 (Australian Broadcasting Corporation, 2014) (discusses consumer protection issues). The Gruen Transfer Series 1-​4 (Australian Broadcasting Corporation, 2008–​2011) (examines the advertising industry).

Tutorial activities 1.

Read carefully [18.20]–[18.30]. Examine the statements made by the HIH Royal Commissioner, the court in Visy, the Chair of the ACCC delivering the Giblin Lecture and the Executive Summary of the Banking Royal Commission. What of the place of ethics in business?

2.

What is the relevance of modern slavery in the commercial world? What will be the effect of the Modern Slavery Bill 2018 in Australia (if and when it becomes law)?

3.

Revise the sections on Contract Law and Consumer Protection. In what ways were these topics concerned with ethics?

4.

What are the ethical benefits and duties of businesses?

5.

The most comprehensive international response to corruption is the United Nations Convention against Corruption. The Attorney-General’s Department indicated that Australia’s obligations under the Convention would be implemented under existing legislation. Several provisions of the Convention relate specifically to corruption in the private sector. What kind of behaviour constitutes “corruption in the private sector”?

6.

Read the following reports from the Banking Royal Commission:



https://www.afr.com/brand/chanticleer/banking-royal-commission-commonwealth-bankceo-matt-comyn-throws-ian-narev-under-bus-20181119-h183pw



What did the former CEO mean when he advised his head of retail (and current CEO) to “temper your sense of justice”? What was the problem?

7.

Do you agree with the Chair of NAB (Dr Ken Henry) who provided his views at the Banking Royal Commission on the state of capitalism: “ ‘The capitalist model is that businesses have no responsibility other than to maximise profits for shareholders,’ Henry opined. ‘A lot of people who have participated in this debate over the past 12  months have said that’s all that you should hold boards accountable for, is that they are focused on the maximisation of profits for shareholders’ ”.

8.

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In July 2011, the United Nations Human Rights Council endorsed the following 10 Guiding Principles on Business and Human Rights:

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a.

National governments have a duty to protect against human rights abuses by businesses: para 1.

b.

Governments should clearly state their expectation that businesses of their nationality should respect human rights in their activities in other countries: para 2.

c.

Governments should enforce existing laws that require observance of human rights standards by business, such as anti-discrimination, labour and privacy laws: para 3.

d.

States should also oversee the privatised delivery of services that may have an impact upon human rights: para 5.

e.

Governments must ensure that those subject to human rights abuses by business have access to an effective remedy for that abuse: para 25.

f.

Businesses “should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved”: para 11.

g.

The responsibility of business to respect human rights applies to businesses of any size: para 14.

h.

Businesses should publicly issue a policy commitment to respect human rights: para 16.

i.

They should conduct human rights “due diligence” to identify and address human rights issues: para 17.

j.

Businesses should comply with international human rights standards: para 23.

Of these 10, which do you regard as of most relevance? 9.

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The United Nations Global Compact consists of more generalised undertakings. Corporations and business organisations can commit to observing the principles embodied in this agreement. The Compact consists of nine principles relating to human rights, labour and the environment. Refer to Figure 18.1 in Chapter 18 and discuss which of the principles you regard as of most relevance.

14-Dec-18 1:05:13 AM

Appendix 1

Extracts from the Australian Consumer Law (Cth)

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Chapter 1 Introduction 3  Meaning of consumer Acquiring goods as a consumer (1)  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 subsections (4) to (9), did not exceed:  (i) $40,000; or (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. (2)  However, subsection (1) does not apply if the person acquired the goods, or held himself or herself out as acquiring the goods:  (a) for the purpose of re-​supply; 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. Acquiring services as a consumer (3)  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; or (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. Amounts paid or payable for purchases (4)  For the purposes of subsection (1) or (3), the amount paid or payable for goods or services purchased by a person is taken to be the price paid or payable by the person for the goods or services, unless subsection (5) applies. (5)  For the purposes of subsection (1) or (3), if a person purchased goods or services by a mixed supply and a specified price was not allocated to the goods or services in the contract under which they were purchased, the amount paid or payable for goods or services is taken to be:  (a) if, at the time of the acquisition, the person could have purchased from the supplier the goods or services other than by a mixed supply—​the price at which they could have been purchased from the supplier; or (b) if:  (i) paragraph (a) does not apply; but

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(ii) at the time of the acquisition, goods or services of the kind acquired could have been purchased from another supplier other than by a mixed supply; the lowest price at which the person could, at that time, reasonably have purchased goods or services of that kind from another supplier; or (c) if, at the time of the acquisition, goods or services of the kind acquired could not have been purchased from any supplier except by a mixed supply—​the value of the goods or services at that time.

Amounts paid or payable for other acquisitions (6)  For the purposes of subsection (1) or (3), the amount paid or payable for goods or services acquired by a person other than by way of purchase is taken to be the price at which, at the time of the acquisition, the person could have purchased the goods or services from the supplier, unless subsection (7) or (8) applies. (7)  For the purposes of subsection (1) or (3), if:  (a) goods or services acquired by a person other than by way of purchase could not, at the time of the acquisition, have been purchased from the supplier, or could have been purchased only by a mixed supply; but (b) at that time, goods or services of the kind acquired could have been purchased from another supplier other than by a mixed supply; the amount paid or payable for the goods or services is taken to be the lowest price at which the person could, at that time, reasonably have purchased goods or services of that kind from another supplier. (8)  For the purposes of subsection (1) or (3), if goods or services acquired by a person other than by way of purchase could not, at the time of the acquisition, have been purchased from any supplier other than by a mixed supply, the amount paid or payable for the goods or services is taken to be the value of the goods or services at that time. Amounts paid or payable for obtaining credit (9) If:  (a) a person obtains credit in connection with the acquisition of goods or services by him or her; and (b) the amount paid or payable by him or her for the goods or services is increased because he or she so obtains credit; obtaining the credit is taken for the purposes of subsection (3) to be the acquisition of a service, and the amount paid or payable by him or her for the service of being provided with the credit is taken to include the amount of the increase. Presumption that persons are consumers (10)  If it is alleged in any proceeding under this Schedule, or in any other proceeding in respect of a matter arising under this Schedule, that a person was a consumer in relation to particular goods or services, it is presumed, unless the contrary is established, that the person was a consumer in relation to those goods or services. Mixed supplies (11)  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.

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Supplies to consumers (12)  In this Schedule, a reference to a supply of goods or services to a consumer is a reference to a supply of goods or services to a person who is taken to have acquired them as a consumer. 4  Misleading representations with respect to future matters (1) If:  (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of this Schedule, to be misleading. (2)  For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:  (a) a party to the proceeding; or (b) any other person; the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary. (3)  To avoid doubt, subsection (2) does not:  (a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or (b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation. (4)  Subsection (1) does not limit by implication the meaning of a reference in this Schedule to:  (a) a misleading representation; or (b) a representation that is misleading in a material particular; or (c) conduct that is misleading or is likely or liable to mislead; and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation. 7  Meaning of manufacturer (1) A manufacturer 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;

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(e) a person who imports goods 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. (2)  For the purposes of subsection (1)(c): 

(a) a name, brand or mark is taken to be applied to goods if:  (i) it is woven in, impressed on, worked into or annexed or affixed to the goods; or (ii) it is applied to a covering, label, reel or thing in or with which the goods are supplied; and (b) 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. (3)  If goods are imported into Australia on behalf of a person, the person is taken, for the purposes of paragraph (1)(e), to have imported the goods into Australia.

9  Meaning of safety defect in relation to goods (1)  For the purposes of this Schedule, goods have a safety defect if their safety is not such as persons generally are entitled to expect. (2)  In determining the extent of the safety of goods, regard is to be given to all relevant circumstances, including:  (a) the manner in which, and the purposes for which, they have been marketed; and (b) their packaging; and (c) the use of any mark in relation to them; and (d) any instructions for, or warnings with respect to, doing, or refraining from doing, anything with or in relation to them; and (e) what might reasonably be expected to be done with or in relation to them; and (f) the time when they were supplied by their manufacturer. (3)  An inference that goods have a safety defect is not to be made only because of the fact that, after they were supplied by their manufacturer, safer goods of the same kind were supplied. (4)  An inference that goods have a safety defect is not to be made only because:  (a) there was compliance with a Commonwealth mandatory standard for them; and (b) that standard was not the safest possible standard having regard to the latest state of scientific or technical knowledge when they were supplied by their manufacturer.

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Chapter 2 General protections Part 2–​1 Misleading or deceptive conduct 18  Misleading or deceptive conduct (1)  A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2)  Nothing in Part 3-​1 (which is about unfair practices) limits by implication subsection (1). Note: For rules relating to representations as to the country of origin of goods, see Part 5-​3.

Part 2–​2 Unconscionable conduct 20  Unconscionable conduct within the meaning of the unwritten law (1) A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2)  This section does not apply to conduct that is prohibited by section 21.

21  Unconscionable conduct in connection with goods or services (1)  A person must not, in trade or commerce, in connection with:  (a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2)  This section does not apply to conduct that is engaged in only because the person engaging in the conduct:  (a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or (b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition. (3)  For the purpose of determining whether a person has contravened subsection (1):  (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4)  It is the intention of the Parliament that:  (a) this section is not limited by the unwritten law relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of:  (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract.

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22  Matters the court may have regard to for the purposes of section 21 (1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:  (a) the relative strengths of the bargaining positions of the supplier and the customer; and (b) whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and (e) the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the customer was consistent with the supplier's conduct in similar transactions between the supplier and other like customers; and (g) the requirements of any applicable industry code; and (h) the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the customer:  (i) any intended conduct of the supplier that might affect the interests of the customer; and (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); and (j) if there is a contract between the supplier and the customer for the supply of the goods or services:  (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and (ii) the terms and conditions of the contract; and (iii) the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and (iv) any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and (l) the extent to which the supplier and the customer acted in good faith. (2) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer) has contravened section 21 in connection with the

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acquisition or possible acquisition of goods or services from a person (the supplier), the court may have regard to:  (a) the relative strengths of the bargaining positions of the acquirer and the supplier; and (b) whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and (c) whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the goods or services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the goods or services; and (e) the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent goods or services to a person other than the acquirer; and (f) 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; and (g) the requirements of any applicable industry code; and (h) the requirements of any other industry code, if the supplier acted on the reasonable belief that the acquirer would comply with that code; and (i) the extent to which the acquirer unreasonably failed to disclose to the supplier:  (i) any intended conduct of the acquirer that might affect the interests of the supplier; and (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); and (j) if there is a contract between the acquirer and the supplier for the acquisition of the goods or services:  (i) the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and (ii) the terms and conditions of the contract; and (iii) the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and (iv) any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the goods or services; and (l) the extent to which the acquirer and the supplier acted in good faith. 23  Unfair terms of consumer contracts and small business contracts (1)  A term of a consumer contract or small business contract is void if:  (a) the term is unfair; and (b) the contract is a standard form contract. (2)  The contract continues to bind the parties if it is capable of operating without the unfair term.

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(3) A 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. (4)  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; and (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 $300,000; (ii) the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000. (5)  In counting the persons employed by a business for the purposes of paragraph (4)(b), a casual employee is not to be counted unless he or she is employed by the business on a regular and systematic basis. 24  Meaning of unfair (1)  A term of a consumer contract or small business contract is unfair if:  (a) it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and (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. (2)  In determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:  (a) the extent to which the term is transparent; (b) the contract as a whole. (3)  A term is transparent if the term is:  (a) expressed in reasonably plain language; and (b) legible; and (c) presented clearly; and (d) readily available to any party affected by the term. (4)  For the purposes of subsection (1)(b), a term of a contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise. 25  Examples of unfair terms Without limiting section 24, the following are examples of the kinds of terms of a consumer contract or small business contract that may be unfair:  (a) a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract;

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(b) a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract; (c) a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract; (d) a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract; (e) a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract; (f) a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract; (g) a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract; (h) a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning; (i) a term that limits, or has the effect of limiting, one party's vicarious liability for its agents; (j) a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party's consent; (k) a term that limits, or has the effect of limiting, one party's right to sue another party; (l) a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract; (m) a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract; (n) a term of a kind, or a term that has an effect of a kind, prescribed by the regulations. 26  Terms that define main subject matter of consumer contracts or small business contracts etc. are unaffected (1)  Section 23 does not apply to a term of a consumer contract or small business contract to the extent, but only to the extent, that the term:  (a) defines the main subject matter of the contract; or (b) sets the upfront price payable under the contract; or (c) is a term required, or expressly permitted, by a law of the Commonwealth, a State or a Territory. (2) The upfront price payable under a contract is the consideration that:  (a) is provided, or is to be provided, for the supply, sale or grant under the contract; and (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. 27  Standard form contracts (1)  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. (2)  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: 

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(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 section 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 section 26(1); (e) whether the terms of the contract (other than the terms referred to in section 26(1)) take into account the specific characteristics of another party or the particular transaction; (f) any other matter prescribed by the regulations.

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Chapter 3 Specific protections Part 3–​1 Unfair practices Division 1 False or misleading representations etc 29  False or misleading representations about goods or services (1)  A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:  (a) make a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use; or (b) make a false or misleading representation that services are of a particular standard, quality, value or grade; or (c) make a false or misleading representation that goods are new; or (d) make a false or misleading representation that a particular person has agreed to acquire goods or services; or (e) make a false or misleading representation that purports to be a testimonial by any person relating to goods or services; or (f) make a false or misleading representation concerning:  (i) a testimonial by any person; or (ii) a representation that purports to be such a testimonial; relating to goods or services; or (g) make a false or misleading representation that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits; or (h) make a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or (i) make a false or misleading representation with respect to the price of goods or services; or (j) make a false or misleading representation concerning the availability of facilities for the repair of goods or of spare parts for goods; or (k) make a false or misleading representation concerning the place of origin of goods; or (l) make a false or misleading representation concerning the need for any goods or services; or (m) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-​2); or (n) make a false or misleading representation concerning a requirement to pay for a contractual right that:  (i) is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-​2); and (ii) a person has under a law of the Commonwealth, a State or a Territory (other than an unwritten law). Note 1: A pecuniary penalty may be imposed for a contravention of this subsection. Note 2: For rules relating to representations as to the country of origin of goods, see Part 5-​3.

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(2)  For the purposes of applying subsection (1) in relation to a proceeding concerning a representation of a kind referred to in subsection (1)(e) or (f), the representation is taken to be misleading unless evidence is adduced to the contrary. (3)  To avoid doubt, subsection (2) does not:  (a) have the effect that, merely because such evidence to the contrary is adduced, the representation is not misleading; or (b) have the effect of placing on any person an onus of proving that the representation is not misleading.

30  False or misleading representations about sale etc of land (1) A person must not, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land:  (a) make a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or (b) make a false or misleading representation concerning the nature of the interest in the land; or (c) make a false or misleading representation concerning the price payable for the land; or (d) make a false or misleading representation concerning the location of the land; or (e) make a false or misleading representation concerning the characteristics of the land; or (f) make a false or misleading representation concerning the use to which the land is capable of being put or may lawfully be put; or (g) make a false or misleading representation concerning the existence or availability of facilities associated with the land. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2)  This section does not affect the application of any other provision of Part 2-​1 or this Part in relation to the supply or acquisition, or the possible supply or acquisition, of interests in land.

31  Misleading conduct relating to employment A person must not, in relation to employment that is to be, or may be, offered by the person or by another person, engage in conduct that is liable to mislead persons seeking the employment as to:  (a) the availability, nature, terms or conditions of the employment; or (b) any other matter relating to the employment. Note: A pecuniary penalty may be imposed for a contravention of this section.

32  Offering rebates, gifts, prizes etc (1)  A person must not, in trade or commerce, offer any rebate, gift, prize or other free item with the intention of not providing it, or of not providing it as offered, in connection with:  (a) the supply or possible supply of goods or services; or (b) the promotion by any means of the supply or use of goods or services; or (c) the sale or grant, or the possible sale or grant, of an interest in land; or (d) the promotion by any means of the sale or grant of an interest in land. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2)  If a person offers any rebate, gift, prize or other free item in connection with: 

(a) the supply or possible supply of goods or services; or

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(b) the promotion by any means of the supply or use of goods or services; or (c) the sale or grant, or the possible sale or grant, of an interest in land; or (d) the promotion by any means of the sale or grant of an interest in land; the person must, within the time specified in the offer or (if no such time is specified) within a reasonable time after making the offer, provide the rebate, gift, prize or other free item in accordance with the offer. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(3)  Subsection (2) does not apply if: 

(a) the person's failure to provide the rebate, gift, prize or other free item in accordance with the offer was due to the act or omission of another person, or to some other cause beyond the person's control; and (b) the person took reasonable precautions and exercised due diligence to avoid the failure. (4)  Subsection (2) does not apply to an offer that the person makes to another person if:  (a) the person offers to the other person a different rebate, gift, prize or other free item as a replacement; and (b) the other person agrees to receive the different rebate, gift, prize or other free item. (5)  This section does not affect the application of any other provision of Part 2-​1 or this Part in relation to the supply or acquisition, or the possible supply or acquisition, of interests in land. 33  Misleading conduct as to the nature etc of goods A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods. Note: A pecuniary penalty may be imposed for a contravention of this section.

34  Misleading conduct as to the nature etc of services A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services. Note: A pecuniary penalty may be imposed for a contravention of this section.

35  Bait advertising (1) A person must not, in trade or commerce, advertise goods or services for supply at a specified price if:  (a) there are reasonable grounds for believing that the person will not be able to offer for supply those goods or services at that price for a period that is, and in quantities that are, reasonable, having regard to:  (i) the nature of the market in which the person carries on business; and (ii) the nature of the advertisement; and (b) the person is aware or ought reasonably to be aware of those grounds. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2)  A person who, in trade or commerce, advertises goods or services for supply at a specified price must offer such goods or services for supply at that price for a period that is, and in quantities that are, reasonable having regard to:  (a) the nature of the market in which the person carries on business; and (b) the nature of the advertisement. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

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s 37  Extracts from the Australian Consumer Law (Cth)

459

36  Wrongly accepting payment (1)  A person must not, in trade or commerce, accept payment or other consideration for goods or services if, at the time of the acceptance, the person intends not to supply the goods or services. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2) A person must not, in trade or commerce, accept payment or other consideration for goods or services if, at the time of the acceptance, the person intends to supply goods or services materially different from the goods or services in respect of which the payment or other consideration is accepted. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(3) A person must not, in trade or commerce, accept payment or other consideration for goods or services if, at the time of the acceptance:  (a) there are reasonable grounds for believing that the person will not be able to supply the goods or services:  (i) within the period specified by or on behalf of the person at or before the time the payment or other consideration was accepted; or (ii) if no period is specified at or before that time—​within a reasonable time; and (b) the person is aware or ought reasonably to be aware of those grounds. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(4)  A person who, in trade or commerce, accepts payment or other consideration for goods or services must supply all the goods or services:  (a) within the period specified by or on behalf of the person at or before the time the payment or other consideration was accepted; or (b) if no period is specified at or before that time—​within a reasonable time. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(5)  Subsection (4) does not apply if: 

(a) the person's failure to supply all the goods or services within the period, or within a reasonable time, was due to the act or omission of another person, or to some other cause beyond the person's control; and (b) the person took reasonable precautions and exercised due diligence to avoid the failure. (6)  Subsection (4) does not apply if:  (a) the person offers to supply different goods or services as a replacement to the person (the customer) to whom the original supply was to be made; and (b) the customer agrees to receive the different goods or services. (7)  Subsections (1), (2), (3) and (4) apply whether or not the payment or other consideration that the person accepted represents the whole or a part of the payment or other consideration for the supply of the goods or services. 37  Misleading representations about certain business activities (1)  A person must not, in trade or commerce, make a representation that:  (a) is false or misleading in a material particular; and (b) concerns the profitability, risk or any other material aspect of any business activity that the person has represented as one that can be, or can be to a considerable extent, carried on at or from a person's place of residence. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

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(2)  A person must not, in trade or commerce, make a representation that: 

(a) is false or misleading in a material particular; and (b) concerns the profitability, risk or any other material aspect of any business activity:  (i) that the person invites (whether by advertisement or otherwise) other persons to engage or participate in, or to offer or apply to engage or participate in; and (ii) that requires the performance of work by other persons, or the investment of money by other persons and the performance by them of work associated with the investment. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

38  Application of provisions of this Division to information providers (1)  Sections 29, 30, 33, 34 and 37 do not apply to a publication of matter by an information provider if:  (a) in any case—​the information provider made the publication in the course of carrying on a business of providing information; or (b) if the information provider is the Australian Broadcasting Corporation, the Special Broadcasting Service Corporation or the holder of a licence granted under the Broadcasting Services Act 1992—​the publication was by way of a radio or television broadcast by the information provider. (2)  Subsection (1) does not apply to a publication of an advertisement. (3)  Subsection (1) does not apply to a publication of matter in connection with the supply or possible supply of, or the promotion by any means of the supply or use of, goods or services (the publicised goods or services), if:  (a) the publicised goods or services were goods or services of a kind supplied by the information provider or, if the information provider is a body corporate, by a body corporate that is related to the information provider; or (b) the publication was made on behalf of, or pursuant to a contract, arrangement or understanding with, a person who supplies goods or services of the same kind as the publicised goods or services; or (c) the publication was made on behalf of, or pursuant to a contract, arrangement or understanding with, a body corporate that is related to a body corporate that supplies goods or services of the same kind as the publicised goods or services. (4)  Subsection (1) does not apply to a publication of matter in connection with the sale or grant, or possible sale or grant, of, or the promotion by any means of the sale or grant of, interests in land (the publicised interests in land), if:  (a) the publicised interests in land were interests of a kind sold or granted by the information provider or, if the information provider is a body corporate, by a body corporate that is related to the information provider; or (b) the publication was made on behalf of, or pursuant to a contract, arrangement or understanding with, a person who sells or grants interests of the same kind as the publicised interests in land; or (c) the publication was made on behalf of, or pursuant to a contract, arrangement or understanding with, a body corporate that is related to a body corporate that sells or grants interests of the same kind as the publicised interests in land.

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s 45  Extracts from the Australian Consumer Law (Cth)

461

Division 3 Pyramid schemes 44  Participation in pyramid schemes (1)  A person must not participate in a pyramid scheme. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2)  A person must not induce, or attempt to induce, another person to participate in a pyramid scheme. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(3) To 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). 45  Meaning of pyramid scheme (1) A 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. (2) A new participant includes a person who has applied, or been invited, to participate in the scheme. (3)  A scheme may be a pyramid scheme:  (a) no matter who holds out to new participants the prospect of entitlement to recruitment payments; and (b) no matter who is to make recruitment payments to new participants; and (c) no matter who is to make introductions to the scheme of further new participants. (4)  A scheme may be a pyramid scheme even if it has any or all of the following characteristics:  (a) the participation payments may (or must) be made after the new participants begin to take part in the scheme; (b) making a participation payment is not the only requirement for taking part in the scheme; (c) the holding out of the prospect of entitlement to recruitment payments does not give any new participant a legally enforceable right; (d) arrangements for the scheme are not recorded in writing (whether entirely or partly); (e) the scheme involves the marketing of goods or services (or both).

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46  Marketing schemes as pyramid schemes (1)  To decide, for the purpose of this Schedule, whether a scheme that involves the marketing of goods or services (or both) is a pyramid scheme, a court must have regard to the following matters in working out whether participation payments under the scheme are entirely or substantially induced by the prospect held out to new participants of entitlement to recruitment payments:  (a) whether the participation payments bear a reasonable relationship to the value of the goods or services that participants are entitled to be supplied with under the scheme (as assessed, if appropriate, by reference to the price of comparable goods or services available elsewhere); (b) the emphasis given in the promotion of the scheme to the entitlement of participants to the supply of goods or services by comparison with the emphasis given to their entitlement to recruitment payments. (2)  Subsection (1) does not limit the matters to which the court may have regard in working out whether participation payments are entirely or substantially induced by the prospect held out to new participants of entitlement to recruitment payments.

Division 4 Pricing 47  Multiple pricing (1)  A person must not, in trade or commerce, supply goods if:  (a) the goods have more than one displayed price; and (b) the supply takes place for a price that is not the lower, or lowest, of the displayed prices. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2) A 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; or (b) that is used in connection with the goods or anything on which the goods are mounted for display or exposed for supply; or (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; or (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.

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s 48  Extracts from the Australian Consumer Law (Cth)

463

(3) If: 

(a) a price or representation is included in a catalogue; and (b) 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, for the purposes of subsection (2)(d), 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. (4)  Despite subsection (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; or (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. (5)  Despite subsection (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. 48  Single price to be specified in certain circumstances (1)  A person must not, in trade or commerce, in connection with:  (a) the supply, or possible supply, to another person of goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption; or (b) the promotion by any means of the supply to another person, or of the use by another person, of goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption; make a representation with respect to an amount that, if paid, would constitute a part of the consideration for the supply of the goods or services unless the person also specifies, in a prominent way and as a single figure, the single price for the goods or services. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2)  A person is not required to include, in the single price for goods, a charge that is payable in relation to sending the goods from the supplier to the other person. (3)  However, if:  (a) the person does not include in the single price a charge that is payable in relation to sending the goods from the supplier to the other person; and (b) the person knows, at the time of the representation, the minimum amount of a charge in relation to sending the goods from the supplier to the other person that must be paid by the other person;

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the person must not make the representation referred to in subsection (1) unless the person also specifies that minimum amount. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(4)  Subsection (1) does not apply if the representation is made exclusively to a body corporate. (4A)  Subsection (1) does not apply if: 

(a) the representation is in a class of representations prescribed by the regulations; and (b) the conditions (if any) prescribed by the regulations in relation to representations in that class have been complied with. Note: If the representation is in a class prescribed for paragraph (a) of this subsection and subsection (1) is complied with in relation to the representation, there is no need to also comply with any conditions prescribed for paragraph (b) of this subsection.

(5)  For the purposes of subsection (1), the person is taken not to have specified a single price for the goods or services in a prominent way unless the single price is at least as prominent as the most prominent of the parts of the consideration for the supply. (6)  Subsection (5) does not apply in relation to services to be supplied under a contract if:  (a) the contract provides for the supply of the services for the term of the contract; and (b) the contract provides for periodic payments for the services to be made during the term of the contract; and (c) if the contract also provides for the supply of goods—​the goods are directly related to the supply of the services. (7) The 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. 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 paragraph (a). Example 2: The GST may be an example of an amount covered by paragraph (b). Example 3: The passenger movement charge imposed under the Passenger Movement Charge Act 1978 may be an example of an amount covered by paragraph (c). Under an arrangement under section 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.

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s 52  Extracts from the Australian Consumer Law (Cth)

465

Division 5 Other unfair practices 49  Referral selling A person must not, in trade or commerce, induce a consumer to acquire goods or services by representing that the consumer will, after the contract for the acquisition of the goods or services is made, receive a rebate, commission or other benefit in return for:  (a) giving the person the names of prospective customers; or (b) otherwise assisting the person to supply goods or services to other consumers; if receipt of the rebate, commission or other benefit is contingent on an event occurring after that contract is made. Note: A pecuniary penalty may be imposed for a contravention of this section.

50  Harassment and coercion (1)  A person must not use physical force, or undue harassment or coercion, in connection with:  (a) the supply or possible supply of goods or services; or (b) the payment for goods or services; or (c) the sale or grant, or the possible sale or grant, of an interest in land; or (d) the payment for an interest in land. Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2)  Subsections (1)(c) and (d) do not affect the application of any other provision of Part 2-​ 1 or this Part in relation to the supply or acquisition, or the possible supply or acquisition, of interests in land.

Part 3–​2 Consumer transactions Division 1 Consumer guarantees Subdivision A Guarantees relating to the supply of goods 51  Guarantee as to title (1)  If a person (the supplier) supplies goods to a consumer, there is a guarantee that the supplier will have a right to dispose of the property in the goods when that property is to pass to the consumer. (2)  Subsection (1) does not apply to a supply (a supply of limited title) 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. (3)  This section does not apply if the supply is a supply by way of hire or lease. 52  Guarantee as to undisturbed possession (1) If:  (a) a person (the supplier) supplies goods to a consumer; and (b) the supply is not a supply of limited title; there is a guarantee that the consumer has the right to undisturbed possession of the goods.

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(2)  Subsection (1) does not apply to the extent that the consumer's undisturbed possession of the goods may be lawfully disturbed by a person who is entitled to the benefit of any security, charge or encumbrance disclosed to the consumer before the consumer agreed to the supply. (3) If:  (a) a person (the supplier) supplies goods to a consumer; and (b) the supply is a supply of limited title; there is a guarantee that the following persons will not disturb the consumer's possession of the goods: (c) the supplier; (d) if the parties to the contract for the supply intend that the supplier should transfer only such title as another person may have—​that other person; (e) anyone claiming through or under the supplier or that other person (otherwise than under a security, charge or encumbrance disclosed to the consumer before the consumer agreed to the supply). (4)  This section applies to a supply by way of hire or lease only for the period of the hire or lease.

53  Guarantee as to undisclosed securities etc (1) If:  (a) a person (the supplier) supplies goods to a consumer; and (b) the supply is not a supply of limited title; there is a guarantee that:  (c) the goods are free from any security, charge or encumbrance:  (i) that was not disclosed to the consumer, in writing, before the consumer agreed to the supply; or (ii) that was not created by or with the express consent of the consumer; and (d) the goods will remain free from such a security, charge or encumbrance until the time when the property in the goods passes to the consumer. (2)  A supplier does not fail to comply with the guarantee only because of the existence of a floating charge over the supplier's assets unless and until the charge becomes fixed and enforceable by the person to whom the charge is given. Note: Section 339 of the Personal Property Securities Act 2009 affects the meaning of the references in this subsection to a floating charge and a fixed charge.

(3) If: 

(a) a person (the supplier) supplies goods to a consumer; and (b) the supply is a supply of limited title; there is a guarantee that all securities, charges or encumbrances known to the supplier, and not known to the consumer, were disclosed to the consumer before the consumer agreed to the supply. (4)  This section does not apply if the supply is a supply by way of hire or lease. 54  Guarantee as to acceptable quality (1) If:  (a) a person supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the goods are of acceptable quality.

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s 55  Extracts from the Australian Consumer Law (Cth)

467

(2)  Goods are of acceptable quality if they are as: 

(a) fit for all the purposes for which goods of that kind are commonly supplied; and (b) acceptable in appearance and finish; and (c) free from defects; and (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 the matters in subsection (3). (3)  The matters for the purposes of subsection (2) are:  (a) the nature of the goods; and (b) the price of the goods (if relevant); and (c) any statements made about the goods on any packaging or label on the goods; and (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. (4)  If:  (a) goods supplied to a consumer are not of acceptable quality; and (b) 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; the goods are taken to be of acceptable quality. (5) If:  (a) goods are displayed for sale or hire; and (b) the goods would not be of acceptable quality if they were supplied to a consumer; the reason or reasons why they are not of acceptable quality are taken, for the purposes of subsection (4), to 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. (6)  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. (7)  Goods do not fail to be of acceptable quality if:  (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. 55  Guarantee as to fitness for any disclosed purpose etc (1) If:  (a) a person (the supplier) supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction;

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there is a guarantee that the goods are reasonably fit for any disclosed purpose, and for any purpose for which the supplier represents that they are reasonably fit. (2) A disclosed purpose 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; or (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 paragraph (a)(ii). (3)  This section does not apply if the circumstances show that the consumer did not rely on, or that it was unreasonable for the consumer to rely on, the skill or judgment of the supplier, the person referred to in subsection (2)(a)(ii) or the manufacturer, as the case may be. 56  Guarantee relating to the supply of goods by description (1) If:  (a) a person supplies, in trade or commerce, goods by description to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the goods correspond with the description. (2) A supply of goods is not prevented from being a supply by description only because, having been exposed for sale or hire, they are selected by the consumer. (3)  If goods are supplied by description as well as by reference to a sample or demonstration model, the guarantees in this section and in section 57 both apply. 57  Guarantees relating to the supply of goods by sample or demonstration model (1) If:  (a) a person supplies, in trade or commerce, goods to a consumer by reference to a sample or demonstration model; and (b) the supply does not occur by way of sale by auction; there is a guarantee that:  (c) the goods correspond with the sample or demonstration model in quality, state or condition; and (d) if the goods are supplied by reference to a sample—​the consumer will have a reasonable opportunity to compare the goods with the sample; and (e) the goods are free from any defect that:  (i) would not be apparent on reasonable examination of the sample or demonstration model; and (ii) would cause the goods not to be of acceptable quality. (2)  If goods are supplied by reference to a sample or demonstration model as well as by description, the guarantees in section 56 and in this section both apply.

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s 61  Extracts from the Australian Consumer Law (Cth)

469

58  Guarantee as to repairs and spare parts (1) If:  (a) a person supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the manufacturer of the goods will take reasonable action to ensure that facilities for the repair of the goods, and parts for the goods, are reasonably available for a reasonable period after the goods are supplied. (2)  This section does not apply if the manufacturer took reasonable action to ensure that the consumer would be given written notice, at or before the time when the consumer agrees to the supply of the goods, that:  (a) facilities for the repair of the goods would not be available or would not be available after a specified period; or (b) parts for the goods would not be available or would not be available after a specified period. 59  Guarantee as to express warranties (1) If:  (a) a person supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the manufacturer of the goods will comply with any express warranty given or made by the manufacturer in relation to the goods. (2) If:  (a) a person supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the supplier will comply with any express warranty given or made by the supplier in relation to the goods. Subdivision B Guarantees relating to the supply of services 60  Guarantee as to due care and skill If a person supplies, in trade or commerce, services to a consumer, there is a guarantee that the services will be rendered with due care and skill. 61  Guarantees as to fitness for a particular purpose etc (1) If:  (a) a person (the supplier) supplies, in trade or commerce, services to a consumer; and (b) the consumer, expressly or by implication, makes known to the supplier any particular purpose for which the services are being acquired by the consumer; there is a guarantee that the services, and any product resulting from the services, will be reasonably fit for that purpose. (2) If:  (a) a person (the supplier) supplies, in trade or commerce, services to a consumer; and (b) the consumer makes known, expressly or by implication, to:  (i) the supplier; or

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(ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of the services were conducted or made; the result that the consumer wishes the services to achieve; there is a guarantee that the services, and any product resulting from the services, will be of such a nature, and quality, state or condition, that they might reasonably be expected to achieve that result. (3)  This section does not apply if the circumstances show that the consumer did not rely on, or that it was unreasonable for the consumer to rely on, the skill or judgment of the supplier. (4)  This section does not apply to a supply of services of a professional nature by a qualified architect or engineer. 62  Guarantee as to reasonable time for supply If:  (a) a person (the supplier) supplies, in trade or commerce, services to a consumer; and (b) the time within which the services are to be supplied:  (i) is not fixed by the contract for the supply of the services; or (ii) is not to be determined in a manner agreed to by the consumer and supplier; there is a guarantee that the services will be supplied within a reasonable time. 63  Services to which this Subdivision does not apply (1)  This Subdivision does not apply to services that are, or are to be, supplied under:  (a) a contract for or in relation to the transportation or storage of goods for the purposes of a business, trade, profession or occupation carried on or engaged in by the person for whom the goods are transported or stored; or (b) a contract of insurance. Subdivision C Guarantees not to be excluded etc by contract 64  Guarantees not to be excluded etc by contract (1)  A term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) is void to the extent that the term purports to exclude, restrict or modify, or has the effect of excluding, restricting or modifying:  (a) the application of all or any of the provisions of this Division; or (b) the exercise of a right conferred by such a provision; or (c) any liability of a person for a failure to comply with a guarantee that applies under this Division to a supply of goods or services. (2)  A term of a contract is not taken, for the purposes of this section, to exclude, restrict or modify the application of a provision of this Division unless the term does so expressly or is inconsistent with the provision. 64A  Limitation of liability for failures to comply with guarantees (1) A term of a contract for the supply by a person of goods other than goods of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 64 merely because the term limits the person's liability for failure to comply with a guarantee (other than a guarantee under section 51, 52 or 53) to one or more of the following:  (a) the replacement of the goods or the supply of equivalent goods;

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s 138  Extracts from the Australian Consumer Law (Cth)

471

(b) the repair of the goods; (c) the payment of the cost of replacing the goods or of acquiring equivalent goods; (d) the payment of the cost of having the goods repaired. (2)  A term of a contract for the supply by a person of services other than services of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 64 merely because the term limits the person's liability for failure to comply with a guarantee to:  (a) the supplying of the services again; or (b) the payment of the cost of having the services supplied again. (3)  This section does not apply in relation to a term of a contract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the person who supplied the goods or services to rely on that term of the contract. (4)  In determining for the purposes of subsection (3) whether or not reliance on a term of a contract is fair or reasonable, a court is to have regard to all the circumstances of the case, and in particular to the following matters:  (a) the strength of the bargaining positions of the person who supplied the goods or services and the person to whom the goods or services were supplied (the buyer) relative to each other, taking into account, among other things, the availability of equivalent goods or services and suitable alternative sources of supply; (b) whether the buyer received an inducement to agree to the term or, in agreeing to the term, had an opportunity of acquiring the goods or services or equivalent goods or services from any source of supply under a contract that did not include that term; (c) whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); (d) in the case of the supply of goods, whether the goods were manufactured, processed or adapted to the special order of the buyer.

Part 3–​5 Liability of manufacturers for goods with safety defects Division 1 Actions against manufacturers for goods with safety defects 138  Liability for loss or damage suffered by an injured individual (1)  A manufacturer of goods is liable to compensate an individual if:  (a) the manufacturer supplies the goods in trade or commerce; and (b) the goods have a safety defect; and (c) the individual suffers injuries because of the safety defect. (2)  The individual may recover, by action against the manufacturer, the amount of the loss or damage suffered by the individual. (3)  If the individual dies because of the injuries, a law of a State or a Territory about liability in respect of the death of individuals applies as if:  (a) the action were an action under the law of the State or Territory for damages in respect of the injuries; and (b) the safety defect were the manufacturer's wrongful act, neglect or default.

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139  Liability for loss or damage suffered by a person other than an injured individual (1)  A manufacturer of goods is liable to compensate a person if:  (a) the manufacturer supplies the goods in trade or commerce; and (b) the goods have a safety defect; and (c) an individual (other than the person) suffers injuries because of the safety defect; and (d) the person suffers loss or damage because of:  (i) the injuries; or (ii) if the individual dies because of the injuries—​the individual's death; and (e) the loss or damage does not come about because of a business or professional relationship between the person and the individual. (2)  The person may recover, by action against the manufacturer, the amount of the loss or damage suffered by the person. 140  Liability for loss or damage suffered by a person if other goods are destroyed or damaged (1)  A manufacturer of goods is liable to compensate a person if:  (a) the manufacturer supplies the goods in trade or commerce; and (b) the goods have a safety defect; and (c) other goods of a kind ordinarily acquired for personal, domestic or household use or consumption are destroyed or damaged because of the safety defect; and (d) the person used or consumed, or intended to use or consume, the destroyed or damaged goods for personal, domestic or household use or consumption; and (e) the person suffers loss or damage as a result of the destruction or damage. (2)  The person may recover, by action against the manufacturer, the amount of the loss or damage suffered by the person. 141  Liability for loss or damage suffered by a person if land, buildings or fixtures are destroyed or damaged (1)  A manufacturer of goods is liable to compensate a person if:  (a) the manufacturer supplies the goods in trade or commerce; and (b) the goods have a safety defect; and (c) land, buildings or fixtures are destroyed or damaged because of the safety defect; and (d) the land, buildings or fixtures are ordinarily acquired for private use; and (e) the person used, or intended to use, the land, buildings or fixtures for private use; and (f) the person suffers loss or damage as a result of the destruction or damage. (2)  The person may recover, by action against the manufacturer, the amount of the loss or damage suffered by the person. 142  Defences to defective goods actions In a defective goods action, it is a defence if it is established that:  (a) the safety defect in the goods that is alleged to have caused the loss or damage did not exist:  (i) in the case of electricity—​at the time at which the electricity was generated, being a time before it was transmitted or distributed; or

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(ii) in any other case—​at the time when the goods were supplied by their actual manufacturer; or (b) the goods had that safety defect only because there was compliance with a mandatory standard for them; or (c) the state of scientific or technical knowledge at the time when the goods were supplied by their manufacturer was not such as to enable that safety defect to be discovered; or (d) if the goods that had that safety defect were comprised in other goods—​that safety defect is attributable only to:  (i) the design of the other goods; or (ii) the markings on or accompanying the other goods; or (iii) the instructions or warnings given by the manufacturer of the other goods.

Division 2 Defective goods actions 143  Time for commencing defective goods actions (1)  Subject to subsection (2), a person may commence a defective goods action at any time within 3 years after the time the person became aware, or ought reasonably to have become aware, of all of the following:  (a) the alleged loss or damage; (b) the safety defect of the goods; (c) the identity of the person who manufactured the goods. (2)  A defective goods action must be commenced within 10 years of the supply by the manufacturer of the goods to which the action relates. 144  Liability joint and several If 2 or more persons are liable under Division 1 for the same loss or damage, they are jointly and severally liable. 145  Survival of actions A law of a State or a Territory about the survival of causes of action vested in persons who die applies to actions under Division 1. 146  No defective goods action where workers' compensation law etc applies Division 1 does not apply to a loss or damage in respect of which an amount has been, or could be, recovered under a law of the Commonwealth, a State or a Territory that:  (a) relates to workers' compensation; or (b) gives effect to an international agreement. 147  Unidentified manufacturer (1)  A person who:  (a) wishes to institute a defective goods action; but (b) does not know who is the manufacturer of the goods to which the action would relate; may, by written notice given to a supplier, or each supplier, of the goods who is known to the person, request the supplier or suppliers to give the person particulars identifying the manufacturer of the goods, or the supplier of the goods to the supplier requested.

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(2)  If, 30 days after the person made the request or requests, the person still does not know who is the manufacturer of the goods, then each supplier:  (a) to whom the request was made; and (b) who did not comply with the request; is taken, for the purposes of the defective goods liability action (but not for the purposes of section 142(c)), to be the manufacturer of the goods.

148  Commonwealth liability for goods that are defective only because of compliance with Commonwealth mandatory standard (1)  If a person (however described) against whom a defective goods action is brought raises the defence that the goods had the alleged safety defect only because there was compliance with a Commonwealth mandatory standard for the goods, the person must, as soon as practicable after raising that defence, give the Commonwealth:  (a) a prescribed notice of the action and of that defence; and (b) a copy of the person's defence in the action. (2)  The giving of the notice and defence makes the Commonwealth a defendant in the action. (3)  If, in the action, the court finds that the person (the plaintiff) by whom the action is brought would, but for the defence referred to in subsection (1), have succeeded against the person (other than the Commonwealth) against which the action is brought, then:  (a) the Commonwealth, and not the person (other than the Commonwealth) against which the action is brought, is liable to pay the plaintiff for the amount of the loss or damage caused by the safety defect; and (b) the court is to enter judgment against the Commonwealth for that amount; and (c) the court may make such orders for costs as the court considers just. 149  Representative actions by the regulator (1)  The regulator may, by application, commence a defective goods action on behalf of one or more persons identified in the application who have suffered the loss or damage in relation to which the action is commenced. (2)  The regulator may only make the application if it has obtained the written consent of the person, or each of the persons, on whose behalf the application is being made.

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Chapter 4 Offences Part 4–​1 Offences relating to unfair practices Division 1 False or misleading representations etc 151  False or misleading representations about goods or services (1) A person commits an offence if the person, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:  (a) makes a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use; or (b) makes a false or misleading representation that services are of a particular standard, quality, value or grade; or (c) makes a false or misleading representation that goods are new; or (d) makes a false or misleading representation that a particular person has agreed to acquire goods or services; or (e) makes a false or misleading representation that purports to be a testimonial by any person relating to goods or services; or (f) makes a false or misleading representation concerning:  (i) a testimonial by any person; or (ii) a representation that purports to be such a testimonial; relating to goods or services; or (g) makes a false or misleading representation that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits; or (h) makes a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or (i) makes a false or misleading representation with respect to the price of goods or services; or (j) makes a false or misleading representation concerning the availability of facilities for the repair of goods or of spare parts for goods; or (k) makes a false or misleading representation concerning the place of origin of goods; or (l) makes a false or misleading representation concerning the need for any goods or services; or (m) makes a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-​2); or (n) makes a false or misleading representation concerning a requirement to pay for a contractual right that:  (i) is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-​2); and (ii) a person has under a law of the Commonwealth, a State or a Territory (other than an unwritten law). Note: For rules relating to representations as to the country of origin of goods, see Part 5-​3.

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(2)  For the purposes of applying subsection (1) in relation to a proceeding concerning a representation of a kind referred to in subsection (1)(e) or (f), the representation is taken to be misleading unless evidence is adduced to the contrary. (3)  To avoid doubt, subsection (2) does not:  (a) have the effect that, merely because such evidence to the contrary is adduced, the representation is not misleading; or (b) have the effect of placing on any person an onus of proving that the representation is not misleading. (4)  Subsection (1) is an offence of strict liability. Penalty An offence against subsection (1) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000.

152  False or misleading representations about sale etc of land (1)  A person commits an offence if the person, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land:  (a) makes a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or (b) makes a false or misleading representation concerning the nature of the interest in the land; or (c) makes a false or misleading representation concerning the price payable for the land; or (d) makes a false or misleading representation concerning the location of the land; or (e) makes a false or misleading representation concerning the characteristics of the land; or (f) makes a false or misleading representation concerning the use to which the land is capable of being put or may lawfully be put; or (g) makes a false or misleading representation concerning the existence or availability of facilities associated with the land. (2)  Subsection (1) is an offence of strict liability. Penalty An offence against subsection (1) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit;

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(c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000. Other (3)  This section does not affect the application of any other provision of this Part in relation to the supply or acquisition, or the possible supply or acquisition, of interests in land. 153  Misleading conduct relating to employment (1)  A person commits an offence if the person, in relation to employment that is to be, or may be, offered by the person or by another person, engages in conduct that is liable to mislead persons seeking the employment as to:  (a) the availability, nature, terms or conditions of the employment; or (b) any other matter relating to the employment. (2)  Subsection (1) is an offence of strict liability. Penalty An offence against subsection (1) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000. 154  Offering rebates, gifts, prizes etc (1)  A person commits an offence if:  (a) the person, in trade or commerce, offers any rebate, gift, prize or other free item; and (b) the offer is connected with:  (i) the supply or possible supply of goods or services; or (ii) the promotion by any means of the supply or use of goods or services; or (iii) the sale or grant, or the possible sale or grant, of an interest in land; or (iv) the promotion by any means of the sale or grant of an interest in land; and (c) the offer is made with the intention of not providing the rebate, gift, prize or other free item, or of not providing it as offered. (2)  A person commits an offence if:  (a) the person, in trade or commerce, offers any rebate, gift, prize or other free item; and

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(b) the offer is connected with:  (i) the supply or possible supply of goods or services; or (ii) the promotion by any means of the supply or use of goods or services; or (iii) the sale or grant, or the possible sale or grant, of an interest in land; or (iv) the promotion by any means of the sale or grant of an interest in land; and (c) the person fails to provide the rebate, gift, prize or other free item, in accordance with the offer, within the time specified in the offer or (if no such time is specified) within a reasonable time after making the offer. (3)  Subsection (2) does not apply if:  (a) the person's failure to provide the rebate, gift, prize or other free item in accordance with the offer was due to the act or omission of another person, or to some other cause beyond the person's control; and (b) the person took reasonable precautions and exercised due diligence to avoid the failure. (4)  Subsection (2) does not apply to an offer that the person makes to another person if:  (a) the person offers to the other person a different rebate, gift, prize or other free item as a replacement; and (b) the other person agrees to receive the different rebate, gift, prize or other free item. (5)  Strict liability applies to subsections (1)(b) and (2)(b). Penalty An offence against subsection (1) or (2) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) or (2) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000. Other (6)  This section does not affect the application of any other provision of this Part in relation to the supply or acquisition, or the possible supply or acquisition, of interests in land. 155  Misleading conduct as to the nature etc of goods (1)  A person commits an offence if the person, in trade or commerce, engages in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods. (2)  Subsection (1) is an offence of strict liability.

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Penalty An offence against subsection (1) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000. 156  Misleading conduct as to the nature etc of services (1)  A person commits an offence if the person, in trade or commerce, engages in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services. (2)  Subsection (1) is an offence of strict liability. Penalty An offence against subsection (1) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000. 157  Bait advertising (1)  A person commits an offence if:  (a) the person, in trade or commerce, advertises goods or services for supply at a specified price; and (b) there are reasonable grounds for believing that the person will not be able to offer for supply those goods or services at that price for a period that is, and in quantities that are, reasonable, having regard to:  (i) the nature of the market in which the person carries on business; and (ii) the nature of the advertisement. (2)  A person commits an offence if: 

(a) the person, in trade or commerce, advertises goods or services for supply at a specified price; and

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(b) the person fails to offer such goods or services for supply at that price for a period that is, and in quantities that are, reasonable having regard to:  (i) the nature of the market in which the person carries on business; and (ii) the nature of the advertisement. (3)  Subsections (1) and (2) are offences of strict liability.

Penalty An offence against subsection (1) or (2) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) or (2) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000. Defence (1)  In a prosecution of a person (the defendant) under subsection (2), for failing to offer goods or services to another person (the customer), it is a defence if:  (a) the defendant proves that:  (i) he or she offered to supply, or to procure a third person to supply, goods or services of the kind advertised to the customer within a reasonable time, in a reasonable quantity and at the advertised price; or (ii) he or she offered to supply immediately, or to procure a third person to supply within a reasonable time, equivalent goods or services to the customer in a reasonable quantity and at the price at which the first-​mentioned goods or services were advertised; and (b) in either case, if the offer was accepted by the customer, the defendant proves that he or she has so supplied, or procured a third person to supply, the goods or services. 158  Wrongly accepting payment (1)  A person commits an offence if:  (a) the person, in trade or commerce, accepts payment or other consideration for goods or services; and (b) at the time of the acceptance, the person intends not to supply the goods or services. (2)  Strict liability applies to subsection (1)(a). (3)  A person commits an offence if:  (a) the person, in trade or commerce, accepts payment or other consideration for goods or services; and (b) at the time of the acceptance, the person intends to supply goods or services materially different from the goods or services in respect of which the payment or other consideration is accepted.

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(4)  Strict liability applies to subsection (3)(a). (5)  A person commits an offence if: 

(a) the person, in trade or commerce, accepts payment or other consideration for goods or services; and (b) at the time of the acceptance, the person was reckless as to whether he or she would be able to supply the goods or services:  (i) within the period specified by or on behalf of the person at or before the time the payment or other consideration was accepted; or (ii) if no period is specified at or before that time—​within a reasonable time. (6)  Strict liability applies to subsection (5)(a). (7)  A person commits an offence if: 

(a) the person, in trade or commerce, accepts payment or other consideration for goods or services; and (b) the person fails to supply all the goods or services:  (i) within the period specified by or on behalf of the person at or before the time the payment or other consideration was accepted; or (ii) if no period is specified at or before that time—​within a reasonable time. (8)  Subsection (7) does not apply if: 

(a) the person's failure to supply all the goods or services within the period, or within a reasonable time, was due to the act or omission of another person, or to some other cause beyond the person's control; and (b) the person took reasonable precautions and exercised due diligence to avoid the failure. (9)  Subsection (7) does not apply if:  (a) the person offers to supply different goods or services as a replacement to the person (the customer) to whom the original supply was to be made; and (b) the customer agrees to receive the different goods or services. (10)  Subsection (7) is an offence of strict liability. Penalty An offence against subsection (1), (3), (5) or (7) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1), (3), (5) or (7) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000.

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Other (11)  Subsections (1), (3), (5) and (7) apply whether or not the payment or other consideration that the person accepted represents the whole or a part of the payment or other consideration for the supply of the goods or services.

159  Misleading representations about certain business activities (1)  A person commits an offence if:  (a) the person, in trade or commerce, makes a representation; and (b) the representation is false or misleading in a material particular; and (c) the representation concerns the profitability, risk or any other material aspect of any business activity that the person has represented as one that can be, or can be to a considerable extent, carried on at or from a person's place of residence. (2)  A person commits an offence if:  (a) the person, in trade or commerce, makes a representation; and (b) the representation is false or misleading in a material particular; and (c) the representation concerns the profitability, risk or any other material aspect of any business activity:  (i) that the person invites (whether by advertisement or otherwise) other persons to engage or participate in, or to offer or apply to engage or participate in; and (ii) that requires the performance of work by other persons, or the investment of money by other persons and the performance by them of work associated with the investment. (3)  Subsections (1) and (2) are offences of strict liability.

Penalty An offence against subsection (1) or (2) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) or (2) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000.

Division 4 Pricing 165  Multiple pricing (1)  A person commits an offence if:  (a) the person, in trade or commerce, supplies goods; and (b) the goods have more than one displayed price; and (c) the supply takes place for a price that is not the lower, or lowest, of the displayed prices.

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Penalty:  (a) if the person is a body corporate—​$5,000; or (b) if the person is not a body corporate—​$1,000. (2)  Subsection (1) is an offence of strict liability.

Division 5 Other unfair practices 167  Referral selling (1)  A person commits an offence if:  (a) the person, in trade or commerce, induces a consumer to acquire goods or services by representing that the consumer will, after the contract for the acquisition of the goods or services is made, receive a rebate, commission or other benefit in return for:  (i) giving the person the names of prospective customers; or (ii) otherwise assisting the person to supply goods or services to other consumers; and (b) the receipt of the rebate, commission or other benefit is contingent on an event occurring after that contract is made. (2)  Subsection (1) is an offence of strict liability. Penalty An offence against subsection (1) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000. 168  Harassment and coercion (1)  A person commits an offence if:  (a) the person uses physical force, or undue harassment or coercion; and (b) the physical force, or undue harassment or coercion is used in connection with:  (i) the supply or possible supply of goods or services; or (ii) the payment for goods or services; or (iii) the sale or grant, or the possible sale or grant, of an interest in land; or (iv) the payment for an interest in land. (2)  Subsection (1) is an offence of strict liability.

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Penalty An offence against subsection (1) committed by a body corporate is punishable on conviction by a fine of not more than the greater of the following:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the body corporate committed, or began committing, the offence. An offence against subsection (1) committed by a person other than a body corporate is punishable on conviction by a fine of not more than $500,000. Other (3)  Subsections (1)(b)(iii) and (iv) do not affect the application of any other provision of this Part in relation to the supply or acquisition, or the possible supply or acquisition, of interests in land.

Part 4–​2 Offences relating to consumer transactions Division 1 Consumer guarantees 169  Display notices (1)  A person commits an offence if:  (a) the person makes a supply to a consumer to which:  (i) guarantees apply under Division 1 of Part 3-​2; and (ii) a determination under subsection 66(1) applies; and (b) a notice that meets the requirements of the determination is not, in accordance with the determination:  (i) if the consumer takes delivery of the goods or services at the supplier's premises—​displayed at those premises; or (ii) otherwise—​drawn to the consumer's attention before the consumer agrees to the supply of the goods. Penalty:  (a) if the person is a body corporate—​$50,000; or (b) if the person is not a body corporate—​$10,000. (2)  Subsection (1) is an offence of strict liability.

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Chapter 5 Enforcement and remedies Part 5–​2 Remedies Division 1 Pecuniary penalties 224  Pecuniary penalties (1)  If a court is satisfied that a person:  (a) has contravened any of the following provisions:  (i) a provision of Part 2-​2 (which is about unconscionable conduct); (ii) a provision of Part 3-​1 (which is about unfair practices); (iii) section 66(2) (which is about display notices); (iv) a provision (other than section 85) of Division 2 of Part 3-​2 (which is about unsolicited consumer agreements); (v) a provision (other than section 96(2)) of Division 3 of Part 3-​2 (which is about lay-​by agreements); (vi) section 100(1) or (3) or 101(3) or (4) (which are about proof of transactions and itemised bills); (vii) section 102(2) or 103(2) (which are about prescribed requirements for warranties and repairers); (viii) section 106(1), (2), (3) or (5), 107(1) or (2), 118(1), (2), (3) or (5), 119(1) or (2), 125(4), 127(1) or (2), 128(2) or (6), 131(1) or 132(1) (which are about safety of consumer goods and product related services); (ix) section 136(1), (2) or (3) or 137(1) or (2) (which are about information standards); (x) section 221(1) or 222(1) (which are about substantiation notices); or (b) has attempted to contravene such a provision; or (c) has aided, abetted, counselled or procured a person to contravene such a provision; or (d) has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision; or (e) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or (f) has conspired with others to contravene such a provision; the court may order the person to pay to the Commonwealth, State or Territory, as the case may be, such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the court determines to be appropriate. (2)  In determining the appropriate pecuniary penalty, the court must have regard to all relevant matters including:  (a) the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and (b) the circumstances in which the act or omission took place; and (c) whether the person has previously been found by a court in proceedings under Chapter 4 or this Part to have engaged in any similar conduct. (3)  The pecuniary penalty payable under subsection (1) is not to exceed the amount worked out using the following table: 

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Item

1

2

3

4

5

6

7

8

9

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Amount of pecuniary penalty For each act or omission to which the pecuniary penalty is not to exceed ... this section applies that relates to ... a provision of Part 2-​2 (a) if the person is a body corporate—​the greater of the amounts mentioned in subsection (3A); or (b) if the person is not a body corporate—​$500,000. a provision of Part 3-​1 (other than (a) if the person is a body corporate—​the section 47(1)) greater of the amounts mentioned in subsection (3A); or (b) if the person is not a body corporate—​$500,000. section 47(1) (a) if the person is a body corporate—​ $5,000; or (b) if the person is not a body corporate—​$1,000. section 66(2) (a) if the person is a body corporate—​ $50,000; or (b) if the person is not a body corporate—​$10,000. a provision of Division 2 of Part 3-​2 (a) if the person is a body corporate—​ (other than section 85) $50,000; or (b) if the person is not a body corporate—​$10,000. a provision of Division 3 of Part 3-​2 (a) if the person is a body corporate—​ (other than section 96(2)) $30,000; or (b) if the person is not a body corporate—​$6,000. section 100(1) or (3) or 101(3) or (a) if the person is a body corporate—​ (4) $15,000; or (b) if the person is not a body corporate—​$3,000. section 102(2) or 103(2) (a) if the person is a body corporate—​ $50,000; or (b) if the person is not a body corporate—​$10,000. section 106(1), (2), (3) or (5), (a) if the person is a body corporate—​the 107(1) or (2), 118(1), (2), (3) or (5) greater of the amounts mentioned in or 119(1) or (2) subsection (3A); or (b) if the person is not a body corporate—​$500,000.

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s 224  Extracts from the Australian Consumer Law (Cth)

10

11

12

13

14

15

487

Amount of pecuniary penalty section 125(4) (a) if the person is a body corporate—​ $16,500; or (b) if the person is not a body corporate—​$3,300. section 127(1) or (2) (a) if the person is a body corporate—​the greater of the amounts mentioned in subsection (3A); or (b) if the person is not a body corporate—​$500,000. section 128(2) or (6), 131(1) or (a) if the person is a body corporate—​ 132(1) $16,500; or (b) if the person is not a body corporate—​$3,300. section 136(1), (2) or (3) or 137(1) (a) if the person is a body corporate—​the or (2) greater of the amounts mentioned in subsection (3A); or (b) if the person is not a body corporate—​$500,000. section 221(1) (a) if the person is a body corporate—​ $16,500; or (b) if the person is not a body corporate—​$3,300. section 222(1) (a) if the person is a body corporate—​ $27,500; or (b) if the person is not a body corporate—​$5,500.

(3A)  For the purposes of items 1, 2, 9, 11 and 13 of the table in subsection (3), the amounts are as follows:  (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission—​3 times the value of that benefit; (c) if the court cannot determine the value of that benefit—​10% of the annual turnover of the body corporate during the 12-​month period ending at the end of the month in which the act or omission occurred or started to occur. (4)  If conduct constitutes a contravention of 2 or more provisions referred to in subsection (1)(a):  (a) a proceeding may be instituted under this Schedule against a person in relation to the contravention of any one or more of the provisions; but (b) a person is not liable to more than one pecuniary penalty under this section in respect of the same conduct.

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Division 2 Injunctions 232 Injunctions (1)  A court may grant an injunction, in such terms as the court considers appropriate, if the court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute:  (a) a contravention of a provision of Chapter 2, 3 or 4; or (b) attempting to contravene such a provision; or (c) aiding, abetting, counselling or procuring a person to contravene such a provision; or (d) inducing, or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision; or (e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or (f) conspiring with others to contravene such a provision. (2)  The court may grant the injunction on application by the regulator or any other person. (3)  Subsection (1) applies in relation to conduct constituted by applying or relying on, or purporting to apply or rely on, a term of a contract that has been declared under section 250 to be an unfair term as if the conduct were a contravention of a provision of Chapter 2. (4)  The power of the court to grant an injunction under subsection (1) restraining a person from engaging in conduct may be exercised:  (a) whether or not it appears to the court that the person intends to engage again, or to continue to engage, in conduct of a kind referred to in that subsection; and (b) whether or not the person has previously engaged in conduct of that kind; and (c) whether or not there is an imminent danger of substantial damage to any other person if the person engages in conduct of that kind. (5)  Without limiting subsection (1), the court may grant an injunction under that subsection restraining a person from carrying on a business or supplying goods or services (whether or not as part of, or incidental to, the carrying on of another business):  (a) for a specified period; or (b) except on specified terms and conditions. (6)  Without limiting subsection (1), the court may grant an injunction under that subsection requiring a person to do any of the following:  (a) refund money; (b) transfer property; (c) honour a promise; (d) destroy or dispose of goods. (7)  The power of the court to grant an injunction under subsection (1) requiring a person to do an act or thing may be exercised:  (a) whether or not it appears to the court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing; and (b) whether or not the person has previously refused or failed to do that act or thing; and (c) whether or not there is an imminent danger of substantial damage to any other person if the person refuses or fails to do that act or thing.

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Division 3 Damages 236  Actions for damages (1) If:  (a) a person (the claimant) suffers loss or damage because of the conduct of another person; and (b) the conduct contravened a provision of Chapter 2 or 3; the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention. (2)  An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.

Part 5–​3 Country of origin representations 254 Overview This Part provides that certain country of origin representations made about goods do not contravene:  (a) section 18 (which deals with misleading or deceptive conduct); or (b) section 29(1)(a) or (k) or 151(1)(a) or (k) (which deal with false or misleading representations). 255  Country of origin representations do not contravene certain provisions (1) A person does not contravene section 18, 29(1)(a) or (k) or 151(1)(a) or (k) only by making a representation of a kind referred to in an item in the first column of this table, if the requirements of the corresponding item in the second column are met. Item

1

2

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Country of origin representations Representation Requirements to be met A representation that goods were (a) each significant ingredient or signifgrown in a particular country icant component of the goods was grown in that country; and (b) all, or virtually all, processes involved in the production or manufacture of the goods happened in that country. A representation that goods are the (a) the country was the country of oriproduce of a particular country gin of each significant ingredient or significant component of the goods; and (b) all, or virtually all, processes involved in the production or manufacture of the goods happened in that country.

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3

4

Country of origin representations A representation that goods were (a) the goods were last substantially made or manufactured in, or transformed in that country; and otherwise originate in, a particular (b) the representation is not a repcountry resentation to which item 1 or 2 of this table applies. A representation in the form of a the requirements under the information mark specified in an information standard relating to the use of that mark. standard relating to country of origin labelling of goods (2)  Goods were substantially transformed in a country if: 

(a) the goods met, in relation to that country, the requirements of item 1 or 2 in the second column of the table in subsection (1); or (b) as a result of one or more processes undertaken in that country, the goods are fundamentally different in identity, nature or essential character from all of their ingredients or components that were imported into that country. (3)  Without limiting subsection (2), the regulations:  (a) may prescribe (in relation to particular classes of goods or otherwise) processes or combinations of processes that, for the purposes of that subsection, do not have the result described in subsection (2)(b); and (b) may include examples (in relation to particular classes of goods or otherwise) of processes or combinations of processes that, for the purposes of that subsection, have the result described in subsection (2)(b). (4) [Repealed] (5)  Item 2 of the table in subsection (1) applies to a representation that goods are the produce of a particular country whether the representation uses the words “product of”, “produce of” or any other grammatical variation of the word “produce”. (6) [Repealed] (7)  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; or (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. (8)  For the purposes of item 1 of the table in subsection (1) in relation to particular goods, packaging materials are not treated as ingredients or components of the goods. (9)  For the purposes of item 1 of the table in subsection (1) in relation to an ingredient or component, water added to the ingredient or component is treated as having the same origin as the ingredient or component, regardless of its actual origin, if:  (a) the ingredient or component has been dried or concentrated by the evaporation of water; and (b) the added water returns the water content of the ingredient or component to no more than its natural level.

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s 260  Extracts from the Australian Consumer Law (Cth)

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Part 5–​4 Remedies relating to guarantees Division 1 Action against suppliers Subdivision A Action against suppliers of goods 259  Action against suppliers of goods (1)  A consumer may take action under this section if:  (a) a person (the supplier) supplies, in trade or commerce, goods to the consumer; and (b) a guarantee that applies to the supply under Subdivision A of Division 1 of Part 3-​2 (other than sections 58 and 59(1)) is not complied with. (2)  If the failure to comply with the guarantee can be remedied and is not a major failure:  (a) the consumer may require the supplier to remedy the failure within a reasonable time; or (b) if such a requirement is made of the supplier but the supplier refuses or fails to comply with the requirement, or fails to comply with the requirement within a reasonable time—​the consumer may:  (i) otherwise have the failure remedied and, by action against the supplier, recover all reasonable costs incurred by the consumer in having the failure so remedied; or (ii) subject to section 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection. (3)  If the failure to comply with the guarantee cannot be remedied or is a major failure, the consumer may:  (a) subject to section 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection; or (b) by action against the supplier, recover compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods. (4)  The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure. (5)  Subsection (4) does not apply if the failure to comply with the guarantee occurred only because of a cause independent of human control that occurred after the goods left the control of the supplier. (6)  To avoid doubt, subsection (4) applies in addition to subsections (2) and (3). (7)  The consumer may take action under this section whether or not the goods are in their original packaging.

260  When a failure to comply with a guarantee is a major failure A failure to comply with a guarantee referred to in section 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; or

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(b) the goods depart in one or more significant respects:  (i) if they were supplied by description—​from that description; or (ii) if they were supplied by reference to a sample or demonstration model—​from that sample or demonstration model; or (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; and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or (e) the goods are not of acceptable quality because they are unsafe.

261  How suppliers may remedy a failure to comply with a guarantee If, under section 259(2)(a), a consumer requires a supplier of goods to remedy a failure to comply with a guarantee referred to in section 259(1)(b), the supplier may comply with the requirement:  (a) if the failure relates to title—​by curing any defect in title; or (b) if the failure does not relate to title—​by repairing the goods; or (c) by replacing the goods with goods of an identical type; or (d) by refunding:  (i) any money paid by the consumer for the goods; and (ii) an amount that is equal to the value of any other consideration provided by the consumer for the goods. 262  When consumers are not entitled to reject goods (1)  A consumer is not entitled, under section 259, to notify a supplier of goods that the consumer rejects the goods if:  (a) the rejection period for the goods has ended; or (b) the goods have been lost, destroyed or disposed of by the consumer; or (c) the goods were damaged after being delivered to the consumer for reasons not related to their state or condition at the time of supply; or (d) the goods have been attached to, or incorporated in, any real or personal property and they cannot be detached or isolated without damaging them. (2) The 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 section 259(1)(b) to become apparent having regard to:  (a) the type of goods; and (b) the use to which a consumer is likely to put them; and (c) the length of time for which it is reasonable for them to be used; and

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s 265  Extracts from the Australian Consumer Law (Cth)

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(d) the amount of use to which it is reasonable for them to be put before such a failure becomes apparent. 263  Consequences of rejecting goods (1)  This section applies if, under section 259, a consumer notifies a supplier of goods that the consumer rejects the goods. (2)  The consumer must return the goods to the supplier unless:  (a) the goods have already been returned to, or retrieved by, the supplier; or (b) the goods cannot be returned, removed or transported without significant cost to the consumer because of:  (i) the nature of the failure to comply with the guarantee to which the rejection relates; or (ii) the size or height, or method of attachment, of the goods. (3)  If subsection (2)(b) applies, the supplier must, within a reasonable time, collect the goods at the supplier's expense. (4)  The supplier must, in accordance with an election made by the consumer:  (a) refund:  (i) any money paid by the consumer for the goods; and (ii) an amount that is equal to the value of any other consideration provided by the consumer for the goods; or (b) replace the rejected goods with goods of the same type, and of similar value, if such goods are reasonably available to the supplier. (5)  The supplier cannot satisfy subsection (4)(a) by permitting the consumer to acquire goods from the supplier. (6)  If the property in the rejected goods had passed to the consumer before the rejection was notified, the property in those goods revests in the supplier on the notification of the rejection.

264  Replaced goods If the goods are replaced under section 261(c) or 263(4)(b):  (a) the replacement goods are taken, for the purposes of Division 1 of Part 3-​2 and this Part, to be supplied by the supplier; and (b) the provisions of Division 1 of Part 3-​2 and this Part apply in relation to the replacement goods. 265  Termination of contracts for the supply of services that are connected with rejected goods (1) If:  (a) under section 259, a consumer notifies a supplier of goods that the consumer rejects the goods; and (b) the supplier is required under section 263(4)(a) to give the consumer a refund; and

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(c) a person supplies, in trade or commerce, services to the consumer that are connected with the rejected goods; the consumer may terminate the contract for the supply of the services. (2)  The termination takes effect:  (a) at the time the termination is made known to the supplier of the services (whether by words or by conduct indicating the consumer's intention to terminate the contract); or (b) if it is not reasonably practicable to communicate with the supplier of the services—​at the time the consumer indicates, by means which are reasonable in the circumstances, his or her intention to terminate the contract. (3) The consumer is entitled to recover, by action against the supplier of the services, a refund of:  (a) any money paid by the consumer for the services; and (b) an amount that is equal to the value of any other consideration provided by the consumer for the services; to the extent that the consumer has not already consumed the services at the time the termination takes effect. 266  Rights of gift recipients If a consumer acquires goods from a supplier and gives them to another person as a gift, the other person may, subject to any defence which would be available to the supplier against the consumer:  (a) exercise any rights or remedies under this Subdivision which would be available to the other person if he or she had acquired the goods from the supplier; and (b) any reference in this Subdivision to a consumer includes a reference to the other person accordingly. Subdivision B Action against suppliers of services 267  Action against suppliers of services (1)  A consumer may take action under this section if:  (a) a person (the supplier) supplies, in trade or commerce, services to the consumer; and (b) a guarantee that applies to the supply under Subdivision B of Division 1 of Part 3-​2 is not complied with; and (c) unless the guarantee is the guarantee under section 60—​the failure to comply with the guarantee did not occur only because of:  (i) an act, default or omission of, or a representation made by, any person other than the supplier, or an agent or employee of the supplier; or (ii) a cause independent of human control that occurred after the services were supplied. (2)  If the failure to comply with the guarantee can be remedied and is not a major failure: 

(a) the consumer may require the supplier to remedy the failure within a reasonable time; or

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s 269  Extracts from the Australian Consumer Law (Cth)

495

(b) if such a requirement is made of the supplier but the supplier refuses or fails to comply with the requirement, or fails to comply with the requirement within a reasonable time—​the consumer may:  (i) otherwise have the failure remedied and, by action against the supplier, recover all reasonable costs incurred by the consumer in having the failure so remedied; or (ii) terminate the contract for the supply of the services. (3)  If the failure to comply with the guarantee cannot be remedied or is a major failure, the consumer may:  (a) terminate the contract for the supply of the services; or (b) by action against the supplier, recover compensation for any reduction in the value of the services below the price paid or payable by the consumer for the services. (4)  The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure. (5)  To avoid doubt, subsection (4) applies in addition to subsections (2) and (3).

268  When a failure to comply with a guarantee is a major failure A failure to comply with a guarantee referred to in section 267(1)(b) that applies to a supply of services is a major failure if:  (a) the services would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or (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. 269  Termination of contracts for the supply of services (1)  This section applies if, under section 267, a consumer terminates a contract for the supply of services.

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(2)  The termination takes effect: 

(a) at the time the termination is made known to the supplier of the services (whether by words or by conduct indicating the consumer's intention to terminate the contract); or (b) if it is not reasonably practicable to communicate with the supplier of the services—​at the time the consumer indicates, by means which are reasonable in the circumstances, his or her intention to terminate the contract. (3) The consumer is entitled to recover, by action against the supplier of the services, a refund of:  (a) any money paid by the consumer for the services; and (b) an amount that is equal to the value of any other consideration provided by the consumer for the services; to the extent that the consumer has not already consumed the services at the time the termination takes effect. 270  Termination of contracts for the supply of goods that are connected with terminated services (1) If:  (a) under section 267, a consumer terminates a contract for the supply of services; and (b) a person (the supplier) has supplied, in trade or commerce, goods to the consumer that are connected with the services; then: (c) the consumer is taken to have rejected the goods at the time the termination of the contract takes effect; and (d) the consumer must return the goods to the supplier of the goods unless:  (i) the goods have already been returned to, or retrieved by, the supplier; or (ii) the goods cannot be returned, removed or transported without significant cost to the consumer because of the nature of the failure to comply with the guarantee to which the rejection relates, or because of the size or height, or method of attachment, of the goods; and (e) the supplier must refund:  (i) any money paid by the consumer for the goods; and (ii) an amount that is equal to the value of any other consideration provided by the consumer for the goods. (2) If subsection (1)(d)(ii) applies, the supplier must collect the goods at the supplier's expense.

Division 2 Action for damages against manufacturers of goods 271  Action for damages against manufacturers of goods (1) If:  (a) the guarantee under section 54 applies to a supply of goods to a consumer; and

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s 271  Extracts from the Australian Consumer Law (Cth)

497

(b) the guarantee is not complied with; an affected person in relation to the goods may, by action against the manufacturer of the goods, recover damages from the manufacturer. (2)  Subsection (1) does not apply if the guarantee under section 54 is not complied with only because of:  (a) an act, default or omission of, or any representation made by, any person other than the manufacturer or an employee or agent of the manufacturer; or (b) a cause independent of human control that occurred after the goods left the control of the manufacturer; or (c) the fact that the price charged by the supplier was higher than the manufacturer's recommended retail price, or the average retail price, for the goods. (3) If:  (a) a person supplies, in trade or commerce, goods by description to a consumer; and (b) the description was applied to the goods by or on behalf of the manufacturer of the goods, or with express or implied consent of the manufacturer; and (c) the guarantee under section 56 applies to the supply and it is not complied with; an affected person in relation to the goods may, by action against the manufacturer of the goods, recover damages from the manufacturer. (4)  Subsection (3) does not apply if the guarantee under section 56 is not complied with only because of:  (a) an act, default or omission of any person other than the manufacturer or an employee or agent of the manufacturer; or (b) a cause independent of human control that occurred after the goods left the control of the manufacturer. (5) If:  (a) the guarantee under section 58 or 59(1) applies to a supply of goods to a consumer; and (b) the guarantee is not complied with; an affected person in relation to the goods may, by action against the manufacturer of the goods, recover damages from the manufacturer. (6)  If an affected person in relation to goods has, in accordance with an express warranty given or made by the manufacturer of the goods, required the manufacturer to remedy a failure to comply with a guarantee referred to in subsection (1), (3) or (5):  (a) by repairing the goods; or (b) by replacing the goods with goods of an identical type; then, despite that subsection, the affected person is not entitled to commence an action under that subsection to recover damages of a kind referred to in section 272(1)(a) unless the manufacturer has refused or failed to remedy the failure, or has failed to remedy the failure within a reasonable time. (7)  The affected person in relation to the goods may commence an action under this section whether or not the goods are in their original packaging.

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272  Damages that may be recovered by action against manufacturers of goods (1)  In an action for damages under this Division, an affected person in relation to goods is entitled to recover damages for:  (a) any reduction in the value of the goods, resulting from the failure to comply with the guarantee to which the action relates, below whichever of the following prices is lower:  (i) the price paid or payable by the consumer for the goods; (ii) the average retail price of the goods at the time of supply; and (b) any loss or damage suffered by the affected person because of the failure to comply with the guarantee to which the action relates if it was reasonably foreseeable that the affected person would suffer such loss or damage as a result of such a failure. (2)  Without limiting subsection (1)(b), the cost of inspecting and returning the goods to the manufacturer is taken to be a reasonably foreseeable loss suffered by the affected person as a result of the failure to comply with the guarantee. (3)  Subsection (1)(b) does not apply to loss or damage suffered through a reduction in the value of the goods. 273  Time limit for actions against manufacturers of goods An affected person may commence an action for damages under this Division at any time within 3 years after the day on which the affected person first became aware, or ought reasonably to have become aware, that the guarantee to which the action relates has not been complied with.

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Appendix 2

Extracts from the Corporations Act 2001 (Cth)

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Chapter 2B Basic features of a company Part 2B.1 Company powers and how they are exercised 124  Legal capacity and powers of a company (1)  A company has the legal capacity and powers of an individual both in and outside this jurisdiction. A company also has all the powers of a body corporate, including the power to:  (a) issue and cancel shares in the company; (b) issue debentures (despite any rule of law or equity to the contrary, this power includes a power to issue debentures that are irredeemable, redeemable only if a contingency, however remote, occurs, or redeemable only at the end of a period, however long); (c) grant options over unissued shares in the company; (d) distribute any of the company’s property among the members, in kind or otherwise; (e) grant a security interest in uncalled capital; (f) grant a circulating security interest over the company’s property; (g) arrange for the company to be registered or recognised as a body corporate in any place outside this jurisdiction; (h) do anything that it is authorised to do by any other law (including a law of a foreign country). A company limited by guarantee does not have the power to issue shares. Note: For a company’s power to issue bonus, partly-​paid, preference and redeemable preference shares, see section 254A.

(2)  A company’s legal capacity to do something is not affected by the fact that the company’s interests are not, or would not be, served by doing it. (3)  For the avoidance of doubt, this section does not:  (a) authorise a company to do an act that is prohibited by a law of a State or Territory; or (b) give a company a right that a law of a State or Territory denies to the company. 125  Constitution may limit powers and set out objects (1)  If a company has a constitution, it may contain an express restriction on, or a prohibition of, the company’s exercise of any of its powers. The exercise of a power by the company is not invalid merely because it is contrary to an express restriction or prohibition in the company’s constitution. (2)  If a company has a constitution, it may set out the company’s objects. An act of the company is not invalid merely because it is contrary to or beyond any objects in the company’s constitution. 126  Agent exercising a company’s power to make contracts (1)  A company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company. The power may be exercised without using a common seal. (2)  This section does not affect the operation of a law that requires a particular procedure to be complied with in relation to the contract.

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s 129  Extracts from the Corporations Act 2001 (Cth)

501

127  Execution of documents (including deeds) by the company itself (1)  A company may execute a document without using a common seal if the document is signed by:  (a) 2 directors of the company; or (b) a director and a company secretary of the company; or (c) for a proprietary company that has a sole director who is also the sole company secretary—​that director. Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(5) for dealings in relation to the company.

(2)  A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:  (a) 2 directors of the company; or (b) a director and a company secretary of the company; or (c) for a proprietary company that has a sole director who is also the sole company secretary—​that director. Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(6) for dealings in relation to the company.

(3)  A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2). (4) This section does not limit the ways in which a company may execute a document (including a deed).

Part 2B.2 Assumptions people dealing with companies are entitled to make 128  Entitlement to make assumptions (1)  A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect. (2)  A person is entitled to make the assumptions in section 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect. (3)  The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings. (4)  A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect. 129  Assumptions that can be made under section 128 Constitution and replaceable rules complied with (1)  A person may assume that the company’s constitution (if any), and any provisions of this Act that apply to the company as replaceable rules, have been complied with.

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Director or company secretary (2)  A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:  (a) has been duly appointed; and (b) has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company. Officer or agent (3)  A person may assume that anyone who is held out by the company to be an officer or agent of the company:  (a) has been duly appointed; and (b) has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company. Proper performance of duties (4)  A person may assume that the officers and agents of the company properly perform their duties to the company. Document duly executed without seal (5)  A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices. Document duly executed with seal (6)  A person may assume that a document has been duly executed by the company if:  (a) the company’s common seal appears to have been fixed to the document in accordance with subsection 127(2); and (b) the fixing of the common seal appears to have been witnessed in accordance with that subsection. For the purposes of making the assumption, a person may also assume that anyone who witnesses the fixing of the common seal and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices. Officer or agent with authority to warrant that document is genuine or true copy (7)  A person may assume that an officer or agent of the company who has authority to issue a document or a certified copy of a document on its behalf also has authority to warrant that the document is genuine or is a true copy. (8)  Without limiting the generality of this section, the assumptions that may be made under this section apply for the purposes of this section.

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s 135  Extracts from the Corporations Act 2001 (Cth)

503

Part 2B.4 Replaceable rules and constitution 134  Internal management of companies A company’s internal management may be governed by provisions of this Act that apply to the company as replaceable rules, by a constitution or by a combination of both. Note: There are additional rules about internal management in ordinary provisions of this Act and also in the common law.

135  Replaceable rules Companies to which replaceable rules apply (1)  A section or subsection (except subsection 129(1), this section and sections 140 and 141) whose heading contains the words:  (a) replaceable rule—​applies as a replaceable rule to:  (i) each company that is or was registered after 1 July 1998; and (ii) any company registered before 1 July 1998 that repeals or repealed its constitution after that day; and (b) replaceable rule for proprietary companies and mandatory rule for public companies—​applies:  (i) as a replaceable rule to any proprietary company that is or was registered after 1 July 1998; and (ii) as a replaceable rule to any company that is or eas registered after 1 July 1998 and that changes or changed to a proprietary company (but only while it is a proprietary company); and (iii) as a replaceable rule to any proprietary company that is or was registered before 1 July 1998 that repeals or repealed its constitution after that day; and (iv) as an ordinary provision of this Act to any public company whenever registered. The section or subsection does not apply to a proprietary company while the same person is both its sole director and sole shareholder. Note 1: See sections 198E, 201F and 202C for the special provisions that apply to a proprietary company while the same person is both its sole director and sole shareholder. Note 2: A company may include in its constitution (by reference or otherwise) a replaceable rule that does not otherwise apply to it.

Company’s constitution can displace or modify replaceable rules (2)  A provision of a section or subsection that applies to a company as a replaceable rule can be displaced or modified by the company’s constitution. Failure to comply with replaceable rules (3)  A failure to comply with the replaceable rules as they apply to a company is not of itself a contravention of this Act (so the provisions about criminal liability, civil liability and injunctions do not apply). Note: Replaceable rules that apply to a company have effect as a contract (see section 140).

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136  Constitution of a company (1)  A company adopts a constitution:  (a) on registration—​if each person specified in the application for the company’s registration as a person who consents to become a member agrees in writing to the terms of a constitution before the application is lodged; or (b) after registration—​if the company passes a special resolution adopting a constitution or a court order is made under section 233 that requires the company to adopt the constitution. Note: The Life Insurance Act 1995 has rules about how benefit fund rules become part of a company’s constitution and about amending those rules. They override this Act (see section 1348 of this Act). Consequential amendments to the rest of the company’s constitution can be made under that Act or this Act (see Subdivision 2 of Division 4 of Part 2A of that Act).

(2)  The company may modify or repeal its constitution, or a provision of its constitution, by special resolution. Note: The company may need leave of the Court to modify or repeal its constitution if it was adopted as the result of a Court order (see subsection 233(3)).

(3)  The company’s constitution may provide that the special resolution does not have any effect unless a further requirement specified in the constitution relating to that modification or repeal has been complied with. (4)  Unless the constitution provides otherwise, the company may modify or repeal a further requirement described in subsection (3) only if the further requirement is itself complied with. (5)  A public company must lodge with ASIC a copy of a special resolution adopting, modifying or repealing its constitution within 14 days after it is passed. The company must also lodge with ASIC within that period:  (a) if the company adopts a constitution—​a copy of that constitution; or (b) if the company modifies its constitution—​a copy of that modification. This also applies to a proprietary company that has applied under Part 2B.7 to change to a public company, while its application has not yet been determined. (6)  An offence based on subsection (5) is an offence of strict liability. Note: For strict liability, see section 6.1 of the Criminal Code.

Part 2B.5 Registered office and places of business 142  Registered office (1)  A company must have a registered office in this jurisdiction. Communications and notices to the company may be addressed to its registered office. Note 1: A document may be served on a company by leaving it at, or posting it to, the company’s registered office (see subsection 109X(1)). Note 2: Communications and notices from ASIC may also be addressed to the company’s contact address (see section 146A).

(2)  A company must lodge notice of a change of address of its registered office with ASIC not later than 28 days after the date on which the change occurs. The notice must be in the prescribed form.

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s 142  Extracts from the Corporations Act 2001 (Cth)

505

Note: If the company is not to be the occupier of premises at the address of its new registered office, the notice must state that the occupier has consented to the address being specified in the notice and has not withdrawn that consent (see section 100).

(2A)  An offence based on subsection (1) or (2) is an offence of strict liability. Note: For strict liability, see section 6.1 of the Criminal Code.

(3)  A notice of change of address takes effect from the later of:  (a) the seventh day after the notice was lodged; or (b) a later day specified in the notice as the date from which the change is to take effect.

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Chapter 2D Officers and employees Part 2D.1 Duties and powers Division 1 General duties 180  Care and diligence—​civil obligation only Care and diligence—​directors and other officers (1)  director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:  (a) were a director or officer of a corporation in the corporation’s circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. Note: This subsection is a civil penalty provision (see section 1317E).

Business judgment rule (2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:  (a) make the judgment in good faith for a proper purpose; and (b) do not have a material personal interest in the subject matter of the judgment; and (c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and (d) rationally believe that the judgment is in the best interests of the corporation. The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. Note: This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)—​it does not operate in relation to duties under any other provision of this Act or under any other laws.

(3)  In this section: business judgment means any decision to take or not take action in respect

of a matter relevant to the business operations of the corporation.

181  Good faith—​civil obligations Good faith—​directors and other officers (1)  A director or other officer of a corporation must exercise their powers and discharge their duties:  (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. Note 1: This subsection is a civil penalty provision (see section 1317E). Note 2: Section 187 deals with the situation of directors of wholly-​owned subsidiaries.

(2)  A person who is involved in a contravention of subsection (1) contravenes this subsection. Note 1: Section 79 defines involved. Note 2: This subsection is a civil penalty provision (see section 1317E).

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s 184  Extracts from the Corporations Act 2001 (Cth)

507

182  Use of position—​civil obligations Use of position—​directors, other officers and employees (1)  A director, secretary, other officer or employee of a corporation must not improperly use their position to:  (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. Note: This subsection is a civil penalty provision (see section 1317E).

(2)  A person who is involved in a contravention of subsection (1) contravenes this subsection. Note 1: Section 79 defines involved. Note 2: This subsection is a civil penalty provision (see section 1317E).

183  Use of information—​civil obligations Use of information—​directors, other officers and employees (1) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:  (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. Note 1: This duty continues after the person stops being an officer or employee of the corporation. Note 2: This subsection is a civil penalty provision (see section 1317E).

(2)  A person who is involved in a contravention of subsection (1) contravenes this subsection. Note 1: Section 79 defines involved. Note 2: This subsection is a civil penalty provision (see section 1317E).

184  Good faith, use of position and use of information—​criminal offences Good faith—​directors and other officers (1)  A director or other officer of a corporation commits an offence if they:  (a) are reckless; or (b) are intentionally dishonest; and fail to exercise their powers and discharge their duties:  (c) in good faith in the best interests of the corporation; or (d) for a proper purpose. Note: Section 187 deals with the situation of directors of wholly-​owned subsidiaries.

Use of position—​directors, other officers and employees (2)  A director, other officer or employee of a corporation commits an offence if they use their position dishonestly:  (a) with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or (b) recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.

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Use of information—​directors, other officers and employees (3) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation commits an offence if they use the information dishonestly:  (a) with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or (b) recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.

Division 2 Disclosure of, and voting on matters involving, material personal interests 191  Material personal interest—​director’s duty to disclose Director’s duty to notify other directors of material personal interest when conflict arises (1)  A director of a company who has a material personal interest in a matter that relates to the affairs of the company must give the other directors notice of the interest unless subsection (2) says otherwise. (1A)  For an offence based on subsection (1), strict liability applies to the circumstance, that the director of a company has a material personal interest in a matter that relates to the affairs of the company. Note: For strict liability, see section 6.1 of the Criminal Code.

(2)  The director does not need to give notice of an interest under subsection (1) if: 



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(a) the interest:  (i) arises because the director is a member of the company and is held in common with the other members of the company; or (ii) arises in relation to the director’s remuneration as a director of the company; or (iii) relates to a contract the company is proposing to enter into that is subject to approval by the members and will not impose any obligation on the company if it is not approved by the members; or (iv) arises merely because the director is a guarantor or has given an indemnity or security for all or part of a loan (or proposed loan) to the company; or (v) arises merely because the director has a right of subrogation in relation to a guarantee or indemnity referred to in subparagraph (iv); or (vi) relates to a contract that insures, or would insure, the director against liabilities the director incurs as an officer of the company (but only if the contract does not make the company or a related body corporate the insurer); or (vii) relates to any payment by the company or a related body corporate in respect of an indemnity permitted under section 199A or any contract relating to such an indemnity; or (viii) is in a contract, or proposed contract, with, or for the benefit of, or on behalf of, a related body corporate and arises merely because the director is a director of the related body corporate; or (b) the company is a proprietary company and the other directors are aware of the nature and extent of the interest and its relation to the affairs of the company; or

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s 195  Extracts from the Corporations Act 2001 (Cth)

509

(c) all the following conditions are satisfied:  (i) the director has already given notice of the nature and extent of the interest and its relation to the affairs of the company under subsection (1); (ii) if a person who was not a director of the company at the time when the notice under subsection (1) was given is appointed as a director of the company—​the notice is given to that person; (iii) the nature or extent of the interest has not materially increased above that disclosed in the notice; or (d) the director has given a standing notice of the nature and extent of the interest under section 192 and the notice is still effective in relation to the interest.

Note: Subparagraph (c)(ii)—​the notice may be given to the person referred to in this subparagraph by someone other than the director to whose interests it relates (for example, by the secretary).

(3)  The notice required by subsection (1) must: 

(a) give details of:  (i) the nature and extent of the interest; and (ii) the relation of the interest to the affairs of the company; and (b) be given at a directors’ meeting as soon as practicable after the director becomes aware of their interest in the matter. The details must be recorded in the minutes of the meeting. Effect of contravention by director (4)  A contravention of this section by a director does not affect the validity of any act, transaction, agreement, instrument, resolution or other thing. Section does not apply to single director proprietary company (5)  This section does not apply to a proprietary company that has only 1 director. 195  Restrictions on voting—​directors of public companies only Restrictions on voting and being present (1)  A director of a public company who has a material personal interest in a matter that is being considered at a directors’ meeting must not:  (a) be present while the matter is being considered at the meeting; or (b) vote on the matter. (1A)  Subsection (1) does not apply if:  (a) subsection (2) or (3) allows the director to be present; or (b) the interest does not need to be disclosed under section 191. Note: A defendant bears an evidential burden in relation to the matter in subsection (1A), see subsection 13.3(3) of the Criminal Code.

(1B)  An offence based on subsection (1) is an offence of strict liability. Note: For strict liability, see section 6.1 of the Criminal Code.

Participation with approval of other directors (2)  The director may be present and vote if directors who do not have a material personal interest in the matter have passed a resolution that:  (a) identifies the director, the nature and extent of the director’s interest in the matter and its relation to the affairs of the company; and

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(b) states that those directors are satisfied that the interest should not disqualify the director from voting or being present. Participation with ASIC approval (3)  The director may be present and vote if they are so entitled under a declaration or order made by ASIC under section 196. Director may consider or vote on resolution to deal with matter at general meeting (4)  If there are not enough directors to form a quorum for a directors’ meeting because of subsection (1), 1 or more of the directors (including those who have a material personal interest in that matter) may call a general meeting and the general meeting may pass a resolution to deal with the matter. Effect of contravention by director (5)  A contravention by a director of:  (a) this section; or (b) a condition attached to a declaration or order made by ASIC under section 196; does not affect the validity of any resolution.

Division 4 Powers 198A  Powers of directors (replaceable rule—​see section 135) (1)  The business of a company is to be managed by or under the direction of the directors. Note: See section 198E for special rules about the powers of directors who are the single director/​shareholder of proprietary companies.

(2)  The directors may exercise all the powers of the company except any powers that this Act or the company’s constitution (if any) requires the company to exercise in general meeting. Note: For example, the directors may issue shares, borrow money and issue debentures.

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s 201E  Extracts from the Corporations Act 2001 (Cth)

511

Part 2D.3 Appointment, remuneration and cessation of appointment of directors Division 1 Appointment of directors Subdivision A General rules 201A  Minimum number of directors Proprietary companies (1)  A proprietary company must have at least 1 director. That director must ordinarily reside in Australia. Public companies (2)  A public company must have at least 3 directors (not counting alternate directors). At least 2 directors must ordinarily reside in Australia. 201B  Who can be a director (1)  Only an individual who is at least 18 may be appointed as a director of a company. (2)  A person who is disqualified from managing corporations under Part 2D.6 may only be appointed as director of a company if the appointment is made with permission granted by ASIC under section 206F or leave granted by the Court under section 206G. 201C  Directors of public companies, or subsidiaries, over 72 [Repealed] 201D  Consent to act as director (1)  A company contravenes this subsection if a person does not give the company a signed consent to act as a director of the company before being appointed. (2)  The company must keep the consent. (3)  An offence based on subsection (1) or (2) is an offence of strict liability. 201E  Special rules for the appointment of public company directors (1)  A resolution passed at a general meeting of a public company appointing or confirming the appointment of 2 or more directors is void unless:  (a) the meeting has resolved that the appointments or confirmations may be voted on together; and (b) no votes were cast against the resolution. (2)  This section does not affect:  (a) a resolution to appoint directors by an amendment to the company’s constitution (if any); or (b) a ballot or poll to elect 2 or more directors if the ballot or poll does not require members voting for 1 candidate to vote for another candidate. (3)  For the purposes of paragraph (2)(b), a ballot or poll does not require a member to vote for a candidate merely because the member is required to express a preference among individual candidates in order to cast a valid vote.

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201F  Special rules for the appointment of directors for single director/​single shareholder proprietary companies (1)  The director of a proprietary company who is its only director and only shareholder may appoint another director by recording the appointment and signing the record. Appointment of new director on death, mental incapacity or bankruptcy (2)  If a person who is the only director and the only shareholder of a proprietary company:  (a) dies; or (b) cannot manage the company because of the person’s mental incapacity; and a personal representative or trustee is appointed to administer the person’s estate or property, the personal representative or trustee may appoint a person as the director of the company. (3)  If:  (a) the office of the director of a proprietary company is vacated under subsection 206B(3) or (4) because of the bankruptcy of the director; and (b) the person is the only director and the only shareholder of the company; and (c) a trustee in bankruptcy is appointed to the person’s property; the trustee may appoint a person as the director of the company. (4)  A person who has a power of appointment under subsection (2) or (3) may appoint themselves as director. (5)  A person appointed as a director of a company under subsection (2), (3) or (4) holds office as if they had been appointed in the usual way. [Cross-​reference: Corps Regs: reg 1.0.11 requires certain documents to which s 201F applies to be signed by a personal representative or trustee.]

201G  Company may appoint a director (replaceable rule—​see section 135) A company may appoint a person as a director by resolution passed in general meeting. 201H  Directors may appoint other directors (replaceable rule—​see section 135) Appointment by other directors (1)  The directors of a company may appoint a person as a director. A person can be appointed as a director in order to make up a quorum for a directors’ meeting even if the total number of directors of the company is not enough to make up that quorum. Proprietary company—​confirmation by meeting within 2 months (2)  If a person is appointed under this section as a director of a proprietary company, the company must confirm the appointment by resolution within 2 months after the appointment is made. If the appointment is not confirmed, the person ceases to be a director of the company at the end of those 2 months. Public company—​confirmation by next AGM (3)  If a person is appointed by the other directors as a director of a public company, the company must confirm the appointment by resolution at the company’s next AGM. If the appointment is not confirmed, the person ceases to be a director of the company at the end of the AGM.

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201J  Appointment of managing directors (replaceable rule—​see section 135) The directors of a company may appoint 1 or more of themselves to the office of managing director of the company for the period, and on the terms (including as to remuneration), as the directors see fit. 201K  Alternate directors (replaceable rule—​see section 135) (1)  With the other directors’ approval, a director may appoint an alternate to exercise some or all of the director’s powers for a specified period. (2)  If the appointing director requests the company to give the alternate notice of directors’ meetings, the company must do so. (3)  When an alternate exercises the director’s powers, the exercise of the powers is just as effective as if the powers were exercised by the director. (4)  The appointing director may terminate the alternate’s appointment at any time. (5)  An appointment or its termination must be in writing. A copy must be given to the company. Note: ASIC must be given notice of the appointment and termination of appointment of an alternate (see subsections 205B(2) and (5)).

201L  Signpost—​ASIC to be notified of appointment Under section 205B, a company must notify ASIC within 28 days if a person is appointed as a director or as an alternate director. 201M  Effectiveness of acts by directors (1)  An act done by a director is effective even if their appointment, or the continuance of their appointment, is invalid because the company or director did not comply with the company’s constitution (if any) or any provision of this Act. (2)  Subsection (1) does not deal with the question whether an effective act by a director:  (a) binds the company in its dealings with other people; or (b) makes the company liable to another person. Note: The kinds of acts that this section validates are those that are only legally effective if the person doing them is a director (for example, calling a meeting of the company’s members or signing a document to be lodged with ASIC or minutes of a meeting). Sections 128–​130 contain rules about the assumptions people are entitled to make when dealing with a company and its officers.

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Chapter 5 External administration Part 5.7B Recovering property or compensation for the benefit of creditors of insolvent company Division 3 Director’s duty to prevent insolvent trading 588G  Director’s duty to prevent insolvent trading by company (1)  This section applies if:  (a) a person is a director of a company at the time when the company incurs a debt; and (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and (c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and (d) that time is at or after the commencement of this Act. (2)  By failing to prevent the company from incurring the debt, the person contravenes this section if:  (a) the person is aware at that time that there are such grounds for so suspecting; or (b) a reasonable person in a like position in a company in the company’s circumstances would be so aware. Note: This subsection is a civil penalty provision (see subsection 1317E(1)).

(3)  A person commits an offence if:  (a) a company incurs a debt at a particular time; and (aa) at that time, a person is a director of the company; and (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and (c) the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and (d) the person’s failure to prevent the company incurring the debt was dishonest. (3A)  For the purposes of an offence based on subsection (3), absolute liability applies to paragraph (3)(a). Note: For absolute liability, see section 6.2 of the Criminal Code.

(3B)  For the purposes of an offence based on subsection (3), strict liability applies to paragraphs (3)(aa) and (b). Note: For strict liability, see section 6.1 of the Criminal Code.

588GA  Safe harbour—​taking course of action reasonably likely to lead to a better outcome for the company

Safe harbour (1)  Subsection 588G(2) does not apply in relation to a person and a debt if:  (a) at a particular time after the person starts to suspect the company may become or be insolvent, the person starts developing one or more courses of action that are reasonably likely to lead to a better outcome for the company; and

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s 588GA  Extracts from the Corporations Act 2001 (Cth)



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(b) the debt is incurred directly or indirectly in connection with any such course of action during the period starting at that time, and ending at the earliest of any of the following times:  (i) if the person fails to take any such course of action within a reasonable period after that time—​the end of that reasonable period; (ii) when the person ceases to take any such course of action; (iii) when any such course of action ceases to be reasonably likely to lead to a better outcome for the company; (iv) the appointment of an administrator, or liquidator, of the company.

Note 1: The person bears an evidential burden in relation to the matter in this subsection (see subsection (3)). Note 2: For subsection (1) to be available, certain matters must be being done or be done (see subsections (4) and (5)).

Working out whether a course of action is reasonably likely to lead to a better outcome (2)  For the purposes of (but without limiting) subsection (1), in working out whether a course of action is reasonably likely to lead to a better outcome for the company, regard may be had to whether the person:  (a) is properly informing himself or herself of the company’s financial position; or (b) is taking appropriate steps to prevent any misconduct by officers or employees of the company that could adversely affect the company’s ability to pay all its debts; or (c) is taking appropriate steps to ensure that the company is keeping appropriate financial records consistent with the size and nature of the company; or (d) is obtaining advice from an appropriately qualified entity who was given sufficient information to give appropriate advice; or (e) is developing or implementing a plan for restructuring the company to improve its financial position. (3)  A person who wishes to rely on subsection (1) in a proceeding for, or relating to, a contravention of subsection 588G(2) bears an evidential burden in relation to that matter. Matters that must be being done or be done (4)  Subsection (1) does not apply in relation to a person and a debt if:  (a) when the debt is incurred, the company is failing to do one or more of the following matters:  (i) pay the entitlements of its employees by the time they fall due; (ii) give returns, notices, statements, applications or other documents as required by taxation laws (within the meaning of the Income Tax Assessment Act 1997); and (b) that failure:  (i) amounts to less than substantial compliance with the matter concerned; or (ii) is one of 2 or more failures by the company to do any or all of those matters during the 12 month period ending when the debt is incurred; unless an order applying to the person and that failure is in force under subsection (6). Note: Employee entitlements are defined in subsection 596AA(2) and include superannuation contributions payable by the company.

(5)  Subsection (1) is taken never to have applied in relation to a person and a debt if: 

(a) after the debt is incurred, the person fails to comply with paragraph 429(2)(b), or subsection 475(1), 497(4) or 530A(1), in relation to the company; and

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(b) that failure amounts to less than substantial compliance with the provision concerned; unless an order applying to the person and that failure is in force under subsection (6). (6)  The Court may order that subsection (4) or (5) does not apply to a person and one or more failures if:  (a) the Court is satisfied that the failures were due to exceptional circumstances or that it is otherwise in the interests of justice to make the order; and (b) an application for the order is made by the person. Definitions (7)  In this section: better outcome, for the company, means an outcome that is better for the company than the immediate appointment of an administrator, or liquidator, of the company. 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. 588H  Defences about reasonable grounds, illness or reasonable steps (1)  This section has effect for the purposes of proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt (including proceedings under section 588M in relation to the incurring of the debt). (2)  It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time. (3)  Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person:  (a) had reasonable grounds to believe, and did believe:  (i) that a competent and reliable person (the other person) was responsible for providing to the first-​mentioned person adequate information about whether the company was solvent; and (ii) that the other person was fulfilling that responsibility; and (b) expected, on the basis of information provided to the first-​mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time. (4)  If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company. (5)  It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt. (6)  In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to:  (a) any action the person took with a view to appointing an administrator of the company; and (b) when that action was taken; and (c) the results of that action.

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s 588L  Extracts from the Corporations Act 2001 (Cth)

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Division 4 Director liable to compensate company Subdivision A Proceedings against director 588J  On application for civil penalty order, Court may order compensation (1)  Where, on an application for a civil penalty order against a person in relation to a contravention of subsection 588G(2), the Court is satisfied that:  (a) the person committed the contravention in relation to the incurring of a debt by a company; and (b) the debt is wholly or partly unsecured; and (c) the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; the Court may (whether or not it makes a pecuniary penalty order under section 1317G or an order under section 206C disqualifying a person from managing corporations) order the first-​ mentioned person to pay to the company compensation equal to the amount of that loss or damage. (2)  A company’s liquidator may intervene in an application for a civil penalty order against a person in relation to a contravention of subsection 588G(2). (3)  A company’s liquidator who so intervenes is entitled to be heard:  (a) only if the Court is satisfied that the person committed the contravention in relation to the incurring of a debt by that company; and (b) only on the question whether the Court should order the person to pay compensation to the company. 588K  Criminal court may order compensation If:  (a) a court finds a person guilty of an offence under subsection 588G(3) in relation to the incurring of a debt by a company; and (b) the court is satisfied that:  (i) the debt is wholly or partly unsecured; and (ii) the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; the court may (whether or not it imposes a penalty) order the first-​mentioned person to pay to the company compensation equal to the amount of that loss or damage. Note: Section 73A defines when a court is taken to find a person guilty of an offence.

588L  Enforcement of order under section 588J or 588K An order to pay compensation that a court makes under section 588J or 588K may be enforced as if it were a judgment of the court.

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588M  Recovery of compensation for loss resulting from insolvent trading (1)  This section applies where:  (a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and (b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and (c) the debt was wholly or partly unsecured when the loss or damage was suffered; and (d) the company is being wound up; whether or not:  (e) the director has been convicted of an offence in relation to the contravention; or (f) a civil penalty order has been made against the director in relation to the contravention. (2)  The company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage. (3)  The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage. (4)  Proceedings under this section may only be begun within 6 years after the beginning of the winding up. Subdivision B Proceedings by creditor 588R  Creditor may sue for compensation with liquidator’s consent (1)  A creditor of a company that is being wound up may, with the written consent of the company’s liquidator, begin proceedings under section 588M in relation to the incurring by the company of a debt that is owed to the creditor. (2)  Subsection (1) has effect despite section 588T, but subject to section 588U.

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Appendix 3

Extracts from the Civil Liability Act 2002 (NSW)

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Part 1—​A Negligence Division 1 Preliminary 5 Definitions In this Part: harm means harm of any kind, including the following:  (a) personal injury or death, (b) damage to property, (c) economic loss. negligence means failure to exercise reasonable care and skill. personal injury includes:  (a) pre-​natal injury, and (b) impairment of a person's physical or mental condition, and (c) disease. 5A  Application of Part 1  This Part applies to any claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise. 2  This Part does not apply to civil liability that is excluded from the operation of this Part by section 3B.

Division 2 Duty of care 5B  General principles 1  A person is not negligent in failing to take precautions against a risk of harm unless:  (a) the risk was foreseeable (that is, it is a risk of which the person knew or ought to have known), and (b) the risk was not insignificant, and (c) in the circumstances, a reasonable person in the person's position would have taken those precautions. 2  In determining whether a reasonable person would have taken precautions against a risk of harm, the court is to consider the following (amongst other relevant things):  (a) the probability that the harm would occur if care were not taken, (b) the likely seriousness of the harm, (c) the burden of taking precautions to avoid the risk of harm, (d) the social utility of the activity that creates the risk of harm.

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5C  Other principles In proceedings relating to liability for negligence:  (a) the burden of taking precautions to avoid a risk of harm includes the burden of taking precautions to avoid similar risks of harm for which the person may be responsible, and (b) the fact that a risk of harm could have been avoided by doing something in a different way does not of itself give rise to or affect liability for the way in which the thing was done, and (c) the subsequent taking of action that would (had the action been taken earlier) have avoided a risk of harm does not of itself give rise to or affect liability in respect of the risk and does not of itself constitute an admission of liability in connection with the risk.

Division 3 Causation 5D  General principles 1  A determination that negligence caused particular harm comprises the following elements:  (a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and (b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability). 2  In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party. 3  If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent:  (a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and (b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest. 4  For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party. 5E  Onus of proof In proceedings relating to liability for negligence, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevant to the issue of causation.

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Division 4 Assumption of risk 5F  Meaning of “obvious risk” 1  For the purposes of this Division, an obvious risk to a person who suffers harm is a risk that, in the circumstances, would have been obvious to a reasonable person in the position of that person. 2  Obvious risks include risks that are patent or a matter of common knowledge. 3  A risk of something occurring can be an obvious risk even though it has a low probability of occurring. 4  A risk can be an obvious risk even if the risk (or a condition or circumstance that gives rise to the risk) is not prominent, conspicuous or physically observable. 5G  Injured persons presumed to be aware of obvious risks 1  In proceedings relating to liability for negligence, a person who suffers harm is presumed to have been aware of the risk of harm if it was an obvious risk, unless the person proves on the balance of probabilities that he or she was not aware of the risk. 2  For the purposes of this section, a person is aware of a risk if the person is aware of the type or kind of risk, even if the person is not aware of the precise nature, extent or manner of occurrence of the risk. 5H  No proactive duty to warn of obvious risk 1  A person (the defendant) does not owe a duty of care to another person (the plaintiff) to warn of an obvious risk to the plaintiff. 2  This section does not apply if:  (a) the plaintiff has requested advice or information about the risk from the defendant, or (b) the defendant is required by a written law to warn the plaintiff of the risk, or (c) the defendant is a professional and the risk is a risk of the death of or personal injury to the plaintiff from the provision of a professional service by the defendant. 3  Subsection (2) does not give rise to a presumption of a duty to warn of a risk in the circumstances referred to in that subsection. 5I  No liability for materialisation of inherent risk 1  A person is not liable in negligence for harm suffered by another person as a result of the materialisation of an inherent risk. 2 An inherent risk is a risk of something occurring that cannot be avoided by the exercise of reasonable care and skill. 3  This section does not operate to exclude liability in connection with a duty to warn of a risk.

Division 5 Recreational activities 5J  Application of Division 1  This Division applies only in respect of liability in negligence for harm to a person (the plaintiff) resulting from a recreational activity engaged in by the plaintiff. 2  This Division does not limit the operation of Division 4 in respect of a recreational activity.

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5K Definitions In this Division: dangerous recreational activity means a recreational activity that involves a significant risk of physical harm. obvious risk has the same meaning as it has in Division 4. recreational activity includes:  (a) any sport (whether or not the sport is an organised activity), and (b) any pursuit or activity engaged in for enjoyment, relaxation or leisure, and (c) any pursuit or activity engaged in at a place (such as a beach, park or other public open space) where people ordinarily engage in sport or in any pursuit or activity for enjoyment, relaxation or leisure. 5L  No liability for harm suffered from obvious risks of dangerous recreational activities 1  A person (the defendant) is not liable in negligence for harm suffered by another person (the plaintiff) as a result of the materialisation of an obvious risk of a dangerous recreational activity engaged in by the plaintiff. 2  This section applies whether or not the plaintiff was aware of the risk. 5M  No duty of care for recreational activity where risk warning 1  A person (the defendant) does not owe a duty of care to another person who engages in a recreational activity (the plaintiff) to take care in respect of a risk of the activity if the risk was the subject of a risk warning to the plaintiff. 2  If the person who suffers harm is an incapable person, the defendant may rely on a risk warning only if:  (a) the incapable person was under the control of or accompanied by another person (who is not an incapable person and not the defendant) and the risk was the subject of a risk warning to that other person, or (b) the risk was the subject of a risk warning to a parent of the incapable person (whether or not the incapable person was under the control of or accompanied by the parent). 3  For the purposes of subsections (1) and (2), a risk warning to a person in relation to a recreational activity is a warning that is given in a manner that is reasonably likely to result in people being warned of the risk before engaging in the recreational activity. The defendant is not required to establish that the person received or understood the warning or was capable of receiving or understanding the warning. 4  A risk warning can be given orally or in writing (including by means of a sign or otherwise). 5  A risk warning need not be specific to the particular risk and can be a general warning of risks that include the particular risk concerned (so long as the risk warning warns of the general nature of the particular risk). 6  A defendant is not entitled to rely on a risk warning unless it is given by or on behalf of the defendant or by or on behalf of the occupier of the place where the recreational activity is engaged in. 7  A defendant is not entitled to rely on a risk warning if it is established (on the balance of probabilities) that the harm concerned resulted from a contravention of a provision of a written

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law of the State or Commonwealth that establishes specific practices or procedures for the protection of personal safety. 8  A defendant is not entitled to rely on a risk warning to a person to the extent that the warning was contradicted by any representation as to risk made by or on behalf of the defendant to the person. 9  A defendant is not entitled to rely on a risk warning if the plaintiff was required to engage in the recreational activity by the defendant. 10  The fact that a risk is the subject of a risk warning does not of itself mean:  (a) that the risk is not an obvious or inherent risk of an activity, or (b) that a person who gives the risk warning owes a duty of care to a person who engages in an activity to take precautions to avoid the risk of harm from the activity. 11  This section does not limit or otherwise affect the effect of a risk warning in respect of a risk of an activity that is not a recreational activity. 12  In this section:  incapable person means a person who, because of the person's young age or a physical or mental disability, lacks the capacity to understand the risk warning. parent of an incapable person means any person (not being an incapable person) having parental responsibility for the incapable person. 5N  Waiver of contractual duty of care for recreational activities 1  Despite any other written or unwritten law, a term of a contract for the supply of recreation services may exclude, restrict or modify any liability to which this Division applies that results from breach of an express or implied warranty that the services will be rendered with reasonable care and skill. 2  Nothing in the written law of New South Wales renders such a term of a contract void or unenforceable or authorises any court to refuse to enforce the term, to declare the term void or to vary the term. 3  A term of a contract for the supply of recreation services that is to the effect that a person to whom recreation services are supplied under the contract engages in any recreational activity concerned at his or her own risk operates to exclude any liability to which this Division applies that results from breach of an express or implied warranty that the services will be rendered with reasonable care and skill. 4 In this section, recreation services means services supplied to a person for the purposes of, in connection with or incidental to the pursuit by the person of any recreational activity. 5  This section applies in respect of a contract for the supply of services entered into before or after the commencement of this section but does not apply in respect of a breach of warranty that occurred before that commencement. 6  This section does not apply if it is established (on the balance of probabilities) that the harm concerned resulted from a contravention of a provision of a written law of the State or Commonwealth that establishes specific practices or procedures for the protection of personal safety.

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s 5R  Extracts from the Civil Liability Act 2002 (NSW)

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Division 6 Professional negligence 5O  Standard of care for professionals 1  A person practising a profession (a professional) does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice. 2  However, peer professional opinion cannot be relied on for the purposes of this section if the court considers that the opinion is irrational. 3  The fact that there are differing peer professional opinions widely accepted in Australia concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section. 4  Peer professional opinion does not have to be universally accepted to be considered widely accepted. 5P  Division does not apply to duty to warn of risk This Division does not apply to liability arising in connection with the giving of (or the failure to give) a warning, advice or other information in respect of the risk of death of or injury to a person associated with the provision by a professional of a professional service.

Division 7 Non-​delegable duties and vicarious liability 5Q  Liability based on non-​delegable duty 1  The extent of liability in tort of a person (the defendant) for breach of a non-​delegable duty to ensure that reasonable care is taken by a person in the carrying out of any work or task delegated or otherwise entrusted to the person by the defendant is to be determined as if the liability were the vicarious liability of the defendant for the negligence of the person in connection with the performance of the work or task. 2  This section applies to an action in tort whether or not it is an action in negligence, despite anything to the contrary in section 5A.

Division 8 Contributory negligence 5R  Standard of contributory negligence 1  The principles that are applicable in determining whether a person has been negligent also apply in determining whether the person who suffered harm has been contributorily negligent in failing to take precautions against the risk of that harm. 2  For that purpose:  (a) the standard of care required of the person who suffered harm is that of a reasonable person in the position of that person, and (b) the matter is to be determined on the basis of what that person knew or ought to have known at the time.

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5S  Contributory negligence can defeat claim In determining the extent of a reduction in damages by reason of contributory negligence, a court may determine a reduction of 100% if the court thinks it just and equitable to do so, with the result that the claim for damages is defeated. 5T  Contributory negligence—​claims under the Compensation to Relatives Act 1897 1  In a claim for damages brought under the Compensation to Relatives Act 1897, the court is entitled to have regard to the contributory negligence of the deceased person. 2  Section 13 of the Law Reform (Miscellaneous Provisions) Act 1965 does not apply so as to prevent the reduction of damages by the contributory negligence of a deceased person in respect of a claim for damages brought under the Compensation to Relatives Act 1897.

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Appendix 4

Extracts from the Partnership Act [VIC]

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Part 1—​Preliminary 1  Short title and commencement This Act may be cited as the Partnership Act 1958 and shall come into operation on a day to be fixed by proclamation of the Governor in Council published in the Government Gazette. 2 Repeal (1) The Act mentioned in the Schedule to the extent thereby expressed to be repealed is hereby repealed accordingly. (2) Except as in this Act expressly or by necessary implication provided—​ (a) all persons things and circumstances appointed or created by or under the repealed Act or existing or continuing under that Act immediately before the commencement of this Act shall under and subject to this Act continue to have the same status operation and effect as they respectively would have had if that Act had not been so repealed; (b) in particular and without affecting the generality of the foregoing paragraph such repeal shall not disturb the continuity of status operation or effect of any order appointment notice consent agreement liability or right made effected issued granted given accrued incurred or acquired or existing or continuing by or under that Act before the commencement of this Act. 3 Definitions (1) In this Act unless inconsistent with the context or subject-​matter—​ court includes every court having jurisdiction in the case; business includes every trade occupation or profession. domestic partner of a person means—​ (a) a person who is in a registered relationship with the person; or (b) an adult person to whom the person is not married but with whom the person is in a relationship as a couple where one or each of them provides personal or financial commitment and support of a domestic nature for the material benefit of the other, irrespective of their genders and whether or not they are living under the same roof, but does not include a person who provides domestic support and personal care to the person—​ (i) for fee or reward; or (ii) on behalf of another person or an organisation (including a government or government agency, a body corporate or a charitable or benevolent organisation); spouse of a person means a person to whom the person is married;

(2) For the purposes of the definition of domestic partner in subsection (1)—​ (a) registered relationship has the same meaning as in the Relationships Act 2008; and (b) in determining whether persons who are not in a registered relationship are domestic partners of each other, all the circumstances of their relationship are to be taken into

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s 4  Extracts from the Partnership Act [VIC]

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account, including any one or more of the matters referred to in section 35(2) of the Relationships Act 2008 as may be relevant in a particular case; and (c) a person is not a domestic partner of another person only because they are co-​tenants. 4  Saving of rules of equity and common law The rules of equity and of common law applicable to partnership shall continue in force except so far as they are inconsistent with the express provisions of this Act.

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Part 2—​Partnerships Generally Division 1—​Nature of partnerships 5 Definition of partnership (1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership within the meaning of Part 5. (1A) A reference in the following sections to a partnership includes a reference to a partnership formed in accordance with a law of another State, a Territory or another country or jurisdiction, whether or not under that law the liability of any partner for the liabilities of the partnership is limited and whether or not under that law the partnership is incorporated or is otherwise a separate legal entity—​ (a) section 51(3); (b) section 54(2)(d), (e), (fa) and (h) as applying in cases where a partner is a partnership; (c) section 60(3); (d) section 64(5); (e) section 85(3); (f) section 88(2)(d), (e) and (g) as applying in cases where a partner or proposed partner is a partnership; (g) section 95(b)(vi); (h) section 96(2); (i) sections 99(1)(a)(i), (1)(b)(i), (1)(c) and 99(2); (j) sections 104(1) (definition of recognised incorporated limited partnership), 104(2), 104(5) and 104(6). (2) But the relation between members of any company or association (other than, for the purposes of the sections specified in subsection (1A), a partnership which under the law of the place where it is formed is incorporated or is otherwise a separate legal entity) which is—​ (a) registered as a company under any Act for the time being in force and relating to the registration constitution or incorporation of companies; or (b) formed or incorporated by or in pursuance of any Act or letters patent or Royal Charter—​ is not a partnership within the meaning of this Act. (3) A reference in this Act to a firm includes a reference to an incorporated limited partnership within the meaning of Part 5. 6 Rules for determining existence of partnership In determining whether a partnership does or does not exist regard shall be had to the following rules—​ (1) Joint tenancy tenancy in common joint property common property or part ownership does not of itself create a partnership as to anything so held or owned whether the tenants or owners do or do not share any profits made by the use thereof.

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s 8  Extracts from the Partnership Act [VIC]

531

(2) The sharing of gross returns does not of itself create a partnership whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived. (3) The receipt by a person of a share of the profits of a business is prima facie evidence that that person is a partner in the business, but the receipt of such a share or of a payment contingent on or varying with the profits of a business does not of itself make that person a partner in the business and in particular—​ (a) the receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a business does not of itself make that person a partner in the business or liable as such; (b) a contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such; (c) a person being the spouse, domestic partner or child of a deceased partner and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner is not by reason only of such receipt a partner in the business or liable as such; (d) the advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person that the lender shall receive a rate of interest varying with the profits or shall receive a share of the profits arising from carrying on the business does not of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing and signed by or on behalf of all the parties thereto; (e) a person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by that person of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such. 7 Postponement of rights of person lending or selling in case of bankruptcy1 In the event of any person to whom money has been advanced by way of loan upon such a contract as is mentioned in the last preceding section or of any buyer of a goodwill in consideration of a share of the profits of the business being adjudged a bankrupt entering into an arrangement to pay his creditors less than One hundred cents in the dollar or dying in insolvent circumstances, the lender of the loan shall not be entitled to recover anything in respect of his loan and the seller of the goodwill shall not be entitled to recover anything in respect of the share of profits contracted for until the claims of the other creditors of the borrower or buyer for valuable consideration in money or money’s worth have been satisfied. 8 Meaning of firm Persons who have entered into partnership with one another are for the purposes of this Act called collectively a firm and the name under which their business is carried on is called the firm-​name.

1

S. 7: See also Commonwealth Bankruptcy Act 1966.

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Division 2—​Relationship of partners to persons dealing with them 9 Power of partner to bind the firm Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership, and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner. 10 Partners bound by acts on behalf of firm An act or instrument relating to the business of the firm and done or executed in the firm-​name or in any other manner showing an intention to bind the firm by any person thereto authorized whether a partner or not is binding on the firm and all the partners. This section shall not affect any general rule of law relating to the execution of deeds or negotiable instruments. 11 Partner using credit of firm for private purposes Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm’s ordinary course of business the firm is not bound unless he is in fact specially authorized by the other partners, but this section does not affect any personal liability incurred by an individual partner. 12 Effect of notice that firm will not be bound by acts of partner If it has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement. 13 Liability of partners Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner, and after his death his estate is also severally liable in a due course of administration for such debts and obligations so far as they remain unsatisfied but subject to the prior payment of his separate debts. 14 Liability of the firm for wrongs (1) Subject to subsection (2), where by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm or with the authority of his or her co-​partners loss or injury is caused to any person not being a partner in the firm or any penalty is incurred the firm is liable therefor to the same extent as the partner so acting or omitting to act. (2) For the purposes of subsection (1), a partner who commits a wrongful act or omission as a director of a body corporate, within the meaning of the Corporations Act, is not to be taken to be acting in the ordinary course of the business of the firm or with the authority of his or her co-​partners only because—​

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s 19  Extracts from the Partnership Act [VIC]

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(a) the partner obtained the agreement or authority of his or her co-​partners, or some of them, to be appointed or to act as a director; or (b) remuneration that the partner receives for acting as a director of a body corporate forms part of the income of the firm; or (c) any co-​partner is also a director of that or any other body corporate. 15 Misapplication of money or property In the following cases, namely—​ (a) where one partner acting within the scope of his apparent authority receives the money or property of a third person and misapplies it; and (b) where a firm in the course of its business receives money or property of a third person and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm—​ the firm is liable to make good the loss. 16 Liability for wrongs joint and several Every partner is liable jointly with his co-​partners and also severally for everything for which the firm while he is a partner therein becomes liable under either of the last two preceding sections. 17 Improper employment of trust property for partnership purposes If a partner being a trustee improperly employs trust-​property in the business or on the account of the partnership no other partner is liable for the trust-​property to the persons beneficially interested therein: Provided as follows—​ (1) This section shall not affect any liability incurred by any partner by reason of his having notice of a breach of trust; and (2) Nothing in this section shall prevent trust-​money from being followed and recovered from the firm if still in its possession or under its control. 18 Persons liable by holding out (1) Every one who by words spoken or written or by conduct represents himself or who knowingly suffers himself to be represented as a partner in a particular firm is liable as a partner to any one who has on the faith of any such representation given credit to the firm whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made. (2) Where after a partner’s death the partnership business is continued in the old firm-​name the continued use of that name or of the deceased partner’s name as part thereof shall not of itself make his executors or administrators estate or effects liable for any partnership debts contracted after his death. 19 Admissions and representations of partners An admission or representation made by any partner concerning the partnership affairs and in the ordinary course of its business is evidence against the firm.

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20 Notice to acting partner to be notice to the firm Notice to any partner who habitually acts in the partnership business of any matter relating to partnership affairs operates as notice to the firm except in the case of a fraud on the firm committed by or with the consent of that partner. 21 Liabilities of incoming and outgoing partners (1) A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he became a partner. (2) A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement. (3) A retiring partner may be discharged from any existing liabilities by an agreement to that effect between himself and the members of the firm as newly constituted and the creditors and this agreement may be either express or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted. 22 Revocation of continuing guaranty by change in firm A continuing guaranty given either to a firm or to a third person in respect of the transactions of a firm is in the absence of agreement to the contrary revoked as to future transactions by any change in the constitution of the firm to which or of the firm in respect of the transactions of which the guaranty was given.

Division 3—​Relationship between partners 23 Variation by consent of terms of partnership The mutual rights and duties of partners whether ascertained by agreement or defined by this Act may be varied by the consent of all the partners, and such consent may be either express or inferred from a course of dealing. 24 Partnership property (1) All property and rights and interests in property originally brought into the partnership stock or acquired whether by purchase or otherwise on account of the firm or for the purposes and in the course of the partnership business are called in this Act partnership property and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement. (2) The legal estate or interest in any land which belongs to the partnership shall devolve according to the nature and tenure thereof and the general rules of law thereto applicable but in trust so far as necessary for the persons beneficially interested in the land under this section. (3) Where co-​owners of an estate or interest in any land not being itself partnership property are partners as to profits made by the use of that land or estate, and purchase other land or estate out of the profits to be used in like manner, the land or estate so purchased belongs to them in the absence of an agreement to the contrary not as partners but as co-​owners for the same respective estates and interests as are held by them in the land or estate first mentioned at the date of the purchase.

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s 28  Extracts from the Partnership Act [VIC]

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25 Property bought with partnership money Unless the contrary intention appears property bought with money belonging to the firm is deemed to have been bought on the account of the firm. 26 Personal estate held as partnership property Where land or any interest therein has become partnership property it shall unless the contrary intention appears be treated as between the partners (including the representatives of a deceased partner) as personal estate. 27 Procedure against partnership property for a partner’s separate judgment debt (1) A writ of execution shall not issue against any partnership property except on a judgment against the firm. (2) The Supreme Court or the county court may on the application of any judgment creditor of a partner make an order charging that partner’s interest in the partnership property and profits with payment of the amount of the judgment debt and interest thereon, and may by the same or a subsequent order appoint a receiver of that partner’s share of profits (whether already declared or accruing) and of any other money which may be coming to him in respect of the partnership, and direct all accounts and inquiries and give all other orders and directions which might have been directed or given if the charge had been made in favour of the judgment creditor by the partner, or which the circumstances of the case may require. (3) The other partner or partners shall be at liberty at any time to redeem the interest charged or in case of a sale being directed to purchase the same. 28 Rules etc. of partners when not subject to special agreement The interest of partners in the partnership property and their rights and duties in relation to the partnership shall be determined subject to any agreement express or implied between the partners by the following rules: (1) All the partners are entitled to share equally in the capital and profits of the business and must contribute equally towards the losses whether of capital or otherwise sustained by the firm. (2) The firm must indemnify every partner in respect of payments made and personal liabilities incurred by him—​ (a) in the ordinary and proper conduct of the business of the firm; or (b) in or about anything necessarily done for the preservation of the business or property of the firm. (3) A partner making for the purpose of the partnership any actual payment or advance beyond the amount of capital which he has agreed to subscribe is entitled to interest at the rate of Seven per centum per annum from the date of the payment or advance. (4) A partner is not entitled before the ascertainment of profits to interest on the capital subscribed by him. (5) Every partner may take part in the management of the partnership business. (6) No partner shall be entitled to remuneration for acting in the partnership business. (7) No person may be introduced as a partner without the consent of all existing partners.

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(8) Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners but no change may be made in the nature of the partnership business without the consent of all existing partners. (9) The partnership books are to be kept at the place of business of the partnership (or the principal place if there is more than one) and every partner may when he thinks fit have access to and inspect and copy any of them. 28A Credit law excluded matter For the purposes of section 24 of the National Consumer Credit Protection Act 2009 of the Commonwealth, the matter provided for in section 28(3) is declared to be excluded matter in relation to the whole of the National Consumer Credit Protection Act 2009 of the Commonwealth. 29 Expulsion of partner No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners. 30 Retirement from partnership at will (1) Where no fixed term has been agreed upon for the duration of the partnership any partner may determine the partnership at any time on giving notice of his intention so to do to all the other partners. (2) Where the partnership has originally been constituted by deed a notice in writing signed by the partner giving it shall be sufficient for this purpose. 31 Continuance of partnership on old terms (1) Where a partnership entered into for a fixed term is continued after the term has expired and without any express new agreement the rights and duties of the partners remain the same as they were at the expiration of the term so far as is consistent with the incidents of a partnership at will. (2) A continuance of the business by the partners or such of them as habitually acted therein during the term without any settlement or liquidation of the partnership affairs is presumed to be a continuance of the partnership. 32 Duty of partners to render accounts etc. Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representative. 33 Accountability of partners for private profits (1) Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership or from any use by him of the partnership property name or business connexion. (2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner and before the affairs thereof have been completely wound up either by any surviving partner or by the representatives of the deceased partner.

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s 38  Extracts from the Partnership Act [VIC]

537

34 Duty of partner not to compete with firm If a partner without the consent of the other partners carries on any business of the same nature as and competing with that of the firm he must account for and pay over to the firm all profits made by him in that business. 35 Rights of assignee of share in partnership (1) An assignment by any partner of his share in the partnership either absolute or by way of mortgage or redeemable charge does not as against the other partners entitle the assignee during the continuance of the partnership to interfere in the management or administration of the partnership business or affairs or to require any accounts of the partnership transactions or to inspect the partnership books but entitles the assignee only to receive the share of profits to which the assigning partner would otherwise be entitled and the assignee must accept the account of profits agreed to by the partners. (2) In the case of a dissolution of the partnership whether as respects all the partners or as respects the assigning partner the assignee is entitled to receive the share of the partnership assets to which the assigning partner is entitled as between himself and the other partners and for the purpose of ascertaining that share to an account as from the date of the dissolution.

Division 4—​Dissolution of partnership 36 Dissolution by expiration or notice Subject to any agreement between the partners a partnership is dissolved—​ (a) if entered into for a fixed term by the expiration of that term; (b) if entered into for a single adventure or undertaking by the termination of that adventure or undertaking; (c) if entered into for an undefined time by any partner giving notice to the other or others of his intention to dissolve the partnership. In the last-​mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution or if no date is so mentioned as from the date of the communication of the notice. 37 Dissolution by death or bankruptcy or charge2 (1) Subject to any agreement between the partners every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner. (2) A partnership may at the option of the other partners be dissolved if any partner suffers his share of the partnership property to be charged under this Act for his separate debt. 38 Dissolution by illegality of partnership A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership.

2

S. 37: As to the application of the joint and separate estates of partners in bankruptcy proceedings, see Commonwealth Bankruptcy Act 1966, No. 33/1966 section 110

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39 Dissolution by the court On application by a partner the court may decree a dissolution of the partnership in any of the following cases—​ (a) when a partner is found to be mentally ill, in which case the application may be made as well on behalf of that partner by his or her guardian or administrator if appointed under the Guardianship and Administration Act 1986 or other person having title to intervene as by any other partner; (b) when a partner other than the partner suing becomes in any other way permanently incapable of performing his part of the partnership contract; (c) when a partner other than the partner suing has been guilty of such conduct as in the opinion of the court regard being had to the nature of the business is calculated to prejudicially affect the carrying on of the business; (d) when a partner other than the partner suing wilfully or persistently commits a breach of the partnership agreement or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him; (e) when the business of the partnership can only be carried on at a loss; (f) whenever in any case circumstances have arisen which in the opinion of the court render it just and equitable that the partnership be dissolved. 40 Rights of persons dealing with firm against apparent members of firm (1) Where a person deals with a firm after a change in its constitution he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change. (2) An advertisement in the Government Gazette and in at least one newspaper circulating in each district in which the firm carries on business as to a firm whose principal place of business is in Victoria shall be notice as to persons who had not dealings with the firm before the date of the dissolution or change so advertised. (3) The estate of a partner who dies or who becomes bankrupt or of a partner who not having been known to the person dealing with the firm to be a partner retires from the firm is not liable for partnership debts contracted after the date of the death bankruptcy or retirement respectively. 41 Right of partners to notify dissolution On the dissolution of a partnership or retirement of a partner any partner may but one of such partners shall publicly notify the same in the Government Gazette and in at least one newspaper circulating in each district in which the firm carries on business and may require the other partner or partners to concur for that purpose in all necessary or proper acts (if any) which cannot be done without his or their concurrence. 42 Continuing authority of partners for purposes of winding up After the dissolution of a partnership the authority of each partner to bind the firm and the other rights and obligations of the partners continue notwithstanding the dissolution so far as may be necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution but not otherwise:

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s 46  Extracts from the Partnership Act [VIC]

539

Provided that the firm is in no case bound by the acts of a partner who has become bankrupt but this proviso does not affect the liability of any person who has after the bankruptcy represented himself or knowingly suffered himself to be represented as a partner of the bankrupt. 43 Rights of partners as to application of partnership property On the dissolution of a partnership every partner is entitled as against the other partners in the firm and all persons claiming through them in respect of their interests as partners to have the property of the partnership applied in payment of the debts and liabilities of the firm and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm, and for that purpose any partner or his representatives may on the termination of the partnership apply to the court to wind up the business and affairs of the firm. 44 Apportionment of premium where partnership prematurely dissolved Where one partner has paid a premium to another on entering into a partnership for a fixed term and the partnership is dissolved before the expiration of that term otherwise than by the death of a partner the court may order the repayment of the premium or of such part thereof as it thinks just having regard to the terms of the partnership contract and to the length of time during which the partnership has continued; unless—​ (a) the dissolution is in the judgment of the court wholly or chiefly due to the misconduct of the partner who paid the premium; or (b) the partnership has been dissolved by an agreement containing no provision for a return of any part of the premium. 45 Rights where partnership dissolved for fraud or misrepresentation Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto the party entitled to rescind is without prejudice to any other right entitled—​ (a) to a lien on or right of retention of the surplus of the partnership assets after satisfying the partnership liabilities for any sum of money paid by him for the purchase of a share in the partnership and for any capital contributed by him; (b) to stand in the place of the creditors of the firm for any payments made by him in respect of the partnership liabilities; and (c) to be indemnified by the person guilty of the fraud or making the representation against all the debts and liabilities of the firm. 46 Share of profits made after dissolution Where any member of a firm has died or otherwise ceased to be a partner and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate then in the absence of any agreement to the contrary the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since the dissolution as the court may find to be attributable to the use of his share of the partnership assets or to interest at the rate of seven per centum per annum on the amount of his share of the partnership assets:

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Provided that where by the partnership contract an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner and that option is duly exercised the estate of the deceased partner or the outgoing partner or his estate as the case may be is not entitled to any further or other share of profits, but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof he is liable to account under the foregoing provisions of this section. 47 Retiring or deceased partner’s share to be a debt Subject to any agreement between the partners the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner in respect of the outgoing or deceased partner’s share is a debt accruing at the date of the dissolution or death. 48 Rule for distribution of assets on final settlement of accounts In settling accounts between the partners after a dissolution of partnership the following rules shall subject to any agreement be observed—​ (a) losses including losses and deficiencies of capital shall be paid first out of profits next out of capital and lastly if necessary by the partners individually in the proportion in which they were entitled to share profits; (b) the assets of the firm including the sums (if any) contributed by the partners to make up losses or deficiencies of capital shall be applied in the following manner and order—​ (i) in paying the debts and liabilities of the firm to persons who are not partners therein; (ii) in paying to each partner rateably what is due from the firm to him for advances as distinguished from capital; (iii) in paying to each partner rateably what is due from the firm to him in respect of capital; (iv) the ultimate residue (if any) shall be divided among the partners in the proportion in which profits are divisible.

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Index hierarchy of federal courts federal circuit and family court, [1.410] federal court, [1.400] high court, [1.390] federal tribunals and commissions, [1.470] other courts and tribunals, [1.460] specialist state courts and tribunals, [1.480] state courts, [1.420] district or county courts, [1.440] local or magistrates courts, [1.450] supreme court, [1.430] law reports, [1.490] precedent and hierarchy, doctrine of, [1.360] appellate court, [1.360] common law principles, [1.360] ratio decidendi of case, [1.370] “obiter dicta” (plural), [1.370] “obiter dictum” (singular), [1.370]

A Acts causing physical harm, [14.130] Actual authority, [15.230] Actual express authority, [15.240], [15.250] Agreements to stifle a prosecution, [8.240] Alternative dispute resolution (ADR), [1.590] advisory processes, [1.590] determinative processes, [1.590] facilitative processes, [1.590] Anticipatory breach of contract, [11.150] Apparent (or ostensible) authority, [15.280] Appellate jurisdiction, [1.390] Aspirational code, [18.140] Assignee, [10.140] Assignment, [10.140] Assignment by operation of law, [10.210] bankruptcy, [10.230] contracts for personal services not assignable, [10.240] death, [10.220] Assignments in equity, [10.180] equitable chose in action, [10.200] legal chose in action, [10.190] Assignor, [10.140] Auction sales, [3.130] Australian Company Number (ACN), [17.140] Australian Competition and Consumer Commission (ACCC), [1.470], [7.460] Australian constitutional system, branches executive, the, [1.140] the judiciary, [1.140] legislature, the, [1.140]

Australian legal system dispute resolution, alternative methods of, [1.570] history and development of Pre-​European,  [1.70] European colonisation, [1.80] terra nullius question, [1.90] Mabo story, [1.100] native title legislation, [1.130] judge-​made law, [1.330] sources of law, [1.260] primary source of law, [1.260] secondary source of law, [1.260] Australian Securities and Investments Commission (ASIC), [17.20] Australian Stock Exchange (ASX Listing Rules), [17.70]

Business common-sense, [9.400] Business ethics aspects of general commercial law principles, [18.60] benefits, [18.70] corporate ethics codes, [18.140] duties, [18.80] industry codes, [18.150] International standards OECD guidelines, [18.120] United Nations convention against corruption, [18.90] United Nations global compact, [18.110] United Nations guiding principles, [18.100] issues, [18.20] regulatory responses, [18.160] socially responsible investing, [18.170] Business judgment rule, [17.380] C Civil act, [6.150] Civil law, [1.510] Click-wrap agreements, [9.490] Collateral contracts, [9.80] Commercial arbitration, [1.580] Commercial contracts, [9.20] Commercial law, [1.10] Common law rule, [1.290] Commonwealth constitution constitutional monarchy, [1.170] commonwealth parliament, [1.170] Australian constitution, first words of, [1.170] Common mistake, [7.40] Commonwealth Bank (CBA), [17.370]

B

Conciliation, [1.620]

Bankrupts, [6.190]

Concurrent powers, [1.190]

Barristers, [1.560]

Consideration, [5.30]

Australian Consumer Law (ACL), [3.120]

Bilateral contracts, [2.90]

Australian courts courts and law reporting, hierarchy of, [1.380]

Brokers, [15.870]

Consideration/​promissory estoppel/​ formalities contracts under seal, [5.220] definition of consideration, [5.30] essential rules regarding consideration, [5.40]

38_Index.indd 541

Breach of warranty, [9.130] Browse-wrap agreements, [9.490]

13-Dec-18 10:14:01 PM

542

Concise Australian Commercial Law Consideration/​promissory estoppel/​ formalities — cont may be executed or executory, [5.80] must be sufficient, [5.40] must not be vague or illusory, [5.60] part payment, [5.170] practical benefit test, [5.180] requirement of consideration, [5.20] Constitutions and replaceable rules company making contracts, [17.180] assumptions third parties, [17.190] management and control certain persons not to manage corporations, [17.600] company secretary, [17.280] directors, [17.270] director’s duty to prevent insolvent trading, [17.500] disclosure of interests by directors, [17.490] duties and liabilities, [17.310] payments for retirement from office, [17.590] powers of directors, [17.300] prohibition of insider trading, [17.540] registered office, [17.260] remedies and penalties for breach of duty, [17.480] removal of directors, [17.580] statutory duties, [17.320] business judgment rule, [17.380] conflict of interest, [17.430] duty of care and diligence, [17.330] duty to act in good faith, [17.410] validity of acts of a director, [17.290] membership exists, [17.230] members’ rights, [17.250] shares, [17.240] memorandum and articles of association, [17.150] replaceable rules and company’s constitution, [17.160] actions of company, [17.170] Consumer guarantees, [13.1280] acceptable quality, [13.1360] consumer, [13.1320] correspondence with description, [13.1420] exemption of auction sales, [13.1460] express warranties, [13.1450] fitness for disclosed purpose, [13.1390], [13.1410] guarantees and supply of services, [13.1470] limitation of liability, [13.1500] remedies for non-​compliance, [13.1510]

38_Index.indd 542

repairs and spare parts, [13.1440] supply, [13.1310] supply of goods, [13.1430] Consumer protection ACL overview role, [13.60] objectives, [13.20] legislative framework, [13.30] organisation, [13.50] prohibition of misleading/​deceptive conduct, [13.70] business competitors, [13.270] engaged in conduct, [13.100], [13.140] exemption of news media, [13.380] marketing and advertising, [13.190] misleading/​deceptive, [13.170] representations, [13.310] trade/​commerce, [13.80] prohibition of other unfair practices, [13.570] accepting payment, [13.650] assertion of right to payment, [13.670], [13.690] bait advertising, [13.630] harassment and coercion, [13.750] misleading conduct, [13.600], [13.610] offering rebates/​gifts/​prizes/​other free items, [13.590] pricing, [13.720] pyramid selling, [13.700] recipient not liable, [13.680] referral selling, [13.740] sending unsolicited credit/​debit cards, [13.660] specific false/​misleading representation provisions, [13.390] certain business activities, profitability of, [13.530] country of origin representations, [13.480] representations and predictions, [13.550] enforcement and remedies for unfair practices, [13.760] acl are affected by increased maximum penalties, [13.790] application, [13.840] criminal penalties, [13.770] damages, [13.850] assessment, [13.870] liability of persons involved, [13.900] limitation of actions, [13.930] defences, [13.820] injunction, [13.830] liability of corporation, [13.810] other orders, [13.940] compensation orders, [13.950]

kinds of orders that may be made, [13.970] orders for non-​party consumers, [13.960] other enforcement provisions, [13.990] adverse publicity order, [13.1040] disqualifying a person from managing corporations, [13.1050] enforceable undertakings, [13.1000] non-​punitive orders, [13.1030] public warning notice, [13.1020] substantiation notice, [13.1010] pecuniary penalties, [13.780] Contents and interpretation of the contract express terms, [9.20] classifying terms, [9.130] collateral contracts, [9.80] identifying the contents of a contract, [9.40] parol evidence rule, [9.30] time clauses in commercial contracts, [9.210] exemption clauses, [9.230] implied terms by court, [9.540] by custom or trade usage, [9.610] by statute, [9.620] in specific kinds of contract, [9.600] Moorcock, The, [9.560] to act in good faith, [9.630] to give business efficacy, [9.550] interpreting exclusion clauses general approach of the courts, [9.400] online contract, [9.470] browsewrap agreements, [9.490] clickwrap agreements, [9.490] Continuance of business, [16.350] Contract, [2.30] essential elements, [2.40] factors affecting genuine consent, [2.40] nucleus, [2.40] simple contract, [2.40] social agreement, [2.40] Contract law, [1.500], [14.30] Contract validity, [8.70] Contracts illegal as formed or performed, [8.120] Contracts illegal at common law, [8.190] contracts illegal as formed, [8.130] contracts illegal as performed, [8.140] contracts prejudicial to public safety, [8.310]

13-Dec-18 10:14:01 PM

G Index Contracts illegal at common law — cont contracts prejudicial, [8.230] contracts promoting sexual immorality, [8.210] contracts tending to promote corruption, [8.280] contracts to commit a crime, [8.200] contracts to defraud the revenue, [8.320] Contracts illegal by statute, [8.20] Contracts under seal, [2.70] Contracts void at common law, [8.330] contracts in restraint of trade, [8.360] contracts of employment, [8.400] contracts prejudicial to the status of marriage, [8.350] contracts to oust the jurisdiction of the courts, [8.340] Contracts void by statute, [8.170] Contractual capacity bankrupts, [6.190] corporations, [6.160] married women, [6.180] mentally incapacitated and intoxicated persons, [6.170] minors, [6.20] contractual capacity of minors in NSW, [6.150] misrepresentation by minors, [6.140] valid contracts, [6.30] contract for “necessaries”, [6.40] liable under a beneficial contract of service, [6.50] voidable contracts, [6.100] binding, [6.110] not binding, [6.120] void contracts, [6.130] Contractual restraint, [8.360] Contributory negligence, [14.810] Corporations, [6.160] Corporations law, [1.500] administration of, [17.20] nature and formation of companies company seal, [17.140] companies types, [17.70] limited by guarantee, [17.90] limited by shares, [17.80] no liability companies, [17.110] unlimited companies, [17.100] company name, [17.130] corporate personality, [17.40] corporate veil, lifting of, [17.60] proprietary and public companies, [17.120] registration of companies, [17.30]

Criminal law, [1.500], [1.510]

Executive power, [1.210]

Customary law, [1.20]

Exemplary damages, [12.300]

D

Exemption clauses, [9.230]

Delegated legislation, [1.320] common law, [1.330] Court of Chancery, [1.350] equity, [1.350] judge-​made law, [1.330] legislative instruments, [1.320] parliamentary control of executive law-​making, [1.320] power given by particular Act, [1.320] reasons for conferring power, [1.320] Democratic society, [1.30] Directors, [15.890], [17.290] Dispute resolution, alternative methods of, [1.570] alternative dispute resolution, [1.590] commercial arbitration, [1.580] conciliation, [1.620] mediation, [1.610] negotiation, [1.600] Disqualified person, [17.600] Duress, [7.420]

Express prohibition, [8.30] Extrinsic materials, [1.310] F Falsity, [7.270] Family Law Appeal Division (FLAD), [1.410] Federal Circuit and Family Court of Australia (FCFCA), [1.410] Federal Circuit Court of Australia (FCCA), [1.410] Federal Court of Australia in its appellate jurisdiction, [1.400] Federal legal system, [1.140] Firm name, [16.70] Formal contract, — see Contracts under seal, [2.70]

e-commerce, [3.520] Economic duress, [7.440]

Forseeability of harm, [14.100]

Electronic transactions Acts consent, [3.590] production of documents, [3.580] signatures, [3.570] time of dispatch, [3.600] time of receipt, [3.610] validity, [3.550] writing, [3.560]

Fraudulent misrepresentation, [7.250] falsity, [7.270] in fact relied upon, [7.300] intended to be relied upon, [7.290] known to be false, [7.280] remedies, [7.320] resulting in damage, [7.310] statement of fact, [7.260]

Environmental standards, [18.120]

Frustration Effect, [11.470]

Duty to act in good faith, [17.470] mis-use of information, [17.470] use of position, [17.470] E

Estate agents, [15.900] Estoppel trigger, [5.280] European colonisation Cook, James, [1.80] Britain with new destination, [1.80] first fleet arrival, [1.80] European Convention on Human Rights (1950), [1.340]

Courts of Petty Sessions, [1.450]

Exclusion clauses, [9.420]

Coverture, [6.180]

Exclusive powers, [1.190]

38_Index.indd 543

Express contracts, [2.80]

Formalities, [5.330] contracts required to be in writing, [5.340] contracts to be evidenced in writing, [5.350] contracts of guarantee, [5.370] dealing with an interest in land, [5.360] memorandum required, [5.380] non-compliance effect, [5.390]

Duty of care, [14.60]

543

G General agents, [15.80] General principle, [10.20] agency and trust “exceptions”, [10.60] property law exception, [10.100] trident case, the, [10.70] Genuine consent duress, [7.420] alternative actions, [7.460] economic, [7.440]

13-Dec-18 10:14:01 PM

544

Concise Australian Commercial Law Genuine consent — cont mistakes of fact, [7.30] common mistake, [7.40] misrepresentation, [7.240] fraudulent, [7.250] under the Australian Consumer Law, [7.400] mistake as to nature of transaction, [7.160] mistake of fact, effect of, [7.180] mistake of law, [7.190] mutual mistake, [7.100] remedy of rectification, [7.210] unilateral mistake, [7.110] negligent misrepresentation, [7.410] unconscionable conduct, [7.530] guarantees by married women, [7.580] under Australian Consumer Law, [7.600] under National Credit Code, [7.610] undue influence, [7.470] effect, [7.520] Giblin Lecture, [18.20] Goodwill, [16.390] Government policy proposals, [4.200] Governor-​General powers, [1.220] H Hall of Shame awards, [18.70] High Court functions, [1.230] HIH Royal Commissioner, [18.20] Holding out, [17.200] I Implied contracts, [2.80] Implied prohibition, [8.50] Incorporation by a previous course of dealing, [9.350] Incorporation by reasonable notice, [9.280] Independent anti-slavery commissioner, [18.50] Indictable offences, [1.510] Injunction, [12.410] Innocent misrepresentation, [7.330] remedies, [7.350] Innominate term, [9.190] Intention to create legal relations intention and commercial agreements, [4.120] express exclusion, [4.140] government policy proposals, [4.200]

38_Index.indd 544

letters of comfort, [4.180] social and domestic agreements, [4.40] between a husband and wife, [4.50] other family or social agreements, [4.90] Interpretation issue, [9.380] Intoxicated persons, [6.170] J Judge-​made law, [1.330] common law and equity, Development of, [1.340] Judicial power, [1.230] L Land covenants, [10.100] Law law in civil society, functions of, [1.30] nature and concept of law and justice, [1.20] Law and legal proceedings, classification of civil law and criminal law, [1.520] commercial law, [1.530] legal profession, [1.540] barristers, [1.560] solicitors, [1.550] public law and private law, [1.500] substantive law and procedural law, [1.510] Law in civil society, functions of, [1.30] dispute resolution function, [1.30] maintains stability and social cohesion, [1.30] normative sense regulated, [1.30] principles, [1.30] reinforces community values, [1.30] “same sex marriage” debate in 2018, [1.30] to promote justice and uphold the rule of law, [1.30] with or without sanctions, [1.30] Law of agency apparent (or ostensible) authority, [15.280] breach of warranty of authority, [15.670] creation of agency, [15.100] expressly by deed, [15.110] by word of mouth, [15.130] by writing, [15.120] holding out or estoppels, [15.140] operation of law, [15.160] agency arising by cohabitation, [15.210] agency of necessity, [15.170] ratification, [15.150]

distinguished from other relationships, [15.20] agents classification, [15.60] capacity to act as principal and agent, [15.50] duties of an agent, [15.420] duty not to make a secret profit, [15.490] duty to act in good faith, [15.450] duty to act in person, [15.440] duty to exercise reasonable care and skill, [15.520] duty to follow principal’s instructions, [15.430] duty to make full disclosure, [15.480] further duties, [15.540] liabilities of agents to principal, [15.610] to third parties, [15.620] existence but not name of principal disclosed, [15.650] existence of principal not disclosed, [15.660] liability of principal and agent for misrepresentations, [15.680] for wrongful acts, [15.690] nature and scope of an agent’s authority, [15.220] actual authority, [15.230] actual express authority, [15.240] actual implied authority, [15.250] particular types of agents brokers, [15.870] directors, [15.890] estate agents, [15.900] factors and mercantile agents, [15.860] partners, [15.880] ratification, [15.390] rights of agents right to indemnity and reimbursement, [15.580] right of lien, [15.590] right to remuneration, [15.550] agent must be effective cause of sale, [15.560] statutory regulation of agents, [15.910] termination of agency, [15.740] agreement, [15.770] bankruptcy of the agent, [15.830] of the principal, [15.840] by death, [15.810] by insanity, [15.820] impossibility of performance, [15.760] performance or completion of agency, [15.750] renunciation by the agent, [15.850] revocation, [15.780] rights of the agent, [15.800] rights of third parties, [15.790]

13-Dec-18 10:14:01 PM

M Index Law of contract classification of, [2.50] bilateral and unilateral contracts, [2.90] contracts under seal, [2.70] express and implied contracts, [2.80] simple contracts, [2.60] unenforceable contract, [2.100] valid contract, [2.100] void contract, [2.100] voidable contract, [2.100] definition of, [2.30] essential elements of, [2.40] evolution of, [2.20] Law of partnerships capacity to be a partner, [16.40] charging a partner’s share, [16.410] continuance of business, [16.350] dissolution of partnership, [16.710] application of partnership property, [16.760] by partners, [16.730] by the court, [16.740] continuing authority, [16.750] final settlement of accounts, [16.770] operation of law, [16.720] firm name, [16.70] formation of, [16.20] goodwill, [16.390] liability of partners to third parties, [16.460] joint and several liability for wrongs, [16.670] joint liability for debts, [16.550] liability for “holding out” as a partner, [16.610] liability for crimes or civil wrongs, [16.620] liability for debts and obligations, [16.470] liability for misapplication of trust moneys, [16.680] liability of incoming partner, [16.560] liability of retiring partner, [16.570] limited partnerships, [16.780] incidents, [16.790] incorporated, [16.800] nature of evidence, [16.170] partnership act, [16.80] carrying on a business, [16.90] in common, [16.140] view to profit, [16.160] number in, [16.30] partnership property, [16.360] persons of unsound mind, [16.50] minors, [16.60] provisions in partnership agreement, [16.400] relationship of partners, [16.250] fiduciary obligation, [16.290] partnership act, [16.270] partnership agreement, [16.260]

38_Index.indd 545

relationship of partners to third parties, [16.420] actual express and actual implied authority, [16.430] apparent authority, [16.450] authority not implied, [16.440] retirement of partner, [16.330] revocation of guarantee, [16.340] Law of Torts breach of duty of care, [14.450] burden of eliminating the risk, [14.590] damages, [14.680] causation, [14.690] defendant’s conduct utility, [14.620] reasonable person test, [14.460] statutory reforms, impact, [14.520] gravity of harm, [14.550] statutory tests, [14.660] criminal law and contract law liability in tort and criminal liability, [14.20] torts and contract law, [14.30] defences to an action in negligence, [14.800] contributory negligence, [14.810] voluntary assumption of risk, [14.850] vicarious liability, [14.860] duty of care, [14.60] forseeability of harm, [14.100] duty of care in pure economic loss cases, [14.280] negligent acts causing pure economic loss, [14.290] negligent statements causing pure economic loss, [14.340] salient features, [14.340 duty of care in specific situations, [14.120] acts causing physical harm, [14.130] liability for omissions, [14.220] negligent acts causing mental harm, [14.170] negligence scope of the tort, [14.40] statutory reform, [14.50] remoteness of damage, [14.760] Law reports Australian Capital Territory Law Reports, [1.490] Commonwealth Law Reports (1903), [1.490] Federal Court Reports (since 1984), [1.490] New South Wales Law Reports, [1.490] Northern Territory Law Reports, [1.490] Queensland Reports, [1.490] South Australian State Reports, [1.490] Tasmanian Reports, [1.490]

545

Victorian Reports, [1.490] Western Australian Reports, [1.490] Legality of object illegality at common law, [8.180] contracts illegal at common law, [8.190] contracts void at common law, [8.330] illegal contracts, consequences, [8.530] contract is totally void, [8.550] money paid cannot be recovered, [8.560] related transactions void, [8.600] illegality under statute law contracts illegal as formed or performed, [8.120] contracts illegal by statute, [8.20] contracts void by statute, [8.170] express prohibition, [8.30] implied prohibition, [8.50] money paid recoverable, [8.630] severance and void contracts extent of invalidity, [8.610] severance and illegal contracts, [8.620] Liquidated damages, [12.310] Litigants, [1.390] Local courts, [1.450] M Mabo story Brennan J statement, [1.110] Deane and Gaudron JJ, joint judgment, [1.110] Meriam people, [1.110] Murray Islanders, [1.110] plaintiffs, [1.110] Queensland Government, [1.110] Redfern speech, [1.120] Magistrates courts, [1.450] Magna Carta, [1.340] Makarrata Commission, [1.250] Manufacturers’ liability for defective goods, [13.1520] liability of manufacturer circumstances in which liability arises, [13.1530] contributory negligence, [13.1580] defences, [13.1570] goods, [13.1550] limitation period, [13.1600] manufacturer, [13.1560] non-​exclusion, [13.1610] representative action, [13.1630] safety defect, [13.1540] work-​related injuries, [13.1620] liability of manufacturer to consumer, [13.1640]

13-Dec-18 10:14:01 PM

546

Concise Australian Commercial Law Manufacturers’ liability for defective goods — cont liability of manufacturer to seller, [13.1650] limitation of liability, [13.1660] product safety and information, [13.1680]

Negligence scope of the tort, [14.40] statutory reform, [14.50]

Ordinary damages, [12.280]

Negligent acts causing mental harm, [14.170]

P

Marriage brokerage, [8.350]

Negotiation, [1.600]

Married women, [6.180]

Nervous shock, [14.180]

Mediation, [1.610]

No liability companies, [17.110]

Mentally incapacitated persons, [6.170]

Nominal damages, [12.290]

Mere puffery, [3.30] Merger clause, [9.120] Minors, [6.20]

Negligent misrepresentation, [7.410]

Non-compliance effect, [5.390] Non est factum, [7.160] Non-​legal rules,  [1.20]

Original jurisdiction, [1.390]

Parol evidence rule, [9.30] Partners, [15.880] Partnership Act, [16.80] Partnership agreement, [16.260] Partnership property, [16.360] Past consideration, [5.80] Penalties damages, [12.310] Plaintiff, [1.50] Positive law, [1.20]

Misrepresentation under the Australian Consumer Law, [7.400]

O

Postal acceptance rule, [3.490]

OECD guidelines, [18.120]

Practical benefit test, [5.180]

Mistake as to nature of transaction, [7.160]

Offer and acceptance acceptance, [3.330] auction sales, [3.130] online sales, [3.160] tenders, [3.180] Australian consumer law effect, [3.120] and mere puffs, [3.30] communication, [3.200] electronic transactions acts consent, [3.590] production of documents, [3.580] signatures, [3.570] time of dispatch, [3.600] time of receipt, [3.610] validity, [3.550] writing, [3.560] invitations, [3.70] lapse, [3.280] request for information/​ counteroffer, [3.300] online contract, [3.520] option agreements, [3.230] question of certainty, [3.620] revocation, [3.220] rules as to acceptance, [3.340] to specific persons, [3.190]

Pre-​European Aboriginal and Torres Strait Islander, [1.70] difficulty in classification, [1.70] social systems and traditions, [1.70]

Online contract, [3.520]

Promissory or equitable estoppels general nature of, [5.230]

Mistake of fact, Effect of, [7.180] Mistake of law, [7.190] Modern slavery, [18.50] Moorcock, The, [9.560] Mutual mistake, [7.100] N Native title legislation, [1.130] amending the constitution, [1.240] interpret the constitution, [1.240] laws in relation to aboriginal and torres strait islander people, [1.240] referendum, [1.240] Australian States, constitutional development of, [1.150] representative government, [1.150] responsible government, [1.150] set a legislative council, [1.150] commonwealth constitution, [1.170] federal system, [1.140] federation movement, [1.160] Commonwealth of Australia (1901), [1.160] Constitution Bill (1900), [1.160] indigenous land use agreements, [1.130] objectives, [1.130] separation of powers, [1.180] executive, the, [1.210] judiciary, [1.230] legislature, the, [1.190] Natural law, [1.20] Necessaries, [6.40]

38_Index.indd 546

Online sales, [3.160] Operation of law, [15.160] Operation of the contract assignment, [10.130] by operation of law, [10.210] by statute, [10.170] in equity, [10.180] of liabilities, [10.150] of rights, [10.160] relevant definitions, [10.140] liability, [10.110] privity general principle, [10.20]

Prescriptive code, [18.140] Presumptively binding, expression, [6.150] Private law, [1.500] Procedural law, [1.510] Prohibition of unconscionable conduct remedies for contravention, [13.1180] unconscionable conduct, [13.1070] and small business, [13.1150] in connection with goods or services, [13.1110] Prohibition of unfair contract terms consumer contract, [13.1200] small business amendments, [13.1210] standard form contract, [13.1230] unfair, [13.1220]

Property law, [1.500] Proprietary, [17.120] Proprietary company, [17.80] Public companies, [17.80], [17.120] Public law, [1.500] Purposive approach, [1.290] Q Quantum meruit claim, [11.70]

13-Dec-18 10:14:01 PM

U Index R

Rule of law, [1.60]

Ratification, [15.390]

Rules as to acceptance, [3.340]

Reasonable consumer test, [13.1510]

S

Reasonable person, [17.330]

Shonky Awards, [18.70]

Reasonable person test, [14.460]

Simple contracts, [2.60]

Religious law, [1.20]

Sir John Kerr’s dismissal of Whitlam government (11 November 1975), [1.220]

Remedies depend on nature of breach where the contract is not terminated, [12.30] where the contract is terminated, [12.20] equitable remedies, [12.350] contract is for personal services, [12.370] contract would require constant supervision, [12.380] damages are an adequate remedy, [12.360] order is not mutually available, [12.400] injunction, [12.410] liquidated damages, [12.310] of damages, [12.40] and contributory negligence, [12.270] causation, [12.90] difficulty of quantifying damages, [12.190] duty to mitigate the loss, [12.150] exemplary damages, [12.300] measure, [12.50] nominal damages, [12.290] not usually recoverable, [12.210] ordinary damages, [12.280] penalties damages, [12.310] restitution, [12.420] basis of, [12.430]

Small claims tribunals, [1.480] Solicitors, [1.540] Sources of law, [1.260] delegated legislation, [1.320] extrinsic materials, [1.310] statute law, [1.270] statutes interpretation of, [1.290] making of, [1.280] Special agents, [15.70] Statement of fact, [7.260] Statutes, making of Bill introduction, [1.280] deadlock, [1.280] first reading, [1.280] second reading, [1.280] third reading, [1.280] Statutory construction, [1.290] Statutory duties, [17.320] Statutory reform, [14.50] Subordinate legislation, see Delegated legislation

Thomas Fuller, [1.30]

Substantial performance, [11.40]

Tort law, [1.500]

Substantive law, [1.510]

Trident case, the, [10.70] Triple bottom line, [18.80]

Replaceable rules, [17.160]

Supreme Court district courts or county courts, [1.440] original jurisdiction of, [1.430] single judge, [1.430]

Repudiation effect, [11.200]

Summary offences, [1.510]

U

T

Unconditional acceptance, [3.410]

Tenders, [3.180]

Unconscionable conduct, [7.530]

Terra nullius question mysteries, [1.90] new colony foundations, [1.90]

Undue influence, [7.470] effect of, [7.520] intra-family elder abuse, [7.490] presumption, [7.470]

Remedy of damages, [12.40] Remedy of rectification, [7.210] Remoteness, [12.90] Renard Constructions, [9.650]

Rescission, remedy of, [7.380] Residual powers, [1.190] Restitution, [12.420] Restraint of trade, [8.360] Restraint validity, [8.520] Retirement of partner, [16.330] Revocation of guarantee, [16.340] Royal Commission into Misconduct, [18.30] Royal Commission, Interim Report of, [1.60]

38_Index.indd 547

Termination and breach of a contract breach in fulfilling terms of contract, [11.210] of essential obligation, [11.230] frustration effects, [11.470] Victoria, [11.480] termination by agreement, [11.100]

547

termination by subsequent agreement, [11.120] termination under the original contract, [11.110] termination by breach, [11.130] conduct amounting to repudiation, [11.160] effect of repudiation, [11.200] repudiation before contract, [11.150] repudiation of contract, [11.140] termination by frustration, [11.250] application of doctrine, [11.260] changes in circumstances, [11.390] common objective, [11.310] death or illness, [11.280] destruction of subject matter, [11.290] governmental intervention, [11.340] limitations, [11.440] other supervening circumstances, [11.360] supervening illegality, [11.270] termination by operation of law, [11.490] bankruptcy, [11.500] merger, [11.510] termination by performance, [11.20] contract is entire or divisible, [11.30] innocent party has accepted partial performance, [11.70] substantial performance, [11.40]

Time for performance, [11.90]

Trust law, [1.500] Turnbull, Malcolm, [1.250]

Unenforceable contract, [2.100] Unfit for purpose, [13.1510] Unilateral contract, [2.90], [3.400] Unilateral mistake, [7.110]

13-Dec-18 10:14:01 PM

548

Concise Australian Commercial Law United Nations Convention against Corruption, [18.90]

Universal Declaration of Human Rights (1948), [1.340]

Victoria, [11.480]

United Nations Global Compact, [18.110]

Unlimited companies, [17.100]

Void words, [8.610]

Unsafe goods, [13.1510]

Voidable contracts, [2.100], [6.100]

V

W

Valid contracts, [2.100], [6.30]

Warranty, [9.170]

Vicarious liability, [14.860]

Wyong factors, [14.660]

United Nations Guiding Principles, [18.100] United States Bill of Rights (1791), [1.340] Universal agents, [15.90]

38_Index.indd 548

Void contracts, [2.100], [6.130]

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