Khaled is a retired motor mechanic who has a passion for collecting antique jewellery and precious stones. Khaled has a very basic English language skills and he also has a medical condition called myopia, which requires him to wear glasses every day. On 1 August Khaled saw an advertisement:
“Rare Siberian diamonds for sale. $5,000 for one carat. Interested? Call Julia on 123 456 or email
julia123456@diamonds.com
”.
Khaled tried to call Julia but she did not answer her phone, so instead Khaled emailed Julia on 1 August offering to buy diamonds worth $50,000. Two days later, still no email from Julia, so Khaled decided to call Julia again offering to buy $50,000 worth of diamonds. Finally, on 3 August Khaled managed to meet Julia and buy diamonds. Julia also introduced herself as a professional jewellery trader and expert and owner of a small business called “Diamonds are Forever”. Khaled and Julia became good friends.Julia knew that Khaled did not have good English language skills and she promised to help Khaled in case he needed help.
Two months later on 3 October Khaled saw another advertisement from Julia
“One rare antique diamond brooch from Queen Victoria’s time for $10,000 or the nearest offer. Interested? Call Julia on 123 456 or email julia123456@diamonds.com”.
Khaled was excited about buying this rare diamond brooch and promptly called Julia offering to buy it.
On 4 October on his way to meet Julia, Khaled realised that he left his glasses at home, but due to time constraints, he decided not to go back. When Khaled met Julia he was hesitant to buy the brooch because he did not have his glasses on, but Julia was very adamant and sounded reassuring and trustworthy. Julia said to Khaled “I guarantee that this brooch will make your collection richer and you will always be able to sell it for a double price because it is such a rare item.” Moreover, she told Khaled that the brooch belonged to her grandmother, who supposedly inherited it from her distant relative from Queen Victoria’s time. Khaled did not understand what Julia was saying and asked her to repeat it again. Julia also told him that the brooch had an antique seal dated back in 1860.
Khaled was still a little bit hesitant, and Julia knew that Khaled could not see properly without glasses and could not understand English well so she kept on telling Khaled that he was getting a really good deal and so on.
After one hour of deliberation Khaled bought the item and he came home to proudly inspect his new purchase. However, when he looked closely at the brooch through a magnifying glass, he discovered that this item was made from zirconium, not diamonds and the date sealed was 1960, not 1860. Khaled called Julia immediately and now he wants to return the brooch and get his money back. Julia refuses to cooperate.
REQUIRED
Advise Khaled of any common law claims he can successfully make against Julia, citing relevant Australian law.
(15 marks)
ANSWER GUIDE
Julia’s first advertisement is an invitation to treat, there is also subsequently offer and acceptance. But, formation of contract is not an issue here, so there is no need to analyse this. Julia’s second advertisement – offer and acceptance are again not at issue.
Are Julia’s statements terms or not?
Oscar Chess v Williams – consider the factors. If a term, what type of term has been breached: condition, warranty or intermediate term? Associated Newspapers v Bancks, Bettini v Gye, Hong Kong Fir Shipping. Better student mentions consequences of type of term breached, and measure of remedies (Hadley v Baxendale)
Misrepresentation
: The elements of misrepresentation should be discussed: (1) – Julia is making a false statement of fact about the subject matter – the brooch (2), and it is addressed to Khaled (3); moreover Julia is reassuring Khaled that the brooch is a genuine item etc; there is an inducement (4) –Khaled is hesitant to buy the brooch and Khaled would not have bought the brooch if the false statement was not made – he is unlikely to be interested in buying a fake item for $10,000. Students should discuss the types of misrepresentation that may apply on the facts. Fraudulent: Derry v Peek – rescission and damages. Negligent Misrepresentation: Shaddock v Parramatta City Council; Esso Petroleum v Mardon – rescission and damages. Innocent misrepresentation does not look likely, but if it were to succeed, Khaled may terminate the contract: Whittington v Seale-Hayne. Better students compare and contrast options.
Unilateral mistake
: may be argued on the basis that the year of the brooch is a fundamental matter and Julia sought to take advantage of the mistake: Taylor v Johson.
Unconscionable dealing
: Khaled has special weakness, Julia knows and takes advantage of it: Amadio.
Undue influence
: not a recognised relationship between Khaled and Julia, so Khald must establish that that she as the stronger party had a controlling influence over him: Johnson v Buttress.
QUESTION TWO
Gaslight Pty Ltd is a company that supplies and installs domestic gas appliances for its customers. All of the products supplied by Gaslight Pty Ltd are manufactured by city-based company, Fuel and Gas Products Ltd.
Zhiwang has just moved into his newly bought two-storey brick unit and has undertaken a thorough renovation of the premises. One of his prime concerns was the replacement of the house’s antiquated hot water system. He signed a contract with Gaslight Pty Ltd for the supply and installation of a brand new Triple Deluxe model water heater. The contract contained a clause statin that:
“the only guarantee applicable to the purchase of any products supplied by Gaslight Pty Ltd is the guarantee given by the manufacturer and Gaslight Pty Ltd shall not be liable whatsoever for any loss or damage caused by any defective product supplied by it.”
Attached to the contract was a brochure issued by the manufacturer containing the following statement:
“the manufacturer guarantees this product against defects for a period of three years and its liability is limited to the replacement and repair of any defective product”
On the first night after the installation of the Triple Deluxe model, Zhiwang was woken by the fire alarm. He rushed out of his bedroom to find that the laundry, where the hot water system was installed, was engulfed in flames. He was able to extinguish the fire but suffered extensive burns and was not able to work for six weeks. The laundry walls and ceiling were damaged by the fire, resulting in a $5,000 repair bill. It was discovered that the fire was caused by a manufacturing fault in the hot water system.
REQUIRED
Advise Zhiwang as to his rights under the Australian Consumer Law.
(15 marks)
Answer guide:
Zhiwang is a consumer – s 3 ACL – even if the hot water system costs less than $40,000, it is goods of a kind ordinarily acquired for person, household or domestic use.
The ACL consumer guarantees are non-excludable – acceptable quality: s 54; fitness for purpose: s 55; compliance with description: s 56.
Exclusion clauses are void: 64. Therefore he can sue the retailer for remedies for breach of these sections.
It is a major failure, providing for broad range of remedies: ss 259 and 260.
Zhiwang may also sue the manufacturer under s 271 where the consumer guarantees (ss 54 and/or 56) are not complied with. Section 272 provides damages. Section 276 renders the manufacturer’s exclusion clause void.
The manufacturer is also liable for loss resulting from safety defects (defined in s 9) to anyone injured (s 138) and for damage to other goods (s 140) and for damage to buildings (s 141). Section 150 renders the manufacturer’s exclusion clause as to liability under these sections void.
SECTION A
QUESTION ONE
Farah and Zhao went to the Exotique Teas Ltd shop as Zhao was particularly fond of tea. Oscar, the store manager, assisted them. Zhao began looking around for some specialised teas to help cure him of some of his physical ailments.
Zhao asked Oscar what type of tea would help his aching bone joints. Oscar quickly recommended turmeric and ginger tea. Oscar assured him that all aching bone joints would quickly disappear and additionally the tea would also assist with muscle aches. Zhao said he didn’t really care about the muscle aches as his muscles were fine.
Zhao then enquired about what type of tea would help him get rid of the ugly warts on his arms and hands. Oscar responded, “I have the perfect tea for you. This Tree tea has been known to remove all warts of all types. It will definitely remove those warts from your arms and hands.” Zhao was very delighted to hear this.
Zhao then immediately bought 10 kilos turmeric and ginger tea and 20 kilos of Tree tea for the total price of $3,000.
Zhao and Exotique Teas Ltd executed a basic contract which stated the type of teas, quantity and price. No other details were mentioned in the contract.
Zhao drank the two teas for a period of a month and began feeling quite ill. Farah rushed Zhao to the hospital and after extensive tests, discovered that the teas were actually harming Zhao. Zhao developed blood and colon problems and had to stay in the hospital for over a week to get all of the teas out of his system.
Additionally, his aching bone and joints were still a problem and none of his warts has disappeared. Zhao is extremely upset and want to sue Exotique Teas Ltd.
REQUIRED:
Advise Zhao as to his legal rights against Exotique Teas Ltd under both common law and the Australian Consumer Law.
(15 marks)
Guide to Answer to Question One
In common law, Zhao may sue Exotique Teas Ltd in negligence and in contract:
· Negligence in manufacture of teas: Donoghue v Stevenson – Duty of Care (“neighbour test”), Breach (reasonable person test), Damage caused by the Breach (causation – ‘but for’ test – and remoteness – Wagon Mound case)
· Negligent misrepresentation in advice/information about the teas: Zhao must establish (a) duty of care (Shaddock v Parrammatta City Council), (b) breach (reasonable person test, likelihood of injury – Bolton v Stone, gravity of harm – Paris v Stepney Borough Council, cost of eliminating the risk – Latimer v AEC), (c) causation and remoteness. Remedies in rescission and damages
· Fraudulent misrepresentation (Derry v Peek): rescission and damages
· Innocent misrepresentation (Whittington v Seale-Hayne): rescission only
· Breach of Contract: the promise regarding health qualities of the teas is a term of contract – either as a condition (Banks case) or warranty (Bettini v Gye). However, as the contract was in writing, need to deal with the parol evidence rule. The contract may be seen to be partly in writing and partly oral: Van den Esschert v Chappell) or the promise regarding the health qualities may be a collateral contract (De Lassalle v Guildford). Depending on whether condition or warranty breached, remedies include rescission and damages.
Under the Australian Consumer Law:
· Zhao is a consumer under s 3 of the ACL and may sue Exotique Teas Ltd for breach of s 54 (guarantee as to goods being of acceptable quality) and s 55 (guarantee as to fitness for purpose of teas)
· If Exotique Teas Ltd is the manufacturer of the teas, Zhao may also sue Exotique Teas Ltd under s 138 if Zhao can show that his injuries were caused by a safety defect in the teas. A safety defect is defined in s 9 of the ACL (goods not as safe as a consumer would expect them to be having regard to their marketing, packaging, time supplied, etc). If the defect did not exist at the time the teas were supplied by Exotique, Exotique would not be liable: s 142 of the ACL
QUESTION TWO
Zhen How and Ming Lui, a husband and wife, mortgaged their property to Central District Bank as security for a loan by the bank to Zhen How’s parents. Zhen How and Ming Lui subsequently divorced. Zhen How’s parents defaulted and the bank claimed possession of Ming Lui’s interest in the property.
Ming Lui said that she was induced to sign the mortgage because of Zhen How and her father-in-law’s influence on her and that she put trust and confidence in Zhen How and her father-in-law in relation to her financial affairs and followed their advice. She said that the bank was aware of this which put it on notice that the transaction was not for the benefit of Ming Lui, and that her father-in-law exercised control over the property in his children’s hands. Ming Lui wants a declaration that the mortgage is void and unenforceable.
REQUIRED:
Advise Ming Lui of any legal rights that she may exercise against Central District Bank.
(8 marks)
Guide to Answer to Question Two
The legal issue is genuine consent to enter into a contract. Ming Lui may claim that the bank acted unconscionably, knowing of her special weakness or disadvantage in relation to her father-in-law when she signed the mortgage. For unconscionability the following requirements must be met:
1. One party has a special weakness or disadvantage.
1. The other party knows of this weakness or disadvantage.
1. The other party uses or takes advantage of the weakness or disadvantage.
A special weakness or disadvantage may include age, emotional attachment and lack of education and ignorance of important facts:
Commercial Bank of Australia v Amadio
;
Bridgewater v Leahy
;
Louth v Diprose
. Ming Lui may also claim unconscionabiity under ss 20 and 21 of the Australian Consumer Law.
Another ground for voiding the mortgage is undue influence:
Allcard v Skinner
; Johnson v Buttress.
For undue influence, the following requirements must be met:
1. The parties to a contract are in a pre-existing relationship such that one party has controlling influence over the other.
1. The stronger party takes advantage of that influence such that the weaker party is not exercising their independent judgment when entering into the contract.
Ming Lui may also have a claim in economic duress. However this requires a threat to her economic or financial wellbeing to pressure them to enter into a contract. This is not evident on the facts but may potentially be implied from the controlling influence that her former father-in-law had. Duress requires that
1. One of the parties expressly or impliedly threatened the other party with (financial) harm;
1. The threat of the (financial) harm contributed to the threatened party’s decision whether or not to enter into the contract.
If this can be established the contract is voidable:
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd
.
QUESTION THREE
Tanika opened an accounting business and contracted with Millenium Computers Co. Ltd to supply her with a 2018 computer system by no later than April. The punctuality of delivery and installation of the system was a term of the contract.
Millenium Computers Co. Ltd was one month late in delivering and installing the system. Whilst the company was aware that Tanika would lose $20,000 in ordinary revenue if the system was late, it was unaware that Tanika had signed a contract to review the accounting systems of two other large companies. Tanika had entered this agreement with the expectation that the new computer and accounting software would be available to her.
REQUIRED:
Advise Tanika as to her right to damages for the lateness of the delivery and installation of the 2018 computer system.
(7 marks)
Guide to Answer to Question Three
Whether Tanika can succeed against Millenium Computers Co. Ltd for breach of contract for late delivery and installation of the 2018 computer system depends upon determining the issue of remoteness of damages.
This is covered by the rule in Hadley v Baxendale which allows a plaintiff to claim damages for breach of contract if either of the following two limbs is satisfied. Damages may be claimed:
1. where they naturally arise from a breach of contract or occur in the usual course of things; or
1. as may reasonably be supposed to have been in the contemplation of both parties at the time when they made the contract.
Thus, Tanika is likely to succeed in relation to $20,000 damages for the loss of ordinary business, but is unlikely to succeed in recovering damages for the loss of income relating to reviewing the accounting systems of the two large companies.
LAW2446 Commercial Law (SIM) Final Examination – Semester 2, 2017 1
LAW2446 Commercial Law (SIM) Final Examination – Semester 2, 2017 7
Commercial Law Revision
These revision notes are not intended to be a complete account of the course content. For more detailed information, please refer to the course texts, lectures and tutorials and other law resources.
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What is law?
Generally:
Legislation from Parliament
From bodies to whom the power has been delegated
Decisions from senior courts
The “law” can be classified in many different ways:
Common law and statutory law
Examine what specific areas law covers
Historical division of law into principles of common law and equity
Geographical limits: Common law system vs civil law system
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Government has 3 distinct areas of power:
Separation of powers doctrine: A concept inherited from England
Based on the idea that Government is divided into 3 separate and theoretically independent organs:
The legislature (Parliament), which makes the laws;
The executive (The Crown, the Ministry & the public service), which administers the laws; and
The judicature (The judges and the courts), which interprets, applies and enforces the laws
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Legislation
Australian States have their own Constitutions and generally the States are authorised to make laws “for the peace, order and good government” of the State
However these wide legislative powers must be understood in the light of the Commonwealth Constitution
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Australia’s Commonwealth Constitution
Gives the Commonwealth government both concurrent and exclusive legislative powers-
Concurrent: Those legislative powers shared with the states
Exclusive: Legislative powers that are only to be utilised by the Commonwealth Parliament
If there are powers not listed in the Commonwealth Constitution these may be regarded as residual and are therefore the domain of the State legislatures
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Sources of Law – Common Law
Law made by judges in adjudicating disputes is often referred to as Case Law or Common Law and it includes:
Decisions made by judges where no legislation applies; and
Judges interpretations of particular statutes and regulations
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Causing Harm:
Torts and Negligence
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Law of Tort
A tort is a civil wrong. It provides a mechanism whereby an individual can protect their personal and property rights.
If these rights are infringed, the victim may seek compensation from the wrongdoer.
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Law of Tort
There is some overlap between tort law and criminal law: a person’s act may involve both a crime and a tort,
eg assault, battery, theft/conversion.
However, criminal proceedings are taken in the name of the state, while proceedings in tort are taken by the injured person as private citizen.
The standards of proof differ:
in criminal action, it is “beyond reasonable doubt”
in civil action, it is “on the balance of probabilities”
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Tort versus Crime
Tort Crime
Aims to compensate Aims to punish
Initiated by individuals Initiated by state
Outcome is remedy for plaintiff Outcome is conviction or release of wrongdoer
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Types of Tort
There are a variety of torts, including negligence, trespass, battery, nuisance, defamation. They protect different rights:
right to physical integrity
right to protection of one’s reputation
right to peaceful enjoyment of one’s property
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Trespass
Forms of trespass:
to land (interference with plaintiff’s land without plaintiff’s consent)
to goods (interference with goods in possession of plaintiff without plaintiff’s consent)
to person:
battery: direct contract with plaintiff’s body without plaintiff’s consent (Rixon v Star City)
assault: threat causing plaintiff to anticipate contact with their person
false imprisonment
Defences
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Nuisance
Involves act that indirectly interferes with plaintiff’s use and enjoyment of private or public land
Two forms of nuisance:
private nuisance: interferences with use/enjoyment of private land
public nuisance: interference with use/enjoyment of public land
Remedies: damages and/or injunction
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Defamation
Publication of statement about plaintiff by defendant to a third party that would damage plaintiff’s reputation
Three elements:
statement was defamatory
statement identified the plaintiff
statement was published to a third party
Defences:
– Justification, absolute privilege, honest opinion
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Negligence
Negligence is a particular type of tort.
The law of negligence imposes a duty on a person to act with care towards others.
If this duty exists and there is a failure to act carefully and another suffers a loss, the tort of negligence has been committed.
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Negligence
To prove negligence, three steps must be fulfilled:
There is a duty of care owed by one party to the other
There must be a breach of that duty of care
The breach of the duty of care causes harm or damage.
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Situations where a duty of care arises:
Car drivers owe duty of care to other road user
Occupiers of premises owe duty of care to entrants
Suppliers of goods owe a duty of care to recipients
Solicitors owe a duty of care to their clients
Doctors owe a duty of care to their patients
manufacturers owe a duty of care to people who use their products
employers owe a duty of care to their employees
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2. Breach of Duty of Care
On establishing a duty of care, it is next necessary to show the defendant has in fact been careless: have they breached the standard of care?
Use the reasonable person test: how would he/she act in the shoes of the defendant?
If the defendant’s conduct falls below the standard of the reasonable person they have breached their duty of care.
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Breach of Duty of Care: Factors to consider
The probability that the harm would occur if care was not taken (Romeo v Conservation Comm’n of NorthernTerritory; Bolton v Stone)
The likely seriousness of the harm (Paris v Stepney Borough Council)
The burden of taking precautions to avoid the risk of harm (Latimer v AEC Ltd)
The social utility of the activity that creates the risk of harm (Watt v Hertfordshire County Council)
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3. Damage caused by Breach of Duty of Care
Two aspects to damage:
1. The damage suffered by plaintiff must be caused by the defendant.
Use the ‘but for’ test : Yates v Jones
2. The damage must not be too remote. Hence, only damage that is reasonably foreseeable is recoverable: the Wagon Mound case
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Defences to Negligence Action:
Contributory negligence:
– Court reduces damages to the extent plaintiff contributed to their own injury: Ingram v Britten and s 26 of the Wrongs Act 1958 (Vic)
Voluntary assumption of risk:
– a total defence
– plaintiff knows of and willingly accepts the risk of injury: Agar v Hyde
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Contract Law
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Introduction
A contract is a legally enforceable agreement
The law of contract encompasses many areas of commercial law, eg agency, partnership, banking
The law of contract is traditionally based on common law and precedent, however legislation has had a significant impact, eg Australian Consumer Law
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Elements of a contract
Three elements to form a contract:
Agreement (offer and acceptance), and
Intention to create a legal relationship, and
Consideration
Four elements to undo a contract:
Lack of consent, or
Lack of capacity, or
Lack of legality, or
Lack of formality
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Agreement
Before agreement there may be negotiations
Agreement is when there is a “meeting of the minds”
Agreement is determined objectively
Agreement consists of a clear offer and an unconditional acceptance of the terms of the offer
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Offer
Offers are a promise to be bound providing the terms of the offer are met
The “offeror” is the person making the offer, the “offeree” is the person to whom the offer is made
Offers can be:
– verbal
– in writing
– by conduct
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Offers must be distinguished from an invitation to treat
Advertisements are usually regarded as invitations to treat: Partridge v Crittenden
A mere display of goods for sale at marked prices is generally regarded as an invitation to treat: Pharmaceutical Society v Boots Cash Chemists
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An offeree can respond to an offer in 1 of 5 ways.
Offeree can:
Accept the offer in its full terms;
Reject it;
Make a counter-offer;
Ask for further information or clarification before making a final decision; or
Do nothing at all
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Termination of offers
Offers can be rejected by the offeree outright or in the form of a counter offer, but inquiries from the offeree to clarify the offer are not rejection: Stevenson, Jacques & Co. v McLean
Offers can be revoked or withdrawn by the offerror prior to acceptance
However the revocation must be communicated to the offeree before acceptance: Byrne v van Tienhoven
If the offeror uses the post to revoke the offer it is not effective until it is received by the offeree
Offers can lapse: Ramsgate Victoria Hotel v Montefiore
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Acceptance
Is the unconditional positive response to the offer
Must be in reliance on the offer
Must be unconditional and clear
Can be express or implied. Sometimes the conduct of the parties will lead to the implication that an agreement exists: Carlill v Carbolic Smoke Ball
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Intention to create legal relationship
If the agreement is of a social or domestic nature, the presumption is that there is no intention that the parties intended to be legally bound:
Balfour v Balfour
Serious economic consequences and evidence of writing can rebut the presumption:
Wakeling v Ripley
If the agreement is made in a commercial context, the court will presume an intention to be legally bound. But, this presumption may be rebutted:
Rose and Frank Co. v Crompton & Bros Ltd
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Consideration
Consideration is the value given by the offeree (promisee) for the offer/promise received from the offeror (promisor)
Defined in Curie v Misa
some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other
Consideration may be money but can be a promise to act, or do something or to refrain from certain actions
It can be a benefit flowing to the promisor, or to a third person at the promisor’s direction, or a detriment to the promisee
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Consideration continued
If consideration is the price paid for the promisor’s promise, then it must occur in response to the promise
It can’t be past consideration:
Roscorla v Thomas
Anderson v Glass
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Consideration need not be “adequate” but should be “sufficient”
The statement that consideration need not be adequate refers to the relative value of the promise and the consideration, ie if goods are sold well below their value it is irrelevant for the purposes of consideration:
Thomas v Thomas
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The statement that consideration should be sufficient refers to the actual existence of consideration
Consideration will not be sufficient if the consideration is:
a public or legal duty:
Glasbrook Bros v Glamorgan County Council
an existing contractual duty that has to be performed by one of the parties to the contract:
Stilk v Myrick
Hartley v Ponsonby
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Consideration
Payment of a sum lesser than agreed is not sufficient consideration (Foakes v Beer):
If the creditor accepts the lesser sum of money in full repayment of a greater amount, there isn’t any “new” consideration for the new agreement. The repayment is only a part of the original debt.
Exceptions:
Where debtor pays a smaller amount and adds something of value or pays the debt earlier than the due date
If a third party has entered into an agreement to pay a lesser amount in full settlement of the debt: Hirachand Punamchand v Temple
If the ‘practical benefits test’ is fulfilled: Musumeci v Winadell
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Promissory estoppel
This rule was traditionally used as a defence to prevent someone going back on their promise after the other party has acted in reliance on that promise and suffered detriment: Central London Property Trust Ltd v High Trees House Ltd
In Australia promissory estoppel can also be used as a cause of an action (a sword), not merely as a defence- Waltons Stores v Maher
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Elements of promissory estoppel
A pre-existing legal relationship between the parties under which rights either existed or were expected to be created;
A promise by one party that he or she will not insist on his or her strict legal rights
The promise gives rise to an expectation in the promisee that the promise will be honoured, even though it is not supported by consideration
Actual reliance by the promisee on the promise
An element of detriment in that the promisee is placed in a worse position when the promise turns out to be false
An element of unconscionability
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Consent
Contracts which are affected by the lack of real or genuine consent may be rendered void or voidable
Categories:
– mistake
– misrepresentation
– unconscionable conduct
– undue influence
– duress
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Mistake
Mistake may be about the existence of the subject matter, its qualities, the terms of contract, the identity of the other party
Under common law, mistake renders the contract void ab initio, hence its application is very limited
Equity allows for broader remedies:
– rescission
– rectification
– refusal of specific performance
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Mistake
Types of mistake: common, mutual, unilateral
Common: both parties make the same mistake. Renders contract void ab initio. But, must be fundamental matter.
McRae v Cth Disposals Commission: tanker never existed, so contract not void for common mistake
Leaf v International Galleries: mistake about quality not fundamental
Mutual: parties at cross purposes.
Raffles v Wichelhaus: contract void because no common agreement.
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Mistake
Unilateral: occurs when one party makes a fundamental mistake when entering the contract and the other is award of the mistake. Renders contract void or voidable.
Mistake as to terms of contract:
Smith v Hughes – seller knew buyer under mistake as to the age of the oats, but said nothing. Not void, unless seller promised that oats were old. Caveat emptor applies.
Taylor v Johnson – negotiations based on option to buy 10 acres at $15,000 per acre, but contract for total price of $15,000. Held: voidable because buyer acted unconscientiously, deliberately setting out to prevent seller becoming aware of the mistake
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Misrepresentation
This is where a person entered into a contract based on some existing fact or past event that is not true
Edgington v Fitzmaurice: to establish an action in misrepresentation, a party must prove that the representation:
is one of past or existing fact/s
is false
was addressed to the party misled before or when the contract was made
was intended to induce and in fact induced the other party into the contract
In sum, the party misled must have relied on the misrepresentation
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Misrepresentation
The misrepresentation is one of past or existing fact
– therefore it cannot be a statement of opinion. However, there are exceptions, eg if the representor never held that opinion or lied about it
The representation must be untrue
Silence alone is not a misrepresentation at common law. No duty to disclose material facts (caveat emptor applies)
However, there are some exceptions requiring disclosure:
When a ‘half-truth’ is made, ie when the representor has failed to make full disclosure
Subsequent discovery the statement is false
The statement was true when made but becomes untrue later: With v O’Flanagan
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Misrepresentation
The misrepresentation was addressed to the party misled before or when the contract was made
– Plaintiff must show they were the intended recipient of the false statement. Only those who directly or indirectly act on the false statement can obtain a remedy for the misrepresentation
The representation was intended to induce and had in fact induced the other party into the contract
Plaintiff must show the misrepresentation both intended to induce and was successful in inducing the contract
Has the innocent party suffered any loss?
If there is no damage suffered from the misrepresentation, there is no action
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Misrepresentation
Remedies:
Misrepresentation may make a contract voidable. This may give rise to the equitable remedy of rescission (or cancellation of the contract). The innocent party may also possibly claim damages. The types of remedies available depend on whether the misrepresentation was:
Fraudulent: rescission and/or damages for deceit are available (see Derry v Peek for the criteria for fraudulent misrepresentation)
Negligent: rescission and/or damages for negligence are available (see Shaddock v Parramatta City Council for the criteria to establish a duty of care in negligent misrep’n)
Innocent: rescission only: Whittington v Seale-Hayne
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Breach of s 18 of the Australian Consumer Law (misleading or deceptive conduct):
Use this as an additional or alternative action to misrepresentation
Apart from the common law action of misrepresentation, the plaintiff may also claim breach of s18 of the Australian Consumer Law (‘ACL’) (prohibiting misleading and deceptive conduct).
Remedies for breach of ACL s 18 include damages (s 236) and court orders to vary contract, to refund money or to return goods (s 237)
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Unconscionable Conduct
Where stronger party takes unconscionable advantage over weaker party’s special disability
Action in equity
Special disability defined as on which “seriously affects ability of innocent party to make judgment in own interests (Amadio’s case)
ACL s 20 prohibits person from engaging in conduct which is unconscionable within meaning of common law
ACL s 21 prohibits unconscionable conduct with supply or acquisition of goods or services
ACL s 22 lists specified matters court takes into account deciding whether there has been breach of s 21
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Undue Influence
Where ascendant party takes improper advantage of position of dominance over the dependent party
Certain classes of relationship give rise to presumption of undue influence: parent and child, solicitor and client, doctor and patient (Allcard v Skinner). May be rebutted.
If no particular relationship, dependent party must prove undue influence (Johnson v Buttress)
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Duress
Involves illegitimate pressure by stronger party on weaker party so as to procure a contract
Distinguish it from hard bargaining
May be actual or threatened violence (Barton v Armstrong)
May be economic duress: threats to a party’s economic interests, eg North Ocean Shipping v Hyundai Construction where defendant refused to continue with construction of ship unless received 10% more. Held: illegitimate pressure and plaintiff had no choice because had chartered ship to 3rd party.
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Capacity
Parties to the agreement must have the capacity to contract
The concept of capacity refers to the contracting parties being able to form an intention to be bound by the agreement
A party to an agreement who is under 18 years of age or who is mentally ill or under the influence of drugs/alcohol may not have the capacity to contract
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Minors contracts
Refer to contracts entered into with people under 18 years
General rule: Contracts can be entered into by minors
However. while such contracts are enforceable by the minor, they are not enforceable AGAINST the minor
Contracts for NECESSARIES such as clothing and shelter are valid and enforceable against the minor
The courts take into account the minors needs and standard of living in determining what is necessary
Contracts for employment, education and training are also valid and enforceable against the minor if it is for the minor’s benefit (Hamilton v Lethbridge)
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Legality
Contracts illegal under statute:
Need to look at wording of statute:
may only penalise the conduct, but not invalidate contract
may invalidate contract, but not penalise parties
may do both
Contracts illegal under common law:
– contracts to commit a crime or tort are void
– contracts in restraint of trade: use Nordenfelt test: a restraint of trade is prima facie illegal and void unless it is in the parties’ and the public’s interests. The restraint of trade must also be reasonable in time and space
– in employment contracts, restraint on confidential info may be valid (Forster v Suggett), but won’t extend to ordinary info and skills
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Contents of a Contract
The study of the contents of a contract concerns:
– identifying what are the terms of the contract
– interpreting their meaning
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Terms versus Representations
Why distinguish between contractual terms and representations?
How to distinguish them?
– fundamentally, terms are statements for which a party assumes contractual liability (unlike representations)
– use the Oscar Chess v Williams criteria:
How important was the truth of the statement?
How much time elapsed between the making of the statement and the final agreement?
Was there reliance on skills/knowledge of other party?
Was statement put in writing?
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Written Contracts
Parol Evidence Rule:
– if agreement in writing, presumed that writing contains all the terms. Any oral statements will not be admitted as contractual: Mercantile Bank of Sydney v Taylor
– but partly written, partly oral contracts are an exception: Vann Den Esschert v Chappell
If contract signed:
– parties bound even if did not read the document: L’Estrange v Graucob
– unless the signed contract was misrepresented: Curtis v Chemical Cleaning & Dye Co
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Collateral Contracts
They avoid harsh consequences of parol evidence rule
De Lassalle v Guildford:
– lessee would not give signed copy of lease unless lessor assured him the drains of property were in order. Later, discovered they weren’t. Held: could not sue for breach of the lease contract as the promise about drains wasn’t contained in that document, but could sue on a “collateral contract”
– collateral contracts require:
– promise
– which doesn’t contradict main contract
– consideration for collateral promise (normally, entry into main contract)
Also, consider the very powerful s 18 of the Australian Consumer Law (misleading and deceptive conduct)
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Conditions and Warranties
Terms may be conditions or warranties
Condition: vital to contract, so important that its non-performance is considered a substantial failure to honour contract. Remedies = rescission and damages
Warranty: not of central importance. If breached, injured party must still perform contract, but may sue for damages, not rescission.
How to distinguish between them? Use “root of the contract” test – is the term essential to the contract? ie would the party not have entered into contract but for strict performance of the promise:
– Bettini v Gye: breach of warranty, hence only damages
– Associated Newspapers v Bancks: breach of condition, hence both rescission and damages available
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Disclaimers or Exclusions Clauses
Two issues as to a disclaimer:
(a) incorporation – is it incorporated into the contract? Yes, if:
It is included in a signed written contract: L’Estrange v Graucob
It was brought to the other party’s attention by reasonable notice before the contract was formed: Thornton v Shoe Lane Parking; Causer v Browne
It is implied into the contract from prior dealings: Balmain New Ferry v Robertson
Interpretation – does it cover what it claims to cover?
Contra proferentem rule interprets disclaimer narrowly: White v John Warwick
Disclaimer does not cover conduct not falling within the ‘four corners’ of contract: Sydney City Council v West
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Remedies
(1) Rescission: termination of contract for breach of:
a condition:
– Associated Newspapers v Bancks
an intermediate term, breach of which has serious consequences:
– Cehave v Bremer
(2) Damages: available for breach of condition or warranty or for fraudulent or negligent misrepresentation
(3) Injunction: a court order restraining a party from doing an act
(4) Specific performance: a court order directing the breaching party to perform their contractual obligations
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Damages
Damages: compensate plaintiff for losses flowing from the breach.
Losses that can be recovered:
Use the rule in Hadley v Baxendale:
(a) damages are recoverable for direct losses, ie for losses that flow naturally from the breach
(b) damages are only recoverable for indirect losses (ie for losses that don’t ordinarily result from the breach), if the defendant was made aware of them before the contract
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Quantum of Damages
General damages compensate plaintiff for actual financial losses
Nominal damages may be awarded for the breach where there is no actual loss arising from the breach.
Damages may also compensate for loss of expected profits from the contract and cost of expenditure (McRae v Cth Disposals Commission)
Damages for distress and disappointment are not usually awarded in breaches of contract. However, if purpose of contract was to provide plaintiff with enjoyment (eg holiday travel), damages for distress and disappointment may be awarded: Baltic Shipping “The Mikhail Lermontov” v Dillon.
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End of Contract (or Discharge of Contract)
A contract can be discharged:
by performance of the contract
by agreement
by breach of the contract
by lapse of time
by law
by the doctrine of frustration
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Discharge by Performance
Contract discharged where both parties fulfil precisely their contractual obligations
Three exceptions:
1 if the contract is divisible
2 where partial performance is accepted: party who partially performed the contract may ask for a ‘quantum meruit’: Steele v Tardiani
3 if party has substantially performed their obligations, right to quantum meruit: Hoenig v Isaacs
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Discharge by Agreement
A contract can be terminated by another agreement
If one of the parties has completed their part of the contractual obligations then ‘accord and satisfaction’ will be required before the other party is released from their contractual obligations.
A contract may contain a term that allows one of the parties to terminate the contract.
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Discharge by Breach
If one of the parties to the contract commits an actual breach of a condition of the contract then the other party has the option to terminate the contract and claim damages for losses incurred as a result of the breach.
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Discharge by Frustration
Where an event occurs making completion of the contract impossible.
The event must:
Radically alter the contractual position of at least one party
Was not within the parties’ contemplation at the time of the contract
Was not caused by either party
It would be unjust to hold a party to the original contract
see Taylor v Caldwell; Krell v Henry.
Where a contract is frustrated all amounts paid are recoverable and all amounts payable cease to be payable: Australian Consumer Law and Fair Trading Act 2012 (Vic) s 36
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Consumer Protection:
Australian Consumer Law
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Australian Consumer Law (ACL)
In force since 1 January 2011
regulates misleading and deceptive conduct (s 18) and unconscionable conduct (ss 20-22)
provides guarantees:
– to “consumers” (defined in s 3)
– against suppliers (ss 51-57 re goods, ss 60-62 re services) that are non-excludable: s 64
– against manufacturers (ss 271-273 re goods)
that are non-excludable: s 276.
provides remedies to persons against manufacturers for
loss, damage, injury arising from goods with safety defects: ss 138-141
any exclusion of liability is void: s 150
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Consumer
Guarantees are provided to “consumers”
“Consumer” defined in s 3:
– a person is a consumer when the goods/services cost
– $40,000 or less; or
– if >$40,000, the goods/services are of a kind ordinarily acquired for personal, domestic or household use or consumption
– but, must NOT be for re-supply or to be used up or transformed in trade or commerce
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Guarantee as to acceptable quality: s 54
Under s 54, there is a guarantee that goods supplied to a consumer are of “acceptable quality”
Goods are of “acceptable quality” if they are as:
fit for all purposes for which goods of that kind are commonly supplied
acceptable in appearance and finish
free from defects
safe; and
durable
cont’d ….
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Guarantee as to acceptable quality: s 54
as a reasonable consumer fully acquainted with the state and conditions of the goods would regard as acceptable having regard to the following matters:
the nature of the goods
the price of the goods
any statements about the goods
Goods are of acceptable quality regarding aspects specifically drawn to the consumer’s attention: s 54(4)
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Fitness for any disclosed purpose: s 55
Under s 55, there is a guarantee that goods are reasonably fit for any disclosed purpose and for any purpose for which the supplier guarantees that they are reasonably fit
A disclosed purpose is a particular purpose for which the goods are being acquired by the consumer and that the consumer makes known to the supplier or manufacturer
The s 55 guarantee does not apply where the consumer did not rely, or that it was unreasonable for the consumer to rely, on the skill or judgment of the supplier or the manufacturer
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Other Guarantees:
Guarantee that the goods correspond to their description: s 56
Guarantee that in a sale by sample, the goods correspond with the sample in quality, state and condition: s 57
Guarantee that supplier has the legal right to dispose of the goods: s 51
Guarantee that the goods sold are not subject to any undisclosed security: s 53
Guarantee that manufacturer will ensure repair facilities and spare parts for a reasonable period after supply of goods: s 58
Guarantee that manufacturer and supplier will comply with any express warranties they have given: s 59
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Guarantees as to services: ss 60-61
Under s 60 there is a guarantee that services supplied to a consumer will be rendered with due care and skill
Under s 61 there is a guarantee that any services and any product resulting from the services will be fit for a purpose that the consumer made known to the supplier
Under s 62 there is a guarantee that services will be supplied within a reasonable time
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Remedies
are available:
to consumers
to persons who acquire goods from consumer as a gift (s 266)
the nature of the remedy available depends on the nature of the supplier’s failure to comply with the guarantee
if it is not a “major failure”:
– consumer may require supplier to remedy the failure within a reasonable time; if supplier does not remedy the failure, consumer may reject the goods or recover all reasonable costs in remedying the failure: s 259(2)
if a “major failure” occurs:
– consumer may reject goods or recover compensation for any reduction in value of goods below the price paid: s 259(3))
In either case, consumer may recover damages for any reasonably foreseeable loss or damage caused by non-compliance: s 259(4)
Similar remedies apply for breach of services guarantees: s 267
Exclusions of statutory remedies are void: s 64
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“Major failure”: s 260 for goods and s 268 for services
A “major failure” occurs where goods/services:
would not have been acquired by a reasonable consumer who was fully acquainted with the nature and extent of the failure
are substantially unfit for a purpose for which goods/services 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
are unfit for a disclosed purpose
are not of acceptable quality because they are unsafe
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Manufacturer’s Liability for Non-Compliance
“affected person” may recover damages from manufacturer if goods not of acceptable quality: s 271(1) ); or where goods don’t match description: s 271(4)
Damages against a manufacturer for breach of these guarantees cover:
(a) any reduction in the value of the goods
(b) any loss or damage that was reasonably foreseeable for breach of the guarantee: s 272
“Affected person” is:
a consumer
person who acquires goods from the consumer
person who derives title to the goods through the consumer: s 2(1)
Exclusions/modifications to statutory remedies are VOID: s 276
Manufacturer liable to indemnify supplier: s 274
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Manufacturer’s Liability for Goods with Safety Defects
Manufacturer liable:
to compensate an individual if goods supplied by it have a “safety defect” and the individual suffers injuries because of the defect: s 138
to dependents of individual for loss as a result of injuries to or death of individual caused by a safety defect: s 139
for loss of other goods ordinarily acquired for personal, domestic or household use (s 140) or loss of land, buildings or fixtures acquired for private use caused by the defective goods ( s 141)
Goods have a “safety defect” if “their safety is not such as persons generally are entitled to expect” having regard to manner in which marketed, packaging, instructions, warnings, etc: s 9(1)
Any exclusion of liability is VOID: s 150
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Starting a Business
Common types of business structure:
Sole trader
Partnership
Company
Trust
Sole traders and partners are personally liable for business debts.
A company, on the other hand, is a separate legal entity. Shareholders have limited liability.
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Topic
1
0: Dealing with Consumers: Specific Protections
Commercial Law
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1
Overview of this topic:
Specific prohibitions; and
Consequences of contravention
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Learning Outcomes:
What are the consequences of getting caught engaging in the prohibited conduct?
What are the consequences of a business failing to protect consumers’ information privacy?
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Reading materials
Chapter 11 (pages 361-377) of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
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Specific prohibitions
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AUSTRALIAN CONSUMER LEGISLATION:
Specific prohibitions
s 29 False Representations
A business must not make a false representation:
That its goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use.
That its goods are new,
That it has a sponsorship, approval or affiliation it does not have, with respect to the price of its goods or services,
Concerning the availability of facilities for the repair of its goods or of spare parts for its goods,
Concerning the place of origin of its goods, or
Concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.
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AUSTRALIAN CONSUMER LEGISLATION
Specific prohibitions
Section 35 Bait advertising
A business must not engage in bait advertising.
A business engages in bait advertising when it advertises a product at a price that is likely to attract buyers to its premises when it knows or should know that it is likely to run out of stock very quickly.
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AUSTRALIAN CONSUMER LEGISLATION
Specific prohibitions
Section 36 Wrongfully accepting payment
A business must not accept payment from a buyer when it either does not intend to supply the product or it knows or should know that it will be unable to provide the product within the specific time or a reasonable time
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AUSTRALIAN CONSUMER LEGISLATION
Specific prohibitions
Section 40 Assertion of right to payment for unsolicited goods.
Inertia selling is sending an unsolicited product to a person and then pressuring the person to pay for that product;
No right exists to assert payment unless seller reasonably believes that it in fact has a right to payment.
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AUSTRALIAN CONSUMER LEGISLATION
Specific prohibitions
If a business has sent an unsolicited product to a person, the person:
does not have to pay for it, and
is not liable for the loss of or damage to the product unless the loss or damage results from a wilful and unlawful act.
Section 41
After the expiry of a certain period, the product becomes the property of the person, free of charge.
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AUSTRALIAN CONSUMER LEGISLATION
Specific prohibitions
Section 44 Pyramid schemes
A person is prohibited from participating in, or inducing others to participate in, a pyramid selling scheme.
A pyramid scheme is a type of product distribution scheme whereby a participant makes a profit or receives a commission for the sale of each product to a buyer;
the participant is rewarded for the introduction of other participants to the scheme, usually by receiving a commission for each new participant.
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AUSTRALIAN CONSUMER LEGISLATION
Specific prohibitions
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AUSTRALIAN CONSUMER LEGISLATION: ACL Consumer guarantees
Recall the definition of a consumer. The ACL implies into contracts for the sale of goods to consumers, guarantees that:
the seller has title: ACL s 51;
the consumer will have undisturbed possession: ACL s 52;
there are no undisclosed securities: ACL s 53;
the goods are of acceptable quality: s 54;
the goods are fit for any disclosed purpose: s 55;
the goods correspond with their description: s 56;
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AUSTRALIAN CONSUMER LEGISLATION
ACL Consumer guarantees
the goods correspond with any sample or demonstration model in quality, state or condition: s 57;
the manufacturer will ensure that repair facilities and spare parts are reasonably available: s 58; and
the manufacturer will comply with any express warranties given in relation to the goods: s 59.
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AUSTRALIAN CONSUMER LEGISLATION
ACL Consumer guarantees
the services will be rendered with due care and skill: s 60;
the services, and any product resulting from the services, will be fit for any disclosed purpose: s 61; and
the services will be supplied to the consumer within a reasonable time: s 62.
Unlike the terms implied by the Victorian Sale of Goods Act 1958, these ACL guarantees cannot be excluded.
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AUSTRALIAN CONSUMER LEGISLATION: Consumer Guarantees, Remedies against manufacturer
DEFECTIVE PRODUCTS
Sections 271 – 272 provide for a claim in damages from manufacturer for breach of ss 54 or 56 by the retailer.
If there is a breach of either s 54 or s 56 or both by the retailer, the consumer or an affected person may sue the manufacturer for damages.
s 272 sets out the amount of damages which may be claimed, including the price of the goods.
s 276 prohibits exclusion clauses by the manufacturer.
Note the definition of a manufacturer: s 7(1) (a) and (e)
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AUSTRALIAN CONSUMER LEGISLATION:
Consumer Guarantees, remedies against manufacturer
SAFETY DEFECTS
Sections138 -141 deal with loss incurred by the consumer or an affected person in the event of a product having a safety defect.
s 9 Defines ‘safety defect’.
s 150 prohibits exclusion clauses by the manufacturer.
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AUSTRALIAN CONSUMER LEGISLATION
Information standards
ACL Pt. 3-4 regulates the use of information standards for goods or services.
s 134: An information standard sets out the form and content of the information that must accompany the supply of goods or services (for example, on the product packaging);
ss 136-7: A person must not, in trade or commerce, supply goods or services if the relevant information standard has not been complied with.
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Consequences of contravention
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AUSTRALIAN CONSUMER LEGISLATION
Consequences of contravention
If a business breaches a general prohibition it may be the subject of a civil action (e.g. it can be sued for compensation) but there are no criminal penalties.
If a business breaches one of the specific prohibitions it may be the subject of both a civil action and a criminal penalty such as a fine (the greater of $10 million, 3 x value of benefit or 10% of annual turnover for companies and $500,000 for individuals).
Penalties are also imposed for breach of any of the consumer guarantees.
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AUSTRALIAN CONSUMER LEGISLATION
Consequences of contravention
Remedies that can be granted by a court for contravention of the ACL include:
s 228 Pecuniary penalties;
s 232 Injunctions;
s 236 an order that the defendant pay damages to any person who has suffered loss because of the contravention:
s 237 a compensation order for injured persons;
s 243 an order declaring a contract void, varying a contract,
refusing to enforce a contract, ordering a refund, ordering
compensation, ordering repair of the goods, or ordering the
provision of services;
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AUSTRALIAN CONSUMER LEGISLATION
Consequences of contravention
s 246 non-punitive orders including orders directing the defendant to perform a community service, directing them to establish compliance and education programs for their employees, requiring them to disclose information, or requiring them to place an advertisement;
s 247 an adverse publicity order; and
s 248 an order disqualifying a person from managing a corporation.
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AUSTRALIAN CONSUMER LEGISLATION
Consequences of contravention
s 259: Where a business has failed to comply with a
consumer guarantee and the non-compliance is not a
major failure, the consumer can require the business
to remedy the failure within a reasonable time.
The business can remedy the non-compliance by:
curing the defect in title (if any),
repairing the goods,
replacing the goods, or
providing a refund.
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AUSTRALIAN CONSUMER LEGISLATION
Consequences of contravention
s 260: Where the non-compliance is a major failure or cannot be remedied, the consumer can:
reject the goods (that is, return the goods for a refund or a replacement) or
require the business to pay to the consumer the difference between the value of the goods and the price paid for them.
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Takeaways from today?
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Topic6: Contract Law: Terms of a Contract and Non-contractual Representations
Commercial Law
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1
Overview of this topic:
Express terms
Representations and promises
Terms implied by the court
Implied Terms and Statutory terms
Unenforceable terms
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Learning Outcomes:
What is a ‘term of the contract’?
What is the effect of a term being included in a written and signed contract? How can a term be included in a contract that is not in writing and signed?
When will the common law imply terms into a contract and what terms are implied into contracts by the sale of goods legislation?
What are disclaimers and how do they protect a party from the consequences of breach?
Are there types of contractual term that a court will not enforce?
What is the difference between a term and a non-contractual representation or promise? When will a non-contractual representation or promise be enforceable?
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Reading materials
Chapter 8 of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
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Express terms
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Express Terms
The terms of the contract are the specific details of the agreement, including each party’s rights and obligations.
Broadly speaking, there are two types of contractual terms: express terms and implied terms: terms may be implied either by the courts and/or any relevant statutory terms.
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EXPRESS TERMS: Representations and promises
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EXPRESS TERMS: Representations and promises
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EXPRESS TERMS: Representations and promises
At common law
The terms of a contract – what the contract contains – the rights and obligations agreed upon within it – are usually arrived at as a result of negotiations during which much may be said by both parties.
The crucial issue here, is then, to determine how much of what was said was intended to be a term of the contract?
This gives rise to the need to distinguish between statements which are considered to be part of the contents of a contract [terms] and those statements which were not [representations].
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EXPRESS TERMS: Representations and promises
At common law
REPRESENTATIONS
If the statement is not part of the content of a contract [a term], it is referred to as a ‘mere representation’.
A mere representation is a statement which has no contractual impact: Oscar chess v Williams [1957] 1 WLR 370
It stands outside the contract.
That does not mean that that statement cannot form the basis for a remedy under another heading just because it is not a term. It can.
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EXPRESS TERMS: Representations and promises
At common law
That remedy will lie in ‘Misrepresentation’, which is:
A statement of fact;
which is not true;
which stands outside the contract and
which induces someone to enter into a contract.
The misrepresentation may be:
Innocent: Derry v Peek; Whittington v Seale-Hayne
Negligent: Esso Petroleum v Mardon or
Fraudulent: Derry v Peek
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EXPRESS TERMS: Representations and promises
At common law
The remedies available are:
Innocent misrepresentation: Rescission only: Derry v Peek; Whittington v Seale-Hayne
Negligent misrepresentation: Rescission and damages in the tort of Negligent Misrepresentation: Esso Petroleum v Mardon
Fraudulent misrepresentation: Rescission plus damages in the tort of Deceit: Derry v Peek
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EXPRESS TERMS: Representations and promises
At common law
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EXPRESS TERMS: Representations and promises
At common law
PAROL EVIDENCE RULE
As an alternative to possibly constituting a misrepresentation, the statement made can constitute one of the exceptions to the parol evidence rule.
This possibility requires the discussion of both the rule and one of the exceptions to it – that the contract was partly written and partly oral.
The parol evidence rule provides that if the contract is fully and completely in writing, no oral evidence will be allowed to change the provisions of the written contract: Van Den Esschert v Chappell [1960] WAR 114
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EXPRESS TERMS: Representations and promises
At common law
One of the exceptions to the parol evidence rule provides that if the contract is partly written and partly oral, the court will allow evidence of the oral statement made: Van Den Esschert v Chappell.
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EXPRESS TERMS: Representations and promises
At common law
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EXPRESS TERMS: Representations and promises
At common law
If a court determines that the contract is partly written and partly oral, then that oral statement is considered to be a term of the contract. The next question to be determined is how important was the oral promise which is now a term?
Was it a condition? Associated Newspapers Ltd v Bancks (1951) 83 CLR 322
Was it a warranty? Bettini v Gye (1876) QBD 183
The difference between the two types of terms will determine the contractual damages and thus, remedy.
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EXPRESS TERMS: Representations and promises
At common law
COLLATERAL CONTRACTS
The final possibility of what the oral statement may be is that of a collateral contract.
De Lasalle v Guildford: [1901] 2 kb 215.
A collateral contract is a contract the consideration (payment) for which is the entry into of another contract.
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EXPRESS TERMS: Representations and promises
At common law
There are three prerequisites to the application of a collateral contract argument:
There must be no inconsistency with the main contract: Hoyt’s Ltd v Spencer (1919) 27 CLR 133
The statement made must be promissory in nature: JJ Savage & Sons Pty Ltd v Blakney (1971) ALR 92 and
There must be consideration given for the collateral promise made: De Lasalle v Guildford.
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EXPRESS TERMS: Representations and promises
Under Statute
Apart from these alternative arguments at common law, there may also be grounds for breaching certain statutory provisions of the ACL.
If the other party was tricked or deceived into entering into a contract they can commence a legal action using the statutory provisions in the ACL that prohibit misleading or deceptive conduct, false representations and other unfair practices: see Chapter 11 (covered later).
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EXPRESS TERMS
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EXPRESS TERMS: Signed documents
There are two ways by which a term becomes an express term of the contract:
by inclusion in a signed written contract.
by being brought to the attention of the other party by reasonable notice.
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EXPRESS TERMS: Signed documents
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EXPRESS TERMS: Signed documents
If a term is in a written contract that has been signed by the parties, it is a binding and enforceable term of the contract, even if one of the parties has not actually read and understood the written contract: L’Estrange v F Graucob ltd [1934] 2 KB 394
UNLESS
There is fraud or misrepresentation: Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805
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Express terms: Signed documents
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EXPRESS TERMS: Signed documents
In Curtis’ case the exclusion clause was on a ticket handed out by a dry cleaning company.
Normally, that would mean that this case belongs under the ‘unsigned’ documents heading.
But in that case, the dry cleaning company asked the client to SIGN the ticket (which had an exclusion clause on it) thereby bringing the case under the ‘signed’ document heading.
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EXPRESS TERMS: Signed documents
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EXPRESS TERMS: Signed documents
Situations where a signed contract may be unenforceable include:
cooling off periods, and
non est factum.
Cooling off periods
It is not uncommon to find a ‘cooling off’ provision in certain contracts today.
Where these provisions are contained in a contract, they provide a period for a signatory to the contract in which a party may change his/her mind and not proceed with the contract.
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EXPRESS TERMS: Signed documents
Non est factum
A latin phrase which literally means ‘it is not my deed.’ This phrase applies to situations where a party is mistaken as to the nature of the document signed.
EXAMPLE: I believe I am witnessing a document of receipt when in fact I am signing an option contract: Petelin v Cullen. There is usually an onus on the person who signed the document to show that that person had not been careless in signing the document. However the issue of carelessness does not apply where the plaintiff’s behaviour has not been innocent.
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EXPRESS TERMS: Signed documents
Petelin v Cullen (1975) 132 CLR 355
Petelin, who could not read English, signed a document believing it to be a receipt for $50. In fact, the document gave Cullen an extension on a previous option given by Petelin to Cullen to purchase Petelin’s land which Cullen did not exercise within the relevant period.
Cullen requested an extension of the option which Petelin signed not knowing that he was doing so. Cullen subsequently excercised the extended option but Petelin refused to sign a contract of sale and Cullen sought specific performance.
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EXPRESS TERMS: Signed documents
Cullen was unsuccessful because his real estate agent (acting on behalf of Cullen), had lead Petelin to believe that Petelin was signing a receipt for the payment of $50 which had previously been made by Cullen for the exercise of the original option (which had since run out) and which Petelin believed he was simply acknowledging in writing.
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EXPRESS TERMS: Signed documents
The issue of carelessness was irrelevant in the circumstances because the behaviour of Cullen’s agent (for which Cullen had to accept responsibility) was not innocent. In relation to the extended option sought, the agent had told Petelin that Petelin that was signing a receipt for the original option payment and that Petelin must sign the document.
Petelin believed what Cullen’s agent said in relation to the nature of the document and to the necessity for signing the document.
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EXPRESS TERMS: Unsigned documents
UNSIGNED DOCUMENTS
If a statement is not contained in a written and signed contract (unsigned document) it will only be an express term of the contract if the other party had reasonable notice of the statement
Unsigned documents are usually referred to as the ‘ticket’ cases – cases where a customer is given a ticket when goods are left in another’s care:
EXAMPLE: Dry cleaners, car parks, boot makers
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EXPRESS TERMS: Unsigned documents
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EXPRESS TERMS: Unsigned documents
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EXPRESS TERMS: Unsigned documents
Tickets are generally viewed as ‘vouchers’, ‘dockets’ or ‘receipts’ – a means of identifying the goods left in another’s care and paying for the services rendered in relation to those goods.
As a general rule therefore, tickets are not viewed as contractual documents. So any provision (such as an exclusion clause on a ticket) is not viewed as having any contractual significance: Causer v Browne [1952] VLR1
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EXPRESS TERMS: Unsigned documents
If however actual notice or reasonable notice is given of the existence of the exclusion clause, prior to the completion of the contract, then the exclusion clause will form part of the contract.
Actual notice exists where a party is advised of the existence of the exclusion clause and given a choice as to whether or not that party wishes to proceed with the transaction.
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EXPRESS TERMS: Unsigned documents
Reasonable notice occurs when everything that is reasonably required of a party to bring the existence of the exclusion clause to the attention of another party prior to the completion of a contract, has been done.
In that case, the exclusion clause will also be considered to be part of the contractual terms.
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
Thomson v London, Midland and Scottish Railway Co [1930] 1 KB 41
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EXPRESS TERMS: Unsigned documents
This necessarily means that
an exclusion clause
brought to the attention of another
after the contract has already been formed
will not be a term of the contract
because reasonable notice was not given prior to the contract’s completion.
Olley v Marlborough Court [1949] 1 KB 532
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EXPRESS TERMS: Unsigned documents
CONTRA PROFERENTUM RULE
If the exclusion is considered to be part of the contract for either reason, then the wording of that exclusion will be considered by a court in order to determine if the exclusion clause is appropriately worded to cover exclusion from the liability by the defendant for which the plaintiff is suing.
If there is ambiguity in the wording, the court will apply the contra proferentem rule and read the exclusion clause down and against the party seeking its application:
White v John Warwick & Co [1953] 2 All ER 1021
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EXPRESS TERMS: Unsigned documents
FUNDAMENTAL BREACH
When a party acts outside the contract in this way, usually, they will have committed a ‘fundamental breach’ of contract.
To commit a fundamental breach is to do something which is as bad as not performing the contract at all.
The court takes the view that if a fundamental breach has been committed by one of the parties, the law will presume (in case of ambiguity in the wording of the exclusion clause), that the exclusion clause was not meant to cover exclusion from that liability.
This means the defendant will not be able to rely on the ambiguous exclusion clause when sued by a plaintiff.
Sydney City Council v West (1965) 114 CLR 481
‹#›
EXPRESS TERMS: Unsigned documents
The court’s view is a presumption only and applies to ambiguously worded exclusion clauses.
That means that if the exclusion clause is carefully and precisely worded so that it leaves no room for doubt that it intends to cover exclusion from liability for a fundamental breach, then the court will give that exclusion clause effect.
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
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EXPRESS TERMS: Unsigned documents
Fundamental breach then is equal to non-performance of the contract.
Contrast this with the case where a party breaches a term of the contract – either a condition or warranty.
Breaching a condition or warranty occurs when someone is working within the contract and trying to perform it, but doing so, badly.
Fundamental breach, on the other hand, is going ‘outside’ the contract and its terms in such a way as not to perform the contract at all.
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Terms implied by the court
‹#›
IMPLIED TERMS: At Common law
AT COMMON LAW To give the contract legal effect. Courts are frequently willing to imply a term into a settled contract to ‘fill the gaps’, as long as it is:
reasonable and fair,
necessary to make the contract viable,
so obvious that it ‘goes without saying’,
able to be clearly expressed, and
consistent with the express terms.
Codelfa Construction Pty Ltd V State Rail Authority of NSW [1982] HCA 24
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IMPLIED TERMS: At Common law
Prior Dealings
On the basis of prior dealings between the parties:
The Balmain New Ferry Co v Robertson (1906) 4 CLR 379
‹#›
Implied Terms
Statutory terms
‹#›
IMPLIED TERMS:Under Statute
UNDER STATUTE: State Legislation
The Sale of Goods legislation is legislation on a State level and implies statutory terms that protect the buyer into contracts for the sale of goods;
Similar terms are implied into Consumer contracts by the ACL (Federal legislation);
(These are considered in Topic 10.)
A contract for the sale of goods is a contract where a seller transfers, or agrees to transfer, the ownership of goods to a buyer in return for a monetary price.
‹#›
IMPLIED TERMS: Under Statute
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IMPLIED TERMS: Under Statute
In the Goods Act 1958 (Vic), in every contract for the sale of goods there is an implied condition that the:
seller has title, i.e. the right to sell those goods to the buyer: s 17
goods will correspond with their description: s 18
the goods will be of merchantable quality: s 19 (b)
goods will be fit for their purpose: s 19 (a)
bulk of the goods corresponds with the sample: s 20
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IMPLIED TERMS: Under Statute
Section 18: Sale by Description
A seller will have breached the statutory implied term regarding sale by description if the goods are sold by description and they have failed to correspond to the description.
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IMPLIED TERMS: Under Statute
Section 19 (a): Implied Condition of Fitness for Purpose
A seller will have breached the statutory implied term regarding fitness for purpose if:
the contract is for the sale of goods;
the seller normally sells goods of that description;
the buyer has either expressly or by implication told the seller the purpose for which they were buying the goods;
the buyer has relied on the seller’s expertise;
the goods are not fit for the stated purpose; and
the buyer has not requested the particular goods by name.
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IMPLIED TERMS: Under Statute
Section 19 (b): Implied Condition of Merchantable Quality
A seller will have breached the statutory implied term regarding merchantable quality if:
the contract is for the sale of goods;
the buyer has relied upon a description of the goods;
the seller normally sells goods of that description;
the goods are not of merchantable quality; and
the buyer has not examined the goods or, if they have examined the goods, the defect is not one that would have been revealed by the examination.
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IMPLIED TERMS: Under Statute
The State legislation regarding the sale of goods only applies within the relevant State geographical area.
Each State has its own Act which contains similar provisions to other States.
As State legislation it is only relevant and binding in relation to the sale of goods within the relevant State.
Unlike the Sale of Goods legislation, the ACL (the Australian Consumer Law, to be discussed later), is Federal legislation which applies in exactly the same way and uniformly to every State and Territory within Australia.
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IMPLIED TERMS:Under Statute
The sale of goods legislation also implies statutory terms into contracts relating to:
Passing of ownership: ss 21-25 SGA
Acceptance: s 41-43 SGA
Payment: s 35 SGA
Delivery: s 36-40 SGA
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Unenforceable terms
‹#›
UNENFORCEABLE TERMS
The courts will also refuse to enforce a term that is:
An attempt to limit the court’s jurisdiction; e.g. a term that provides that in the event of a breach by one party, the other party is not permitted to commence legal proceedings, or
A restraint on trade if the restraint imposed by the term is unreasonable in terms of time, geographical area, and/or scope of business.
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Takeaways from today?
x
x
x
x
x
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58
—
Topic8: Contract Law: Remedies and Ending the Contract
Commercial Law
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1
Overview of this topic:
Remedies;
The end of the contract
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Learning Outcomes:
If the contract has been breached, when will the party seeking to enforce the contract be entitled to damages? When can they terminate the contract because of the other party’s breach? What other remedies are available in the event of a breach of contract?
How can a contract be terminated by agreement? When will a contract be frustrated?
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Reading materials
Chapter 9 pages 299-311 of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
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Remedies
‹#›
REMEDIES
If one party breaches:
a term of the contract,
a statutory term or (in some cases)
a non-contractual representation or promise,
and they are not protected from liability by an effective disclaimer, there are a number of possible legal remedies available to the other party, including:
Rescission,
Damages,
Equitable remedies, and/or
Statutory remedies.
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REMEDIES: Rescission
Rescission is an order of the court declaring a contract to be terminated or unenforceable in the event of:
Complete non-performance,
Breach of a condition,
Misrepresentation, or
Duress, undue influence or
Unconscionability.
The court will as far as possible seek to restore the parties to their original positions.
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REMEDIES: Rescission
Whether or not the other party is entitled to rescind the contract will depend upon:
Whether there has been a complete failure to perform or a partial performance, and
Whether the partial performance involves breach of a condition or of a warranty.
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REMEDIES: Rescission
A party will completely fail to perform if:
they make no effort to perform their contractual obligations or
their actual performance is completely different from what they were required to do under the contract [fundamental breach] or
prior to the time for performance they clearly indicate that they will not be performing their obligations (anticipatory breach).
A party will partially perform the contract if they comply with some of the terms of the contract but breach one or more of the other terms.
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REMEDIES: Damages
If there is a breach of a single term of the contract, whether the other party is entitled to terminate the contract will depend upon whether the term breached was a condition or a warranty:
A condition is a term of the contract of fundamental importance, a breach of which leads to rescission and damages for breach of contract.
Associated Newspapers v Bancks (correct spelling!)
A warranty is a term of lesser importance than a condition, a breach of which leads to damages only.
Bettini v Gye
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REMEDIES: Damages
The other party will be entitled to damages in the event of:
any breach of contract – whether total or partial, actual or anticipatory, condition or warranty, breach of a collateral contract, or
misrepresentation.
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REMEDIES: Damages
The objective of the court in making an award of damages is to restore the other party to the position they would have been in if the breach or misrepresentation had not occurred – that is, if the contract has been performed properly.
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REMEDIES: Damages
To claim damages, the plaintiff must come under one of the two branches of the rule in Hadley v Baxendale 156 ER 145
The first branch deals with damages which are the natural result of the breach (ordinary damages) and
The second branch deals with damages which should be in the contemplation of the parties as being the probable result of the breach (extraordinary damages).
If the plaintiff does not comply with either branch, damages will not be awarded.
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REMEDIES: Damages
The plaintiff is under an obligation to mitigate the loss – that is, to keep the loss down to a minimum.
If this is not done, the court will see the loss as inflated and that part of the damages which is inflated, will not be granted by the court.
Brace v Calder [1895] 2 QB 253
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REMEDIES: Equitable remedies
If the plaintiff can demonstrate to the court that an award of damages is not a satisfactory remedy, the court may decide to provide an equitable remedy, such as:
Specific performance, or
Injunction.
An order of specific performance is a court order directing the party in breach to fulfil the contractual obligations.
Dougan v Ley (1946) 71 CLR 142
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REMEDIES: Equitable remedies
An Injunction is a court order prohibiting someone from doing something which will amount to a breach of contract and/or law.
Buckenara v Hawthorn Football Club Ltd [1988] VR 39
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REMEDIES: Statutory remedies
If the term breached is one of the terms implied into the contract by the sale of goods legislation, the legislation provides a range of remedies.
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The end of the contract
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THE END OF THE CONTRACT: Agreement
Discharge By Agreement
Both parties agree to mutually release each other from any future obligations. A contract may be ended or discharged in this way if:
Neither party has yet performed the contract: If this occurs, then an exchange of promises will suffice (to constitute sufficient consideration), to end the contract.
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THE END OF THE CONTRACT: Agreement
If however, one of the parties has already performed his/her own obligations and the other has not performed some duties or at all, then the party who has performed can promise to unilaterally release the other party from complete performance of their obligations.
Such a promise must however, be supported by consideration from the party to whom it is made in order to be enforceable or must be in the form of a deed.
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THE END OF THE CONTRACT: Agreement and As a result of a term
The parties can mutually agree to replace the existing agreement with a new agreement on different terms. This agreement is known as a novation.
Discharge as a Result of a Term in the Contract
The contract may contain a condition precedent
that has been satisfied, or a condition subsequent that has also been satisfied.
The test is a positive one for both situations.
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THE END OF THE CONTRACT: As a result of a term
It asks: ‘What is the effect on the contract if the condition is satisfied?’
If the answer is: ‘the contract is to continue’, then the condition is a condition precedent.
Example: A contract to sell a house subject to the purchaser obtaining finance. Until the finance is obtained, the contract is ‘suspended’. When the finance is approved, the effect is that the contract will go ahead.
If the answer is: ‘It terminates the contract’, then the condition is a condition subsequent.
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THE END OF THE CONTRACT: As a result of a term
Example: An agreement between a seller of antiques and a client where the seller tells the buyer that the antique desk is 100 years old and adds: ‘If you subsequently find that the desk is not 100 years old, bring the desk back and I will refund you your money’.
In this instance, if the condition is fulfilled – if the buyer subsequently discovers that the desk is NOT 100 years old – the effect is to terminate the contract.
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THE END OF THE CONTRACT: Frustration
Discharge By Frustration
A contract will be terminated by ‘frustration’ if:
a supervening event makes performance of the contract either completely impossible or at least impossible to perform in the way originally envisaged, and
neither party caused the supervening event, and
the contract did not provide for the supervening event, either expressly or by implication, and
it is unjust to compel either party to proceed with the contract.
Taylor v Caldwell 122 ER 309
Codelfa Construction Pty Ltd v State Rail Authority of NSW.
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THE END OF THE CONTRACT: Frustration
When a contract is frustrated all outstanding obligations of the parties are discharged at common law.
Note the provisions of Australian Consumer Law and Fair Trading Act 2012 (Vic) which adjusts the losses incurred, between the parties.
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Takeaways from today?
x
x
x
x
x
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26
—
Topic
1
1: Managing a Business
Commercial Law
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1
Overview of this topic:
Managing a business: start-up;
Managing a business: business ownership; and
Managing a business: companies and corporate governance
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Learning Outcomes: Managing a business: Start-up
What should a person do first if they are thinking about starting a new business?
When will a business be required to register its business name, and how does it go about doing it? What licences will it need to apply for to conduct its new business?
Should the business lease its premises or own them outright? What is the difference between owning property and leasing property? What are the advantages and disadvantages of each?
When is a business allowed to be open for trading? What are the legal issues associated with setting up a website and acquiring a domain name?
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Learning Outcomes: Managing a business: Business ownership
What is a sole trader? What are the key features of the ‘sole trader’ business structure? What are the advantages and disadvantages of being a sole trader?
What is a partnership? What are the key features of the ‘partnership’ business structure? What are the rights and obligations of the members of a partnership?
What is a trust? What are the key features of the trust? What are the powers and rights of a trustee?
What is a franchise, and what are the benefits of becoming a franchisee? What are the rights and obligations of a franchisee?
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Learning Outcomes: Managing a business: Companies and corporate governance
What are the consequences of setting up a new business as a company? What are the advantages and disadvantages of this type of business structure?
How does the law regulate fundraising by companies?
How does the law regulate the relationship between directors and shareholders?
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Reading materials
Nickolas James’s Business Law (Wiley, 5th ed, 2020) Chapter 14;
Chapter 15; and
Chapter 16
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Managing a business: start-up Preparation
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MANAGING A BUSINESS: Preparation
Before a person starts trading, they should:
do some research,
protect the IP,
prepare a plan,
raise some money, and
take out insurance.
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MANAGING A BUSINESS: Business structures
When starting a new business one of the most important legal questions a person will have to answer for themselves is which business structure they will adopt. A business structure is the legal form of a business organisation. The most common types of business structure are:
The sole trader,
The partnership , and
The company.
These business structures are not mutually exclusive. Two or more companies, for example, can form a partnership.
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MANAGING A BUSINESS: Business structures
The person’s choice of business structure will have important consequences in terms of:
The ease and cost of setting up the business,
Their legal and financial liability,
The way they pay tax,
Their ability to raise finance, and
Their ongoing regulatory obligations.
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MANAGING A BUSINESS: Types of business structures
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Managing a business: start-up Licences and registration
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MANAGING A BUSINESS: Registering the business name
Unless a business owner proposes to carry on business under their own name (including their surname and first name, or surname and initials) they must register their business name in each State and Territory in which they propose to carry on business.
This requirement applies to sole traders and partnerships. If the business owner chooses to use a company and proposes to carry on business under a name different to the registered name of the company, the business name must be registered.
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MANAGING A BUSINESS: Registering the business name
The purpose of requiring registration of a business name is not to protect the business owner’s interest in the name but to protect the public by:
Making the identity of the person or company behind the business name publicly available and identifiable in the event of a problem, and
Avoiding the potentially misleading situation of having two businesses with the same business name.
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MANAGING A BUSINESS: Complying with licensing requirements
LICENCES
A business may require one or more licences from the relevant Federal, State or Local government body. Examples:
A licence to erect advertising signage
Registration of a swimming pool
Music and video licences
Vehicle registration
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Managing a business: start-up
Renting or buying the premises
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MANAGING A BUSINESS: Buying the premises
The process of acquiring ownership of real property is called the conveyance.
Under the old system of title, ownership is established by chain of title.
Under the Torrens system of title, ownership is established by registration.
When a person purchases real property they acquire:
The land,
The buildings, and
The fixtures (other than tenant’s fixtures).
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MANAGING A BUSINESS: Owning The Business
Advantages And Disadvantages
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MANAGING A BUSINESS: Leases
Most business lease (or rent) their premises rather than own them.
A lease is a contract with the property owner according to which the property owner grants the business owner exclusive possession of the leased property in return for the payment of rent and compliance with other obligations in the lease.
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MANAGING A BUSINESS: Leasing business premises. The Advantages and disadvantages
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Managing a business: start-up Opening for business
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MANAGING A BUSINESS: Shop trading hours
Under the relevant State/Territory trading hours legislation:
Monday to Saturday trading hours may be restricted and
Sunday trading may be prohibited outside of major towns and tourist precincts.
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MANAGING A BUSINESS: Setting up a website
A business can operate an online business 24 hours a day.
Domain name disputes can usually be resolved without resorting to litigation by using either the auDA or the WIPO dispute resolution process.
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MANAGING A BUSINESS: Setting up a website
The holder of a domain name must surrender that domain name if:
The domain name is identical or confusingly similar to a trade mark,
The domain name holder has no rights to legitimate interests on the name, and
The domain name has been registered and is being used in bad faith.
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MANAGING A BUSINESS: Online e-business resources
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Takeaways from this sub topic?
x
x
x
x
x
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26
Managing a business; business ownership:
The sole trader
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BUSINESS OWNERSHIP: Sole Trader
A person is a sole trader if they directly own and operate the business by themselves. A sole trader:
may engage employees but they are the sole owner of the business,
has sole responsibility for raising the funds to start the business,
has sole control over the operation of the business, and
is entitled to all of the profits of the business.
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BUSINESS OWNERSHIP: Sole Trader
The sole trader has unlimited personal liability for the debts and other legal obligations of the business.
There are no formal legal requirements that need to be satisfied to establish this type of business structure.
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Managing a business: business ownership:
The partnership
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BUSINESS OWNERSHIP: The Partnership
A person is a partner in a partnership if they and at least one other person directly own and operate a business together.
Mutual liability: Each partner is both the principal and the agent of the other partners.
Each partner has unlimited personal liability for the debts of the partnership.
Partnerships are regulated by State/Territory partnership legislation.
See: Partnership Act 1958 (Vic).
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BUSINESS OWNERSHIP: Forming A Partnership
There are no formal steps that need to be taken to form a partnership. A partnership is:
the relation which subsists between persons
carrying on a business
in common
with a view of profit.
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BUSINESS OWNERSHIP: Forming A Partnership
Persons: There can be no more than 20 partners (subject to certain exceptions).
Carrying on a business: There must be some continuity or repetition of trading activities.
In common: Each person must be acting on behalf of the others as well as on his/her own behalf.
With a view of profit: If the persons are carrying on a business together for a non-profit purpose they will have formed an unincorporated association rather than a partnership.
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BUSINESS OWNERSHIP: Partnership Agreement
The relationship between partners is a contractual one. The terms of the contract are set out in the partnership agreement which may be:
formal written document,
partly in writing and partly oral, or
wholly or partly implied from the conduct of the
partners.
A written partnership agreement is not essential to the existence of a partnership, but it is nevertheless a very good idea to have one.
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BUSINESS OWNERSHIP: Partnership Agreement
A written partnership agreement should set out:
The names of the partners and the name of the partnership
The nature of the business
The term of the partnership
Each partner’s contribution
Sharing of profits and losses
Authority of partners
Decision-making
Duties and obligations
Admitting new partners
Withdrawal or death of a partner
Dispute resolution
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BUSINESS OWNERSHIP: Authority Of Partners
The express authority of each partner is the authority expressly granted by the other partners. Partners have implied authority to act on behalf of the other partners in doing all the usual things that are necessary to carry on the business of the partnership, including authority to:
buy and sell trading stock,
hire employees, and
borrow money and charge the partnership assets.
‹#›
BUSINESS OWNERSHIP: Authority Of Partners
A particular partner may have apparent authority to act on behalf of the other partners. Apparent authority is the authority a partner appears to have, but does not actually have.
The other partners will be liable for the actions of a partner P relating to partnership business – including debts incurred by P and torts committed by P – unless:
P was not actually authorised to undertake that action on the other partners’ behalf, and
the person with whom P was dealing either knew that P was not authorised or did not know that P was a partner.
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Managing a business; business ownership: The trust
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BUSINESS OWNERSHIP: The Trust
A trust arises when one person, called the trustee, owns property (e.g. a business or real property) on behalf of beneficiaries.
The trustee is the legal owner of the trust property, and the beneficiaries are the equitable owners.
‹#›
BUSINESS OWNERSHIP: The Trust
‹#›
BUSINESS OWNERSHIP: Types Of Trust
The four principal types of trust are:
1. the express trust,
2. the implied trust,
3. the resulting trust, and
4. the constructive trust
‹#›
BUSINESS OWNERSHIP: Trustees And Beneficiaries
Trustees owe duties to the beneficiaries of the trust and have a number of powers and rights:
distributing the trust income and, eventually, the trust property in accordance with the terms of the trust deed,
preserving and protecting the trust property,
managing the trust property for the beneficiaries in the manner of a reasonable trustee.
‹#›
(See more on page 574)
42
BUSINESS OWNERSHIP: Trustees And Beneficiaries
Trustees have the power to:
lease or sell the trust property when necessary,
invest the trust property,
repair or improve the trust property, and
insure the trust property.
‹#›
BUSINESS OWNERSHIP: Rights Of Beneficiaries
Rights of the beneficiaries.
Right to direct the trustee to terminate the trust and distribute the trust property to them, unless the trust deed provides otherwise.
Insist the trustee provide them with up to date information and accounts relating to the management of the property.
They may also have the right to replace the trustee, or to appoint an additional trustee, depending upon the terms of the trust deed.
‹#›
(See more on page 575)
44
Managing a business: business ownership:
The franchise
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BUSINESS OWNERSHIP: What Is A Franchise?
A franchise is a contractual arrangement with a franchisor according to which the franchisor permits the franchisee to:
use the franchisor’s business name and/or trade mark,
manufacture or sell the franchisor’s products, and/or
use the franchisor’s business system.
‹#›
BUSINESS OWNERSHIP: What Is A Franchise?
In return the franchisee pays to the franchisor a regular fixed fee and/or a percentage of their income or profits.
A key feature of the franchise arrangement is that the franchisor and the franchisee are (usually) not partners, employer and employee, or principal and agent, but separate contracting parties who are generally not responsible for each other’s actions.
‹#›
BUSINESS OWNERSHIP: The Benefits Of Franchising
Benefits for the franchisor:
Growth of the franchise network is achieved using the financial and labour resources of the franchisee.
The franchisor need not be concerned with the day-to-day operation of each franchise outlet.
The franchise network has the potential to grow rapidly.
The manager of each outlet is the owner of the business, and will therefore tend to be motivated to be successful.
‹#›
BUSINESS OWNERSHIP: The Benefits Of Franchising
Benefits for the franchisee:
Joining an existing franchise is much less risky than attempting to start a stand-alone business.
The franchisor may provide detailed training.
The franchisee owns their own business.
The franchisee operates under the name and established reputation of the franchisor.
The franchisee will usually need less capital.
‹#›
BUSINESS OWNERSHIP: The Benefits Of Franchising
Benefits for the franchisee:
The franchisor may provide advice in identifying suitable trading locations.
The franchisee benefits from the franchisor’s advertising and promotional activities.
The franchisee benefits from the bulk purchasing power and negotiating capacity of the franchisor.
The franchisee has access to a large knowledge base.
‹#›
BUSINESS OWNERSHIP: Franchising Code Of Conduct
Franchising Code Of Conduct: Seeks to ensure that a franchisee is sufficiently informed about a franchise before entering into it by:
imposing significant disclosure obligations on the franchisor,
granting the franchisee a 7 day cooling off period, and
prohibiting certain terms in the franchise agreement, e.g. release of the franchisor from all liability.
Seeks to provide a cost-effective dispute resolution scheme.
‹#›
Managing a business: companies and corporate governance : The company
‹#›
MANAGING A BUSINESS: The Company
DEFINITION
A corporation is an artificial legal person
separate from its owners
able to make contracts,
own property and
be a party to litigation in its own name.
A company is a type of corporation; one incorporated under and regulated by the Corporations Act 2001 (Cth).
‹#›
MANAGING A BUSINESS: Types Of Corporation
‹#›
MANAGING A BUSINESS: The Company
CREATION BY REGISTRATION
A company is created by registration by the Australian Securities and Investments Commission (ASIC). A company must have:
at least one owner or member (usually called a shareholder), and
at least one director, who is responsible for managing the company’s business.
It is possible for the director and the shareholder to be the same person, although in larger companies there is a separation of ownership and control.
‹#›
MANAGING A BUSINESS: The Company
POWERS AND LIMITED LIABILITY
A company has a separate legal personality and can:
incur debts in its own name,
hold property in its own name,
be the plaintiff or the defendant in legal proceedings,
continue unchanged even if the owners sell it to another person, and
enter into legal relationships with the owners.
The owners are not liable for any debts or other obligations of the company beyond the subscription price of their shares.
‹#›
MANAGING A BUSINESS: Proprietary And Public Companies
‹#›
Managing a business: companies and corporate governance: Corporate finance
‹#›
MANAGING A BUSINESS: Borrowing By Companies
COMPANY BORROWING
The Corporations Act 2001 (Cth) closely regulates certain aspects of borrowing by companies.
A debt payable by a company is called a debenture.
A company charge is a security given by the company over some or all of its property in favour of a creditor.
There are two types of company charge:
a fixed charge, and
a floating charge.
‹#›
MANAGING A BUSINESS: Share Capital
A company’s share capital is the amount of money or assets contributed by shareholders when they subscribe for shares in the company. The most common classes of shares are:
ordinary shares, and
preference shares.
When a company is formed, a certain number of shares are issued to the initial shareholders.
The company may later decide to raise money by increasing the number of issued shares.
‹#›
MANAGING A BUSINESS: Disclosure Documents
Generally, a company must provide investors with a prospectus containing detailed information about the company and the shares before the investors decide to subscribe for those shares, unless the issue falls within one of the exemptions set out in the Act.
Any person who suffers loss or damage as a result of a defective disclosure statement is entitled to sue the company for damages.
‹#›
MANAGING A BUSINESS: Listing The Company
A listed company is a company that has elected to be admitted to the official list of the ASX and have one or more classes of its shares granted Official Quotation for trading on the stock market conducted by the ASX.
‹#›
Managing a business: companies and corporate governance: Corporate governance
‹#›
MANAGING A BUSINESS: Corporate Governance
The way in which a company is managed and controlled is known as corporate governance.
One of the distinguishing features of a large company is the division of decision-making responsibility between the board of directors and the shareholders in general meetings.
The specific powers of each body are defined by the company’s constitution as well as by the general principles of company law.
‹#›
MANAGING A BUSINESS: Corporate Governance
The directors have the power to generally manage the business of the company, and the shareholders are only entitled to vote on limited matters.
Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunninghame [1906] 2 Ch 34.
‹#›
MANAGING A BUSINESS: Corporate Governance
The internal governance rules consist of:
the replaceable rules set out in the Corporations Act 2001 (Cth),
a customised constitution, or
a combination of both.
‹#›
MANAGING A BUSINESS: Company Constitution
The company constitution will deal with matters like:
the appointment, removal and powers of the directors,
the procedure for convening and conducting board meetings,
the procedure for convening and conducting general meetings of shareholders,
any special rights attaching to classes of shares,
rules relating to dividends, and
rules relating to the issue and transfer of shares.
‹#›
MANAGING A BUSINESS: Company Constitution
The constitution has effect as a contract:
between the company and each shareholder,
between the company and each director, and
between the individual shareholders.
This means that the constitution is only capable of being enforced by another party to the relevant contract.
‹#›
MANAGING A BUSINESS: Company Directors
A director of a company must:
be an individual and not a company,
be at least 18-years-old, and
not be disqualified.
Different types of company have different requirements
Proprietary companies must have at least 1 director
Public companies must have at least 3 directors.
‹#›
MANAGING A BUSINESS: Company Directors
Executive and Non-Executive Directors.
Executive directors are involved in:
Full-time management of the company and
are employees of the company.
Non-executive directors are not employees of the company (they do not hold a role within the organisation structure)
‹#›
MANAGING A BUSINESS: Directors
(Direct And Indirect Action)
A company can act directly in any one of three possible ways:
the common seal (a stamp with the company name and ACN) is affixed to a written contract and signed by two directors,
a written contract is simply signed by two directors, without use of the company seal, or
any other procedure set out in the company’s constitution.
‹#›
MANAGING A BUSINESS: Company Agents
More commonly, companies act indirectly, through agents. An agent of a company – such as a director – can have:
Express actual authority
Implied actual authority or
Apparent authority
According to the indoor management rule, persons dealing with a company in good faith may assume
that acts within its constitution and powers have been properly and duly performed and
are not bound to inquire whether acts of internal management have been regular.
‹#›
MANAGING A BUSINESS: Directors’ Duties
‹#›
MANAGING A BUSINESS: Directors’ Duties
A director found to have breached one or more of their statutory duties may be:
disqualified from being a director,
fined up to $200,000 for each breach of duty,
ordered to compensate the company for any loss, and/or
ordered to pay to the company profits made as a result of the breach.
If the breach was deliberate and fraudulent they may be subjected to criminal penalties, including in some circumstances a jail term.
‹#›
MANAGING A BUSINESS: Shareholders
Position And Powers
Each shareholder is part-owner of the company. Shareholders have powers such as:
voting rights,
distribution rights, and
rights to receive information.
‹#›
MANAGING A BUSINESS: Shareholders
Position And Powers
Decision-making power is exercised by shareholders at general meetings.
Public companies are required to hold an annual general meeting at least once in every calendar year.
Companies may also hold:
extraordinary general meetings, and
class meetings.
‹#›
MANAGING A BUSINESS: Shareholders
Position And Powers
The types of decisions on which shareholders are usually entitled to vote include:
decisions relating to the structure or constitution of the company,
decisions relating to the composition of the board of directors,
decisions to veto certain transactions, including related party transactions by public companies, and
the decision to initiate a shareholders’ voluntary winding up.
‹#›
MANAGING A BUSINESS: Shareholders
Position And Powers
A shareholder who is dissatisfied with the way the company is being managed may be entitled to:
commence a legal action against the company if they can establish oppressive conduct,
seek an injunction to stop a director, shareholder or other person breaching the Corporations Act, and/or
bring a statutory derivative action in the event of a breach of duty by a director.
‹#›
Learning Outcomes:
Do contracts always have to be in writing and signed?
Can a child form a contract? What about someone who is intellectually disabled, mentally ill or intoxicated?
What if the contract is for an illegal purpose?
Who can enforce a contract, and when can they do so?
What if the other party to the contract made a mistake? What if they were pressured or threatened or manipulated by the party seeking to enforce the contract? What if the party seeking to enforce the contract took advantage of the other party? Is the contract still enforceable?
‹#›
Reading materials
Chapter 7 pages 243-254 of Nickolas James’s Business Law (Wiley, 5th ed, 2020) and Chapter 9 pages Chapter 9 pages 287-296
‹#›
Formalities
‹#›
Written contracts
Legislation requires certain contracts to be in writing and signed in order to be effective and enforceable, including:
Arbitration agreements;
Cheques;
Consumer credit contracts;
Real estate contracts; and
Transfers of shares.
‹#›
Written contracts
Even when a contract is not required by law to be in writing or signed by the parties, such formalities may still be desirable:
To encourage deliberation and reflection and to emphasise that the transaction has significant legal consequences,
To ensure the availability of reliable evidence about the existence of the contract,
To ensure the availability of reliable evidence about the terms of the contract, and
To indicate that the agreement was intended to be legally enforceable.
‹#›
Capacity to contract
‹#›
Capacity
A contract will only be enforceable if both parties have the legal capacity to enter into contracts. As a general rule, a party will not have legal capacity to contract if they are:
A minor, or
A person lacking intellectual capacity.
‹#›
Minors
The three types of contract that may be enforceable against minors are:
contracts for necessaries: Bojczuk v Gregorcewicz [1961] SASR 128
beneficial contracts of service: Hamilton v Lethbridge [1912] HCA 20; 14 CLR 236 and
contracts where the minor acquires a continuing interest or undertakes a continuing obligation (leases, the purchase of shares)
‹#›
Persons lacking intellectual capacity
If a party lacks intellectual capacity and purchases goods that are necessaries, they can be compelled to pay a reasonable price for those goods.
If the contract is not for the sale necessaries, the contract will still be enforceable against a person lacking intellectual capacity unless:
the person was not capable of understanding the nature of the agreement they were entering into, and
the other party knew or should have known of their lack of capacity.
Hart v O’Connor [1985] 1 AC 1000
‹#›
Legality
‹#›
Illegality under common law
Certain contracts categorised by the common law as illegal and unenforceable include:
Contracts to commit a crime or a tort,
Contracts that promote corruption in public office,
Contracts intended to evade the payment of tax, and
Contracts that prevent or delay the administration of justice.
‹#›
Statutory illegality
An agreement may be illegal because it breaches a statutory prohibition. The effect of breach of a statutory provision upon the validity and enforceability of the contract depends upon the wording of the statute itself. The statute may:
penalise the conduct of the parties but not invalidate the agreement,
invalidate the agreement but not penalise the parties, or
penalise the parties and invalidate the agreement.
‹#›
Privity Of Contract
‹#›
Privity Of Contract
As a general rule, a person who is not a party to the contract (a third party) cannot sue or be sued for breach of the contract. Only the parties to the contract may sue and be sued under that contract.
This is known as the doctrine of privity of contract: Price v Easton (1833) 4 B&Ad 433.
There are time limits placed on the time available for suing for breach of contract. Each State and Territory has relevant legislation dealing with this issue.
‹#›
Statutory Time Limits
‹#›
Privity Of Contract
One notable exception to this rule is that of the situation dealing with insurance contracts where even if someone is not party to such contracts, that party is nonetheless able to sue on that contract provided the party has been nominated in the insurance contract as one or a member of a class to which protection was intended to be extended [third party beneficiary].
Trident General Insurance Co Ltd v Mcniece Bros Pty Ltd (1988) 165 CLR 107
See also: s 48 Insurance Contracts Act (Cth) which has adopted this common law principle in that Act.
‹#›
Unenforceable contracts:
lack of consent
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
A contract will only be enforceable if both parties have entered into the contract willingly.
Matters involving a lack of consent are matters which have a negative impact on the contract.
They affect either the validity or the enforceability of that contract.
What one of the parties is arguing is that at the time of entering into the contract, that party did not genuinely and willingly consent to that contract because that party had been influenced by one or more of the following:
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Mistake
1. Mistake:
Unilateral,
Common or
Mutual.
2. Duress – either physical and/or economic
3. Undue influence
4. Unconscionable conduct.
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Mistake
1. Mistake
This doctrine does not use the term ‘mistake’ in the same way as it used in every day speech.
In order for the doctrine to apply, each type of mistake has pre-requisites which must be satisfied.
If the doctrine of mistake applies – irrespective of the type of mistake – the effect is that the contract is void from the beginning (void ab initio).
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Mistake
This is important because if the contract no longer exists, then generally, monies previously paid under it, may be reclaimed because they no longer belong to the person to whom they were previously paid.
Because of the extreme effect the application of this doctrine has on a contract, courts are reluctant to grant relief on the basis of this doctrine.
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Mistake
Unilateral Mistake
This occurs where only one of the parties makes a serious mistake about a fundamental aspect of the contract.
The other either knows or should know of the mistake made and they seek to take advantage of that mistake unfairly.
Unilateral mistake therefore, generally, though not always, involves the commission of a fraud.
Phillips v Brooks ltd [1919] 2 KB 243
Cundy v Lindsay (1878) 3 APP CAS 459
Hartog v Colin and Shields [1939] 3 ALL ER 566
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Mistake
Common Mistake:
Both parties are mistaken as to a fundamental aspect
of the contract
They both make the same mistake as to the existence of
the subject matter prior to the completion of the contract.
Scott v Coulson [1903] 2 CH 249
Mutual Mistake:
The parties believe they have reached an agreement but in
fact there has been no meeting of minds.
Raffles v Wichelhaus (1864) 2 H & C 906
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Duress
2. Duress
If one party compels the other party to enter into the contract by threatening negative consequences, they are said to have engaged in duress and the contract is voidable.
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Duress
The threat may be:
To the personal safety of the other party or to that of their loved ones,
To the safety of the other party’s goods or property – either is known as physical duress or
To the other party’s economic or financial well being, known as economic duress:
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Undue influence
3. Undue Influence
If one party has influence over the other party in a relationship which existed for some time and/or is currently in existence and ongoing, and they take advantage of that influence such that the other party is not really exercising their independent judgement, the contract will be voidable on the grounds of undue influence.
Johnson v Buttress (1936) 55 CLR 113
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Undue influence
There are two types of undue influence:
1. Fiduciary Relationships which are based on confidence and trust. Examples include:
doctor and patient,
lawyer and client,
trustee and beneficiary,
parent/guardian and child, or
religious leader and follower.
Allcard v SkinneR (1887) 36 Ch D 145
In such relationships undue influence will be presumed.
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Undue influence
2. Non-fiduciary relationships
Where the relationship is non-fiduciary, it will be up to the party claiming undue influence to establish that the other party had a controlling influence over their decision-making – that there was undue influence.
Examples include:
Spouse and spouse.
Principal and agent.
Employer and employee
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Unconscionability
4. Unconscionable Conduct (at common law)
A contract will be voidable due to unconscionability if one party has unfairly taken advantage of a special weakness or disadvantage on the part of the other party:
Commercial Bank of Australia Ltd v Amadio [1983] HCA 14
Louth v Diprose (1992) 175 CLR 621
‹#›
UNENFORCEABLE CONTRACTS: Lack of Consent
Unconscionability
4. Unconscionable Conduct (under Statute)
The doctrine of unconscionability has now been incorporated into the Australian Consumer Law (ACL): sections 20 – 23 (discussed later).
The ACL also seeks to address the use of unfair terms in consumer contracts: section 23 requires the term to be unfair and that the contract is a standard form contract.
‹#›
Takeaways from today?
x
x
x
x
x
‹#›
33
—
Topic9: Dealing with Consumers- General Protections
Commercial Law
‹#›
1
Overview of this topic:
Australian Consumer Legislation Protecting consumers; and
Dealing with consumers.
‹#›
Learning Outcomes:
Why do consumers deserve additional legal protection?
When marketing and selling to consumers, what kinds of conduct are prohibited?
‹#›
Reading materials
Chapter 11 (pages 343-361) of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
‹#›
Australian Consumer Legislation:
Protecting consumers
‹#›
AUSTRALIAN CONSUMER LEGISLATION:
Protecting consumers
The Australian Competition and Consumer Act 2010 (Cth), is Federal legislation (Statute law), which means it is law whose provisions apply uniformly (in the same way), throughout Australia.
The ACL is a Schedule of that Act.
The Act deals with many aspects of the way business is conducted in Australia – competition, fair trading and consumer protection being just some of those aspects.
The part of that Act being dealt with here is that which deals with the protection of consumers and is contained in the ACL.
‹#›
AUSTRALIAN CONSUMER LEGISLATION: Why protect consumers?
Consumers are seen to be entitled to additional protection under Australian law because when dealing with a business they are usually at a disadvantage.
The traditional rules of contract law offer little assistance to a consumer who is disadvantaged because of this inequality of bargaining power: the general rule is caveat emptor.
Consumer protection legislation [ACL], seeks to address the fundamental imbalance in bargaining power between business and consumers.
‹#›
AUSTRALIAN CONSUMER LEGISLATION: Why protect consumers?
Examples of consumer protection:
Implying additional terms into certain contracts to protect the consumer,
Prohibiting certain types of conduct by businesses,
Closely regulating certain types of transactions with consumers, such as those involving the handling of consumers’ personal information.
Applying significant criminal and civil consequences for businesses that are found to have contravened consumer protection laws, as well as the possibility of unwelcome media attention.
‹#›
AUSTRALIAN CONSUMER LEGISLATION: Why protect consumers?
In consumer transactions, unfair practises are widespread. The existing law is still founded on the principle known as caveat emptor – meaning ‘let the buyer beware’. The principle may have been appropriate for transactions conducted in village markets. It has ceased to be appropriate as a general rule. Now the marketing of goods and services is conducted on an organised basis and by trained business executives. The untrained consumer is no match for the businessman, who attempts to persuade the consumer to buy goods or services on terms and conditions suitable to the vendor. The consumer needs protection by the law and this Bill will provide such protection.
Senator the Hon L K Murphy QC, Senate Parliamentary Debates, 30 July 1974
‹#›
Dealing with consumers
‹#›
AUSTRALIAN CONSUMER LEGISLATION:
Consumer protection regulation
The Australian Consumer Law (ACL) is a Schedule to the Competition and Consumer Act 2010 (Cth).
The ACL protects consumers by prohibiting:
[a] Misleading or deceptive conduct generally,
[b] Unconscionable conduct,
[c] Unfair terms, and
[d] Various specific forms of prohibited conduct.
The ACL is administered and enforced by the Australian Competition and Consumer Commission (ACCC) and by the various State and Territory consumer protection agencies.
‹#›
AUSTRALIAN CONSUMER LEGISLATION: Meaning of ‘consumer’
Section 3 A person is defined as a consumer if: the goods or services acquired are:
[i] $40,000 and under and
the goods or services have not been acquired for the purpose of re- supply or
they are not being used up or transformed in a process of production or manufacture.
[ii] Above $40,000
The goods or services are of a kind normally used for household use and
They have not been acquired for re-supply, or
They are not being used up or transformed in a process of production or manufacture.
‹#›
AUSTRALIAN CONSUMER LEGISLATION
Meaning of ‘consumer’
‹#›
AUSTRALIAN CONSUMER LEGISLATION:
Misleading or deceptive conduct
Section 18: ‘A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’.
In establishing a breach of the section, the intention of the business is irrelevant.
Liability cannot be avoided by use of a disclaimer.
The range of remedies [discussed later] provided by the ACL for breach of this section is much wider than that available at common law for misrepresentation or breach of contract.
‹#›
AUSTRALIAN CONSUMER LEGISLATION:
Misleading or deceptive conduct
The section can be relied upon not only by consumers but also by interested members of the public and by other businesses, including competitors:
Eveready Australia Pty Ltd v Gillette
Australia Pty Ltd [1999] FCA 1824
‹#›
AUSTRALIAN CONSUMER LEGISLATION: Misleading or deceptive conduct
An action for contravention of s 18 ACL may be brought in conjunction with, or as an alternative to, an action for:
Negligence,
Passing off,
Defamation,
Breach of contract, or
Misrepresentation.
‹#›
AUSTRALIAN CONSUMER LEGISLATION
Misleading or deceptive conduct
Section 18 Requirements:
Meaning of ‘person’: The reference to ‘person’ means this term includes individuals and corporations.
Meaning of ‘trade or commerce’: Conduct that takes place in a non-commercial context (not in trade and commerce), will not be in breach of section 18.
Concrete Constructions (nsw) Pty Ltd v Nelson [1990] HCA 17
Durant v Greiner 21 NSWLR 199
Plimer v Roberts (1997) FCA 1361
‹#›
AUSTRALIAN CONSUMER LEGISLATION
Misleading or deceptive conduct
Meaning of ‘conduct’
A business will ‘engage in conduct’ if it makes a statement or a claim or a promise, performs an action, or refuses to do any of these things.
In certain circumstances, even silence can be conduct: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 42
‹#›
AUSTRALIAN CONSUMER LEGISLATION
Misleading or deceptive conduct
Meaning of ‘misleading or deceptive’
‘Mislead’ is usually interpreted as simply meaning ‘to lead astray’ or ‘to lead into error’, and
‘Deceive’ is interpreted as ‘to cause to believe what is false’.
In deciding whether conduct is misleading or deceptive the court will use an objective test: Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
‹#›
AUSTRALIAN CONSUMER LEGISLATION: Misleading or deceptive conduct
Meaning of ‘likely to mislead or deceive’.
To determine whether this requirement has been breached, 2 tests are applied: (transparencies 19-20):
The target audience must be identified and
The question must be asked as to whether the most naïve or gullible among them is likely to be mislead or deceived.
If the answer is ‘yes’, s 18 has been breached.
‹#›
AUSTRALIAN CONSUMER LEGISLATION
Misleading or deceptive conduct
Taco Company of Australia Inc v Taco Bell Pty Ltd:
First, it is necessary to identify the relevant section (or sections) of the public (which may be the public at large) by reference to whom the question of whether the conduct is, or is likely to be, misleading or deceptive falls to be tested.
Second, once the relevant section of the public is established, the matter is to be considered by reference to all who come within it, including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated, men and women of various ages pursuing variety of vocations.
[Note: Highlighting added for emphasis]
‹#›
AUSTRALIAN CONSUMER LEGISLATION
Misleading or deceptive conduct
FRANKI J, ANNAND & THOMPSON PTY LTD V TPC [1979] FCA 62
Broadly speaking, it is fair to say that the question is to be tested by the effect on a person, not particularly intelligent or well-informed, but perhaps of somewhat less than average intelligence and background knowledge, although the test is not the effect on a person who is, for example, quite unusually stupid.
[Highlights added for emphasis].
‹#›
AUSTRALIAN CONSUMER LEGISLATION
Misleading or deceptive conduct
A statement that is literally true can still be misleading or deceptive:Henderson v Pioneer Homes Pty Ltd (No 2) 1980 29 ALR 597
A statement that is not literally true is not necessarily misleading or deceptive.
Example: An advertisement which claims a soft drink will make you fly is obviously untrue. No one would believe it. It would be interpreted as a mere ‘puff’.
‹#›
AUSTRALIAN CONSUMER LEGISLATION:
Unconscionable conduct
A person will engage in unconscionable conduct if it unfairly takes advantage of another person’s special weakness or disability.
There are two types of unconscionable conduct prohibited by the ACL:
Unconscionable conduct generally: s 20 and
Unconscionable conduct when supplying or acquiring goods or services to, or from, a person other than a listed public company: ACL s 21.
‹#›
AUSTRALIAN CONSUMER LEGISLATION: Unfair terms
A term of a contract will be unfair in contravention of ACL s 23 and therefore void if:
The contract is a consumer contract;
The contract is a standard form contract; and
The term is unfair.
‹#›
AUSTRALIAN CONSUMER LEGISLATION
Unfair terms
A term of a consumer contract is ‘unfair’ if :
It causes a significant imbalance in the parties’ rights and obligations arising under the contract;
It is not reasonably necessary to protect the legitimate interests of the business; and
It would cause detriment to the consumer.
Director of Consumer Affairs Victoria v AAPT Limited 2006 VCAT 1493
‹#›
Takeaways from today?
x
x
x
x
x
‹#›
27
—
Topic5: Contract law: Forming a Contract
Commercial Law
‹#›
1
Overview of this topic:
Contracts;
Agreement;
Intention;
Consideration;
Note: capacity, legality and consent is covered later
‹#›
Learning Outcomes:
What is a contract?
When does a contractual agreement come into existence? What is an offer? Is an advertisement an offer? What is an acceptance? When is it effective?
How do we know whether the parties to an agreement intended that it be legally enforceable?
A promise is only enforceable if it is ‘supported by consideration’. What does this mean? Why is it that consideration ‘need not be adequate’ but ‘must be sufficient’?
How can a promise be enforced in the absence of consideration?
‹#›
Reading materials
Chapter 7 (pages 220-243) of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
‹#›
Contracts
‹#›
What is a contract?
‹#›
What is a contract?
A contract is a legally enforceable agreement.
Most contracts do not need to be in writing. Many contracts are made verbally, and some contracts are implied by the conduct of the parties.
Some contracts are formed and performed at the same time. With other contracts, one or both of the parties make a promise and therefore have an ongoing obligation once the agreement has been formed.
‹#›
What is a contract?
A contract is legally enforceable because it contains certain elements which make it so:
Offer
Acceptance
Intention
Consideration
Agreement (next)
‹#›
Requirement 1: Agreement
‹#›
AGREEMENT
‹#›
AGREEMENT: What is an agreement?
An agreement is a meeting of minds, and exists when two or more people share understanding and intention.
Many agreements are preceded by a period of negotiations.
Sometimes the existence of a finalised agreement can be deduced from the conduct of the parties.
At other times, the existence of a finalised agreement is less clear.
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AGREEMENT:
What is an agreement?
To have an agreement or to agree on something, of and in itself, does NOT give rise to a contract.
Agreement, or to agree on something means that the first two elements of a contract are in play:
Offer and
Acceptance
ONLY.
If the other elements – Intention and Consideration – do not eventuate, then there is no contract.
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AGREEMENT: What is an agreement?
That means you can have an agreement or you can agree on something without that agreement eventuating into a contract.
Example:
Agreeing to have dinner at a friend’s house – you will bring the wine, they will cook the food.
The elements of Offer and Acceptance are present here.
There is even Consideration because each party is promising to do something [discussed later].
But the element of Intention is missing.
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AGREEMENT: What is an agreement?
Clearly, there is no intention to sue another, if one of the parties cannot fulfill his or her promise.
Thus, a contract does not exist.
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AGREEMENT: What is an agreement?
So practically speaking, the components of Agreement (Offer and Acceptance) must be dealt with separately.
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AGREEMENT: What is an agreement?
‹#›
ACCEPTANCE
OFFER
AGREEMENT
AGREEMENT: Offer
‹#›
AGREEMENT: Offer
OFFER
A person makes an offer when they express a willingness to immediately enter into a contract with the person to whom the offer is directed.
An offer is a definite statement, which if accepted, creates a contract, provided the other elements of intention and consideration are also present.
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AGREEMENT: Offer
An offer must be communicated to the offeree:
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
in which the advertisement (which is generally an invitation to treat) was held to be an offer in this case and it had been communicated to the offeree (here, it was the world at large).
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AGREEMENT: Offer
The offeree can be one person, a class of persons, or the world at large: Carlill v Carbolic Smoke Ball Co.
An offer can be made in writing, verbally or indicated through conduct.
An offer must be distinguished from an invitation to treat [to deal]:
Carlill v Carbolic Smoke Ball Co and
Fisher v Bell [1961] 1 QB 394
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AGREEMENT: Offer
Examples of Invitations to Treat:
Advertisements
Catalogues
Circulars
Auctions
The display of goods in a shop
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AGREEMENT: Offer
In relation the first 3 headings, the general rule is that
they constitute invitations to treat.
BUT the appropriate wording in any one of them, may
indicate an intention to make an offer:
Carlill v Carbolic Smoke Ball Co
Fisher v Bell
‹#›
AGREEMENT: Offer
Carlill v Carbolic Smoke Ball Co – Advertisements
The company advertised its smoke ball with the claim that anyone who uses that smoke ball in accordance with the company’s instructions will not contract influenza and that if they did, the company would pay them 100 pounds. It added that as evidence of its sincerity in the matter, the company had deposited the sum of 1000 pounds with a certain bank to make good on its promise.
Mrs Carlill bought the smoke ball, used it in accordance with the instructions, but still contracted influenza.
She sued the company for the payment of 100 pounds.
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AGREEMENT: Offer
The company sought to argue that the advertisement was an invitation to treat – a puff – an advertising gimmick to get people’s attention.
Held: The wording of the advertisement was evidence that the company had made an offer.
This finding constitutes an exception to the
general rule that advertisements are invitations to
treat.
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AGREEMENT: Offer
Fisher v Bell – display of goods in a shop
The defendant displayed a flick knife in his shop window.
Certain legislation provided that it is an offence to ‘sell’ such an object or to ‘offer’ it for sale.
It was argued that the defendant had breached this legislation and that by placing the object in the shop window, the defendant had ‘offered’ it for sale.
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AGREEMENT: Offer
Held: the display of goods in a shop constitutes an invitation to treat and not an offer and that accordingly, the defendant was not in breach of the relevant legislation.
See also: Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 2 WLR427
in which the court reached the same conclusion with regard to the display of items on a shelf in a chemist shop.
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AGREEMENT: Offer
An offer can be:
Accepted by the offeree,
Rejected by the offeree, or
Revoked by the offeror.
Acceptance [by the offeree] must be absolute and unconditional [discussed later]. So to say ‘yes’ – only – to an offer, is to accept it absolutely.
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AGREEMENT: Offer
Rejection. To say ‘no’ to an offer is to reject the offer. If the offer is rejected, then it no longer exists and the offeree may not subsequently change his/her mind and purport to accept the offer which has been rejected. If it is to be accepted, the offer must be made again and accepted absolutely.
An offer is rejected by the offeree.
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AGREEMENT: Offer
Revocation. The revocation of an offer is something done by the offeror. To revoke an offer is to say that it no longer exists. After the revocation, there is nothing to accept:
Harvey v Facey [1893] AC 553
‹#›
AGREEMENT: Offer
An offer may be revoked by the offeror or a reliable third party at any time prior to acceptance by the offeree, unless an option contract has been created:
Harvey v Facey
Dickinson v Dodds (1876) 2 Ch D 463
Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674
‹#›
AGREEMENT: Offer
The offeror is entitled to revoke his/her offer even if the offeror has promised to keep the offer open for a particular period unless the offeree has paid for the promise of the offeror to keep the offer open [option contract]. For example, paying money to the offeror to keep the offer open for a certain time.
Goldsborough Mort & Co Ltd v Quinn
‹#›
AGREEMENT: Offer
An option contract is one which is separate from the main contract. It is a contract pursuant to which the offeree pays the offeror an amount of money for the offeror to keep the offer open for a specified time.
In this context, it is a contract to buy ‘time’. Nothing else.
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AGREEMENT: Acceptance
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AGREEMENT: Acceptance
ACCEPTANCE
When the offeree indicates by words or by action that he/she is willing to immediately enter into a legally enforceable contract with the offeror on the terms offered, the offeree is said to accept the offer.
Acceptance must be absolute and unqualified, otherwise it is a counter-offer: Hyde v Wrench [1840] Eng R 1054
‹#›
AGREEMENT: Acceptance
If the offer is accepted, an agreement (and possibly a contract) comes into existence from that moment.
If the offer has not been accepted or rejected, the offeror is entitled to revoke his/her offer.
Harvey v Facey.
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AGREEMENT: Acceptance
Acceptance must be communicated to the offeror: Powell v Lee (1908) 99 LT 284
The offeror can waive the requirement that acceptance be communicated:
This occurs in what are known as unilateral contracts where one party is promising to do something in return for the doing of an act:
Example:
The reward cases where one party promises to pay a specified amount in return for the finding and return of that party’s dog (the doing of something.)
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AGREEMENT: Acceptance
But they cannot insist that a failure to respond to the offer constitutes an acceptance:
Felthouse v Bindley [1862] EWHC CP J35
Acceptance may be communicated in one of two ways:
Postal acceptance rule: Adams v Lindsell (1818) 106 ER 250
Instantaneous communication rule: Entores Ltd v Miles Far East Corporation [1955] 2 ALL ER 493
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AGREEMENT: Acceptance
The result in the application of these rules is different in effect as to the place and time where the contract is concluded.
The postal rule provides that where the parties intend that the post is to be used as the means of communicating offer and acceptance, then acceptance of the offer occurs at the place and time the letter is posted: Adams v Lindsell
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AGREEMENT: Acceptance
It is irrelevant if the letter of acceptance is lost. The offeror is still bound by the acceptance even if the acceptance letter is never received.
This is so because the law takes the view that the offeror is in the position of dictating the terms of the offer and if the offeror does not want the postal rule to apply, then he/she may make this requirement a term of the offer.
If the offeror does not protect him/herself in this way, then the postal rule will apply as a matter of commercial convenience.
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AGREEMENT: Acceptance
The instantaneous communications rule: If this applies, the acceptance is completed at the time and place where it is received: Entores’ case.
Example: Face-to-face communications, discussions on the
phone and texts may be considered instantaneous in
nature.
If A is in Melbourne and B is in Queensland and A makes an offer to B which B accepts, the acceptance is completed in Melbourne at the time B hears the acceptance (the place it is received.)
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Requirement 2: Intention
‹#›
Intention
‹#›
Intention: Presumptions
INTENTION
The parties to the agreement must intend the agreement to be legally enforceable.
In deciding whether or not this requirement is satisfied, the court looks at the conduct of the parties from the perspective of an objective observer and asks whether the parties were behaving in a way that would indicate to a reasonable person that they intended the agreement to be legally enforceable.
In applying the objective test, the courts have traditionally made two important presumptions.
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Intention: Presumptions
If the agreement was made in a social or domestic context, the court will presume that the agreement was not intended to be legally enforceable: Balfour v Balfour (1919) 2 KB 571
This is a presumption only and may be rebutted (proven to be inapplicable) in the appropriate circumstances: Wakeling v Ripley (1951) 51 SR (NSW) 183
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Intention: Presumptions
If the agreement is made in a commercial or business context, the court will presume that it was intended to be legally enforceable.
Edwards v Skyways Ltd (1964) 1 ALL ER 494
But, a promise made to customers in a business context will not be enforceable if the promisor can show that the promise was clearly not intended to be taken seriously by customers.
Example: Mere puff.
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Requirement 3:
Consideration
‹#›
Consideration
‹#›
An agreement is not a contract unless both parties to the agreement have paid, or promised to pay, a price, called consideration.
Consideration is the ‘price’ paid for another’s promise.
The ‘price’ may take a number of forms:
Consideration
‹#›
Consideration
Consideration can take the form of:
the payment of money,
the provision of goods,
the provision of a service,
the undertaking of an onerous obligation,
refraining from doing something, e.g. agreeing not to sue, or
a promise to do any of these things.
Carlill v Carbolic Smoke Ball Co
‹#›
Consideration: Rules
Consideration may be:
Executory: promises have been made by the parties but have not yet been acted on.
EXAMPLE: The promise to pay for goods and the promise to deliver goods.
Executed
EXAMPLE: When the goods have been delivered and paid for.
The parties have done what was promised.
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Consideration: Rules
Past Consideration: But it may not be past consideration. Past consideration is no consideration at all because the doing of an act precedes the promise to pay.
EXAMPLE
A mows B’s lawn and B subsequently promises to pay for the mowing of the lawn.
Roscorla v Thomas (1842) 2 QB 851
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Consideration: Rules
Sufficient consideration must be distinguished from:
a vague promise: White v Bluett (1853) 23 LJ Ex 36
past consideration: Roscorla v Thomas
Performance of a prior contractual legal obligation:
Stilk v Myrick (1809) 170 ER 1168
Hartley v Ponsonby (1857) 119 ER 1471
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Consideration: Rules
Performance of less than the legal obligation:
Foakes v Beer (1884) 9 App Cas 605
According to the rule in Foakes v Beer, part payment of a debt is not sufficient consideration for a promise by the creditor to waive payment of the balance of the debt: ‘Payment of a lesser sum on the due date is no satisfaction of the whole’.
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Consideration: Rules
A promisee will have provided sufficient consideration for a promise to waive the balance of the debt if:
they make the part payment earlier than the originally
agreed due date;
they make the part payment in a different currency,
they accompany the part payment with additional consideration such as the provision of a service: Foakes v Beer; or
the part payment is made by a third party rather than the promisee debtor: Hirachand Punumchand v Temple [1911] 2 KB 330
‹#›
Consideration: Rules
The promise will also be enforceable if:
the agreement to waive the balance is in the form of a deed, or
the doctrine of promissory estoppel applies to the situation: Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130.
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Consideration: Rules
Promissory Estoppel is an extension of and exception to, the rule in Foakes v Beer that payment of a lesser sum on the due date is no satisfaction of the whole.
Promissory estoppel deals with situations where the plaintiff had promised to accept less than the plaintiff is contractually entitled to, and the defendant relied on that promise to the defendant’s detriment.
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Consideration: Rules
Central London Property Trust Ltd v High Trees House Ltd
In Central London’s case, a contract was in existence and one of the parties said it would not insist on its strict legal rights. The debtor there, was defending an action by the creditor for the payment of back rent which the creditor had previously promised to forego.
The creditor sued for a breach of contract and the debtor used promissory estoppel to defend the action. The debtor asked the court to stop the plaintiff from going back on the plaintiff’s promise to accept less than the plaintiff would otherwise be contractually entitled to, because the plaintiff had promised to do so.
‹#›
Consideration: Rules
Held: The debtor (defendant) was right to argue the defence of promissory estoppel. He did not have to pay the back rent because to do so would inflict a detriment on him, the detriment being that he would have to borrow monies to pay the back rent.
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Consideration: Rules
Compare this case with the later decision of
Waltons Stores (Interstate) Ltd v Maher (1988) 164
CLR 387
As a result of the latter case, promissory estoppel can
now be used to take action (sue) where only pre- contractual relations exist (that is, no contract needs
to exist between the parties).
So now, promissory estoppel may be used in one of two
ways:
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Consideration: Rules
The traditional way where there is a pre-existing contract whose provisions the plaintiff creditor agreed not to enforce, but subsequently goes back on the promise and sues the defendant/debtor who uses promissory estoppel as a defence: Central London Properties
To commence an action where no contract exists- only pre-contractual relations: Waltons Stores.
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Takeaways from today?
x
x
x
x
x
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61
—
Topic4: Carelessly causing harm; Negligence and Negligent Misstatement
Commercial Law
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1
Overview of this topic:
Carelessly causing harm to person or property;
Carelessly causing financial harm
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Learning Outcomes:
When will a person be legally responsible for carelessly harming the person or property of another?
When will a person be legally responsible for carelessly causing financial harm to another person?
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Reading materials
Chapter 6 of Nickolas James’s Business Law (Wiley, 5th ed, 2020):
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Carelessly causing harm to person or property
‹#›
Causing harm to
person and property
Financial harm
5
TORT OF NEGLIGENCE
TORT OF NEGLIGENCE
A person commits the tort of negligence if they carelessly cause harm to another person.
Negligence is by far the most common tort.
Most acts that cause harm to other people are the result of carelessness rather than intent.
Since the civil liability reforms following the insurance crisis the law of negligence is now a combination of case law and statutory rules.
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TORT OF NEGLIGENCE
Elements
TORT OF NEGLIGENCE:ELEMENTS
A person commits the tort of negligence if:
1. They owe the other person a duty of care; and
2. They breach the duty of care; and
3. Their breach causes the other person to suffer
reasonably foreseeable harm.
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TORT OF NEGLIGENCE: Elements
1.Duty of Care
In most cases the establishment of the existence of a
duty of care will be relatively straightforward, provided
that the relationship between the parties falls within the established categories of duty of care [slide 14].
But Note: These established categories exist because of the principles established in Donoghue v Stevenson (1932) AC 562.
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TORT OF NEGLIGENCE: Elements
1.Duty of care
To discuss liability under any one of the established categories would therefore, firstly require a reference to or discussion of Donoghue v Stevenson.
So the starting point in a discussion on Negligence must begin with Donoghue v Stevenson because it was as a result of what said in that case about the elements of Negligence – and in particular, the Duty of Care – that the established duties of care came to be known as such.
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Donoghue v Stevenson: Facts and Decision
Miss Donoghue consumed a drink in a café in Scotland that had been bought by her friend.
She became violently ill after consuming decomposed snail.
Then, a duty of care was only owed to people harmed by the negligent acts of others in specific and limited circumstances:
contract between parties
Manufacturer making something dangerous
Manufacturer acting fraudulently.
Therefore, as the law stood, Miss Donoghue could not take legal action over the snail in her ginger beer.
CLip
‹#›
Donoghue sued the manufacturer
She claimed that the
manufacturer was negligent – in
that he supplied contaminated
food.
That food caused her harm.
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TORT OF NEGLIGENCE: Elements
1.Duty of care
Issue:
Whether the manufacturer owed Donoghue a duty of care given that there was no contract between the parties and the manufacturer had not acted fraudulently.
It was held that he did. The court took the view that if a manufacturer sells a product which cannot be examined either by the distributor or the ultimate consumer, then that manufacturer owes a duty of care to ensure that the product is free from any defect likely to cause harm.
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TORT OF NEGLIGENCE: Elements
1.Duty of care
During the course of making its decision, the court (per Lord Atkin) made a statement which sets out the components which must be considered when determining whether a duty of care is owed.
This statement is contained in the next slide.
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13
TORT OF NEGLIGENCE: Elements
1.Duty of care
‘The rule that you are to love your neighbour becomes, in law, you must not injure your neighbour; 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, 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.’
[Emphasis added].
‹#›
TORT OF NEGLIGENCE: Elements
1.Duty of care
So remember that it is a result of the principles stated
in this decision that the established categories of duty of care came into existence because an examination of any of these established categories will reveal that they are based on what was said in that case.
Therefore, an answer on the issue of Negligence should start with Donoghue v Stevenson and then discuss the relevant established head of duty of care.
These established heads of duty of care are set out in
the following slide.
‹#›
TORT OF NEGLIGENCE: Elements
1. Duty of care
Established Categories:
Motorists owe a duty of care to other road users.
Doctors owe a duty of care to their patients.
Manufacturers owe a duty of care to people who use their products.
Occupiers owe a duty of care to people who come onto their premises.
Employers owe a duty of care to their employees.
‹#›
TORT OF NEGLIGENCE: Elements
1.Duty of care
Lord Atkin’s statement is referred to as the ‘neighbour’ principle and should be the first factor to be discussed when answering a question on whether a duty of care exists.
As the statement indicates, to discuss the issue of whether an individual is a neighbour at law also requires a discussion as to whether the harm was ‘reasonably foreseeable’:
Bourhill v Young [1943] AC 92
An accident occurred as a result of the motor cyclist’s negligent driving. The plaintiff did not see the accident but only the result of it. She suffered nervous shock and sued the motor cyclist.
‹#›
TORT OF NEGLIGENCE
Elements
1.Duty of care
Issue:
Whether she was owed a duty of care in the circumstances.
It was held that she was not because it was not reasonably foreseeable that the conduct of the motor cyclist would cause harm to the plaintiff.
Accordingly, she was not owed a duty of care.
See also: Chapman v Hearse 106 (CLR) 112
‹#›
TORT OF NEGLIGENCE: Elements
1.Duty of care
Finally, the plaintiff must show that the salient features of the case are consistent with the existence of a duty of care.
The salient features are those factors which the court will take into account when determining whether a duty of care exists.
Sullivan v Moody (2001) 207 CLR 562
‹#›
TORT OF NEGLIGENCE: Elements
1.Duty of care
Sullivan v Moody
In that case, the wife accused the husband of sexually abusing their child who was taken to a doctor for examination. The doctor prepared a report which he gave to the Department of Welfare which conducted an investigation but found that there was insufficient evidence to support the allegations made.
The husband subsequently developed a psychiatric illness and sued both the doctor and the relevant Department.
‹#›
TORT OF NEGLIGENCE: Elements
1.Duty of care
ISSUE
Whether he was owed a duty of care by the doctor and/or the Department of Welfare.
It was held that no such duty was owed by either.
In reaching its conclusion, the court considered the following factors:
Coherency in the law: The law of negligence cannot be used to prevent the passing of information about the husband because it would conflict with law relating to defamation.
‹#›
TORT OF NEGLIGENCE: Elements
1.Duty of care
Conflicting duties of care: If the doctor owed a duty of care to the husband as well as the child, this would create a conflict of interest because the doctor’s paramount duty is to the child’s welfare.
Indeterminate liability: If the court were to hold that a duty was owed to husband, then there was no reason why this duty could not be extended to others such as immediate or extended family or friends.
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TORT OF NEGLIGENCE: Elements
1.Duty of care
These considerations are what is referred to as the ‘salient features’ and after having taken these features into account, the court held that a duty of care was not owed to the husband by either the doctor or the relevant Department.
Note that another relevant salient feature is the extent of the control which the defendant exercised in the circumstances because this reflected on the extent of vulnerability of the plaintiff.
This is referred to as the ‘control’ test.
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TORT OF NEGLIGENCE: Elements
2. Breach of the Duty of Care
Once the duty of care is acknowledged, the second element which must be established is that of Breach of Duty.
There are two tests applied here:
The first relates to the establishment of the required standard of care.
That standard is that of a reasonable person.
This is a general, objective test which establishes what would be required of a reasonable person in the circumstances.
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TORT OF NEGLIGENCE: Elements
2. Breach of duty of care
Applying the objective test establishes whether the defendant failed to do what a reasonable person would have done in the same circumstances:
Imbree v McNeilly (2008) 236 CLR 510
McNeilly, a minor and without a driver’s licence, drove a vehicle in which Imbree was a passenger. Imbree new that McNeilly did not hold a driver’s licence but nevertheless allowed McNeilly to drive the vehicle. There was an accident in which Imbree was injured. Imbree sued McNeilly.
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TORT OF NEGLIGENCE: Elements
2. Breach of duty of care
Issue:
Whether McNeilly owed Imbree the same duty of care as another driver would owe to other drivers or whether, given his inexperience, the duty he owed was lower than that owed by a reasonable driver.
It was held that McNeilly owed Imbree the same level of care as a reasonable driver and that the fact that McNeilly was to the knowledge of Imbree, inexperienced, did not detract from that level of duty.
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TORT OF NEGLIGENCE: Elements
2. Breach of duty of care
The second test applies specific tests in order to establish whether the general standard required was breached in the circumstances:
Probability of harm: Bolton v Stone [1951] AC 850
Held: although it was reasonably foreseeable that the plaintiff could be hit by the cricket ball, the likelihood of this occurrence was so small that no other reasonable person would have taken any further precautions.
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TORT OF NEGLIGENCE
Elements
2. Breach of duty of care
The likely seriousness of the harm: Paris v Stepney Borough Council [1951] AC 367
Held: The council owed the plaintiff a duty of care. The plaintiff was partially blind as a result of a war injury but nonetheless was employed in a garage without the supply of goggles to protect his face. Whilst attempting to loosen a bolt, pieces of metal flew off it, hit Paris in the eye, and rendered him totally blind.
Given the nature of his injury and the dangerous work he was assigned to do, the court concluded that the council should have provided Paris with protective goggles.
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TORT OF NEGLIGENCE
Elements
2. Breach of duty of care
The burden of taking precautions: Latimer v AEC [1953] AC 643
Held: The duty owed to a worker had not been breached in the circumstances.
A flood had occurred which made factory floors slippery. The plaintiff slipped on the floor and sued the owner. The court said that the owner could have taken the precaution of closing the factory until the floors were dry but that to do so meant it would incur significant expenses. It concluded no reasonable person would have been required to incur such expense and that therefore, there had been no breach of the duty of care.
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TORT OF NEGLIGENCE: Elements
2. Breach of duty of care
The social utility of the defendant’s activity: Watt v
Hertfordshire County Council [1954] 1 WLR 835
Held: The council had not breached its duty of care to Watt.
Watt was a fireman who attended an accident to free a woman trapped under a heavy vehicle. A jack was needed. However, the truck specially fitted to carry the jack was not available. So, another truck was used but it was not equipped to secure the jack safely.
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TORT OF NEGLIGENCE: Elements
2. Breach of duty of care
The truck braked suddenly and Watt was injured when the jack fell on him. He sued the council.
It was held that the benefit such work provided to society –the saving of human life – outweighed the risk taken to drive the truck in an emergency without the normal safety procedure being adhered to. The court held that in such circumstances, there had not been a breach of the duty of care.
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Requirements to establish a breach of
duty
‹#›
TORT OF NEGLIGENCE: Elements
3. Damage
3. Damage
Damage is the third element of negligence which requires proving three components:
Causation
That means establishing that the breach of the duty of care caused the harm.
The plaintiff must establish that the careless act caused the harm, either directly or indirectly.
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TORT OF NEGLIGENCE: Elements
3. Damage
Yates v Jones (1990) Aust Tort Reports 81-109
Yates was injured in a car accident due to Jones’ carelessness. A visiting friend offered her heroin to help reduce the pain. As a result, she became addicted to heroin. In her action against Jones the cost of the heroin to which she had become addicted formed part of the amount she claimed.
It was held the accident had not caused her addiction. The heroin given to her by her friend had. Accordingly, that part of the claim was not compensable.
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TORT OF NEGLIGENCE: Elements
3. Damage
In establishing causation, the court applies the ‘but for’ test – but for the defendant’s breach, the plaintiff would not have incurred the harm sustained.
Reasonable Forseeability
This usually means that the actual harm must have been reasonably foreseeable.
‹#›
TORT OF NEGLIGENCE: Elements
3. Damage
Rowe v McCartney [1976] 2 NSWLR 72
Rowe was a passenger in a car which she had allowed McCartney to drive. As a result of McCartney’s negligence, an accident occurred as a result of which McCartney became a quadriplegic. Although Rowe only received minor injuries, she developed mental illness due to the guilt she felt regarding McCartney’s injury.
When she sued McCartney, she included the costs associated with her mental illness.
It was held that it was not reasonably foreseeable that the mental illness sustained by Rowe would result from the accident and was therefore not claimable.
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TORT OF NEGLIGENCE: Elements
3. Damage
Remoteness: The harm sustained must not be too remote from the breach of duty.
Wagon Mound (1) [1961] 1 All ER 404
Held that the damage sustained by a dock owner as a result of oil seeping from a tanker when that oil caught fire as a result of sparks from welding work being undertaken by the dock owner’s workers, was too remote from the breach of duty of care. It was not reasonably foreseeable that the seepage of oil would cause a fire and therefore the subsequent damage was too remote to be compensable.
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TORT OF NEGLIGENCE: Elements
4.Defences
4. DEFENCES
Even if the plaintiff has established all three elements of the tort of negligence, the defendant can still avoid liability, either completely or partially, if they can establish the existence of one or more defences:
Voluntary assumption of risk
This defence is available to the defendant if that party can prove that the plaintiff was aware of the risk but nonetheless was prepared to assume that risk.
If this argument is established, it constitutes a complete defence to an action in negligence. Therefore, it is used if one party only (the plaintiff) is responsible for the harm: Rootes v Shelton (1967) 116 CLR 383
‹#›
TORT OF NEGLIGENCE: Elements
4.Defences
Rootes v Shelton (1967) 116 CLR 383
The plaintiff was waterskiing when the defendant who was driving the boat, drove too close to a boat, thereby causing the plaintiff injury.
When sued, the defendant argued that waterskiing was a risky sport and that the plaintiff had voluntarily assumed the risks associated with that sport, when he agreed to waterski.
Held: The cause of the injury was the boat being driven too close to another moored boat and therefore, the defendant’s actions had caused the injury. The injury had not been caused by any assumption of risk on the part of the plaintiff which was related to the sport.
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TORT OF NEGLIGENCE: Elements
4.Defences
Contributory negligence
If it can be established that the plaintiff contributed in some way to their own loss or injury, liability will be apportioned between the defendant and the plaintiff.
This defence is therefore only a partial defence and, if applied, will only be effective to reduce the amount of the plaintiff’s damages, not to negate the entire action in Negligence:
Ingram v Britten
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TORT OF NEGLIGENCE: Elements
4.Defences
Ingram v Britten [1994]
Ingram drove a tractor belonging to Britten at excessive speed and injured himself. The tractor was not fitted with a metal frame to protect the driver.
Held: Both parties had contributed to the injuries sustained by Ingram and the damages were reduced according to the degree to which each party had contributed to the resulting injury.
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TORT OF NEGLIGENCE: Elements
4.Defences
Other defences include:
Barristers’ immunity;
Volunteers’ immunity;
Emergency service providers’ immunity; and
Compliance by professionals with standard practice.
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TORT OF NEGLIGENCE: Occupier’s liability
Invitees
The issue as to whether an occupier of property owes a duty of care to those who enter it, is relevant in two circumstances:
Invitees
An occupier of premises owes a duty of care to all persons legally entering the premises to ensure that the premises are safe.
Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479
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TORTY OF NEGLIGENCE: Occupier’s liability
Invitees
Australian Safeway Stores Pty Ltd v Zaluzna
While shopping on a rainy day, Zaluzna slipped on a wet floor near the entrance.
Held: The owners of the store owed Zaluzna a duty of care according to the basic principles of negligence.
In other words, in addition to being a ‘neighbour’ under Donoghue v Stevenson, she was also owed a duty of care as an invitee onto the premises. The duty of care owed under either heading, was the same.
See also: Phillips v Daly (1989) 15 NSWLR 65
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TORT OF NEGLIGENCE: Occupier’s liability
trespassers
Trespassers
Does an occupier also owe a duty of care to people who are on their premises without their permission? The issue of whether the duty owed to invitees can be extended to trespassers was discussed in two cases:
Hackshaw v Shaw (1984) 155 CLR 614
A farmer suspected that his petrol was being stolen and caught the culprit in the act. The farmer, who was carrying a rifle, fired a shot at the tyres of the car to stop the culprit from leaving, but hit the front car passenger door. Unknown to the farmer, someone was hiding in the front section of the car and was hit by the shot.
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TORT OF NEGLIGENCE: Occupier’s Liability
Trespassers
The injured person sued the farmer and the issue was whether the farmer (occupier) owed the trespasser a duty of care.
Held: The farmer owed the trespasser a duty of care because it was foreseeable that there may be a passenger in the car and that firing the rifle at night could cause injury.
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TORT OF NEGLIGENCE: Occupier’s liability
trespassers
Bryant v Fawdon [1993] WASC 38
The plaintiff was walking home at the early hours of the morning and needed to use a toilet. She climbed a 1.8m high fence and trespassed on commercial premises to enter an unlocked toilet block. P used the toilet in darkness and attempted to flush it. She did not see the modern push button cistern but instead tried to flush a disused concrete cistern resting on timber beams overhead. The disused cistern fell on her causing serious injuries.
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TORT OF NEGLIGENCE: Occupier’s liability
trespassers
Held: No duty of care was owed by D to P because it was not reasonably foreseeable that P, as a trespasser attempting to use a toilet (without a chain) in darkness, would be harmed by D’s failure to remove the disused cistern.
So whether a duty of care is owed to a trespasser is dependent on the facts.
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Carelessly causing financial harm
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CARELESSLY CAUSING FINANCIAL HARM
Harm to the person or property of a third party
Where the plaintiff suffers pure economic loss as a result of harm caused by the defendant to the person or property of another person.
Defective products
The product or service is defective as a result of negligence and the plaintiff suffers pure economic loss as a result of the defect.
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NEGLIGENT MISSTATEMENT
When a person is giving advice they owe a duty of care if:
the advice is of a business or serious nature; and
they know or should know that the other person intends to rely on the advice; and
it is reasonable in the circumstances for the other person to rely on the advice.
The person giving advice may owe a duty of care even if they are not a professional adviser such as a lawyer or accountant.
The issue of whether financial loss incurred as a result of another’s negligent misstatement was actionable in a court of law was examined in the following case:
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NEGLIGENT MISSTATEMENT
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
HB were advertising agency. They had a client called Easipower for which they needed to take out some advertising space. Hedley Byrne asked its bank (National Provincial Bank) to get a report from Easipower’s bank (Heller & Partners) as to Easipower’s financial standing. Heller provided the report which contained a Disclaimer of Liability in the event that the information in the report was found to be incorrect.
The Nation Provincial Bank received the report and passed it on to Hedley Byrne – its client. Hedley Byrne relied on the report which proved to contain inaccurate information – Easipower was, in fact, in a bad financial state and was subsequently liquidated.
Hedley Byrne suffered financial loss. It could not sue Easipower because Easipower had no money. So it sued Heller on the basis of the financial report provided. The bankers denied any Duty of Care to a third party when purely economic losses were at issue.
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NEGLIGENT MISSTATEMENT
Up until that time, no duty care was owed to a defendant who suffers pure economic loss as a result of another’s negligent misstatement.
Held: Heller was not liable for the financial loss sustained by Hedley Byrne because of the Disclaimer clause contained in the financial report (Ratio).
But it added that if the Disclaimer had not existed, it would have found Heller liable for all the financial loss suffered by Hedley Byrne (Obiter).
The court said that where a special relationship existed between the parties, then a duty of care was owed to prevent the incurring of financial loss.
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NEGLIGENT MISSTATEMENT
The court explained that a special relationship existed where:
Advice was given by one who was either an expert
or held themselves out to be so.
That advice was given in a business setting.
It was either known or should have been known that the advice would be relied on.
It was relied on.
It was reasonable to rely on the advice.
The advice was given negligently.
As a result, economic loss is incurred.
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NEGLIGENT MISSTATEMENT
It should be noted that in Hedley’s case, the obiter of the court’s decision was extremely important because it was the first time that a court had acknowledged that financial harm incurred as a result of another’s negligent misstatement was a legitimate head of action in a court of law.
But note no such liability will attach unless the special relationship exists between the parties.
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NEGLIGENT MISSTATEMENT
The obiter in this case was subsequently adopted by the High Court of Australia in:
L Shaddock & Assoc Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225
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NEGLIGENT MISSTATEMENT
L Shaddock & Assoc Pty Ltd v Parramatta City Council
Shaddock bought a property in Parramatta to redevelop. Before doing so, it enquired with the Parramatta City Council as to whether the Council had any interest in the property which would impact on the developer’s proposed use of the land. The council said no, but that information was incorrect. In fact, the Council had a road widening proposal which affected the property.
Shaddock bought the property relying on the Council’s advice which it provided by way of a Council Certificate. It was only when Shaddock wanted to commence work on the property that it was discovered that the information provided by the Council was incorrect.
ISSUE: Did Council owe a duty of care to Shaddock not to provide this information negligently?
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NEGLIGENT MISSTATEMENT
Held: The council owed duty of care in relation to provision of info where:
A party carries on a business
Provides advice in course of business
That party knows or ought to know that recipient is relying on that information
The information is relied on and
The information is provided negligently
then a duty of care is owed by the defendant to prevent the incurring of financial harm.
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NEGLIGENT MISSTATEMENT
On the facts, these elements were those referred to in Hedley Byrne and which gave rise to the creation of a special relationship.
Since such a relationship existed between the parties, the plaintiff was successful in its action and was awarded substantial damages by way of compensation.
It should be noted that the obiter of Hedley Byrne has been adopted by the High Court and, as such, now represents the state of the law in Australia.
This is how the law actually changes – a court adopts an obiter and turns it into a ratio.
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Negligent Misstatement: Third Parties
What if the person harmed is not the person advised but a third party who also relies on the advice?
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Negligent Misstatement: Third Parties
A person giving advice will owe a duty of care to a third party if:
they give their client business or serious advice knowing that the client will communicate that advice to the third party; and
the advice is likely to lead the third party to enter into a particular type of transaction; and
It is likely that the third party will suffer financial loss if they enter into that transaction and the advice is wrong.
See: Esanda Finance Co Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
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Takeaways from today?
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62
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Topic3: Deliberately causing harm
Commercial Law
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1
Overview of this topic:
Causing harm;
Deliberately causing harm to person or property;
Deliberately causing financial harm; and
The consequences of causing harm.
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Still don’t understand equity, you can watch this which is a very detailed explanation: https://www.youtube.com/watch?v=WhlnReSIsTQ
Essentially it developed parallel to the common law principles that lacked fairness in some cases. (case law= equity and common law)
Equity is now part of the common law tradition emphasised in remedies such as injunctions and specific performance (contract law) that is given at the discretion of the courts.
2
Learning Outcomes: Deliberately causing harm
What are the legal consequences of causing harm to another person? What are the differences between criminal liability, tortious liability, contractual liability and statutory liability?
When will a person be legally responsible for deliberately harming the person or property of another?
When will a person be legally responsible for deliberately causing financial harm to another person?
What are the civil consequences of being found to have caused harm? What are the criminal consequences?
Reading materials
Chapter 5 of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
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Causing harm
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5
FORMS OF LEGAL LIABILITY
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FORMS OF LEGAL LIABILITY: Criminal Liability
CRIMINAL LIABILITY
Criminal Liability attaches to acts which constitute a crime.
Its involves a relationship between an individual and Government on either a Federal or State level.
If the harm caused to another constitutes a crime, this act will be prosecuted and punishment in some form, will eventuate.
Both Federal and State governments have laws in place which deal with criminal matters.
The following transparency sets out the applicable law on a Federal, State and Territory level.
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FORMS OF LEGAL LIABILITY: Criminal Liability
Commonwealth: Crimes Act 1914 (Cth) + Criminal Code Act 1995 (Cth)
Australian Capital Territory: Crimes Act 1900 (ACT) + Criminal Code Act 2002 + common law
New South Wales: Crimes Act 1900 (NSW) + common law
Northern Territory: Criminal Code Act 1983 (NT)
Queensland: Criminal Code Act 1899 (Qld)
South Australia Criminal Law Consolidation Act 1935 (SA) + common law
Tasmania: Criminal Code Act 1924 (Tas) + common law
Victoria: Crimes Act 1958 (Vic) + common law
Western Australia: Criminal Code Act 1913 (WA)
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FORMS OF LEGAL LIABILITY
Tortious Liability
TORT LAW
Some harmful acts may be defined as a ‘tort’.
A tort is a civil wrong.
This brief definition says two things:
There is a wrong doing;
This wrong doing committed attaches to a civil jurisdiction.
This means the dispute is between two or more individuals: no one is accused of committing a crime.
It also means that the wrong doing in this context, does not involve a criminal prosecution.
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FORMS OF LEGAL LIABILITY
Tortious liability
The does not mean that a tort may not also constitute a crime. It can.
Example: The tort of deceit may constitute a civil wrong and form the subject of a civil action.
It may also constitute a crime and be the subject of an action in a criminal jurisdiction.
The crime is that of fraud.
So one act of harmful wrong doing may constitute both a tort and a crime.
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TYPES OF LEGAL LIABILITY
Tortious liability
The liability which attaches to the commission of a tort derives from a breach a civil law on either a Federal or State level and which applies to every person equally.
Examples:
I may not trespass on your land and you may not trespass on mine.
I am prohibited from defaming you and you, me.
I may not be negligent towards you, nor you towards me.
Tort law therefore derives from a legal rule or principle which is applied by a Government to every individual in society equally, and to which liability attaches if that rule or principle is breached by that individual.
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TYPES OF LEGAL LIABILITY
Tort distinguished from contract
Tort law is different from contract law where the parties themselves determine what their rights and liabilities are, by agreeing to the terms of the contract.
They are responsible for the type of breach and its importance.
The promises agreed to, therefore, can literally be about anything at all – and that is acceptable, provided the subject matter agreed to is a legal one and so constitutes a legally enforceable contract.
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TYPES OF LEGAL LIABILITY
Tort distinguished from contract
Examples: A contract to deliver goods on a certain date – at which time the goods will be paid for.
The breaches which may arise here are in relation to the failure to deliver the goods -and if delivered, the failure to pay.
A contract to sell a car to A in return for which A has agreed to pay a specific price.
The breaches here will arise if the car is sold to someone other than A – and if sold to A, A’s failure to pay the agreed sum.
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TYPES OF LIABILITY
Tort distinguished from contract
In both examples, it is the parties themselves who have determined what the rights and liabilities of the parties are and what behaviour will constitute a breach of contract.
They may also determine the importance of a breach by indicating that such a breach will amount to a breach of condition – which is a far more serious breach than that of a warranty. (This is discussed later in the semester).
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FORMS OF LEGAL LIABILITY
Tort distinguished from contract
Tortious law is more uniform than contract law when it comes to what constitutes a breach of the law because in tort law, the law applies to every person in exactly the same way.
Examples:
No one is permitted to trespass on another’s land.
No one is permitted to defame another.
The type of breach of the civil law is therefore, more uniform in tort than in contract law.
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FORMS OF LEGAL LIABILITY
Contractual Liability
CONTRACT LAW
This is a liability which arises from the relationship which exists between two or more parties because they have entered into a contract with each other and agreed to its terms.
Contractual liability arises as a result of the breach of one of more promises made by a party to the contract.
A breach of contract may also constitute a tort.
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FORMS OF LEGAL LIABILITY
Contractual liability
EXAMPLE:
If an employee is injured as a result of the careless act of an employer, that employee may take action in the tort of Negligence and sue for breach of contract on the part of the employer in relation to the duty implied in a contract of employment for the employer to take reasonable care to ensure employee safety.
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FORMS OF LEGAL LIABILITY
statutory liability
STATUTORY LIABILITY
Sometimes the wrongful action committed, may, in addition to constituting a crime, a tort, and/or a breach of contract, amount to a breach of a Statutory provision.
Example:
the sale of a defective product may breach one or more of the statutory guarantees in the Australian Consumer Law (ACL) which apply to the retailer and/or manufacturer.
In addition, such a breach may also amount to a breach of contract and may form the basis of a suit in the tort of Negligence.
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FORMS OF LEGAL LIABILITY
Criminal and Civil Law
Distinction Between Criminal Law and Civil Law
The commission of a crime involves the presence of police and charges and arrests being made which are usually followed by a prosecution by the department of public prosecutions which is an arm of the government.
Any law which does not involve the above factors and parties is known as civil law – that is, law which is the subject of dispute between two or more individuals and therefore includes the two areas already discussed – Tort and Contract law.
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FORMS OF LEGAL LIABILITY
Criminal and Civil Law
In a criminal matter the party alleging the commission of a crime is referred to as the prosecution.
The person charged is referred to as the accused.
In a civil matter (including tort or contract law), the person suing is called the plaintiff.
The person being sued is referred to as the defendant.
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FORMS OF LEGAL LIABILITY
Criminal and Civil Law
In criminal matters, the burden of proof lies with the prosecution to prove its case.
The extent of the burden is beyond a reasonable doubt.
In civil matters (including tort and contract law), the burden of proof is on the plaintiff to prove its case.
The extent of the burden is on the balance of probabilities ( much lower than the burden required in criminal prosecutions).
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VICARIOUS LIABILITY
Vicarious Liability
The liability owed for the harm by another person.
This often arises in the context of the relationship between employer and employee.
The employer is liable for the harm caused to another by an employee provided the employee was undertaking authorised work.
The fact that the employee was performing such work in an unauthorised matter does not affect the liability of the employer.
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VICARIOUS LIABILITY
Century Ins. Co. Ltd v Nthn. Ireland Transport Board
[1942] AC 509
The driver of a petrol tanker lit a cigarette while driving, thereby causing a fire.
The issue was whether the employer was responsible for the damage caused by the driver’s act.
It was held that he was, even though the driver was prohibited from smoking while driving the tanker.
The court took the view that the lighting of the cigarette had taken place while the driver was discharging his authorised duty and the employer was therefore liable even though the driver was aware that he should not have been smoking.
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VICARIOUS LIABILITY
This case makes it clear that the wrongful discharge of an authorised act will not excuse the employer from vicarious liability.
But if the employee exceeds the scope of his authorised duties, the employer may escape liability.
Deatons Pty Ltd v Flew (1949) 79 CLR 370
A bar tender and a customer exchanged heated words about the customer’s use of bad language. The argument escalated and the bar tender threw a glass of beer which hit the customer on the face.
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VICARIOUS LIABILITY
The customer sued the bar tender’s employer on the basis of vicarious liability which the employer denied.
The court agreed with the employer’s argument that the bar tender’s actions went beyond the scope of his duties under his contract of employment and that the employer was therefore not vicariously liable for the bar tender’s actions.
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Deliberately causing harm to person or property
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26
Tort of trespass
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THE TORT OF TRESPASS
The Tort of Trespass
The commission of the tort of trespass involves the intentional or negligent interference, directly, either with the plaintiff’s person or property.
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THE TORT OF TRESPASS
If one or more of these elements of the definition is missing, then an action in trespass in general, will fail.
Stanley v Powell [1891] 1 QB 86
The two parties were hunting together and P shot at a bird but missed. The bullet ricocheted off a tree and hit S.
S sued in the tort of trespass to the person.
It was held however, that what had taken place was not a trespass at all, but an accident.
The interference was neither intentional nor negligent and thus one of the elements of what constitutes the tort of trespass to the person was missing.
Therefore, no trespass had occurred.
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TYPES OF TRESPASS
There are three types of trespass:
To land
To goods in the form of detinue or conversion
To the person in the form of:
Assault
Battery
False Imprisonment.
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TRESPASS TO LAND
Trespass To Land
A person commits the tort of trespass to land if:
-they interfere with another person’s exclusive
possession of land; and
the interference is direct; and
the interference is either intentional or negligent;
there is no consent or lawful justification for the
interference.
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TRESPASS TO LAND
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TRESPASS TO LAND
Kelsen v Imperial Tobacco Co Ltd [1957] 2 QB 334
The court held that an advertising sign which was placed on the property of a tobacco company, but which nonetheless interfered with the air space of a neighbouring property, constituted a trespass to the adjoining land.
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TRESPASS TO GOODS
Trespass To Goods
A person commits the tort of trespass to goods if:
they interfere with another person’s possession of
goods; and
the interference is direct; and
the interference is either intentional or negligent; and
there is no consent or lawful justification for the
interference.
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TRESPASS TO THE PERSON
Assault
A person commits the tort of assault if:
they cause another person to develop an apprehension
of imminent physical contact; and
the act is direct; and
the act is either intentional or negligent; and
there is no consent or lawful justification for the act.
EXAMPLE:
Speaking aggressively and close to someone’s face.
No physical contact is necessary for behaviour to constitute assault.
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TRESPASS TO THE PERSON: Assault
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TRESPASS TO THE PERSON
Battery
A person commits the tort of battery if:
they cause some sort of physical interference with
the body of another person; and
the act is direct; and
the act is either intentional or negligent; and
there is no consent or lawful justification for the act.
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TRESPASS TO THE PERSON
Battery
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TRESPASS TO THE PERSON: Battery
Rixon v Star City Pty Ltd [2001] 53 NSWLR 98
Rixon had been barred from the casino but had ignored the order.
He was spotted by an employee who placed his hand on Rixon’s shoulder to get his attention and Rixon was detained until the police arrived.
Rixon later sued the casino in the tort of battery, but the court denied the claim because it said that the action of the employee in the circumstances was acceptable behaviour.
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TRESPASS TO THE PERSON: False imprisonment
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TRESPASS TO THE PERSON: False Imprisonment
A person commits the tort of false imprisonment if:
they cause another person to be totally restrained; and
the act is direct; and
the act is either intentional or negligent; and
there is no consent or lawful justification for the act.
EXAMPLE:
A passenger asks the driver to let him out of
the car and the driver (without justification),responds by
deadlocking all four car doors.
All four elements are complied with in this example and
the driver’s response would constitute false
imprisonment.
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TORT OF NUISANCE: Public nuisance
The tort of nuisance may take one of two forms:
A person commits the tort of public nuisance if:
they interfere with another person’s use and
enjoyment of public land (e.g. a street or a park); and
the other person suffers actual harm or damage
over and above that suffered by members of the
public generally; and
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TORT OF NUISANCE: Public nuisance
the interference is indirect; and
the interference is either intentional or reckless; and
the interference is sustained and unreasonable.
Silservice v Supreme Bread Pty Ltd 50 SR (NSW) 207
It was held that queues blocking access to an adjacent property did not constitute a public nuisance by a bread company because the company had not done anything which was not connected to the conduct of the business.
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TORT OF NUISANCE: Private nuisance
A person commits the tort of private nuisance if:
they interfere with another person’s use and
enjoyment of private land; and
the other person has an interest in that land (e.g.
they are the owner or a tenant); and
the other person suffers actual harm or damage; and
the interference is indirect; and
the interference is either intentional or reckless
and
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TORT OF NUISANCE: Private nuisance
The interference is sustained and unreasonable.
EXAMPLES
Burning toxic material in a backyard and the toxic fumes affect the health of those living in adjacent properties.
Excessive noise.
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TORT OF DEFAMATION
A person commits the tort of defamation if:
they publish to a third party,
in spoken or written form,
a statement about another person
that would damage the reputation of the other person.
The other person must show that:
the statement about them was defamatory; and
the statement identified them; and
the statement was published to a third party.
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TORT OF DEFAMATION
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TORT OF DEFAMATION
The Statement was defamatory:
Bjelke-Peterson v Warburton [1987] 2 Qd R 465
A statement made by a member of parliament that government ministers had ‘their hand in the till’ constituted a defamatory statement because it implied that the ministers were corrupt.
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TORT OF DEFAMATION
The statement identified the plaintiff:
It is not necessary that the plaintiff be named specifically.
If the reference to the plaintiff is specific enough to leave little if any doubt that the reference related to that plaintiff, then this requirement if satisfied.
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TORT OF DEFAMATION
The statement was published to a third party:
This requirement is satisfied if the statement has been communicated to a third party.
Emails, texts, broadcasting or publishing in a magazine are within the meaning of this term.
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Deliberately causing financial harm
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52
TORT OF PASSING OFF
A person commits the tort of passing off if:
they make a misrepresentation (expressly or by
implication) that their goods or services are
connected with another person or have the other
person’s endorsement or approval; and
the misrepresentation is made in the course of a
trade; and
the misrepresentation is intended to deceive
potential purchasers.
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TORT OF PASSING OFF
Pacific Dunlop v Hogan 23 FCR 553
An advertisement was made which drew on Hogan’s character and a specific scene in the film in which Hogan starred entitled: ‘Crocodile Dundee’.
Hogan sued both in the tort of passing off and for breach of s.52 of the Trade Practices Act (now s.18 of ACL).
The court held: that the defendant had committed the tort of passing off because it implied that he had consented to the use of his character and a specific scene in the film, when in fact, he had not.
It also held that s 52 had been breached.
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TORT OF DECEIT
A person commits the tort of deceit if:
they make a statement of fact to another person
knowing that it is false; and
they make the statement with the intention that it
be relied upon by the other person; and
the other person relies upon the statement; and
the other person suffers harm as a result of relying
upon the statement.
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TORT OF DECEIT.
Bissett v Wilkinson [1927] AC 177
B and W agreed to the sale of rural land owned by W. During the course of discussions, W stated that he believed the land could hold 2000 sheep.
B bought the land and when he discovered that it would not hold the number of sheep stated, he sued W in the tort of deceit.
The court held that the statement made by W was a statement of belief and opinion and not a statement of fact, especially since the property had never before been used to hold sheep.
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The consequences of causing harm
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57
CRIMINAL PENALTIES
Criminal penalties range in severity, and include:
warnings;
fines;
imprisonment; and
the confiscation of criminal profits.
Fines are by far the most common criminal penalty, and range from nominal penalties to penalties as high as $10 million for breaches of Part IV of the Competition and Consumer Act 2010 (Cth).
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DAMAGES
Damages is monetary compensation.
The purpose of an award of damages is to compensate the plaintiff for the loss or injury suffered as a result of the defendant’s harmful conduct.
Damages are assessed ‘once and for all’.
The plaintiff is not able to return to court at a later date seeking further compensation, and it is therefore necessary to estimate any future losses the plaintiff may incur as a consequence of the harmful conduct.
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DAMAGES
This is why damages payments can appear to be very large.
The plaintiff is under a duty to mitigate their loss, i.e. they are required to minimise their loss as far as possible.
Under the civil liability legislation the plaintiff’s ability to recover damages has been significantly limited.
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INJUNCTION
An injunction is a court order whereby a person is required to do or refrain from doing certain acts.
An injunction will be an appropriate remedy if the person is committing a tort on an ongoing basis, such as nuisance, trespass or defamation.
If they fail to comply with the injunction they will face civil or criminal penalties.
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Takeaways from today?
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62
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Topic2: Politicians and Judges; Exercising legal skills
Commercial Law
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1
Overview of this topic:
The legislature;
Parliament in operation;
The judiciary;
The doctrine of precedent;
Alternative dispute resolution;
Finding the law;
Reading the law;
Thinking like a lawyer; and
Writing like a lawyer.
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Learning Outcomes: Politicians and Judges
What is the role of parliament?
How do parliaments make law?
How does Australia’s court system operate?
What role is played by judges in the development of the law?
What dispute resolution methods do not involve going to court?
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Learning Outcomes: Exercising legal skills
How do you find the law? How do you locate case law, legislation and other sources of law?
Once you have found it, how do you read the law? What parts of a case report or Act of Parliament are important? How do you interpret a legal text?
How do you use the law? How do you think like a lawyer, and why is it useful to be able to do so? How do you solve legal problems?
How do you write like a lawyer? How do you write a legal letter, or draft a contract?
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Reading materials
Chapter 3 of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
Chapter 4 of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
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The legislature
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The parliament
6
The legislature
The Legislature:
On a Federal level, s1 of the Australian Constitution provides:
“The legislative power of the Commonwealth shall be vested in the Federal Parliament, which shall consist of the Queen, A Senate, and a House of Representatives, and which is hereinafter called ‘The Parliament” or the Parliament of the Commonwealth’.
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The Legislature
Section 1 of the Constitution therefore is the section which enabled and gave rise to the very existence of the Commonwealth Parliament of Australia.
s 1 is also the section which created a bi-cameral form of Government – that is, a Government consisting of two Houses of Parliament.
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The legislature
Legislative power is the power to make law
In Australia and on a Federal level, this power is exercised by the Federal Parliament (that is, both Houses of Parliament).
On a State level, this power is exercised by the various State and Territory parliaments with the following qualification:
Queensland and the two Territories are single House Parliaments consisting only of a Legislative Assembly.
All other States are bi-cameral (two Houses of Parliament).
Law made by Parliament on a Federal, State or Territory level, is known as legislation – e.g. an Act of Parliament, or a Statute.
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The Legislature
Whether on a State, Territory or Federal level, law made by Parliament is ‘supreme’.
This means that if there is a contradiction or inconsistency between law made by Parliament (on any level) and a decision of any Court in the Australian Court hierarchy (on any level), to the extent of that contradiction or inconsistency, Parliamentary law will prevail.
This is known as the supremacy of Parliament (on any level of Government).
The supremacy of parliament therefore, means that Parliament is the ‘sovereign lawmaker’.
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The structure of parliament
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Lower House – Federal Parliament
The House of Representatives is the ‘people’s house’, providing equal representation for the people of Australia.
Australia is divided into electorates – about 150 – with roughly equal numbers of voters, each of which elects a representative.
The political party with the majority of members in the House of Representatives forms executive government.
The Prime Minister is traditionally a member of the lower house.
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Lower House: The House of Representatives
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Upper House – Federal Parliament
The Senate is the ‘States’ house’. It protects the rights of the States.
There is an equal number of Senators from each State (12) in order to protect the interests of the less populous States. The Territories are represented by 2 Senators each.
The founders of the Constitution recognised the danger that the Lower House would favour those States, and the composition of the Upper House addressed that risk by giving the States the opportunity to oppose any biased legislation.
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The Upper House
The Senate
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Parliament in operation
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16
Parliament in Operation: Introducing Law into Parliament
Before a proposed law is approved and passed by both Houses of Parliament, it is referred to as a ‘Bill’.
Bills are drafted by Parliamentary Counsel – a team of government lawyers – the Office of Parliamentary Counsel – who specialize in drafting legislation.
To become law, a Bill must pass three ‘readings’ in each of the two Houses of Parliament.
It must then receive the Royal Assent.
This is achieved by being assented to (on a Federal level) by the Governor-General as the Queen’s representative.
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17
Parliament in Operation.
The Three Readings of a Bill
The first reading is a formal reading of the Bill’s title and a distribution of the copies of the Bill. This usually takes place in the House of Representatives.
There is no debate.
The second reading. The relevant Minister delivers a speech outlining the content and objectives of the Bill and members debate the Bill.
The third reading involves voting on the Bill. If a majority votes for the Bill, the Bill is passed and is subsequently sent to the Senate – the Upper House where the same procedure is followed.
If the Bill is passed by a majority vote at the third reading, then it has passed both Houses of Parliament and is sent to the Governor-General for Royal Assent.
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Parliament in operation
Royal Assent
A Bill that has been successfully passed by both Houses of Parliament is not law until it receives the Royal Assent of the Crown Representative.
On a Federal level, the Crown Representative (representing the Queen) is the Governor-General.
Traditionally, the Crown Representative acts on the advice of the executive government.
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Parliament in operation
When does the new Act commence?
The Act will commence:
From the date specified in the Act, or
A date to be fixed by proclamation, or
If the Act is silent as to its commencement:
from the date of Royal Assent (State acts), or
28 days after Royal Assent (Federal acts).
Parliament has the power to declare an Act to be retrospective, but this power is used sparingly.
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Parliament in operation
How to dissolve Federal Parliament
In relation to the Federal Parliament, S.57 of the Australian Constitution provides that:
if the Upper House fails to pass a Bill passed by the Lower House, and
after three months the Bill is once again passed by the Lower House and rejected by the Upper House,
the Governor-General is empowered to dissolve both Houses, known as a double dissolution.
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Parliament in operation: Proposal, Drafting and Submission to the Houses
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Three readings of a Bill
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The Legislature
Creating new law or changing existing law
The decision to change existing law or to introduce new law may arise for three reasons:
The executive government decides to change the law or create a new law to implement its policies.
The executive government is pressured by one or more sources (shown in the transparency following) to do so.
A member of Parliament who is not a member of the executive government may initiate the proposed change to or creation of a new law. This is referred to as a Private Member’s Bill.
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Pressure to change the law
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Parliament in operation
If after the new Parliament is appointed the deadlock reoccurs, the Governor-General can convene a joint sitting of both Houses.
Double dissolutions are relatively rare.
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Types of legislation
Broadly speaking there are 5 types of Act:
Original Acts – Acts passed about a particular matter for the first time
Amendment Acts – Acts made by the legislature to amend the Original Acts
Repealing Acts – Acts which abolish existing Acts.
Consolidating or reprinted Acts – Acts which bring all the statute law in a particular area into a single Act or that consolidates an original Act with all of its subsequent amending Acts. The original Act and its amendments are repealed and a single, consolidating Act is passed.
Reviving Acts – Acts which revive or restore an Act that is no longer current.
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The judiciary
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28
The Judiciary
The Judiciary:
Judicial power is the power to interpret the law and to apply it in the resolution of particular disputes
Judicial power is exercised by the courts
Judicial decisions in the Australian Court System therefore, form one of the Sources of the law in Australia. The source is referred to as Common Law
Common law is another term for judge-made law or case law
All three terms refer to decisions made by judges in our Court System
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The judiciary
Judicial power is the power to interpret the law and to apply it in the resolution of particular disputes.
Judicial power is exercised by the courts.
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Court hierarchies
Court Hierarchies:
Within Australia there is a Federal court hierarchy.
Chapter 111 of the Australian Constitution provides for the creation of all Federal Courts including the High Court of Australia. There is also a court hierarchy on State and Territory levels. Each of the six States and two mainland Territories has its own court hierarchy;
A court hierarchy:
allows a system of appeals,
allows different forms of hearing according to the gravity of the case, and
facilitates the operation of the doctrine of precedent (explained later).
Each court in the hierarchy has its own jurisdiction.
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Federal court hierarchy
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State court hierarchy
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Jurisdiction
Jurisdiction refers to the scope of the court’s authority – either Federal or State.
Each of the Courts on either level has:
Original and appellate jurisdiction.
Criminal and civil jurisdiction.
The scope of jurisdiction also applies to:
Specialised courts, tribunals and decision-making bodies
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Court processes: The Adversarial System
The Adversarial System:
The system of dispute resolution used in modern Australian courts is called the adversarial system.
The parties ‘fight it out’ until one of them is declared a winner by an impartial referee in the form of a judge.
Within strict rules of procedure and evidence, the parties have complete responsibility for the conduct of their case.
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Court processes
The Court Processes:
The judge observes and listens to the proceedings, ensures that all rules of procedure and evidence are applied fairly and consistently, allows both parties to be heard and, unless there is a jury, decides the case.
The adversarial system can be contrasted with the inquisitorial system used in courts in civil law countries.
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Court processes
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Decision to litigate
Commencing proceedings
Pre-trial
The trial
The decision
Appeal
The trial process
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The doctrine of precedent
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39
Mabo v Queensland (No 2) (1992)
Rejected terra nullius
Recognised native title
Maintained doctrine of reception
Judicial activism ?
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40
The doctrine of precedent
The Doctrine of Precedent:
The decisions of most courts are recorded and published, leading to the creation of a second source of law: case law also known as judge-made law or common law.
According to the doctrine of precedent, in reaching a decision about a question of law the court must follow the decisions of courts higher than itself
in the same hierarchy of courts within the particular jurisdiction.
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The doctrine of precedent: Ratio and Obiter
But not everything a court says in a judgment is binding on lower courts in the same court hierarchy.
Only the ratio decidendi (ratio) of the case is binding on lower courts.
The ratio is that part of the court decision which provides the legal reasoning for the decision made on the facts before the court.
The obiter dicta is that part of the court’s decision which is not necessary for the decision made on the facts before the court.
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The doctrine of precedent: Ratio and Obiter
Obiter is a hypothetical example given by the court as to how it might have decided differently if the facts had been different.
Obiter is not therefore binding on lower courts in the same court hierarchy.
Obiter is persuasive only. This means that any court – higher or lower in the court hierarchy – has a choice as to whether or not to follow the obiter.
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The doctrine of precedent: Persuasive authority – meaning –
Distinguishing cases
The Meaning of Persuasive Authority:
Decisions of courts outside the particular hierarchy are also not binding but may be persuasive.
Persuasive means that the Court has a choice as to whether or not to follow the non-binging aspect of the decision of the Court outside the particular court hierarchy.
There are also a number of ways by which a court can avoid having to follow a previous decision:
distinguishing involves the judge finding that the material facts of the two cases differ so significantly that the earlier decision is not binding authority.
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The doctrine of precedent
Distinguishing precedent
Distinguishing Precedent:
To distinguish a case is not to question the validity of the decision made.
It is merely to argue that given the marked difference in law and/or fact between the two cases, the decision of the higher court which would normally be binding, does not apply.
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The doctrine of precedent
rejecting and overruling precedent
Rejecting Or Overruling Precedent:
A court may also reject or overrule precedent about questions of law.
Distinguishing Common Law and Equity:
Within the extremely large body of case law that has developed, two important categories can be identified: common law and equity.
Common law and Equity are both jurisdictions exercisable by every judge sitting in the higher courts in the Australian court hierarchy.
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46
Common law and Equity
Distinction lies in the remedies
Centuries ago, common law courts in England applied the law strictly and as a result, plaintiffs were denied their remedy.
The only remedy available was damages.
Plaintiffs complained to the reigning monarch’s representative – the Chancellor.
The complaints were so numerous that they gave rise to the creation of Courts of Chancery otherwise known as Courts of Equity.
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Common Law and Equity
Distinction lies in the remedies
These (Equity) courts offered alternative remedies such as injunctions and specific performance.
Equitable remedies, however, are discretionary. This means they lie in the court’s discretion. The judge/s may decide whether or not granting an equitable remedy is appropriate in the circumstances.
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Common law and Equity
Distinction lies in the remedies
The court will always administer the common law remedy of damages first.
It is only if that remedy is inadequate that the court will determine whether or not to exercise its equitable jurisdiction.
Eventually these jurisdictions merged. So judges in higher courts in the Australian court hierarchy now have the power to administer the remedies in both jurisdictions.
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Alternative dispute resolution
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50
Alternative dispute resolution
Alternative Dispute Resolution:
in commercial situations, it is often less destructive to on-going business relationships than litigation, and
it relieves the pressure on, and therefore the costs of, maintaining the court system.
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Alternative dispute resolution
Other Methods of Dispute Resolution:
Other methods that can be used to settle disputes include negotiation, mediation, conciliation and arbitration.
ADR is becoming increasingly common in Australia and other countries because:
it is generally cheaper, faster, more private and less stressful than going to court,
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Alternative dispute resolution
in commercial situations, it is often less destructive to on-going business relationships than litigation, and
it relieves the pressure on, and therefore the costs of, maintaining the court system.
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Negotiation Mediation Litigation
Discussion
Sharing interests/needs
Voluntary
Bargaining
Compromise
Win-win
Parties have control
Private (no 3rd party) Neutral 3rd party intervention
Facilitated negotiation
Non-binding/advisory
voluntary Adjudication
Based on the law
Decisions by judge
Adversarial
Binding
More Expensive
Public proceedings
Public interest concerns
Slower
1 wins, 1 loses – binary
Lawyers involved
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Finding the law
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Legal research
To use the law to solve legal problems, you need to know where it can be found.
Relevant materials are:
primary legal materials;
case law;
legislation; and
secondary legal materials.
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Primary and secondary legal materials
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Primary legal materials
Primary legal materials are the direct sources of the law, being:
legislation, the law made by parliaments, and
case law, the law made by judges.
Be careful that the legislation has not been amended or repealed.
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Primary legal materials
Primary legal materials are the original sources of the law which were discussed in earlier lectures when dealing with the Sources of the Law:
Legislation: Law made by parliament on a Federal or State level.
Example: The Competition and Consumer Act 2010 (Cth) which appears in the next transparency.
Common Law: Law made by judges on the basis of a dispute before the court.
Example: Donoghue v Stevenson.
Reference to this case is found in transparency no. 10
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Legislation
Competition and Consumer Act 2010 (Cth)
Locating legislation online: www.austlii.edu.au
Short title
Date
Jurisdiction
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Case law
Donoghue v Stevenson [1932] AC 562
Locating case law online: www.austlii.edu.au
Parties
Pronounced ‘and’
Date
Law reports
Page number
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Secondary legal materials
Secondary legal materials are those materials that do not comprise the law itself but instead explain and expand upon the primary legal materials – the primary
Sources – the relevant legislation or the case law itself.
They are a commentary on the impact original Source has on the existing law or
Secondary legal materials are not binding law, but they can be persuasive.
Secondary legal material includes:
law textbooks; law journal articles; legal dictionaries; and legal encyclopaedias.
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Reading the law
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Legislation
Number
Title
Date of assent
Enacting words
Commencement
Sections, subsections and paragraphs
Parts and divisions
Marginal notes
Definitions sections
Schedules
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Case reports
Recall that ratio and obiter have been previously discussed.
By way of reminder, note their definitions:
The ratio decidendi (‘reason for the decision’) is that part of a judge’s decision which sets out the legal principle (legal reasoning) upon which the decision was based, on the facts before the court and which is binding precedent.
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Case reports
The obiter dicta (‘saying by the way’) is that part of a judge’s decision other than the legal principle upon which the decision was based, including the identification of the relevant evidence, and discussion of alternative legal principles, alternative decisions if the facts had been different, and the historical development of the legal principles used in reaching the final decision.
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Interpreting the law
Legal writing is notoriously difficult to read and understand, and legal texts are often criticised for being long, complex, and repetitive, and even badly organised, unnecessarily elaborate and confusing.
Many jurisdictions now require that certain documents be in plain language.
Example: consumer credit legislation requires contracts and notices by credit providers to be ‘easily legible’ and ‘clearly expressed’.
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Rules of interpretation
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GENERAL RULES
literal rule
golden rule
SPECIFIC RULES
context rule
purposive approach
class rule
inclusions and exclusions
give each to each
general and specific
earlier and later
RULES
Statutory interpretation
A number of general and specific rules regarding the reading and interpretation of legal texts have been developed in the context of statutory interpretation.
Statutory interpretation is the interpretation by the courts of legislation when called upon to decide whether or not the legislation applies.
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Statutory interpretation: Significance
Statutory interpretation is a very precise method used by the judges when called upon to interpret a word, phrase, sentence, or an entire section or sections contained in legislation.
The need to be precise is obvious because the way in which a court interprets legislation will determine how narrowly or broadly that legislation will apply in the future and therefore, how it will impact society on a personal, business, and/or criminal and/or civil level.
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Statutory interpretation: Significance
Example: It may, depending on the way a provision is interpreted, determine the guilt or innocence of a person by deciding whether the provisions of a section have been breached in a way which attaches criminal guilt.
Seen in this way it becomes obvious that the methods used to interpret legislation have a significant impact on society – personally, commercially, in a criminal or civil sense, and even politically.
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Statutory interpretation
General Rules: The Literal Rule
Literal rule: Always begin by reading a legal text literally, with words and phrases given their ordinary and natural meanings:
Fisher v Bell [1961] 1 QB 394:
In that case legislation provided that any person who sells or ‘offers’ for sale, a flick knife, was guilty of an offence and subject to a fine and/or imprisonment. The defendant displayed such a knife in his window and was charged with breaching the legislation.
The issue was whether, by displaying the knife, the defendant had ‘offered’ it ‘for sale’ within the meaning of the legislation.
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Statutory interpretation
General Rules: The Literal Rule
It was held that the display of goods in a window did not constitute an ‘offer’ within the meaning of the legislation and that the defendant had not breached that legislation.
The court reached this decision by applying the literal rule and giving words their ordinary and natural meaning – to display something meant exactly that. It did not constitute the ‘offer’ of anything.
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Statutory interpretation
General Rules: The Literal Rule
The defendant was therefore cleared of the charge made against him, thereby avoiding the possible penalty of paying a fine and/or going to jail.
Practical impact of Statutory interpretation:
This case provides a clear example of the actual impact which the interpretation of legislation has on the lives of individuals.
The way in which the legislation was interpreted and a decision reached, meant the difference between Bell’s acquittal or conviction under the legislation.
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Statutory interpretation
General Rules: The Golden Rule
Golden rule – If reading a text literally leads to an absurd result, modify the literal meaning so as to avoid the absurdity:
Lee v Knapp [1967] 2 QB 442
In that case legislation provided that if a motor accident occurred, the driver of the vehicle had to ‘stop’. Knapp was charged with breaching this provision.
He argued that he had stopped – momentarily – when the accident occurred. And then he drove off.
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Statutory Interpretation
General Rules: The Golden Rule
It was held that Knapp was in breach of the legislation In reaching its decision the court indicated that to interpret the legislation literally – which would mean an acceptance of Knapp’s argument – would lead to an absurd result.
It therefore applied the Golden rule and interpreted the word ‘stop’ as meaning having to stop for long enough to exchange contact details and any other necessary information and since this had not been done, Knapp was in breach of the legislation.
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Statutory interpretation
General Rules: Purpose Rule
Purposive approach (Purpose Rule) – If reading the text literally does not reveal the meaning of the text, refer to the apparent purpose of the author when drafting the text:
Armstrong v Clark [1957] 2 QB 391
Sometimes the Act itself contains an object clause.
This clause states the object of the legislation. It provides an indication as to the purpose of the legislation – its intended aim.
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Statutory interpretation
General Rules: Purpose Rule
Example:
The Competition and Consumer Act 2010 (Cth) contains an object clause which provides:
‘The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection’.
Any interpretation of provisions within this Act will, therefore, take into account the stated object when interpreting provisions within that Act and be read to give effect to the stated objects.
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Statutory interpretation
General Rules: Purpose Rule
Such clauses can prove to be very helpful to a court when determining how to interpret legislation.
If there is a stated object or purpose, the court is going to take this into account when interpreting legislation.
The purpose rule also allows for the introduction of material which is outside the relevant piece of legislation which may help in interpretation.
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Statutory Interpretation
General Rules: Purpose Rule
The courts are willing to admit this extrinsic material in cases where there is ambiguity:
Example:
Waramungu Land Claim which involved a claim by the Aboriginal Land Council pursuant to a Statute which provided that claims could not be made over roads. The land claimed by the Council included a stock route – a track along which stockmen moved sheep and cattle.
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Statutory interpretation
General Rules: Purpose Rule
The court decided it was not clear from the relevant legislation whether the term ‘road’ included a stock route and that therefore it was appropriate to ascertain parliament’s purpose by referring to extrinsic materials.
This was done by referring to the minister’s second reading speech in which it was made clear that the Act was to exclude from land claims ‘roads over which the public had a right of way’.
The court decided that this referred to the general roadway system, and did not include stock routes.
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Statutory Interpretation
Specific Rules: Contextual Approach
Specific Rules
The first three rules discussed – the literal, golden and purpose rules – are general rules of interpretation.
When using them to interpret legislation, the court allows for the use of more specific rules to aid in such interpretation:
Contextual approach
According to this approach, rather than interpret the words used in the Act individually, a court should take into account the various contexts of those words: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381.
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Statutory interpretation
Specific Rules: Contextual Approach
These contexts may include:
The immediate context – that is, consideration may be given to the words and phrases used in the same section or surrounding sections in the Act.
R v Harris (1836) 173 ER 198, where an accused was charged for biting off the end of another’s nose. The legislation made it an offence to wound another through the use of an instrument.
The court held that what the accused had done did not come within the meaning of the legislation since no instrument was used to perpetrate the act committed.
He was acquitted of the charge under the legislation.
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Statutory interpretation
Specific Rules: Contextual Approach
The Act as a whole – a provision should be read in the context of the Act as a whole.
Example: In the University of South Australia Act 1990 (SA) the reference to a ‘student’ in that Act does not refer to students generally but to a student who attends the South Australia University.
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Statutory interpretation
Specific Rules: Contextual Approach
The prior law.
The legislation in question may allow for the referral to laws which existed – either common law or statutes – prior to the enactment of that legislation for guidance.
The mischief being remedied.
In interpreting the legislation, the court is able to give consideration to the issue which the legislation sought to address:
Smith v Hughes [1960] 1 WLR 830 where legislation made it a crime to ‘loiter and solicit’ clients in the street. Prostitutes then sought to achieve their aim by calling out to men from balconies or tapping on windows to attract their attention.
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Statutory Interpretation
Specific Rules: Contextual Approach
Held: Since ‘mischief’ which the legislation sought to prevent was prostitution, it did not matter that the prostitutes were technically off the streets. Their actions still violated the ‘mischief’ which the legislation had sought to overcome.
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Statutory interpretation
Specific Rules: The Class Rule
The Class Rule.
Also known as the ejusdem generis rule.
This rule provides that if specific words are used and are followed by general words, then the general words are restricted by the preceding specific words.
Example:‘Dog, cat, or any other animal’. Such a phrase would be interpreted to mean that the general words are to be interpreted as meaning ‘any other domestic animal’, since the preceding words refer to domesticated pets.
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Statutory interpretation
Specific Rules: Inclusion and Exclusion
Inclusion and Exclusion
What is specifically included in legislation is what that legislation aims to cover.
It does not aim to cover what has been excluded from and is not referred to, in that legislation.
Example: A sign prohibiting parking at certain times, is by implication, not prohibiting parking at times outside the hours specified.
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Statutory interpretation
Specific Rules: Give Each To Each
Give Each to Each
This term deals with attributing certain provisions in a Statute to certain other provisions mentioned in that Statute.
Example: If two offences are mentioned in a section, each attracting a different fine, then the first offence will attract the first fine, and the second offence, the second fine.
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Statutory Interpretation
Specific Rules: Specific/General Provisions
Specific Provisions and General Provisions
This rule provides that if there are both specific and general provisions in a statute and there is an inconsistency between them, then the specific provision shall prevail over the general.
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Statutory interpretation
Specific Rules: Later/Earlier Provisions
Later Provisions And Earlier Provisions
To the extent that there is any inconsistency between the two, later provisions take precedence over earlier provisions.
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Choosing the correct approach
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Statutory interpretation: Other Specific Rules
The Act should be read as a whole.
Words have current meaning.
Technical words should be given their technical meaning.
Interpret statutory provisions that impose a penalty narrowly.
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Statutory interpretation
Other Specific Rules
We should presume that, in the absence of express words to the contrary, legislation is not intended to:
Be extra-territorial;
Be retrospective;
Contradict established principles of common law or infringe established common law rights;
Bind the Crown; and
Words have their current meaning.
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Thinking like a lawyer
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How to solve a legal problem
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How to Solve a Legal Problem
The importance of legal reasoning allows us to identify legal rules of relevance to the legal issue that has arisen.
Inductive or deductive reasoning?
Section 30 of the Offences Against the State Act 1939 provides that a suspect can be detained by the police for questioning at ‘a police station, a prison, or some other convenient place’. X is detained in a police car for a number of hours. Is this a lawful detention?
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Step 1: Identify the legal issue
Issue
Is a police car a ‘convenient place’ within the meaning of the OATS Act?
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Step 2: Identify the relevant legal rules
Legal rules – Relate the law
According to the literal rule, we should always begin by reading a legal text literally, with words and phrases given their ordinary and natural meanings. (Fisher v Bell)
One exception to the literal rule is the class rule. According to the class rule, where two or more specific words are followed by a general word, the general word is limited to the class created by the specific words. (DPP v Farrell [2010] IECCA 116.)
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Step 3: Apply the rules to the facts
Application – Apply the law to the facts
Applying the literal rule, a police car can be a ‘convenient place’.
However, applying the class rule to the phrase ‘a police station, a prison, or some other convenient place’, the general words ‘convenient place’ are limited to the class created by the specific words: a type of building.
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Step 4: Reach a conclusion
Conclusion
A police car is not a ‘convenient place’ within the meaning of the OATS Act.
The police are in breach of the OATS Act.
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Writing like a lawyer
102
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Formality and precision
Legal writing is formal rather than conversational.
The tone of the writing is serious, polite and respectful.
Do not use informal terms such as:
contractions such as ‘can’t’ or ‘wouldn’t’,
slang or colloquialisms, or
offensive terms.
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Clarity
In writing a legal text in plain language:
think about the structure,
think about the content of each sentence and paragraph,
think about the language used,
think about the choice of words, and
design the document to help the reader.
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Writing a letter of demand
Subject line
Background
Problem
Solution
Warning
Closing
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Drafting a simple contract
Recall that a contract is a legally enforceable agreement between two or more parties.
A contract contains the promises made by each of the parties.
If either party fails to keep those promises, they will be in breach of the contract.
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Drafting a simple contract
To draft a contract:
Step 1: prepare an outline.
Step 2: draft the contract by listing the topics in logical order with each topic in its own substantive clause.
Step 3: test and revise the contract.
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Takeaways from today?
x
x
x
x
x
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108
—
Topic
1
: Business and the law; the Australian legal system
Commercial Law
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1
Overview of this topic:
The nature of law;
Justice, ethics and politics;
The Australian legal system; and
The executive government
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Learning Outcomes: Business and the Law
In what ways does the law relate to business?
What exactly is meant by the word ‘law’ anyway? Why is it so important? What sorts of things does the law regulate? And why does the law keep changing?
Does the law have anything to do with ethics, justice, and politics?
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Learning Outcomes: The Australian Legal System
What are the main features of the Australian legal system, and why is it so complicated given our relatively small size?
How does the Australian Constitution regulate the relationship between the Federal government and the various State and Territory governments?
What is the role of the executive government?
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Reading materials
Chapter 1 of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
Chapter 2 of Nickolas James’s Business Law (Wiley, 5th ed, 2020)
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Law and the business person
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6
The Scales and Sword of Justice
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You already know about the law …
… from your personal life.
… from your business activities.
… from the media.
… from popular culture.
There are very few aspects of life that are not regulated by law.
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Be careful with the media
8
The nature of law
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9
Defining the law: What is law?
Law is:
the set of rules,
made by the state, and
enforceable by prosecution or litigation.
Business law is:
The set of rules regulating businesses and business activities made by the state and enforceable by prosecution or litigation.
‹#›
Criminal ctr Civil law
Rule of evidence: beyond reasonable doubt ctr on the balance of probabilities
Remedies
Business law: overlaps: individual and business (negligence/ contract)
10
Defining the law
Rules: Means a set of legal rules
State: The term is used in this context to refer to a Government on either a State or Federal level.
This refers to the Government which passes legislation to make the rules legally enforceable.
Prosecution or litigation: Refers to the ways in which the legal rules are enforced in a court of law.
Prosecution: Refers to the enforcement of legal rules in criminal matters.
Litigation: Refers to the enforcement of legal rules in civil matters.
‹#›
Defining the law
So what does the definition mean?
A set of legal rules
made by a Government on either a State or Federal level
which are enforceable in either a criminal or civil context in a court of law
and which relate to business activities
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The purpose of law
Law:
resolves disputes,
maintains social order,
preserves and enforces community values,
protects the disadvantaged,
stabilises the economy, and
prevents the misuse of power.
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13
Categories of law
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How to help yourself remember to differentiate between private and public law – who will initiate court proceedings if you break the law?
Constitutional – relationship between various arms of the gov, gov-citizens
Admin Law –admin activities of government
Criminal law – Crimes Act 1958 (Vic)
Tax – collection of tax
Comp – prevents misuse of market power business org
Commercial – commercial matters
Employment law – relationship of employee and employer
Other categorisation: criminal (Public)and civil (Private)
International contra domestic
14
Categories of law
The categories of law are generally divided into four types:
Substantive Law:
Legal rules which apply in any legal dispute whether civil or criminal.
E.g. whether a contract exists or whether someone has committed a crime.
Procedural Law:
A set of rules which deal with the process of how the rules are used in a legal dispute: E.g. whether the dispute should be heard by a jury or whether there is a right of appeal.
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Categories of Law
Public Law:
Laws which impact society generally and involve a relationship between Government and the individual. Examples include
Constitutional Law: The implementation of the Constitution affects the rights every person in this country and is therefore referred to as public law.
Administrative law: deals with the relationship between the Government (Federal or State) and an individual.
Government Departments (Federal or State) make administrative decisions which impact the individual within society: E.g. refusing to grant a driver’s licence. If such a decision has a negative impact on the individual, that individual has the right to challenge the administrative decision made.
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Catgeories of law
Private Law:
This category of law deals with disputes whose result impacts the parties to the dispute – only.
Examples: Contract law and Negligence suits involve disputes between two or more parties. The result of that dispute in either case is only relevant to the parties in the dispute – and no one else.
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Law’s ideals
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Connected to society and the individual
Respect/ reflect our values
Fairness – Equity, remedies
18
LAW’S IDEALS
CERTAINTY
FLEXIBILITY
ACCESSIBILITY
FAIRNESS
The changing law
The law changes regularly because of:
political change,
the need to fix problems with the law,
changing community values,
pressure from lobby groups, and
changing technology.
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Economy
Lobby groups – feminists/ Greenpeace etc
19
Justice, ethics and politics
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20
Law and Philosophy (Jurisprudence)
Legal Positivism law must be made properly and in accordance with the constitution – what the law is, not what it ought to be
Natural justice universal standards of conduct
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21
Law in context
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What is justice?
What is fairness?
Is law and justice connected?
22
What is justice?
Lady Justice (Themis, Roman goddess of justice)
on top of the Old Bailey, London
on top of the old Supreme Court Singapore
What do the scales & sword represent?
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What is justice?
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Authoritative command
Objective standard – wrong and right guided by moral principles
What the law says as laid down by legislators
What we agree on
Whether an act is right or wrong depends only on the results of that act. The more good consequences an act produces, the better or more right that act
The action that has the best consequence for the community as a whole (utilitarianism)
24
Law and justice
Justice can be understood as fairness, such as fair compensation or punishment, a fair decision or a fair distribution of resources.
The notion of fairness has influenced the development of business law in many ways.
‹#›
A strong Influence but it is individual
Equity – e.g. where the remedies of contract law would not provide fairness other remedies are provided through equity (developed through case law) – e.g. specific performance, injunctions.
specific performance (requiring performance of contractual acts)
injunction (requiring a party not to perform an act that would breach the contract)
Both remedies are discretionary; the court is not obliged to award either of them, even where breach is established.
25
Law and justice
The relationship between law and justice may not be necessary, but it is desirable.
There are three types of justice:
Distributive justice;
Procedural justice; and
Retributive justice.
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Fair distribution of wealth, resources, power – law designed to achieve this (desert theory, utilitarianism) >< restorative
Fair hearing/ trail process
Proper/ fair response to a wrongful act
Restorative justice…
26
Types of justice
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27
Types of Justice
Distributive Justice:
Is concerned with the fair and proper distribution
of wealth, resources and power.
Distributive – when economic resources & power are to be divided: chocolate cake analogy
Egalitarianism
Desert theory
Utilitarianism
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Types of Justice
Retributive Justice
Concerned with the issue of the appropriate response to wrongful behavior.
Examples:
Is punishment appropriate?
How severe should the punishment be?
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Types of Justice
Procedural Justice.
Ensuring that the parties to a civil dispute or criminal prosecution receive a fair hearing.
Examples:
Being made aware of the allegations made against the defendant.
The right to have a matter heard before a jury.
Testing the truth of the evidence of the opponent.
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Law and ethics
A legal choice is one that complies with the law; an ethical choice is one that is recognised as ‘good’ and ‘right’.
Law and ethics generally correspond, but:
a decision that is legal may not be ethical, and
a decision that is ethical may not be legal.
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Similarities – helps you make a decision
The law contra your own values
Are they always the same?
EX: unethical and illegal
EX: ethical and legal
EX: ethical but illegal
EX: unethical but legal
31
Law and politics
While the law is more than merely politics, the law is shaped and influenced by power and politics.
Particular laws are usually the expression of a political ideology.
Legislation is made by politicians to implement government policies and achieve political objectives.
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The law:
Society
Economics
Justice
Fairness
Culture
Development
Technology
History/ tradition
Politics/ power
32
The Australian legal system
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33
Types of legal systems
Civil law (Roman law) legal systems are the most common type of legal system.
The primary source of law is legislation in the form of codes, statutes and constitutions. Case law is generally not recorded and is not recognised as a source of law.
Examples include France, Germany, Russia, China, Japan, Thailand and Korea.
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Types of legal systems
Common law legal systems are based on the British legal system.
The two main sources of law are legislation and case law. The judiciary is much more powerful and influential in common law countries than in civil law countries.
Examples include the United Kingdom, Australia, Canada and New Zealand.
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Legal systems of the world
Civil
Common law
Mixed civil & common law
Sharia
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The Australian Legal System
Representative democracy
with a common law legal system
constitutional monarchy
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The six key characteristics of the
Australian legal system
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38
Key characteristics
1. Liberal democracy: Laws are made by, and the executive government consists of, elected representatives who exercise their power subject to the rule of law and to the various Federal and State constitutions.
2. Common law legal system: Our legal system is based on the British legal system, and can be contrasted with other forms of legal system such as the civil law legal system.
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Rule of law: Dicey provides that government, as established in the law, can only act if it has legal authority to do so, and that an individual may only be punished if they have broken the law
Democracy – right to participle[ate in the political decision-making (elections etc)
Who cannot vote?
What is the difference between the civil law tradition and common law tradition? Not to be confused with Civil and criminal law
39
The Australian Legal System
Key Characteristics
The common law legal system has two sources:
Case law – also known as judge-made law and common law. It includes decisions made by Courts on a State or Federal level.
Statute Law – law made by parliament by way of legislation which is also known as Statute law. This also includes all laws made by parliament on a State or Federal level.
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Key characteristics
3. Constitutional monarchy: The Head of State of the Commonwealth of Australia and of the various States is Elizabeth II, Queen of Australia.
Representatives of the Head of State are:
Governor-General (Federal) and
Governors (State).
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This power is expressed in the will of AU citizens – Constitution
1901
41
The Australian Legal System Key Characteristics
Federation
Federation:
Saw the introduction of a Federal (Commonwealth) level of Government. This was in addition to the already existing State Governments (known as Colonies before Federation).
So after Federation, we have government on two levels: Federal and State.
They operate side by side and subject to the provisions of the Australian Constitution.
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Federation: In addition to be the national Federal (or Commonwealth) government there are various State governments that are not subordinate to the Federal government.
42
Key characteristics
Theoretically, the legislature, the executive and the judiciary should as far as possible remain functionally separate.
Separation of powers: Laws are made by a parliament (legislature); administered by an Executive Council or Governor in Council (executive); and interpreted and applied to particular cases by a court system (judiciary)
Australia: Members of the executive (the Prime Minister / Premier / Chief Minister and the other Ministers) are also members of the legislature (the Parliament) which means that the legislature and the executive are not strictly separate.
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P41
Why do we separate powers?
How relevant will this be for you? MCQ week7 and exam
43
Key characteristics
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P41
Why do we separate powers?
How relevant will this be for you? MCQ week7 and exam
44
Division versus separation of powers
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45
The Australian Legal System Key Characteristics
Separation of Powers
Separation of powers:
Refers to the three arms of government: (either Federal or State).
(i) Legislature:
The arm of government which makes the law.
This includes every member sitting in a House of Parliament who has the right to vote on whether proposed law should become law.
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Key Characteristics
(ii) Executive:
The arm of government which administers the law (puts it into practice.)
The executive arm of Government is the government of the day which implements the government’s policies:
Example: Labor or Liberal government.)
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Key Characteristics
The executive generally forms the majority in the Lower House (Federal of State.)
The executive arm of government is part of the legislature.
There is therefore an overlap between the legislative and executive arms of government.
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6. Responsible government
Government ministers are responsible to Parliament
Both Australian & British legal systems incorporate
separation of powers,
doctrine of responsible government.
Responsible government:
The Ministers comprising the executive are elected representatives who are also members of and are answerable to the legislature.
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Key Characteristics
(iii) The Judiciary:
The court system in Australia (Federal and/or State.)
The judiciary has the power to interpret and apply the law to particular cases.
It is from this arm of government that the common law derives.
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History of the system
For tens of thousands of years prior to British settlement there was in existence in Australia a sophisticated and effective legal system: the Indigenous Australian legal system.
Unfortunately, the British did not recognise or acknowledge the Indigenous Australian legal system upon their arrival in the 1700s.
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The Mabo case
51
History of the system
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History of the system
Australia was declared to be terra nullius at the time the colony was established.
Australia was deemed to have been settled by Britain rather than conquered by Britain or acquired by treaty.
British settlers brought British law with them according to the doctrine of reception.
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1788: NSW
Doctrine of Reception: AU declared Terra nullius – a land that doesn’t belong to anyone AU was settled by the British and not conquered/ acquired by treaty British law
1992: Mabo case: AU not terra nullius recognition of Aboriginal customary laws (native title) but doctrine of reception was not rejected (AU settled) and so the AU laws continue to derive their validity from Eng law.
Relevance? This is why we in this course sometimes refer to English case law
53
History of the system
The New South Wales colony and the other colonies subsequently established in Australia were initially controlled directly by the British government as represented by the colonial Governor.
As time passed, the British government granted the Australian colonies increasing levels of independence.
By the late 1800s, six relatively independent self-governing colonies existed on the Australian continent, each with its own constitution, legislature and court system.
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History of the system
These colonies recognized the need for a central, unifying system especially in relation to issues such as defense of the country, customs issues and a consistent immigration policy.
These needs eventually gave rise to a federation. The Commonwealth of Australia came into existence on 1 January 1901 by virtue of the creation of the Australian Constitution in 1901.
Each of the colonies, now States, gave up certain powers and rights to the new Federal government, and at the same time retained their individual identities and substantial legislative authority.
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The Berne Convention 1886
Commonwealth of Australia Constitution Act
But AU legislation remained heavily influenced by British law
The difficulties of transitioning from colony to independence
55
History of the system
These powers are now contained in The Australian Constitution in the form of either exclusive or concurrent powers.
Powers which were not given to the Federal Government remain with the State Governments and are known as residual Powers.
Today, Federal, State and Territory governments in Australia are free from interference by the British Parliament.
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Republic: A state in which supreme power is held by the people and their elected representatives, and which has an elected or nominated president rather than a monarch
Constitution says head of state is the queen (constitutional monarchy)
The Australian Constitution can be changed by referendum according to the rules set out in section 128 of the Constitution
A referendum is a national ballot on a question to change the Australian Constitution. In a referendum the Parliament asks each Australian on the electoral roll to vote. If a majority of people in a majority of states and a majority of people across the nation as a whole vote 'yes' (called a double majority), then the proposal to amend the Constitution is agreed to. Otherwise the Constitution remains unchanged.
Simple majority – more than 50% of the voters
Referendum in 1999: republic (failed)
56
The Australian Constitution Federal/ State Relations
The issue of which powers would be handed over to the Federal Government (either exclusive or concurrent) and which would be retained by the States is known as the Division of Powers.
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Federal/State relations
Exclusive powers Concurrent powers Residual powers
Federal Parliament only Federal and State Parliaments State Parliaments only
Examples
Customs
Defence
Currency
Territories Examples
Taxation
Marriage
Banking
External affairs Examples
Education
Property
Crime
Health
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MCQ –pp 53-57
Concurrent power - clash
58
Structure of the Australian Constitution
Federal/State Relations
Section 51 of the Constitution of Australia:
grants legislative powers to the Australian (Commonwealth) Parliament
When the 6 colonies joined together in Federation in 1901, they became the original States and handed over some of their powers to the new Commonwealth Parliament.
There are 39 subsections to s 51, each of which describes a "head of power"
The Commonwealth legislative power is limited to that granted in the Constitution.
"residual powers“ remain with the states
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59
Structure of the Australian Constitution
Federal / State relations
Generous interpretations of s 51 by the High Court have seen a steady expansion in Federal power at the expense of the States: Koowarta v Bjelke-Petersen (1982) and Commonwealth v Tasmania (1983)
Residual powers – anything not expressly identified in the constitution is a residual power of the states.
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60
Structure of the Australian
Constitution
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61
Federal/State relations
If the Federal Parliament has not legislated in relation to any of the matters listed in s 51, then that matter remains within the regulatory authority of the States.
If a State parliament has made a law in relation to one of these matters, and the Federal Parliament makes a law in relation to the same matter, then
s 109 of the Australian Constitution provides that the latter shall prevail and the former shall, to the extent of the inconsistency, be invalid.
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62
Federal/State relations
Exclusive powers
those powers exercised only by the Federal Parliament.
Concurrent powers
most of the powers granted to the Federal Parliament under the constitution are concurrent powers with the states.
Federal and State laws can operate validly and independently of each other unless there is a clash between them. If there is s 109 provides that Federal Law will prevail.
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S 52
S51
Why is this relevant?
63
The Australian Constitution Federal/State Relations
Division of Powers
As discussed, generous interpretations of s 51 by the High Court have seen a steady expansion in Federal power at the expense of the States:
Koowarta v Bjelke-Petersen (1982)
Commonwealth v Tasmania (1983)
The powers which are NOT mentioned in the Constitution are powers which the Commonwealth Government cannot exercise. They remain with the States
Residual powers
anything not expressly identified in the constitution is a residual power of the states.
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Levels of Government
Commonwealth: which derives its powers from the Australian Constitution in the form of exclusive and concurrent powers.
State: which derives its powers from the Constitution in the form of concurrent powers and which retains all powers NOT mentioned in the Constitution. These are referred to as residual powers.
Local Government: which is established by State and Territory Governments and as such they are a branch of these Governments rather than a separate level of Government in their own right.
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3 levels of government in Australia
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Changing the Constitution
The proposed amendment must:
be passed by an absolute majority of both Houses of Parliament, and
be put to the Australian voters in the form of a referendum, and passed by:
a majority of voters, and
a majority of the States
3. And receive Assent
Note: Of the more than 40 attempts to amend the Constitution made since Federation, only 8 have been successful.
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Referendum s 128 of the Consitution:
Absolute majority - More than half the total votes of all those eligible to vote; in a house of Parliament, one more than half the votes of the total number of members of the house, whether they are present or not, as opposed to a simple majority
8/ 44
1999: republic (failed) – no queen, +president
67
https://www.youtube.com/watch?v=LXmSa1A2EzI
Today, Federal, State and Territory governments in Australia are free from interference by the British Parliament. The final step will be changing from a constitutional monarchy to a republic: but are we ready?
... on 6 November 1999 the answer was no!
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The executive government
‹#›
69
The executive government
Executive power is the power to administer the law, i.e. carry on the business of government and maintain order and security.
According to the Australian Constitution, the executive power of the Commonwealth is vested in the Queen and exercisable by the Governor-General as the Queen’s representative.
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70
The executive government
The Governor-General is to act on the advice of the Federal Executive Council consisting of the various Ministers, members of Parliament appointed by the Governor-General on the advice of the Prime Minister to administer the various departments of the Federal public service.
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71
The executive government
The various State constitutions vest executive power in the Governor as advised by the Premier and the Ministers, known collectively as the Governor in Council.
In the Territories executive power is vested in the Administrator as advised by the Chief Minister and the other Ministers, also known collectively as the Executive Council.
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72
The executive government
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73
The public service
The policies and decisions of the Executive Council / Governor in Council and of the Cabinet are implemented by the various departments and agencies of the Federal, State or Territory public service.
If a person is not happy with a decision made by a government department or agency, they may be assisted by:
the ombudsman,
freedom of information legislation,
the Administrative Appeals Tribunal, and/or
judicial review.
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74
Delegated legislation
Often the parliament will pass legislation setting out the overarching principles and objectives of a particular regulatory scheme, but then delegate to a branch of the executive government the authority to make the detailed rules, regulations or by-laws, referred to collectively as delegated legislation.
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75
Takeaways from today?
x
x
x
x
x
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76
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